Strategic Position and Major Competitors of Lenovo Laptops - Case Study Example

Business Strategies Contents Contents 2 Introduction 3 Strategic Position and major competitors of Lenovo laptops 3 Three Generic Forces 4 Lenovo andMain Competitors 6 Bowman’s Strategic Clock 6 Strategic Group Mapping 8 External Environment and Key External Drivers: Lenovo 9 PESTLE Analysis 9 Key Drivers for Change 12 The Five forces model 13 Resources and Core Competencies 15 Resource Audit 15 Resources and Competency Analysis 16 Lenovo Value Chain 17 20 Reference List 21 Introduction Lenovo is one of the pioneer companies in computing technology which is headquartered at Beijing. It has acquired the status of a multinational company since its inception in 1984 and presently is considered as one of the largest manufacturers of personal computers. The company has gone through a number of strategic decisions in the recent years the most important one among them being purchase of PC and laptop of IBM. This has helped the company to make its entry easier in the U.S.A. market. The present product offering of the company ranges from PC and laptops to smartphones and from servers to televisions (Ahrens and Zhou, 2013). This report focuses only on the laptop and notebook divisions of Lenovo and not on the company as a whole. The structure of the paper is threefold. The first part of the paper focuses on the strategic position shared by Lenovo in the market compared to its competitors by using academic frameworks of Bowman’s strategic clock and strategic mapping. The second part relates to the PESTLE framework to determine the macro environmental concerns of Lenovo. The last part discusses about the supply chain management of Lenovo and its resources and competencies. Strategic Position and major competitors of Lenovo laptops Porter had described that there are three generic forces which can help a firm to achieve competitive advantage over its rivals. Porter had argued that the major strength of a company either comes from low cost, higher differentiation or creating a niche market. It has been observed that the world corporate market is dominated by three major players namely Dell, HP and Lenovo (Porter, 2008). Additionally Lenovo is also the pioneer among others in the Chinese market whereas it is placed third in the global market after HP and Dell (Rugman and Li, 2007). Figure 1: Market position of Laptop producers (Source: Kleynhan, 2010) Three Generic Forces Strategy Device Justification Cost Leadership Lenovo Essential G505 59-379446 Laptop Lenovo has a low cost and efficient manufacturing process which provides cost leadership to the company. Differentiation Lenovo Ideapad Y510 59-390016 Lenovo Ideapad Z500 59-380480 Laptop Lenovo Ideapad Z500 59-380480 Laptop Rapid product differentiation has been followed by the company to capture the emerging markets with low price products. Similarly high priced laptops are also manufactured for premium market. Focus Lenovo Notebooks Basic Laptops (Daily Tech, 2014) Different range of products customized to suit the need of consumer markets and corporate markets. Focused strategy allows the companies to target different markets separately (Chiappetta, 2014). Lenovo and Main Competitors Table 1: Competitors and their attributes (Source: Ragaza, 2014) The above table represents the main competitors of Lenovo in the market in relation to laptops. The chief attributes of the devices along with their brand and price have been shown in the table. This data will be used to plot the strategic position of Lenovo in the market in relation to its competitors by using Bowman’s Strategic Clock. Bowman’s Strategic Clock The strategic management literature describes Bowman’s Strategic Clock as an extension of Porter’s generic forces. Bowman and Faulkner (1997) had devised the strategic clock which describes the cost leadership and product differentiation strategy of a firm. The major departure from Porter’s generic forces includes the perception of value by the customers. The model emphasizes on the customers and their needs to obtain superior quality products (Bowman, 2008). In case of Lenovo laptops the following diagram represents the application of strategic clock. Major competitors of Lenovo and their strategies are also shown in the strategic clock. Figure 2: Bowmans Strategy Clock of Lenovo (Source: Author’s creation) From the above diagram it can be commented that Lenovo seems to follow a mixture hybrid strategy and differentiation strategy. Hybrid strategy is akin to moderate price and moderate product differentiation. Lenovo produces moderate range products particularly to capture the middle income markets of emerging products which are perceived to be of a moderate value compared to products of its other peers like Dell and HP. Apple can be classified as using focused differentiation strategy as the price of its products are considerably higher and it primarily serves premium market segment. Apple’s products are also perceived to be high in