Lenovo: Challenger to Leader
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Case Code: BSTR449 Case Length: 33 Pages Period: 1984 - 2013 Pub Date: 2014 Teaching Note: Available |
Price: Rs.500 Organization: Lenovo Industry: Information Technology Countries: China Themes: Globalization, Localization, Competitive Advantage, International Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Globalization Strategies
Lenovo believed that in order to become a global brand, it was not enough to just be identified as a global firm. Establishing a presence in more developed and highly globalized areas such as the US and Europe was essential for Lenovo's overall strategy. During this time, in 2002, the Chinese government announced its 'go global' policy. This policy encouraged Chinese companies that had the capability and expertise to expand abroad. Lenovo was quick to respond to this government initiative. However, the company soon realized challenges to its global expansion: it did not have a brand name that was recognizable worldwide, a strong presence in the world market, or the human talent to run and manage a global company. Thus as a first step toward globalization, it changed its name from Legend to Lenovo in 2003. 'Le' was taken from Legend and 'novo' meant new in Latin. The name signified the spirit of innovation, which was central to the company’s mission. Moreover, the company aimed to recognize itself globally with its new brand name. Subsequently, it started marketing its products under the Lenovo brand name...
Ruling the China Market
In the 1990s, Lenovo was the first company to introduce the home computer concept in China and grew into a national company cornering a market share of 27 percent in the domestic market. Lenovo's competency stood in its deep understanding of the domestic market and quick response to local demands of the consumers.
The success of Lenovo and other domestic computer makers in China confounded the predictions made by several market analysts. According to BusinessWeek 33 , "It wasn't supposed to happen this way. A few years ago, most analysts were convinced that the global players would gobble up the Chinese market, with locals like Lenovo stuck in second tier status – at best."..
Protect and Attack Strategy
Despite ruling the Chinese PC market, Lenovo suffered a setback due to the global economic slowdown in mid-2008 which led to Lenovo posting a loss of US$ 226 million. During this time, the company's CEO William Amelio stepped down in favor of Yuanqing, who took over as CEO, while Chuanzhi returned assuming the role of Chairman.
In a bid to combat the losses incurred due to the global economic slowdown and return to profitability, Yuanqing came up with the ‘Protect and Attack' strategy in 2009.
Yuanqing did not make any radical changes; instead, he concentrated on areas where Lenovo had been successful or had made significant investments...
The Results
The company's Protect and Attack strategy started reaping benefits in 2010. The company said that for the FY ended March 2011, its profits had risen to US$ 273 million from US$ 129.4 million in 2010. The company's global sales also increased by 30 percent to US$ 21.6 billion during the same period. While China contributed to 46.4 percent of its sales, or US$ 10 billion, other emerging markets contributed 17.9 percent, or US$ 3.9 billion. The US, European, and other mature markets contributed 35.7 percent of sales, or US$ 7.7 billion. Some experts pointed out that Lenovo's strategy to hold its market share in China, defend mature markets such as Europe and the US, and grow aggressively in these mature markets had paid off. According to Wong Wai Ming (Wong), chief financial officer, Lenovo, "Despite the current volatility in the global financial markets which might have an impact on the global economy, we remain confident on continuing our trend of outperforming the worldwide PC markets. We are executing our protect and attack strategy well. As a result, our core businesses are performing well and our strategic investments are laying the foundation for future growth. We will continue to benefit from growth in China in emerging markets as well as to continue corporate refreshment cycle in the mature markets."...
The Challenges
According to a survey in 2009 by Shaun Rein, head of China Market Research Group, on Chinese consumers' brand perceptions, "Five years ago, consumer satisfaction rates of Lenovo were extremely high–consumers felt proud that China had a global brand in consumer electronics that they felt was better than Dell and HP and closer to the Chinese consumer." But as Lenovo neglected the Chinese market to focus on other markets from 2006-2009, domestic consumer satisfaction rates began to decline. Rein added, Chinese buyers "felt customer service lagged behind competitors and that the designs were worse than before." This showed that Lenovo did not only face challenges in the world PC markets; it also had to deal with consumer attitudes in China. To tackle this challenge, Yuanqing said that the company would pay attention to its home market China as it represented the foundation of its global business and growth strategy...
Looking Ahead
In April 2013, Lenovo restructured itself into two business groups – Lenovo Business Group and Think Business Group –in a bid to target mainstream (PC, laptop, and tablet) and high-end segments respectively. According to Yuanqing, the restructuring aimed at streamlining operations and management to better fit the company’s expanding business worldwide. The company positioned the Think brand to compete against Apple and planned to open fancy showrooms like Apple's.
In China, where Lenovo was already the leading consumer brand, the PC Plus strategy was to grow tablet, smartphone, and smart TV in a bid to become the winning PC Plus company in China. The company felt that its strong position and deep knowledge of the market dynamics in China could enable the company to test new products and technologies there and then roll them out to the rest of the markets. The company planned to increase revenues of its mobile devices comprising of tablets and smartphones to 50 percent in 2016 from 14 percent in Q1 of 2103. Lenovo also aimed to ship 10 million tablets in its fiscal 2013.
Exhibits
Exhibit I: Lenovo's Milestones
Exhibit II: Early History of the Chinese PC Industry
Exhibit III:Globalization Timeline of Lenovo
Exhibit IV: Lenovo's Financial Summary
Exhibit V: Protect and Attack Strategy (FY 13/14)
Exhibit VI: Lenovo in Brandz List of Top 50 Most Valuable Brands in China (2013)
Exhibit VII: A Note on the Global PC Market
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