Strategic and competitive positioning of Lenovo - Essay Example

Business strategy Contents Introduction 3 Lenovo Laptop’s major competitors and strategic positioning 3 Generic Strategies of Porter 3 Lenovo vs. Main Competitors 4 Bowman’s Strategy Clock 5 Strategic Group Mapping 6 Analysis of External Environment and effect of external drivers 8 PESTLE Analysis 8 External Drivers of Change 9 Industry Analysis using Porter’s Five Forces 10 Core Competencies and Resources 12 Resource Audit 12 Analysis of competencies and resources 13 Value Chain analysis of Lenovo 14 Conclusion 16 Reference List 18 Introduction Lenovo group is a multinational IT firm with headquarters in Beijing, China and North Carolina, United States. Lenovo was established in 1984 as Legend and later renamed as Lenovo (Lenovo, 2013). The company is into developing, designing, manufacturing as well as selling personal computers, smartphones, tablet computers, servers, workstations, electronic devices, smart televisions and management software. The company is known for its volume sales. Laptops and notebooks are Lenovo’s top selling products. Recent innovations in Lenovo’s ultrabooks and laptops have transformed the company into a major successful brand in the IT industry (The Guardian, 2014). The current report will evaluate Lenovo computers on the basis of the following concepts. In the first part, Lenovo’s strategic positioning as well as competitor analysis will be conducted through application of strategic mapping and Bowman’s strategy. In the second part, Pestle and Porter framework will be used for analyzing the external environment. In the last part, the core competencies of Lenovo computer will be evaluated through supply chain management strategies. The above analysis will further be implemented in determining sustainability of the strategic positioning obtained by Lenovo at present. Lenovo Laptop’s major competitors and strategic positioning The IT and computer industry is extremely competitive with few big players dominating the market. However, many new local brands are being launched serving niche customers and reducing overall market share for these bigger players. Three major companies, Lenovo, HP and Dell dominate this computer market (Lenovo, 2013). While Lenovo leads the Chinese market, HP and Dell have captured major market share across other parts of the globe (Miles and Snow, 2008). Lenovo has been trying to develop its strategic positioning through innovation and differentiation. In 2003, Lenovo launched an application technology, enhancing overall positioning. Apart from that, through constant innovation, Lenovo computer has been able to maintain a leadership position in China for past eight years (The Guardian, 2014). Generic Strategies of Porter Strategy Device Justification Cost Leadership Think Pad, Think Server, Think Centre Low price especially targeted for emerging markets. Product Differentiation Lenovo Tab, Lenovo Tab A8 and Lenovo Tab A10 Products with differentiated pricing Focus Strategy Lenovo Tablets Focussing on different segments of market; niche segmentation Lenovo has achieved cost leadership through its Think Pad laptops. With efficient manufacturing, Lenovo has been able to cut down prices of the basic laptop ThinkPad models (The Guardian, 2014). Also, Lenovo laptops are distributed in bulk among numerous colleges, universities and companies across the globe, thereby increasing its volume sales substantially. Lenovo vs. Main Competitors Figure 1 Lenovo and competitors (Source: Ragaza, 2014) The above data has been critically used for development of another model known as Bowman’s clock. The generic strategic of Porter can be better understood through visual expression. Bowman’s Strategy Clock Bowman’s strategy clock can be considered as an extension of the generic strategic, so as to establish better differentiation among similar services or products. Here, the offerings of firms can be placed at any location of the 360 degree model, owing to flexibility and placement of the model. The ThinkPad laptop division of Lenovo falls under the low price segment. Compared to laptops produced by other competitors such as, Dell and HP, basic Lenovo ThinkPad laptops are affordable and relatively cheaper, owing to their comparatively basic features and lesser offerings (Ragaza, 2014). As a result of its broad innovations, Lenovo laptops are considered under categories such as, low price, focused differentiation and differentiation. The laptops from Lenovo serve both middle income and higher income group segments (Rugman and Li, 2007). Bowman’s Strategy Clock for Lenovo and its competitors Apple, Lenovo, Acer High Dell, Lenovo 4 Differentiation Dell, Lenovo, Apple 3Hybrid Perceived Value 5 Focussed Differentiation 2 Low Cost Lenovo ThinkPad, HP 6 6, 7 and 8 Strategies 1 Destined for Failure Low Low Cost Low Value 8 7 Low Price High (Source: Author’s Creation) A strategic Bowman’s strategy has been formulated for Lenovo and its competitors. It can be seen that Lenovo laptops has been able to compete in the market through low cost, differentiation and focussed differentiation strategies. Apple laptops fall in focussed differentiation strategy, serving niche and high-end customers. Similarly, Dell can be placed in hybrid and focussed differentiation strategy due to their numerous laptop lines. Dell’s laptop lines are especially designed with focus on young adults or