I. POINT OF VIEW:

Our point of view in this study is from Lenovo Group Limited’s

management specifically Mr. Yang Yuanqing, the President and CEO.

II. MAJOR PROBLEM:

SWOT ANALYSIS

STRENGHTS:

Legend PCs were awarded the First Prize for National Science and

Technology Advancement in China

Top-selling domestic brand

Listed in the Top 10 Most Valuable Chinese Brands

Increasing market share

Achievements were publicly acknowledged by the government

Expansions into overseas markets

Formed strategic alliances with a number of leading local

software companies

Signed a Memorandum of Understanding with IBM

Could also distribute IBM software products

Low Cost Production

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Consumers who are keen at realizing price fluctuations are likely to

shop at shops that offer the lowest prices, if the products in the market

are of quality and relatively homogenous.

Competent to acquire and diverse business institutions

Lenovo continuously acquire firms in order to bring patents, new

capabilities, resources and skills to the business. Through flourishing

acquisitions and combined ventures, Lenovo expands its markets and

distribution networks.

Vertical Integration

Vertical integration has been very helpful to Lenovo for it has been

capable of keeping low costs, keep up with both domestic and

international competitions while relying less on original equipment

manufacturers.

WEAKNESSES:

Invested heavily in advertisement

Could not simply transfer its product into overseas markets

Tough market environment

2

Poor brand perception in the developed economies

Other countries, especially United States of America and Europe, think

or understand that because Lenovo is “China Made” its products are

not that durable.

Low Differentiation

Lenovo’s products are not far much differentiated from other

competitors’ products.

Commodity Products

The large stream of Lenovo’s revenues comes from computer,

especially laptop, sales, which is a commoditized product. Computer

hardware products are sold with a very low profit margin.

OPPORTUNITIES:

The number of internet users in China increased by 100%

Obtaining patents through acquisition

Lenovo can sustain its growth by obtaining more patents though

acquisition of firms holding them like it did with IBM’s Compaq.

International Expansion

3

Due to low pricing and the low purchasing power, Lenovo can easily

penetrate the market, as a population can afford and much willing to

buy low priced electronic products with having the same quality as of

other branded products.  Lenovo can make its expansion to poor

countries that are not in the position to purchased expensive gadgets

and become a global seller.

THREATS:

Dell was growing faster

Falling stock price coupled with a decline in PC shipments

Price wars

Foreign rivals

Slowing growth rate of the laptop markets

The rate of growth of the computer market is diminishing as the

market becomes saturated.

Intense Competition

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The company faces intense competition in all its business segments. It

competes in terms of price, quality, brand, technology, reputation,

distribution and range of products, with Acer, Apple, Dell, HP and

Toshiba.

Summarized below are the situations encountered by Lenovo:

Developing a business model that would not only combat Dell’s

direct selling model but would also take advantage of the Group’s

traditional strengths

Based on a slowdown in rate of growth and increasingly

sophisticated customers, Lenovo’s home field advantage was

being threatened

It found itself in a more competitive field, with both local and

foreign players moving forward aggressively

Smaller local firms were growing fast, selling at prices that

Legend had difficulty matching

Street level competition from clone makers that undercut prices

using smuggled components and pirated software

Market was being invaded by foreign heavies such as IBM,

Toshiba, HP, and Dell.

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Therefore, the major problems of Lenovo are:

Would Lenovo be able to compete in the international market?

Should Lenovo adjust its business model to remain being

dominant and profitable in China?

How would Lenovo remount the learning curve once again?

Will Lenovo be able master the supply chain better than Dell?

Will Lenovo be able to earn the greatest profits in China’s

market?

What are the preventive measures that Lenovo should take, in

order to alleviate the threats in the competition of the maturing

PC market in China?

What are the strategies that will ensure their dominance in the

market share and penetrating the foreign PC market?

III. OBJECTIVES:

Lenovo is a $30 billion electronics company and the world’s second-

largest PC vendor. It employs 30,000 people, operates in more than 60

countries and serves customers in more than 160 countries.

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Hence, Lenovo must have the objectives of:

To consolidate its leadership in the PC market in China

To become one of the world’s great personal technology

companies.

To be respected for their product innovation and quality.

To be recognized as one of the best and most trusted companies

to work for and do business with.

To develop a business model that would not only combat Dell’s

direct selling model but would also take advantage of the Group’s

traditional strengths.

To tap international markets, as well as exploring alternate

product diversification strategies.

To develop a five year action plan focusing in the continuation of

the market leadership of Lenovo in China

To establish a more customer oriented market system, extensive

sales network and integrate distribution strategy.

