1.0 The Competitiveness Of Lenovo Based On:
1.1 PESTEL Model
PESTEL model is a framework majorly used by marketers to venture and deeply look into the macro-environmental factors having an impact on an organization and the findings are used for decision making and conducting proper SWOT analysis that can be used to identify the strengths and weaknesses so as to maximize on the strengths and work on the weaknesses.
PESTEL is an acronym whereby the letters stand for:
P – Political, E – Economic, S – Social, T – Technological, E – Environmental, L – Legal
1.1.1 Political Factors
These are the government forces that influence and take part in moulding a country’s economy such forces include; government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions and so on. It is clear from the list above that political factors often have an impact on organisations and how they do business. Organisations need to be able to respond to the current and anticipated future legislation, and adjust their marketing policy accordingly. From the case study in pg 7, it is observed that the Minying companies such as Legend (Lenovo) took into on considerable political, not just commercial, risks in the 1980s. As China only emerged from Mao Zedong?s regime in the 1980s, there was a deep suspicion among both those in government and public about private businesses and the economic climate was highly uncertain. In addition, the 1989 student movement and the subsequent crackdown also took heavy toll on many Minying companies in Beijing. Strategically, Legend/Lenovo understood the effects that could be fall it if it went played politics instead of business (Legend was a survivor of the political turmoil thanks in no small part to Liu?s astute in leadership pg 7) 4
1.1.2 Economic Factors
Economic factors have a significant impact on how an organisation does business and also how profitable they are. Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on. Governments use interest rate control, taxation policy and government expenditure as their main mechanisms they use for this. One strategy that saw Legend (Lenovo) boost its market share in China and become the largest PC distributor in the country was to take advantage of the growing Chinese economy pg 4. Also, the company benefited from taxes, tariffs and quotas imposed to foreign companies like Apple, HP, enjoyed the tax exemption by the government among other, leading to increased market share and production rates in the 1990s for the PCs and 2011 for the laptops. There are several tax advantages that Lenovo has taken advantage of, capitalizing on the location of its investments and the company?s status as leading to Chinese company and high technology investor pg. 27.
1.1.3 Social Factors
Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population. One of the ways in which Legend during its early development used this as a point of strength is when it developed a PC with softwares that are customized in Chinese language, the company relied on the customers? feedback to modify its later productions and later on the company concentrated in supplying technology that made the Chinese feel identified with. Lenovo has been having a marginal advantage in its marketing and supply chain unlike her competitors due to cultural correctness pg 34-35.
1.1.4 Technological Factors
Technological factors affect marketing and the management thereof in three distinct ways:
• New ways of producing goods and services
• New ways of distributing goods and services
• New ways of communicating with target markets
As opposed to companies in China, Lenovo did not and doesn?t depend on breakthrough technologies, but rather on sensitivity to the right technologies for the market. When a number of Chinese companies like Dell were accused of being adaptive than innovative, this was not with the case of Lenovo. According to the report on pg 34, Incremental and adaptive strategy adopted 5
by Lenovo means that Lenovo has not been making or made the fundamental miscalculation that innovative needs to mean increased sophistication.
1.1.5 Environmental Factors
These factors have only really come to the forefront in the last fifteen years or so. They have become important due to the increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments (this is a good example where one factor could be classes as political and environmental at the same time). From various studies by various bodies like UNEP, China is not doing very well in environmental management and protection for sustainable development but from the Lenovo point of view, its research department has been receiving better funding as compared to its rivals (pg, 17). The concept of in-house manufacturing specialization adopted by Lenovo can be argued to be way in which the company limits the wastes to the environment since common manufacturing means easy common raw materials reach (VMI-where the suppliers supply over short period of time of between 3 hours; forcing them to rent warehouses next to manufacturing points) and easy environmental pollution reduction pg 23.