millenniums. In a similar manner, Lenovo has launched G580, especially for college students. Focussed differentiation can also be found in Lenovo laptops, such as, ThinkPad X61, especially designed for business professionals and Idea Pad laptops for gaming and entertainment lovers. At the same time, most of the product lines of HP belong to low cost strategy (Ragaza, 2014). On a broader note, majority of laptop manufacturing firms have been involved in multiple strategies for differentiating and positioning, including Lenovo. Apple laptops, however, fall in hybrid category as these cater to a niche segment of high-end customers. Strategic Group Mapping Strategic group maps of Lenovo and its competitors will help in evaluating competitive positioning of Lenovo across various markets. Figure 2: Global market share vs. Price (Source: Daily Tech, 2014) Figure 3: Growth in shipments across Asia-Pacific (Source: APCIB, 2013) Figure 4: Positioning approaches of PC brands across China (Source: Lab Brands, 2014) Analysis Figure 2 represents a strategic map of PC manufacturers, according to which HP and Dell have highest proportion of market share, followed by Lenovo. Similarly, Apple, Acer and Asus cater to a niche market. Figure 3 compares vendor shipments showing the market leadership of Lenovo across Asia and Pacific regions, followed by HP and Dell. Similarly, Figure 4 represents positioning approaches of top laptop and notebook manufacturing brands across China. From above figures and graphs, it is clear that while Lenovo is the market leader in China and emerging Asian nations, it is still lagging in developed nations in terms of brand image and market share. Analysis of External Environment and effect of external drivers PESTLE Analysis Description Impact Political National governments have started expanding domestic demand as well as promoting economic growth in computer manufacturing firms, with the objective of technological advancement and societal growth in nations. Trade regulators such as, export tariffs, influence trading and profitability of a business (Chiappetta, 2014). While demand and popularity of Lenovo has grown substantially in China, it is facing intense competition while entering into foreign nations, majorly due to growth and advancement of foreign labelled laptops (Katie, 2011). A reduced tariff will result in lesser expenses and hence, better competitive pricing against foreign players. Economic Majority of developing and transitioning nations are observing growth in terms of economy and living standards (Berglof, 2011). Positive opportunity lies for Lenovo in emerging markets such as, India, South East Asia and African nations, owing to their target consumers and less penetration by foreign players (Katie, 2011). Social Individuals are increasingly interacting through technology and majority of education sector institutions prefer laptops and other technological gadgets for information exchange (Sauvant, 2005). Lenovo has great prospects in terms of collaboration with business institutions, colleges, universities and medium enterprises across the globe (Sauvant, 2005). Technological Due to intense competition and regular innovations in technology, it has become critical for computer manufacturers to constantly upgrade their offering with differentiation (Van Oostveen, Muirhead and Goodman, 2011). Lenovo will have to get over its adaptive market strategy and invest a large share of its revenue in constant research and development for innovative marketing (Deng, 2009). Environmental Organizations such as, the EU, have been constantly forcing IT firms to become greener and reduce emission of pollutants like, GHGs (Berglof, 2011). Lenovo will have to invest in green technology as well as improve production and manufacturing facilities. Legal These include guidelines passed by the government such as, consumer rights, protection of their safety and health and taxes. Imposing taxes on luxury items in some nations will affect the sale of high-end Lenovo products. External Drivers of Change Focus on Innovation and Differentiation: While Lenovo computers are market leaders in China and some emerging nations, their overall market popularity is low compared to other foreign players. This is majorly due to the perception that Chinese products are cheap and of low quality (H. M. Lee, C.C. Lee and Wu, 2011). So, Lenovo will have to increase its overall R&D budget in order to improve brand image and place itself in a competitive position in the foreign market. For instance, the recent Idea Pad series launched by Lenovo has been a big hit in the international market and the company would need more of similar products so as to dominate the international market. Strategic Penetration: Most of the developed nations are already in a mature stage with brands such as, IBM, Apple, Dell and Sony. Nonetheless, majority of their products are for high-end consumers. Lenovo has the opportunity to enter developing nations such as, Africa, with its affordable and low-cost laptops (Yang, 2006). Effective Supply chain management: Lenovo has gained success in countries such as, Australia and India, through its competent supply chain and distribution strategies (Ahrens and Zhou, 2013). This will help in cost reduction during transportation and distribution, thereby endowing Lenovo with further price advantage. Online marketing: One of the major windfalls in the technology