Executive summary
Strategy is dependant on the long-term of a business and is also the course and range of the organisation. It aims to attain edge in a changing environment through its construction of resources and competences (Johnson et al, 2008).
Henry (2008) identified the competitive advantages refers to an organization must be qualified to outperform itself from its rivals by creating superior value to its customers and argues that the competitive strategy is regarded with the basis on how an organization will contend in its particular market.
This report is set out to be able to evaluate the strategies followed by Lenovo to get competitive advantages over their competitors in this ever-challenging Personal computer industry also to provide recommendations for ongoing development of the organisation.
1. Introduction
Formed by way of a China based technology giant, Star Holdings's acquisition of the former IBM Personal Computing (PC) Section, Lenovo is a fresh world company that grows, manufactures and trading markets reliable, high-quality, secure and easy-to-use technology products and services worldwide (Lenovo, 2010).
The acquisition was heralded as a watershed event in global business with the prospect of integrating two disparate East and Western world cultures, languages, operations and markets in the creation of any unified global Laptop or computer leader with growing market positions in developed and rising markets similarly (Lenovo, 2010).
As suggested in Lenovo's record (2010), succeed with more than $16 billion in gross annual income, Lenovo's market power spans not only market geographies but also the world's consumer and business PC industries. Lenovo performs in more than 60 countries, reselling its renowned THINKPAD notebook as well as products hauling the Essential, ThinkCentre, ThinkStation, ThinkServer, IdeaCentre and IdeaPad brands, it has been dedicated to providing the needs of these customers to be able to stay its competitive ends.
As part of Lenovo worked well hard introducing PCs to homeowners, and then promoted Laptop or computer consumption in China by creating retail shops countrywide, has made Lenovo the greatest Personal computers brand in China (Laptop or computer World, 2010). It also developed the pioneering Story Chinese Character Greeting card that translated British operating software into Chinese people, and achieved breakthroughs like Computers with one-button access to the Internet.
In 2003, Lenovo introduced a self-developed collaborative request technology, which heralds the key role Lenovo is going to play in the 3C age (computer, communications and gadgets). These and other market-leading personal processing products catapulted Story to a leadership position in China for eight consecutive years with over 25% market show (Lenovo, 2010).
In this paper, we will study the strategies executed by the Lenovo and provide recommendation for further improvement.
2. Analyzing Competitive Market
2. 1 Porter's 5 Forces
The original competitive causes model, as proposed by Michael Porter, recognized five makes which would effect on an organisation's behaviour in a competitive market (Gronoos, 1984). Many organisations implementing this construction as they presumed this framework will assist them to identify the appeal of an industry or sector in terms of competitive makes and the external factors impacting on their company. (Johnson, Scholes & Whittington, 2008).
Source: Designed from Michael. E. Porter 1980, Competitive Edge: Approaches for Analyzing Establishments and Challengers, the Free Press.
Threats of new entrants
The first risk of entering new market is the existing loyalty to major brands (Hooley and Beracs, 1997). Companies in Computer industry show a unique feature of vertical integration. Existing IT products companies have gained sufficient commitment in keeping their market talk about while protecting against new players enters into their place. Today, in China, Lenovo commands more than one-third of the PC industry, covering all segments. However, there is still long-way to contend with other Personal computer companies in other region. In United States, DELL remains the most preferred Personal Computer (PC) brand, while Acer occupied the Number 1 Laptop or computer brand in South East Asia.
It is challenging for new entrants to talk about simple or to possess the economics of scale to compete. Moreover, committing on Research and Development for IT hardware and software require large capital & hence the risk of new entrants is less in Personal computer industry. Hence, the barriers to entrants are high. This also discussed why the IT products market is dominated by hardly any companies so that it is difficult for new companies to enter into the market from earlier few generations.
Bargaining power of suppliers
Majority PC's raw material suppliers came from Asia Pacific countries due its cheap labour cost and materials cost. Apart from computer processors and chips, other materials have a least important role. Those materials suppliers are poor, fiercely competitive and usually count heavily on the buyers. Because they ought to regarding to other company's business order to create products and then the whole supply chain also control by large Personal computer companies. In US market, DELL and HP always leading the Personal computer market material trend rely on their long enterprise history qualifications. For the labour source provider far away don't have any advantages equate to Lenovo in china market. Maybe it's challenging for Lenovo if to develop its market far away as Lenovo cannot entirely depend on its local China market source anticipated to WTO high standard access regulation and other countries' local brand protect legislation. Therefore, although IT raw material labour source suppliers have low electricity, it might not advantage Lenovo to entry other market.