1.1.6 Legal Factors
Legal factors include – health and safety, equal opportunities, advertising standards, consumer rights and laws, product labeling and product safety. It is clear that companies need to know what is and what is not legal in order to trade successfully. If an organisation trades globally this becomes a very tricky area to get right as each country has its own set of rules and regulations. From the case study, Legend having come into China as a foreign investor (Hong Kong), it benefited from China?s favorable policies for attracting foreign investment, and avoided the regulations of PC production. This helped the company identify with the Chinese easily since they did not have many conflicts with the government pg 3. Second, the Legend company/Lenovo had clear policies of shareholding, dividends sharing and acquisition of other related companies? pg 7. Third, Lenovo had system policies that saw the company move to internet supply and phones manufacturing including the Lenovo tablet without infringing to the rights of other well established companies like Apple.
1.2 Porter’s 5 Forces Model
Porter’s five forces analysis is a framework for analyzing the level of competition within an industry and business strategy development. It draws upon industrial organization (IO) 6
economics to derive five forces that determine the competitive intensity and therefore the attractiveness of an industry. Attractiveness in this context refers to the overall industry profitability. An “unattractive” industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”, in which available profits for all firms are driven to normal profit. Five forces include: Threat of new entrants; Threat of substitutes; Bargaining power of customers; Bargaining power of suppliers; and Industry rivalry.
In a nutshell summary, Legend/Lenovo understood the use of this model well. First, when it came to the market it was seen as a new entrant that could compete with giant technology companies like Dell, HP and others. The simple strategy it used was to make sure and learn their pricing, their supply techniques, their marketing strategies and to a greater extent the company identified itself with the local customers. The next strategy that Lenovo adopted to take care of the market share was to manufacture PCs, laptops, tablets, and phones that had better softwares that were customized for the locals at relatively lower prices compared to their rivals. Also, Lenovo sold its products at the lowest prices against its rivals, allowed customers to give them feedbacks of what modification to be done to their products, strengthened its distribution networks that were well adjusted to the culture and regulations set by the government. In house manufacturing specialization allowed easy access to the raw materials suppliers, better bargaining, link and later on put them higher in the industry. Lenovo understood well the role industry rivalry plays in its operations and opted to tap the best managers from various companies who assisted it in coming up with customized strategies that led to tremendous growth in its market share (pg 34 „Lenovo is relatively unique among Chinese companies for having for having an internationally recognizable brand.it used its acquisition of IBM?s PC division to take fully advantage of the international talents, marketing and supply chain.?)
1.3RBV (Resource Based Value) Model
The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive advantage. Basically, RBV is an approach to achieving competitive advantage that emerged in 1980s and 1990s, after the major works published by Wernerfelt, B. 7
(“The Resource-Based View of the Firm”), Prahalad and Hamel (“The Core Competence of The Corporation”), Barney, J. (“Firm resources and sustained competitive advantage”) and others. The supporters of this view argue that organizations should look inside the company to find the sources of competitive advantage instead of looking at competitive environment for it.
The case study indicates that in its initial times, Lenovo under the NTD co. plus other 11 members were allocated RMB 200,000 as startups with many promises for more funding from ICT or CAS. However of great significance was the idea that the company maintained its ITC name (first internal advantage), use its tangible and ignitable resources while enjoying its independence. This means that the resources could put it at a better a competitive advantage over the rivals since the company could easily use and maximize on the resources like labour where the company initially paid its labour cheaply with some health cover; enabling it to survive in production during its crisis period pg 3.
The company used the RBV by allowing the best ideas come from the people who were either directly linked to it or indirectly but had better ideas for its further success. For example, Lenovo was tapped out of NIGUANGNA; who developed a technological card the integrated the Chinese language; giving Lenovo an easy identification with the local market (Chinese).
The expansion of Lenovo purely copied from the RBV model by taking a step by step in its expansion whereby it used the little resources it had to gain control and power in acquiring other small companies; adding more resources to the company pg4. For example, in 1988 the company took over a number of small companies (DAW), China Everbright, China Resources etc; expanding its resources base. The company went ahead to retain some great founders of the various adopted companies that gave it a competitive advantage of gaining from more expertise (Liu?s father chairman and general manager).