era, online marketing can be enormously helpful in those regions where establishing traditional business is difficult. It will not only increase penetration and further sales, but will also reduce company’s expenditure, which can be utilized in technology up-gradation and R&D (Yang, 2006). Industry Analysis using Porter’s Five Forces (Source: Porter, 2008) The five forces analysis for Lenovo notebooks and laptops have been complied in conjunction with the Pestle table, providing a more detailed and focussed description of the industry in which Lenovo is acting. The five competitive industry forces along with Pestle will help in formulating strategies for countering various internal and external barriers. Competitive Rivalry (High) Competitive rivalry in notebook and laptop industry is comparatively high and dominated by five or six major brands. The average shelf-life of personal computers has been reduced to mere six months and the average consumer usage of laptops is about 2-3 years (Ireland, Hoskisson and Hitt, 2008). As a result, companies are constantly promoting their products in terms of innovation, differentiated offering and prices. The average prices have also come down drastically, further increasing competition. While product innovation and distribution has rendered Lenovo a market leader in China, partnership with IBM has leveraged its brand image overseas (Hesseldahl, 2014). Industry Growth: Industry experts project increase in shipments of multiple computer devices to 7.7 percent or 2.5 billion units from 2013, which include tablets and PCs. With new players entering the notebook and laptop market, prices margins are expected to slump further (Gartner, 2013). Suppliers bargaining power (moderate) The bargaining power of suppliers is moderate. This can be due to increased commoditization. Intel and Microsoft are two biggest suppliers providing all necessary components for production of laptops and computers. Lenovo has been able to control the power of its suppliers through building relationships as well as establishing contracts. Lenovo is also into reverse supply chain, producing raw materials such as, boards and chips, thereby lowering supplier dependency (Ahrens and Zhou, 2013). Buyer’s bargaining power (moderate) The prices of laptops and notebooks have declined drastically and intensive competition has resulted in similar products with similar offerings in this market. This has reduced overall loyalty among retail buyers and increased their purchasing power. Even so, a major share of Lenovo’s sales comes from business and institutional buyers with long-term contracts, which reduces their bargaining powers (Ahrens and Zhou, 2013). Threat of Entry (Moderate to High) While the threat to market leaders in the computer industry is low, new entrants are quickly gaining niche leadership is multiple categories. For instance, Acer and Sony laptops have respectively targeted young professional and high-end college students. Factors such as, strong supply chain, distribution, research and development and long-term contracts with institutional buyers, have restricted new entrants from gaining market access. As such, Dell, Lenovo and HP are key players in the computer industry (Lenovo Group, 2013). Threat of substitutes Threat of substitutes is comparatively high in this industry. Products such as, smartphones, and tablets, are seen to provide similar offerings. Other major competitors for products of Lenovo include ultra-mobile personal computers and ultra-light laptops. Analysis: The five forces analysis reveals that though the laptop and notebook industry is becoming intense new large and small players, Lenovo can easily establish competitive edge. The industry is booming with technology and is good for Lenovo to be in. Lenovo has achieved technology advantage and this will help the firm in creating differentiation in this market. Core Competencies and Resources Resource Audit Physical Total valuation of plants, equipments and property for PC segment was .364 billion dollars for the year 2013 (Lenovo Group, 2013). 22 percent increase in investment (capital) from 2012 to 2013 (Lenovo Group, 2013). 8 billion dollars of revenue generated from additional plants established (Lenovo Group, 2013). Financial Total sales achieved for the year 2012 was 33,873,401 US dollars (Lenovo Group, 2013). Profit attributed to the equity holders was 635 million dollars (Lenovo Group, 2013). Rise in gross profit margin from 11.7 percent in 2011 to 12 percent in 2012 (Lenovo Group, 2013). Human More than 35,000 employees including research and development personnel, technicians, scientists, management and workers (Lenovo Group, 2013). Lucrative remuneration policies, high bonus as well as long-term medical insurance schemes (Lenovo Group, 2013). Intangibles Intangibles include trademarks, brand name, supplier relationships and customers of Lenovo. Financial profit owing to trademarks and patents was found to be between 201 million dollars and 99 million dollars (Lenovo Group, 2013). Analysis of competencies and resources Industry Wide Sources giving competitive advantage Necessary Resources Capital Financing Equipment Infrastructure Base Technology Unique Resources 1. Being a Chinese manufacturer, Lenovo has earned higher brand image as well as market leadership in the Chinese market. 2. Through reverse supply chain, the company reduced inventory as well as supply chain costs. 