quality. MSI can also be classified as using focused differentiation strategy. From studying table 1 it can also be said that Asus and Acer can both be classified as following differentiation strategies while HP can be argued to follow low cost strategy. This is because product price of HP is lowest compared to other products but the products are considered to be of high quality owing to its brand name. This analysis is restricted for the chosen products as on a broader basis most companies follow hybrid strategy having components of both product differentiation and cost leadership. Strategic Group Mapping Figure 3: Global Market Share vs Price Dell Market Share HP Globally Lenovo Apple Asus Acer Price (Source: Daily Tech, 2014) The above graph plots the global market share of the brands along with the price of each. The global market is heavily dominated by Dell and HP. Lenovo follows closely. Plausible explanations of higher market share of HP and Dell are the good reputation of the brands and designing products particularly suitable for the matured markets in the developed countries (The Guardian, 2014). The higher market price of Apple hinders its sales in the emerging markets which reduces its market share on a global level. Asus and Acer have a lower market share compared to the others. Even if the characteristics that are being measured are changed then also the major competitors of Lenovo remain the same because all the reports that has been analyzed for the purpose of this report has shown that Lenovo occupies the third position in market after Dell and HP. External Environment and Key External Drivers: Lenovo PESTLE Analysis Figure 4: Schematic diagram of PESTLE (Source: Strategic Management Insight, 2014) PESTLE analysis identifies the key forces of the macro environment that has the potential to impact the business of the company (Gan, 2002). In case of Lenovo’s laptop and notebook segment the PESTLE analysis have been tabulated below: External Force Description Plausible Impact Political Export tariffs on IT industry have been diminished since China joined WTO (Feng, et al., 2014). Government regulations in multiple countries relating to data protection, intellectual property and copyrights affect Lenovo’s business pertaining to laptops (Feng, et al., 2014). Products pass through verification by customs before application of lower rates of tariff. However, enhanced exports to be expected. Lenovo’s deal with IBM has helped its smooth transition in the U.S. market (Deng, 2009). Economic Reports published by IDC have shown that expenditure on products of IT like laptops and PC’s are likely to increase by 5% by the end of 2014 (Columbus, 2013). Fluctuations in the value of currency and recessionary conditions in the developed countries pose threat for the IT market. Labour costs in China are rising (Feng, et al., 2014) Rising disposable income of China and other emerging economies enhances business opportunities for Lenovo. The widely debated undervalued currency of China makes exports cheaper from the country. This is likely to act favourably for Lenovo. Expected to increase the cost of manufacturing of Lenovo laptops and notebooks. Social Enhanced level of education and standard of living are raising the demand for technological products. Shift in preference of customers from traditional PC’s to notebooks and tablets. Globalization leading to higher interaction among people using advanced technological gadgets (Child and Rodrigues, 2005). This is expected to act favourably for Lenovo laptops. Notebooks sales can be expected to be higher following this prediction. The market prospects of Lenovo are stronger in emerging countries other than China. Technological Advanced technologies like cloud computing is expected to enhance the demand for electronic gadgets like PC’s and laptops. In China alone, technological advancement had led infiltration of broadband to 95.6% of the households (Ernst, 2008). These advancements improve the prospects of sales for Lenovo as technological advancements are expected to raise demand for electronic gadgets like laptops. Legal Legislations passed by the government regarding acts of consumer protection and intellectual property regarding counterfeit products. Company needs to weigh its options regarding legal complexities. Environmental Governments of countries like European Union and China have passed regulations regarding energy consumption by the IT industry, use of greener technology like lower noise pollution and so on to reduce the adverse impacts on environment. Noise pollution of Lenovo manufacturing plants has already been lowered to comply with the regulatory standards. The operational costs of the company are expected to rise. Key Drivers for Change Support Activities of government: The PESTLE analysis conducted in the previous section clearly reveals that government of emerging countries are heavily investing to improve the IT infrastructure. Technologies like Wi-fi, Bluetooth and WAN are also being promoted by the