Legend/Lenovo enjoyed the Chinese government?s rule of encouraging foreign companies in investing in ICT whereby its PC production and supply increased while it enjoyed the brand of being associated with the Chinese people since it used the local language, it sold its products at cheap prices and heavily relied on the feedback of its customers to make modifications to the production process. Its policy of two things matter one being the market and the second one 8
being the channels of distribution enabled the company to have its distribution increase continuously and have its market base increase; creating a brand within China and markets in India and other developing countries. The company went further to invest much in research, unlike HP, Dell etc, making it to have easy labour that could help it move to manufacturing laptops as opposed to PCs in the millennium; manufacture a tablet that competes well in the market, manufacture smartphones with softwares that integrate the Chinese language; leading to increased sales. This saw the brand name of Legend being taken globally by 2003; opening various distribution and selling points in 7 various countries.
2.0 Challenges Facing Lenovo against Its Competitors
From the case study, it can be argued that, Lenovo is one of the largest famous personal computer makers in the world. Today, Lenovo strives to be the global market share leader in each of the market we serve. On September 24, in 2004, Lenovo purchased the personal computer business and the brand “ThinkPad” famous computer IBM in the IT industry all over the world. This landmark transaction is taken as its most important stage of the international strategy in the computer industry. This marks the trinity Lenovo’s internationalization strategy has risen to a new stage, which indicates that Lenovo already in the United States established a brand-name image localization. Now, the Lenovo has become the global application company (sales) that have their own package plants in more than 7 countries and cooperation plants in many countries and make the local enterprises business license and distribution contract. Lenovo is also one of the major global companies (sales), and it has its own production plants in 7 countries, its products are marketing in nearly 80 countries.
However, it can be argued that, the company is faced with a number of challenges when it is compared to its rival in a range of areas that start from the profitability, distribution, innovativeness and many more.
To start with, one policy that Lenovo has capitalized on in market base and distribution. This has seen the company lag low compared to Dell and HP in terms of profits achieved despite the high sale. When a company makes massive sale and less profit, it means that is not doing as better as 9
its rivals. In China, India and many more, Lenovo has a graph showing a better market share but when you compare the profits, the company is still lagging behind pg 16.
Another challenge that has been facing the company both, at its initial times and relatively today, is shareholder?s payments and compensation. Unlike other companies that did not adopt the idea of shareholders, Lenovo/Legend at its initial times had adopted that concept. Normally the challenge that is associated with shares is that the owners expect something and with low profits, the company can be overburdened since the money that could be used for its expansion are used for compensations and share payments pg 9. Also, regulations and control of the company in the 2009 to 2012 could be projected to be mixed up since the Legend (fathers of Lenovo) owned only 18.5% of the shares in the company with the majority being with the Chinese; making it difficult for major decisions that require giant shareholders to make significant decisions.
Another area that is greatly faced with challenges that could offer the competitors an advantage over Lenovo is the single marketing channel. At Lenovo, the products and services are mainly sold by monopolized stores in its major 7 countries as per the report of 2015. HP and Dell are penetrating markets like Japan and the USA well because their marketing channels are diversified.
From the case study, it can be argued that, Lenovo?s Product styles are too fewer to choose. For example, in 2011 Lenovo is said to be among the best five PC distributors in China and other markets in the world hitting at 16.6% pg 11. However, one you analyze this critically, you will find out that other companies like HP had moved to netbooks (laptops) manufacturing, internet supply, smartphones and other products like the tablets. In fact the trend that Lenovo uses is reactive or rather copied manufacturing where it is said that like other Chinese companies do, Lenovo has been waiting for its rivals to come up with a product, then modify one or two ideas from it and sell it to market; making it hard for them to penetrate stiff markets like the USA.
In comparison to its competitors like Dell and HP, Lenovo has suffered a lot of losses in relation to operating profit margin. For the case study for example, when Dell and HP maintained stable gross margins despite poor economic conditions, Lenovo suffered two consecutive negative 10
shocks in 2009 and 2009 and 2010, reflecting different corporate priorities. This is a challenge that puts its competitors at an upper hand as compared to the company pg 16.