3. Increasingly becoming popular in developed nations such as, UK and US, majorly due to its low price, penetration strategies and innovative offerings. 4. Caters to wide array of customers and heavily invests in R&D (Gold, Malhotra and Segars, 2001). Threshold Competencies Human Capital R&D Innovation Customer Base Product Core Competencies 1. The company has been attracting eminent industry experts through lucrative remunerations. 2. Adaptive technology has helped in market leadership and growth, especially in developing economies. 3. In every country, Lenovo has its unique set of leaders, both local and international. 4. The brand works on five fundamental goals; increasing positive relationship with suppliers, building customer relationship, enhancing operations, improving brand image and business prioritisation (Xie and White, 2004). Value Chain analysis of Lenovo Support Activities Infrastructure Lenovo has been establishing mature infrastructure in order to aggressively enter new markets. The recent direct shipment plans has reduced expenditure and increased overall profit margin. H.R. Management Lenovo has a separate training institute for development of employees, including programs such as, induction, managerial and technical training. This also covers diversity training and management (Nankervis and Cooke, 2013). Technology Development Development in technology and heavy investment in R&D budget has led to rise in revenue by 27, 749 million dollars in the past decade (Lenovo Group, 2013). Procurement Procurement of raw materials and equipments constitutes 95 percent of the total expenditure and consequently, long-term contracts are established with suppliers and (Ding and Chen, 2008). Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Primary Activities The inbound logistics include both outsourced and in-house production materials. Both electronic and design manufacturers are employed for enhancing overall design, quality and service (Pershke, 2012). Strategic OEM partners like, Quanta and other operational partners such as, IBM, have provided Lenovo with competitive edge. Direct shipments have substantially reduced the supply chain and distribution expenses. Marketing is generally done through outsourcing activities. Lenovo focuses on mass marketing strategies for higher volume sales. As servicing is becoming an important aspect for long-term loyalty and relationships, Lenovo has been making additional investments in after sales services (Cai, et al., 2009). Analysis: Among support activities, technology development and among necessary activities operations and servicing form the major activities providing competitive advantage to the firm. The major link between core competencies and value chain is that, effective value chain activities become the core competencies for Lenovo and these core competencies will provide competitive advantage and sustainability for Lenovo in future. Conclusion The entire report has used seven frameworks in order to identify strategic positioning, competitive positioning, internal competencies, external industry forces as well as value chain activities, thereby adding to Lenovo’s positioning. Core competencies of Lenovo and its strategic market positioning entail sustainable competitive advantage. In a similar manner, resource analysis of a firm indicates that in order to gain competitive advantage, it is essential to have multiple resources, including both intangible and tangible ones. In addition, sustainability in respect to Lenovo’s notebook and laptops has also garnered competitive edge in the market. Strategic Mapping and Strategy Clock According to Bowman’s strategy clock, Lenovo’s competitive advantage is achieved through a number of combinations of product, cost and market strategies. The applicability of this model is more efficient as this considers customer perception in core differentiation and positioning of the company offerings. In this paper, various concepts have been applied to understand strategic and competitive positioning of Lenovo in this computing industry. These are Porter’s generic forces using strategies such as, product differentiation and cost leadership for large market segments and focused strategies for niche markets. The analysis has shown that laptop market is highly competitive and that of electronics is constantly improving, which makes associated products obsolete within a short period. The key change factors identified were innovation and market penetration. After analyzing the last section elaborating on competitive advantage gained through core competencies, it can be concluded that Lenovo’s strategic positioning is sustainable. The major reason here is control over inventory through contractual outsourcing and backward integration. Innovation in services as well as product offerings has also contributed towards Lenovo’s sustainability. Reference List Ahrens, N. and Zhou, Y., 2013. Case Study: Lenovo. [pdf] CSIS. Available at: http://csis.org/files/publication/130129_competitiveness_Lenovo_casestudy_Web.pdf [Accessed 10 June 2014]. APCIB, 2013. Evaluation of Shipments and Vendors. [online] Available at: http://workspace.unpan.org/sites/internet/Documents/APCIB%2041.htm [Accessed 10 June 2014]. Berglof, E., 2011. A European Perspective on the Global Financial Crisis; Corporate Governance. International Review, 19(5), pp. 497-501. 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