government increasingly to improve IT market. These have huge implications for Lenovo’s laptops and notebooks as the market gap between technology and consumers needs to be reduced by ample supply of these products (Khosrowpour, 2006). Product Innovation: The world IT industry is extremely competitive. Innovative products are being introduced regularly in the market having advanced features to attract customers which makes the older variations obsolete. Companies like Apple and Dell designs supreme quality products which becomes benchmark for the market. Lenovo’s technological innovation has been relatively weaker compared to its peers. Lenovo mostly relies on adaptive technology. In order to retain its position in the market the company needs higher investment in R&D and improvement of the engineering department is required (Khosrowpour, 2006). Enhancing efficiency in distribution strategies: Technological advancements of the production process have heavily reduced the cost of production for laptop companies. The average cost of production is falling and the industry has become a commodized one. Therefore it can be argued that efficient production process and reduction of price in the forthcoming years will essentially determine the market share of the competitors. For laptop manufacturers reducing costs will be key drivers in attaining higher market share (Ding and Chen, 2008). The Five forces model Figure 3: Schematic diagram of five forces (Source: Karagiannopoulos, Georgopoulos and Nikolopoulos, 2005) The schematic representation of Porter’s five forces model is shown above. The five forces model allows the mangers to analyze the forces of competition in the industry to locate the sources of threats and benefits for the firm (Ireland, Hoskisson and Hitt, 2008). The five major forces and its possible impacts are described below: Competitive Rivalry: The competitive rivalry in the PC and laptop industry is high as the level of product differentiation is constrained by the available technology in the market. The current market is dominated by key players like Dell, HP and Lenovo. All these players have their own chare of strengths and weaknesses and each have their share of loyal customer base. Lenovo laptops are a reliable supplier of notebooks and laptops and have successfully developed its brand image beyond China (Hesseldahl, 2014). In short it can be said that the level of rivalry among the competitors is considerably high. Threat of new entrants: The factors which deter the entry of new entrants in the PC and laptop industry includes high cost of R&D, complying with the regulations set by the government and existing relationship of the notebook and laptop manufacturers with their suppliers. The new firms find are likely to find these factors as challenging which hinders their entrance into markets. Also the dominant market players find it easier to attract talented human resource which poses threat to new entrants (Columbus, 2013). Threat of substitutes: This threat is also high for laptops and notebooks. Technological advancements have created products in the market like smartphones and ultralight laptops (Hamm, 2008). Additionally android phones are performing all the necessary functions of laptops which are increasing the threat. Threat of buyers: The threat of buyers is bifurcated at best. The regular customers have low switching costs because there are multiple brands available in the market. On the other hand the threat posed by the corporate buyers is less as they make bulk purchases. On a whole the bargaining power of buyers are low. Threat of suppliers: The manufacturing technique of Lenovo is such that most of the raw materials (like boards and chips) are produced by the firm itself which reduces reliance on external suppliers. Also the company maintains good relationship with its key suppliers for reduction of costs along the value chain (Feng, et al, 2014). Based on the analysis of five forces it can be said that the industry environment is actually favourable for Lenovo as it has very low threat from new entrants and has a good relationship with the suppliers adding to its advantage. Finally, threat from buyers is not adequately strong for Lenovo. The only major threat is of substitutes but on the basis of the other four factors it can be said that conditions are favourable. The PESTLE forces had identified that government regulations are important for determining the profitability of IT firms. The five forces model has confirmed that new entrants are indeed restricted by the huge investment to enter this industry. Also, technological forces of PESTLE can be equated with the threat of substitutes for Lenovo. Resources and Core Competencies Resource Audit Resource based view of a firm consists of a number of resources namely physical resources, human resources and organizational resources. It is argued that the resources of the firm combined with the core competencies and capabilities contribute to the strategies that are adopted by it to provide