Competitive Rivalry
From the industry perspective, the competition of Computer industry has being more intense and competitive because of the increase the volume of competitors such as HP and its own co-brand Compaq, Dell, Acer, Apple, Toshiba, Fujitsu, Sony, Samsung and other Computer manufacturers. These companies have distributed the Computer market together and for that reason, no dominant Laptop or computer Company on the market. These companies rely seriously on the latest Information Communication Technology (ICT) in order to keep their operations and competitive border. They become industry competition among existing businesses, because every company would expect various powerful suppliers with low turning costs (or opportunities costs) to ensure most up-to-date ICT is available for their businesses. These IT businesses likewise have just a little difference between competitors' products and services, mainly the sub-technologies as bundled to the Computer, Laptop or IT home appliances.
Bargaining electricity of buyers
The strength of buyers is also consolidated by their commitment brand (Gronroos, 1984). Once they have their favourite brand, this means that there is very hard to persuade them turn to another brand just because a loyal brand is made by the most liked taste and long-term of consuming.
IT product purchasers or customers are the factor which has the most crucial role in IT product market and the amount of Computer users is increasing definitely. Personal computers have now being truly a basic necessity of almost of all mankind behind day to day life. Their ability comes from the switch cost from a IT brand to some other ones is very low and PC is just one kind of modern tools, they love use Laptop or computer nevertheless they can live well without only one brand for a period. As a new player Lenovo ought to know that HP and DELL not maintain long stage as market innovator, because in this industry consumer commitment not very high if they can provide more reasonable product price under the similar quality in US market. Furthermore, almost customers in PC market are price sensitive, therefore they can easily switch to which has lower price.
Threats of substitutes
Today, Personal computers still dominate the IT industry. They are the most important IT devices in both personal-use and commercial-use marketplaces. However, increasingly alternate appliances are now lowering their critical jobs. Substitutes for most of the products are often available at less price. Although almost all of the clients still look for quality and brand name, some of the IT parts they need are ordered from these alternative providers at a lower cost. For instance, if a person cannot manage to buy the whole Computer system from Lenovo, then s/he might buy the CPU from Lenovo while assembling screens, keyboard, mouse and modem from some other company.
Nevertheless, customers may also change to other IT product, such as PDA, E-PC, Tablets and even Cellular phone. Looking at the rapid development of ICT, there is no object the pattern of these appliances will be significantly upwards in very forseeable future.
In order to stay the customer's retention, Lenovo should try every possible strategy through its ever-lasting promotion and advertising activities, educating markets with its products technology and development and specifically its after sales services provided to the clients, i. e. extended warrantee for buying Lenovo's products.
2. 2 THE IDEA of Business-level Strategy
Competitive advantages is a company's capability to perform in a or more methods opponents cannot or won't match (Philip Kotler, Gary Armstrong, 2007, p182). Jack Welch said "Unless you have a competitive gain, don't be competitive. " (Jack Welch, John A. Byrne, 2001, p317).
Thus, how to get the competition advantages is the main element printing in the Strategic Business Unit ("SBU") competition. Especially, choosing the certain business-level strategy is the critical way to differ from other SBU (Michael E. Porter, 1998, p302). Business level strategy is an included and coordinated set of commitments and activities the firm uses to gain a competitive edge by exploiting main competencies in specific product market segments (MCC n. d. ).
As the Michael Porter's theory, there are three different business-level strategies, namely, "overall cost leadership", "differentiation" and "focus" (Gerry J. , Kevan S. , Richard W. , 2008, p224). Corresponding to different customers' demand, this theory can be interpreted as five competition strategy options. They are simply price-based strategies, differentiation strategies, hybrid strategy, concentrated differentiation and failing strategies (Gerry J. , Kevan S. , Richard W. , 2008, p225).