It can also be argued that Lenovo?s investment in research is on the rising margin but its research department unlike the initial stages of development during the 1990?s, it is not becoming very innovative like its counterparts like APPLE. For example, when Lenovo wanted to come up with a new tablet, all the company did was to adopt a lot of features from the apple tablets and even give it a name that could easily be confused with a product produced by apple. This means that as much as the company has been allocating money for research, little is being done.
Other challenges include: Large number of product lines lie in the expansion of overseas; Marketing sources are not rich; Prices are not cheap; There are too many cheap products appearing in the world; Competition from other shoppers embedding on form factors more pleasing to the consumer ;The market protect in some countries is strong; Foreign exchange rate fluctuations etc.
3.0 Analysis of Innovation Strategies Employed Citing Strengths and Limitations Viewed Against Accomplishment of Desired Sustainable Outcomes
One of the strongest strategies that place Lenovo better on the market share across china and the borders beyond is its strategy of heavy investment in research. When a comparative analysis was done between 2008 and 2011 indicates that the company has been doing well in pumping resources to research that is aimed at better innovation as compared to its rivals like Dell, HP, Compaq and many more. According to Fred (2015), the company operates 46 world-class laboratories, including research centers in Beijing, Shanghai, Wuhan and Shenzhen, China; Yokohama, Japan, and Morrisville, North Carolina, USA. The ultimate goal of Lenovo?s research and development (R&D) teams is to make more affordable products that add value and connect with the evolving needs of customers.
Therefore the strength of this strategy is that the company has been able to produce relatively cheap products and penetrate cheap markets. The limitation of this strategy is that, the company is spending very much money in acquiring other small firms for market share base increase; compromising quality of produce and the amount of profits made as compared to its rivals. 11
Second, the company suffers a lot when losses are made since much money is always spend in expansion; thus little available for such risks management.
Since Lenovo was initiated in the early 1980s?, it can be said that it is fostering the culture of innovation. Lenovo can be said to have integrated innovation as part of its DNA. The early founders came up with innovations that were openly shared among the company members and later on gave birth to Legend. Today, it can be argued that, all employees are encouraged to share their ideas. A mechanism is in place to foster and screen innovative ideas for further development. The department in charge of innovation regularly pushes the latest science and technology news to R&D teams and organizes brainstorming sessions with employees. After evaluation by the Innovation Committee, successful proposals are fed through to the relevant operational departments. Senior managers also meet regularly to analyze technology trends and decide on the company?s innovation strategy, which is systematically communicated to all employees to ensure everyone is familiar with and works to support the company?s innovation objectives.
The strength of this is that, its commitment to delivering high-quality, reliable and durable devices that meet consumer demand, underpinned by an extensive patent portfolio, continues to drive the company?s growth; surpassing the market share of Giant companies like Dell and HP. Lenovo?s innovative products have won over 100 major design awards.
The limitation of this strategy is that the company has been concentrating too much on innovation and development of new products, some of which become less accommodated in the market leading to losses due to overspending in research and development. Also, a number of these products actually are a bit expensive in the local and international markets; making the company experience low sales, thus reducing its prices; thus compromising its profits.
Another innovative strategy that Lenovo applied in its process was the adoption of other firms in order to increase its capital base, increase its market and benefit from the innovations earlier made by these companies. For example, the adoption of the IBM made the Lenovo company access better expertise, better markets and better products which gave it a competitive operational advantage. However, the limitation of this is that not all the expertise that were acquired and adopted kept on giving the best since the company at times could pay less; thus 12
discouraging them. Also, a number of these expertise and brands bought had some setbacks in their origins, meaning that they carried them along; besides failing to understand the culture of Legend/Lenovo.
Unlike Compaq, Dell and many more that were driven by profitability, Lenovo was very creative in the sense that if focused on the market share, distribution and the acceptability of their products by the locals (Chinese people) through the use of the software that integrated the Chinese language. The advantages of this are that, the company was able to get better identity with the locals and later on increase the sales. Furthermore, the company was able to understand what was missing in the products of the rivals, modify the concept and apply it in making better products. However, this strategy has this limitation of emphasizing on the local Chinese people who have a relatively different culture from other potential customers from other communities and the same Chinese people relatively very low purchasing powers as compared to people from developed countries like USA; leading to reduced profits.