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While, Lenovo wants:

To explore alternate product diversification strategies in the local

market

To become global players while defending its domestic market

share from foreign rivals

To become part of the Fortune 500 in 2010

To implement new action plan focusing in the strengthening ties,

winning and cultivating long term with customers.

To secure their existing businesses before venturing on

expanding its market share.

To focus and attain short term goals and objectives in order to

achieve the projected result of the long term plan.

IV. FACTS OF THE CASE:

Since its inception in 1984, Lenovo Group Limited had grown

from a company engaged primarily in the distribution of imported

computers to being the largest IT Corporation in the People’s

Republic of China.

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In April 2003, laying the groundwork for expansion into overseas

markets, the Group adopted a new logo that incorporated the

brand name “Lenovo”. A year later, in April 2004, with a view to

raising the recognition and popularity of the “Lenovo” brand, the

Group officially changed its English name to “Lenovo Group

Limited”. In early 2004, Chief Executive Yang Yuanqing

commented that besides concentrating on its core business of

personal computers, the Group would continue to focus on mobile

devices, because the product segment shared “natural

synergies” with the PC business.

Of the top five, Acer displayed the best performance, growing

30.9% from Q2 2003 to Q2 2004.

Apple, despite a healthy increase in its shipments, still accounted

for less than 4%.

Lenovo was previously known as Legend, formed by Mr.

LuiChuanzhi.

The Group’s first manufacturing base was Legend Science and

Technology Park.

PC MARKET IN CHINA:

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In one of the most dramatic stories of the computer industry in

recent years, China’s PC industry went from being non-existent in

the 1980s to becoming a force to be reckoned with by the turn of

the century. China’s computer policies shifted in the early 1980’s

from an isolation approach aimed at achieving technological

independence to adopting a more pragmatic strategy. By 1998,

domestic companies held 80% of the market shares, a

remarkable shift from the early 90s, when foreign companies held

around 60% of the market. By 2004, IDC had ranked China as the

world’s second-largest PC market. Another interesting aspect

about the PC market in China in 2004 was the aggressive entry of

international chip-making giant Advanced Micro Devices into the

market. In a bid to win the price game, in 2004 Lenovo, HP and

Founder introduced models into China that were powered by AMD

chips.

A combination of factors influenced the growth of China’s PC

market. These included the role played by the domestic PC

makers foreign multinationals and contract manufacturers. In

addition, government policies promoted computer production and

use. Quasi-state-owned enterprises were also encouraged to

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enter the PC industry. Foreign investment was also solicited,

requiring the transfer of technology in return for market access.

While direct import of computers was discouraged through the

imposition of high tariffs and taxes, various multinational

companies such as HP, Toshiba and Compaq formed joint

ventures with local companies to market their own products as

well as to gain access to local distribution channels. In turn, they

provided technology and know-how to local companies.

China remained the largest market in Asia/Pacific (excluding

Japan) in terms of shipments for the 9th consecutive year with

13.3 million units shipped in 2003.

Lenovo retained its position as the market leader, commanding

more than a quarter of the market.

DISTRIBUTION CHANNEL:

Internet use in China also rocketed from 2.1 million subscribers in

1998 to a reported 53 million in 2003, with e-commerce turnover

seeing exponential growth. Lenovo, evidently taking notice of

Dell’s presence in China, implemented a series of strategic

initiatives in 2004.

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Lenovo, evidently taking notice of Dell’s presence in China,

implemented a series of strategic initiatives in 2004. By that

year, an extensive sales network with 18 sales regions

comprising 108 grids and more than 4,000 retail shops had

already been built across the country, penetrating deeply into

township areas.

LEGEND:

In 1985, NTD started manufacturing the “Legend Chinese

Insertion Card” (LCIC). In 1988, Hong Kong Legend was

established to distribute foreign-brand computer products and

peripherals for Beijing Legend and other distributors in the PRC.

Yang Yuanqing was appointed the general manager of the PC

business unit initiative in 1994.

By 2003, Legend-brand PCs had been the best seller in China for

seven consecutive years.

In 1989, Legend participated in the World Fair held in Hanover,

Germany. Among other products, it exhibited its first self-

developed PC based on the Intel 80286 microprocessor. Buoyed

by this success, Liu Chuanzhi sought government approval to

manufacture PCs in China. As a prerequisite, he had to

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demonstrate the company’s capabilities in the Hong Kong

market. In 1990, after a thorough round of inspections, Legend

was granted the required license to manufacture PCs in Mainland

China. It launched its first PC, the Legend 1+1, at retail price of

RMD 3,000.