competitive advantage over its rivals. The tangible and the intangible resources of Lenovo laptops are explained with the help of following variables. Physical Financial Human Intangible For the laptop and the PC section specifically it has been estimated that the value of plants, equipments and properties are close to $0.364 billion. The annual increase in the physical capital of the company from financial year 2012 to 2013 is 22.4% (Lenovo Group, 2013). Especially for the PC and laptop segment for the company the market share has surged by 2.6%. In terms of sales it has surpassed 33 billion dollars. Improvement of gross profit margins was recorded by 11.7% from the previous years. In terms of sales improvement of the laptop segment of the industry it was observed that an annual rise of 12.3% was recorded (Lenovo Group, 2013). The human resource management policy of the company is one of the best among industry peers. The remuneration and bonus packages are attractive along with medical benefits and other perks. 35,026 employees are employed with the company presently (Lenovo Group, 2013). Intangible source of Lenovo includes its brand name, customer loyalty and IPR rights. In terms of financial of gain it has been observed that the gain accrued to the company rose from US$201 million and US$99 million (Lenovo Group, 2013). Resources and Competency Analysis N E C E S S A R Y Resources Capital Financing Equipment Infrastructure Base Technology U N I Q U E Resources Lenovo’s goodwill and brand name have placed the company as the topmost player in the Chinese market. The Lenovo group ranks among the top three players in the global market. The high level of investment in the R&D of the company is an effort to improve its current level of manufacturing (Katie, 2011). T H R E S H O L D Competencies Human Capital R&D Innovation Customer Base Product C O R E Competencies Lenovo has become one of the most lucrative companies that attract young talent worldwide. Company had introduced PC+ scheme to gain higher market share. Presently Lenovo has higher market share but lower profit margins to gain greater customer base. Has developed excellent relationships with customers and suppliers. Lenovo Value Chain S U P P O R T A C T I V I T I E S Infrastructure Implementation of direct shipment plan has allowed Lenovo to manage the players in the supply chain in a cost effective manner. H.R. Management Lenovo conducts its own training and induction session for better education of the workers working with them in its own university. Workers are one of the strongest assets of the company and management ensures reasonable remuneration to retain employees (Pershke, 2012). Technology Development Lenovo has always relied on quick adaptation of technology following the cue of its peers like Apple and Dell. Technological advancement has improved the revenue of the company by US$29,749 million (Lenovo Group, 2013). Procurement Lenovo has maintained excellent relationship with its suppliers and it constantly ensures that the environmental regulations are adhered for procuring raw materials. However, most of the raw materials are manufactured in-house (Pershke, 2012). An analysis of the value chain of Lenovo has revealed that procurement procedure and human resource management adds most value to the products. The efficient mix of in-house production and outsourcing allows Lenovo to reduce operational costs. This allows the company to charge lower price to the customers which in turn provides competitive advantage. Also the investment incurred in the development of the human resource adds value to the products. Table 2: Summary of primary activities (Source: Pershke, 2012) Conclusion This report has focused on the strategic position of Lenovo laptops in the market. In order to do so the various academic models that has been included are Porter’s generic forces, Bowman’s Strategy Clock, Porter’s five forces model, Porter’s five forces, Value Chain model and resource and competencies. The first section of the report has revealed that Lenovo applies both the practices of cost leadership and product differentiation in its marketing strategy. Segmentation of markets according to specific needs of the customers can also be seen as a niche market strategy. Analysis of the external forces through PESTLE analysis has revealed that technological enhancement in the countries of emerging markets presents ample opportunities for Lenovo laptops. Governmental regulations like environmental legislation and taxes imposition can reduce sales. The key drivers in the laptop market have shown that technological innovation and falling prices will be key determinants to gain higher market share in the future. It is evident from the actions of governments that development of IT infrastructure is a common feature promoted by most of them. Effective management of supply chain will also be one of the most important drivers as it helps in the reduction of costs. 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