2. 3 The Competitive Strategies of Lenovo
In view of Lenovo's ecological competitive advantage, it's been doing well in Price, Difference, Hybrid, Focus strategies respectively. After own the IBM's Laptop or computer trademarks and its existing market talk about, Lenovo has turned for more initiatives in building its brand.
For instance, Lenovo put in high ad and promotional cost to be able to expose its new laptop products - Essential series and IDEAPAD series. These series with no IBM's THINKPAD characters and has less expensive yet higher performance. Although, using Lenovo brand itself and give up IBM brand which is already more successful on earth area will waste materials the huge market source especially in brand image, circulation channel, customer understanding and market share, but it could be the best way can maintain product value string and market completive advantages for the great things about whole organisation. It's also a part of long-term strategy let Lenovo aim for basic level and middle level customer. Naturally, for Lenovo using Lenovo brand easier than using IBM's THINKPAD Series to do this market goal because IBM deserves to high end level PCs on the whole market perceptions.
Both Lenovo Essential series and IDEAPAD series have exhibited its leadership very well on Price Differentiation, Image Differentiation, Support Differentiation, Quality Differentiation and Design Differentiation. Lenovo Essential series were labelled as Basic and every day computing Personal computer while IDEAPAD series targeted customers keen on entertainment and light weight.
Implementation of business level strategies will be careful or it'll have an impact on the long-built romantic relationship with customers, distributors and even will mislead customer perception with negative effect of long-term development.
2. 3. 1 Value String Analysis
Value chain analyses have been developed by major organisations in developing low-cost as well as differentiation strategies (Porter, 1998). These strategies are productive in producing the competitive benefit by creating stakeholders' value, climb before competition and lead to company success.
Porter (1998) noted in their works that value string evaluation has various activities which come combined with the same in helping a firm win competitive benefits. These major activities as noted by Porter (1998) include establishment of appropriate infrastructure of the company. The infrastructure includes organisational composition, company culture, and control systems.
Combining both Legend's and IBM's infrastructures and advantages in technology development, Lenovo has established itself well in its productivity and increase its value to outdo other opponents on the market. With appropriate handling of such activities, Lenovo has upgraded the overall efficiency in operations of the organisation and to help it to eliminate unnecessary processes, hence growing cost efficiency. Porter (1998) known that whenever all activities are exercised successfully, they easily come alive for the company and it is able to succeed the competitive benefits across the marketplaces and thus can be excellent and highly productive in comparison to others within the same field.
2. 3. 2 Positioning
Competitive setting is the amount of difference in selection of product or service against the competition (Lynch, 2003). The competitive placement approach used by Porter, argues that the positioning of an company is prosperous if it places itself towards the surroundings (Campbell, Stonehouse & Houston, 2002).
The THINKPAD series brand has been so famous to IBM or being cured as its golden register the PC industry. Obviously, dash to replace IBM and its THINKPAD series by LENOVO's home built Personal computers, by all means run off because the marketplace isn't prepared to known what is LENOVO at the beginning. To be able to get market show in new area as much as possible, creating a strong brand image is essential. Therefore, Lenovo after acquisition of the IBM must improve its home-built Personal computers series while minimising the customer affect of the brand in the IBM hallmark consumption term.
The steps Lenovo integrated include:
Firstly, replace "IBM, THINKPAD" by "The THINKPAD of IBM, Made by Lenovo" in the IBM trademark use term for 5 years.
Secondly, after 2. 5 years they use "THINKPAD, Lenovo"
Finally, finishes the process that brand Lenovo replace IBM & THINKPAD. So use many brands to build up the biggest limit to reduce to the negative of the THINKPAD series brand.
2. 3. 3 Brand Strategy
In the first decade, there are numerous consumers trust the brand of IBM not Lenovo. Today, Lenovo has built its very strong reputation on the market that its products as same quality as the foundation IBM or better still.
As THINKPAD provides as the high end product because of its quality and performance, Lenovo has made use the THINKPAD as the "bridge" to boost the brand value of Lenovo in the international market. The impressive internationalisation strategy by made use of the Olympic game in Season 2008 as co-sponsor while releasing its latest & high quality products has successfully burst the strong brand name of Lenovo to the globe. However, its local brand strategy is different.
3. Studies and Recommendations
From the study and study on Lenovo's strategies, we have without doubt that the company is doing well and dished up a key player role in the Personal computer industry. The statement below will further clarify how Lenovo can keep their strengths and flip their weaknesses into advantages.