The innovation technology of developing mobile phones, internet distribution, tablets, notebooks and many more by Lenovo saw that company compete favorably in the market. This was better boosted when the company insisted on in-time raw materials supply. This is a situation which is called in house manufacturing specialization. This has not only placed the company better in reducing inventory costs plus warehousing expenses but also reduce the time take for raw materials supply. This concept has been applied by Lenovo to internationalize its operations to other countries; making its products hit better in the world market than any other company. The advantages of this are that, the company has been able to manufacture products that have penetrated a number of countries in Asia, USA and other developing countries. However, studies indicate that the company have single source of marketing and distribution channels in the 7 countries across the world, leading to less penetration into the market. Also, the concept of in house manufacturing specialization has always put the suppliers away since the warehousing costs are laid on them. 13
4.0 Hybrid Change Management Model Use and Solution of These Limitations
Change Management Theories refers to how people see or imagine changes in individuals, groups or organizations. Three of the most widely used models include: Kurt Lewin?s Model (Basically, this is a bare bones template that heads off opposition right away through the unfreeze, and leaves the finer points of transition and reinforcement in the refreeze up to you); John Fisher?s Model (Fisher?s model oddly resembles in some respects the stages of mourning in that it?s a step-by-step set of stages for the transition phase It consists of stages such as anxiety or denial, happiness, fear, threat, guilt and disillusionment, depression and hostility, gradual acceptance and moving forward); and John Kotter?s 8-Step (Basically, it entails eight steps of establishing urgency, forming a powerful coalition of guidance, creating a clear vision, communicating this vision, empowering staff to affect change themselves, planning for short-term wins, consolidation on a small level cycle and finally institutionalizing the changes per cycle before beginning on further progress of change). This study shall basically use the John Kotter?s 8-Step model to analyze the possible solutions to the limitations.
4.1 First Limitation
The limitation of this strategy is that, the company is spending very much money in acquiring other small firms for market share base increase; compromising quality of produce and the amount of profits made as compared to its rivals. Second, the company suffers a lot when losses are made since much money is always spend in expansion; thus little available for such risks management. The company can solve this by first identifying the most important areas that can help it boost its image, profits and maybe develop better products as compared to its rivals and later on improve on them gradually before starting a new cycle of either repeated production or rolling of new products or acquisition of new firms.
4.2 Limitation Two
The limitation of this strategy is that the company has been concentrating too much on innovation and development of new products, some of which become less accommodated in the market leading to losses due to overspending in research and development. Also, a number of these products actually are a bit expensive in the local and international markets; making the company experience low sales, thus reducing its prices; thus compromising its profits. The company should apply the continuous improvement of the existing products, invest less in new 14
products research, increase market research and distribution against its competitors, customize products for individual countries and maximize on the profit margins.
4.3 Limitation three
Not all the expertise that were acquired and adopted kept on giving the best since the company at times could pay less; thus discouraging them. Also, a number of these expertise and brands bought had some setbacks in their origins, meaning that they carried them along; besides failing to understand the culture of Legend/Lenovo. The company should invest in cooperation, teamwork, clear vision and policies/culture that should be adopted by everyone at any given time for better performance.
4.4 Limitation four
This strategy has this limitation of emphasizing on the local Chinese people who have a relatively different culture from other potential customers from other communities and the same Chinese people relatively very low purchasing powers as compared to people from developed countries like USA; leading to reduced profits. The company should come up with specific common languages like English, French, Latin, Italian, Afrikaana etc and come up with ways of integrating such so as they can penetrate such markets easily while maintaining quality and integrity for better profits..
4.5 Limitations Five
Studies indicate that the company have single source of marketing and distribution channels in the 7 countries across the world, leading to less penetration into the market. Also, the concept of in house manufacturing specialization has always put the suppliers away since the warehousing costs are laid on them. Single source marketing and distribution can be solved by having some trusted agencies world over to help in the assembly and distribution process; a fact that can see reduced shipping, warehousing and distribution costs; leading to increased marginal profit. In a nutshell summary, the company can adopt internal consistency in restructuring its operations so as to accommodate continuous development and performance. 15
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