In 1994, the Group launched its second-generation Legend 1+1

PCs, and started manufacturing printed circuit boards.

By 1997, Legend’s market share in PRC had increased to 13.9%.

It was also acknowledged as one of the leading computer brands

in the Asia-Pacific region.

In 1998, the Group was engaged in five core businesses: the

manufacturing and distribution of Legend-brand PCs, the

distribution of foreign-brand computer related products, the

provision of systems integration services, and the manufacturing

of motherboards and printed circuit boards.

Legend initiated an innovative marketing channel, the “1+1

Home PC Specialty Shop”, which does not only provided a new

channel for the sales of Legend home PCs but also served as a

window for demonstrating new technologies and products to end

users.

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Legend developed and offered customized products in quick

response to the local market demand.

DELL:

In April 1999, Dell introduced its award-winning range of

Dimension desktops, targeting home and small business users. In

came as a surprise in August 2004 when Dell announced that it

had decided to reduce its focus on the low-end PC consumer

market in China.

Dell’s major strengths lie in its direct order business model and in

its current power in the market. The direct business model cuts

costs for retailing and provides a highly customizable product.

These features are ideal for marketing low and middle spectrum

computers to companies, a strategy that has resulted in Dell’s

success.

Dell’s weaknesses, however, also lie in this direct order business

model. Customers have no physical sense for the product they’re

buying, resulting in dissatisfaction with often solid, functional look

of new Dell products.

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V. ALTERNATIVE COURSES OF ACTION:

A. Diversification of the products as well as the geographical areas.

The new markets will be explored and on the basis of the latest

strategy the company will be able to improve the revenues as per

estimates and avoid losses incurred in the previous year.

ADVANTAGES DISADVANTAGES New products may be

introduced to markets and will help Lenovo products’ effective. New product sales will be earned. With the

Management will invest more in its research and development department, and therefore will cost a much higher expense in it.

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innovative products the chances of the company to increase the market share seems to be acceptable.

It will have distinction from any other brands.

It will take quite some time.

It will be easily notice by people whether they are common or professionals.

It will be quite hard to have capable professionals to work with it.

This is a step forward to Lenovo to its potential competitors.

The step is risky for creating new product, especially if the product is not a necessity; there is a large chance that it will not be patronized.

Creating new product will be new to consumer having chances of profitability increase.

Advertising expense in product differentiation is very costly.

Identification of local and international customer needs and demands.

Larger target market International relations and

connections Adaptation of international

standards and knowledge

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B. New marketing channels will be developed and the company as

discussed earlier will be able to reach the grass root level. The

business strategy of higher volumes will be retained and the

margins will show improvement with the reduction in cost.

ADVANTAGE DISADVANTAGE Lenovo will increase its

popularity among consumers. People will know about the brand and its product more. It will be more accessible to its buyers.

The risk that Lenovo Group may not meet their expected sales in a certain marketing channel.

Enhances the popularity of Lenovo within the country.

C. The company should target consumer and small & medium

business (SMB) segments to tide over slowdown in commercial

PC sales.

ADVANTAGE DISADVANTAGE The group may be able to

sell to its low-end market consumers. It may help the group to maximize its sales.

It will cost the group to invest in marketing its promotion.

D. Enter the Global market

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ADVANTAGE DISADVANTAGE It would be able to increase

its internalization process in accumulating sufficient experiential knowledge and market commitment in foreign markets

First, the group might have difficulties in securing its position in china and competing within the Global market.

Competitors such as Dell might overlap Lenovo in the Market share.

E. Continue to form alliances with a number of leading local

software companies

ADVANTAGE DISADVANTAGE Helps develop and market

computer application software, respond to quick market demands and maintain its distribution network.

Conflict of interest between partners may arise.

Access to foreign market and distribution channels.

Local; companies may take advantage of Lenovo because of their importance to the company as their bridge.

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Broad location positioning of the product.

F. In concern with having poor brand perception, Lenovo must

challenge negative perceptions as soon as they arise, defend

their brand and manage its reputation, especially in the face of

negative feedback on service and quality by at least for now

disassociate itself from its origin country.

ADVANTAGES DISADVANTAGES By taking this challenge,

other prosperous country might be able to see that Lenovo is well managed and legitimate.

This may take a very long way to be competitive on rich countries because for the past decades China products have one of the worst reputations among consumer.

Lenovo would be more competitive and be more eager to improve.

Getting lumped to companies being known to have bad quality because of its origin country, proving the business would be costly.

When Lenovo disassociate itself from China, having an unfavourable origin in terms

By disassociating, Lenovo will not be able to help China in regaining its name in the

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of products, their perception to other countries may increase.

field of business.