3. 1 Constant development
To sum up, with high risk of rivalry in Laptop or computer industry, Lenovo's business level strategies are strength in focus advancement and design to produce the high quality and differentiation of its products, reinvestment in research and development activities, improving combo and close marriage with involve industries to take cost advantage and minimizing price to get in price war.
Lenovo should see that it should maintain the strengths it offers over time by using cost effective strategies to reduce the costs and talk about the cost profit with the client. With its strong alliance in labour and materials, Lenovo should use those cost command advantages and using double brand strategy but more focus on Lenovo not IBM. The business should not only concentrate on what it has gained but also give attention to the continuous development and improvement of the merchandise and services in order to reinforce its competitive edge in the market. Thus, Lenovo should target more on the introduction of the products so that the production is more cost effective which can be done by operating form the countries from where the products are more cheaper to make, while not jeopardise its quality.
In overall, Lenovo does an extremely well in controlling its resources in being cost effective, successful, and producing success for the organisation.
3. 2 CUSTOMER SUPPORT to Customers' Trust
Losing customers is bad news for just about any businesses; not only today's sales will be lost, but future profits may also be scarified. (CIM, 2004) Naturally, if we dissatisfied our customer, he or she will create bad word-of-mouth publicity. This can be very persuasive! It could cost the company in shedding existing customers or even potential clients!
According to Lewis (1990), service quality is a measure of the amount to which customer targets matches the knowledge of the service sent. Thus, progressive organisations attempting every work seek to comprehend the value from the view of customers and improve the value in a manner that if advantageous to both parties. Maintaining a closed-relationship with customers will lead to sustained competitive advantages because earning customers' devotion drives sales turnover via continuous purchase and word-of-mouth recommendations to customers (Woodruff, 1996). The referral power is a lot effective promotion tool in creating the "superior-brand name" for all those organisations, whilst also minimizing the marketing promotional activities cost.
This awareness leads to an emotional reaction that is clear in the satisfaction or dissatisfaction of the merchandise or services being purchased
Being spontaneous in customer service and decision making comes out alive and also to the benefit of the service provider, and it offers a person the confidence they want to a service provider (Grant, 2005). In order to develop trust-based associations, Lenovo Sales force should be clear enough to customers, supplying them with genuine and wide open information. Thus, we will be able to reciprocate with their trust and even consistently buying our products neither in the present nor future. Thus, it generates a competitive benefits for this company set alongside the others.
To get the customers' advocacy in long-run, Lenovo products must maintain the highest quality that always go beyond and meet the standards of demanding customers and sectors or else they'll not hesitate to choose for a better product from our challengers.
3. 3 Human being Assets and its impact on Customer
There is an optimistic correlation between gratifying employees and assembly external customers' needs. A good employee can be an essential area of the business success, because of their contribution in product development, research and development, marketing and even customer services. For better production, we need productive employees. Without successful employees, the company can't develop further. Therefore, the necessity to maintain and wthhold the right labour drive is, similarly, a most significant goal of company.
A culture of 'praise related to contribution and performance' should be applied. It makes clear that folks will be paid not simply or on basis of 'time performed' but based on 'performance', 'contribution' and 'participation' in the company. Johnson (1993) even described that: "Employees who aren't treated correctly cannot be likely to treat exterior customers differently". Pay back systems increase individual's determination. Employees perceive that their initiatives and performance will be justly rewarded. Hence, desire theories which underlie remuneration and praise strategies, can be an important factor for management.
While Computer industry has been so sensitive, its development is intensely predicated on human's creativity. Organisation shall encourage its staff to take part in its processes and also to contribute their ideas and experience for product and service improvement and development. With increased products and services, customers will enter into long-term connections and likelihood the customers' commitment increases.
As summary, organisations such as Lenovo has generated its name in Computer market, product and after-sales service quality quality will be the only key to retaining their customers' loyalty. Competitive advantage can only be understood if Lenovo ensure that its products are competitive enough to fulfil the greedy demand of ICT technology; attempts in online marketing strategy without jeopardize services to meet the customers' expectations. The very best approach is to guarantee the overall goal of Lenovo to work at the improvement of rate of customer retention.
