Lenovo Case Study Company Description

Lenovo Case Study

Company Description

The Lenovo Group Limited was established in 1984 in Beijing, China, to operate in the computers and appliances industry sector. The company soon began to expand internationally and in 2005 opened another headquarters in North Carolina, United States. Today, Lenovo is the fourth largest computer producer in the world, following American Hewlett-Packard and Dell and Taiwanese Acer. But the successful company they are now is the result of numerous processes of organizational restructuring, including the most recent and major one in 2005 - that of having purchased IBM's Computer Division. This strategic move ensured their easy penetration of several national and international markets, as well as easy access to the latest technological advancements.

Lenovo (HKSE: 992) (ADR: LNVGY) is dedicated to building the world's best-engineered personal computers. Lenovo's business model is built on innovation, operational efficiency and customer satisfaction as well as a focus on investment in emerging markets. Formed by Lenovo Group's acquisition of the former IBM Personal Computing Division in 2005, the company develops, manufactures and markets reliable, high-quality, secure, and easy-to-use technology products and services worldwide. Lenovo has major research centers in Yamato, Japan; Beijing, Shanghai and Shenzhen, China; and Research Triangle Park, North Carolina, the United States; and primary operational hubs in Beijing, Paris, Research Triangle Park and Singapore."

The company's financial highlights for fiscal year 2007 are extremely impressive and they could be summarized as follows:

14,590 million in turnover - 9.9% increase as compared to fiscal year 2006

2,037 million in gross profit - 9.6% increase as compared to fiscal year 2006

188 million in pre-tax income - 122.0% increase as compared to fiscal year 2006

946 million in net cash reserves - 21.8% increase as compared to fiscal year 2006

Lenovo produces and sells a wide variety of products, the most renowned one being their notebooks (ThinkPad or IdeaPad), desktops (ThinkCentre of Family Desktops), workstations and numerous other accessories and upgrades (mice, monitors, projectors, memory drives etc.), including software services and assistance (Lenovo Experts Live, Think Vantage or Lenovo Care).

2. External Environment and Strategy

The environment in which the computer manufacturer operates is a highly competitive and dynamic one, with change affecting it on daily basis. Technologies evolve, forcing as such the producer to evolve himself and adapt to the new market and technological demands. The most relevant description of the computer industry and the need to keep up is that the high-tech gadget purchased only two years ago, is today outdated and incapable to support and incorporate the present technologies. But developing along generates an increased need for additional resources, of all natures, including capital and specialized engineers.

Lenovo was among the first companies which understood globalization and market liberalization as a great opportunity for further growth and development. In this particular sense, they commenced operations and set the basis for numerous international strategic alliances. The most relevant example in this sense is given by their purchasing of IBM's PC Division, movement which opened the door to international operations.

Another example of how Lenovo Group Limited integrated the features of the external environment into their corporate strategies revolves around the products they manufacture. In this particular instance, they understood the market trend in consumers' preference of notebooks and laptop computers and have become specialized in this segment. But even so, they also understood the need to adapt and implement a wide series of strategies that ensure an extensive coverage of the market. These steps were necessary to avoid becoming a niche industry that only appealed to a limited target market and retrieved limited profits. "In the coming years, the key growth drivers in the worldwide PC market remain notebook, small- and medium-sized business (SMB), consumer and emerging markets. Lenovo will utilize its proven competitive strengths to forge ahead, based on its two existing strategic directions:

We will continue to strengthen our PC business in China and the relationship business that mainly services large enterprises outside of China.

At the same time, we will accelerate the roll-out of the transaction model across the globe, focusing on capturing growth opportunities in the SMB, consumer and emerging markets."

3. SWOT Analysis

The SWOT analysis comprises the forces that are likely to impact the Lenovo computer manufacturer, their products and finally, their overall results.

Internal Strengths

International recognition and leading position within the industry

Varied and high quality products, responding to the needs of a wide palette of customers

Numerous strategic partnerships and the benefits they retrieve due to the association with the IBM brand

Increasing market share and increasing sustainable profitability

Large numbers of employees (an estimated 19,000 in 2006), which are extremely skilled and committed to supporting the organization reach its corporate goals

Internal Weaknesses

Due to increased competition from both Chinese and American computer manufacturers, in 2003, Lenovo was faced with constantly decreasing market share, which resulted in decreased trust from stakeholders (customers, employees, partners etc.)

Levono has been sometimes criticized for the rather poor quality of the ThinkPad X60 and ThinkPad X300, which also decreased stakeholders' trust and interest

External Opportunities

China hosts a wide variety of social events, such as sports Olympics, offering as such Lenovo the chance to sponsor these events, improve its public perception and advertise

Increasing market liberalization and globalization still offer the Lenovo Group the opportunity to expand even further, increase their customer base and deliver products to retrieve financial benefits from all corners of the world

External Threats

Increased competition in both China, but especially within the United States

Globalization and market liberalization represent opportunities not for Lenovo, but also for other companies, which could easily pose threats

The market enterprise outside china has suffered from drawbacks in 2006 and it negatively impacted the manufacturer

4. Lenovo Value Chain

The current primary goal of Lenovo's is to add more value to their value chain by setting the basis and developing numerous strategic partnerships. The approach taken by most companies in the industry is that of reducing the production and operating costs in order to reduce the retail price to the end consumer. Lenovo Group Limited is also focused on adding more value to their products and implementing those strategies based on the company's core competencies and sustainable competitive advantages, such as extensive expertise, skilled and committed staff and high quality products. With their aid, the company mostly operates on its own, ensuring the successful cooperation between the departments in its value chain: logistics, operations, marketing, sales and finally, customer service.

5. Current Situation

The current problem faced by Lenovo is that, despite their increased efforts and strategies implemented, they fail to pose significant competition to the American manufacturers Dell and HP. "After its entrance into the North American PC market via its purchase of the former IBM (NYSE: IBM) PC properties, Lenovo has yet to provide any significant signs to business partners about its long-term strategy or plans for the channel, solution providers say." In other words, Lenovo Group Limited finds it difficult to establish itself onto the American market as a leading player of the computer industry.