G. Lenovo must go beyond the pricing strategy and start to offer

something more than simply the cheaper option by focusing

more on being a functional product.

ADVANTAGE DISADVANTAGE The pricing strategy is a

very basic model and it will not always be very successful for everyone is using that strategy. Therefore, Lenovo must focus on being a functional product that is very hard to imitate by other companies.

Generally, the basis of consumer for quality products are the company’s sales and by focusing more on being a functional product will lead to high cost of their products leading to a certain percentage decrease in sales.

H. Plan and implement a competitive strategy towards other

competitors

ADVANTAGES DISADVANTAGE Lenovo has choices between

product differentiations, low cost, and focus strategy.

Low cost versus good quality

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Time in analyzing the competitors and other firm competitive advantage.

VI. BEST COURSE OF ACTION:

We highly recommend Lenovo to:

1. Study what is viral inside and outside China. Lenovo must

customize products and services, higher value added, provide

unique product design new product category. Appearance is

the first thing that we all see in a particular thing. Adding

special features in the external appearance of every unit will

make people be excited about the product. Making the product

eye-catchy will eventually be a great factor to increase the

sales and the demand of the users. The Group should hire

more capable people to help them in developing and making

new product categories differentiating them to their other

competitors not only domestically but also internationally.

Upon hiring people, the company should also eliminate those

that contribute less. Everyone should be given a specific work

and be monitored most of the time. Lenovo must choose the

right people who will

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2. Lenovo should enter the global market but at the same time

provide strategies that would minimize foreign company’s

threats. It must focus on key points such as focusing more on

“Product Brand” rather than “Corporate Brand”. Building key

competencies on quality and innovation to overcome state

owned Chinese company image and narrow the gap of country

of origin effect. Lenovo should maintain competitive advantage

on low cost, continue with global brand image, and quickly

adapt to customer change.

3. Lenovo should decentralize. Hire employees having other

nationalities that can help in advertising your product through

disassociation. Consumer haven’t started trusting China in the

market because of media reports on poor quality and other

issues, it’s all negative information which unfortunately tends

to be weighted more heavily than all the good things that

came out from the said country. Lenovo must also go beyond

pricing strategy for there are a lot of businesses who can

already imitate original products and sell it on a much lower

price than the products’ true price.

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4. Lenovo should develop new marketing channels. Brand image

will reach the users as per social programs being launched by

the company in various countries. Lenovo has established its

product in Peoples Republic of China so it is the time where it

should expand its coverage in terms of customers.

International market may be hard to penetrate but it will be

very rewarding. Conquering international market will enhance

the quality of the products offered by Lenovo to its consumers.

VII. CONCLUSIONS/RECOMMENDATIONS:

Being an emerging industry with access to a large domestic market,

like that in China, can be a recipe for success. Lenovo benefited from,

first developing the distribution channels (with the government

protection from international competitors), then helping foreign

vendors with sales and low-end manufacturing/assembly, cooperating

with foreign companies to create low-cost computers with up-to-date

technology fit for Chinese consumers. The China market continues to

be a sustainable source of advantage for Lenovo, both in overall sales

and as a low-cost manufacturing and R&D base.

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Lenovo has a wide range of alternatives to help them penetrate the

international market. Lenovo’s competitive advantage lies on its

marketing capabilities, strong channel management and the ability to

meet the customer’s tastes and needs. Implementation of new

marketing strategy can be very helpful, winning and cultivating long-

term relationship with customers, consolidating existing businesses

and expanding the market share not only in the China but

internationally.

PROGRAM/ACTIVITY

TIME FRAME RESPONSIBILITY

START COMPLETION

DIRECT SHARED

Expand Lenovo’s project within the global market

January

2004

Continuous President Top management

Advertise Lenovo through internet, world class events, etc.

March 2004

Continuous Marketing Department

, Advertisers

Employees, Advertising Unit, Top

Management

Product April Continuous President, Production

24

Diversification 2004 Artist Manager Monthly

meeting with regards to their strategies and objectives with the necessary budgets for next years.

2005 Continuous Board of Directors/To

p Manageme

nt

Managers/Head on

every Department

Discuss on where to put the new marketing channel

March 2015

December 2015

Top Level Manageme

nt

Implementation of the proposed plan

2016 2018 Employees Top Level Management, Department

Heads

Updates regarding the plan and its development.

2016 2018 Top Level Manageme

nt

Appropriate Personnel, All Department

Head Conduct

research for people’s demand

January

2004

Continuous Researchers

Top Management

25

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