Lenovo Group Ltd

Lenovo Group Ltd

Abstract

Despite Lenovo has been operational for less than three decades, it surpassed several older electronic producing firms to become the world’s third largest PC manufacturer. Currently, Lenovo’s assets are valued at US$34 billion. Moreover, the company has over 33, 000 employees and operates in over 160 countries.  As such, the paper offers an analysis of factors which allowed Lenovo to become a global market leader.

 

Introduction

Lenovo is China’s largest and World’s second largest personal computer manufacturer (Liu, 2007). Besides electronic products Lenovo also develops software and provide internet services and network solutions. However its’ most popular products include PCs, servers, workstations, tablets, Smart TVs among other mobile internet services. Although Lenovo was formed in 1984 it achieved its position as a leading technology firm in 2004. Initially, Lenovo was referred to as the New Technology Development Company (NTD co.). It was a pioneer project by Chinese Academy of Sciences. Zhou and Ahrens (2013) assert that Lenovo was established in order to expand China’s information and technology sector’ revenues; to facilitate government budget allocations but not to not to create internationally competitive technology firm.

By this time, many research institutes and public universities in China were setting up companies. Zhou and Ahrens (2013) further cite that such firms were referred to as “Guoyou Minying” companies. That is, the firms were state owned but managed by independent people or private contractors. Lenovo’s co-founder Mr. Chuanzi Liu and 1o other scientific researchers were awarded a loan worth RMB 200,000 (US $ 24,164) to serve as startup capital while other operating revenues were to be generated by the private founders.

However, NTD invested more in information and technology infrastructure and related research resources. Liu (2007) cites that Chinese ICT also paid workers salaries that amounted to about RMB 20 ($30). In 1987 a leading Chinese researcher, Ni Guangnan developed a language add-on card. Through this technology, NTD gained a 50% market share. A year later the company partnered with China technology and DAW. This partnership allowed NTD to have more access to loans from established financial institutions such  as Bank of China, China resources, Everbright and Patent Agent HK.  A few months later Legend Computer Group, a foreign technology firm based in Hong Kong, acquired NTD Company.  As a result, company’s head quarter was transferred from Beijing to Hong Kong. Zhou and Ahrens (2013) argue that Hong Kong’s strong economic position together with Legend Company’s past experiences further boosted NTD position in the Chinese markets. That is, since Legend was China’s third largest personal computer manufacturer after AST and Compaq, it had established a strong brand. Therefore, Lenovo’s success is attributed to three major factors; strategic merger and acquisition deals with various stakeholders and increasing investment in research and development, and excellent financial management techniques.

Strategic Alliances with Key Stakeholders

            Lenovo acquired expertise from both local and foreign expertise in manufacturing, management, technology and marketing which in turn allowed the firm to rise faster than the rival firms. First and foremost, alliance between NTD Company and Chinese government encourage the firm founders to exploit opportunities in such a risky market. At the same time, the imports tariff reduction by the Chinese in the early 1990s, opened growth opportunities for Lenovo.  That is, in 1992 Chinese Government not only reduced tariffs on imported PCs but also eliminated quotas on such electronic products. Consequently, more foreign companies entered Chinese PC market. Zhou and Ahrens cite (2013) that the foreign PC makers had more advantage over legend. For example, the companies produced most PC at the foreign branches where production and labor costs were much lower than china. This allowed foreign branches to set relatively lower prices than the domestic firms.

As a result most domestic firms formed strategic alliances with the foreign companies. In most cases, Chinese domestic firms were sales or distributive agents for American, Japanese and Finland computer manufacturing firms. However, Legend employed more creative workers, acquired more intellectual property resources and increased research. Therefore, it built more competitive advantage over other “Gouyou Minying” firms (Millman, 2008).

However, Lenovo’s growth strategy changed because it planned to expand further into newer markets. That is, it also signed sales and distribution deals with other foreign companies such as Apple, Toshiba, Canon, Sun and IBM. The change in strategy was largely influenced by the fact that Chinese government removed import quotas on PC but prohibited foreign firms from establishing distribution and retail operations in the country. Such laws presented exceptional opportunity for Legend to increase its market share especially in newer markets that it had not fully exploit. At the same time, through partnership with the foreign companies, Legend acquired new information, experiences and networks that later played key roles in its growth. For example, its mutual relationship with the present co-partners such as IBM began during this period.

In addition, strong distribution networks enabled Lenovo to gather information on market trends and consumer needs. Therefore, it began producing more technologically advanced PCs that also met consumer needs. Luo (2008) argues that although the partnership with foreign PCs required the domestic suppliers not to alter the product qualities, it allowed the domestic firms to discover more useful market information.  This is particularly because Chinese laws hindered foreign firms from establishing distribution channels.

Financial Management Strengths

Although foreign associates made key decisions such as price that were set by the domestic firms, Legend implemented creative financial strategies that enabled it maximize profits from such deals. Zhou and Ahrens (2013) cite that most Legend’s profit at the time came from foreign brand sales while only a small portion originated from its own brands. Such additional profits allowed the firm to produce more high quality products. For example, Lenovo ploughed the profits back into the business, therefore had more resources to support its recurrent activities.

Similarly, Lenovo acquired more investors because it publishes accurate financial information. Lenovo’s founders Wong and Liu had experience in accounting and entrepreneurship, therefore made wise long term decisions. Millman (2008) argues that Lenovo survived the 2008 global crisis because it properly evaluated its financial position. In other words, accurate information allows the company to make more informed investment decisions.

Increased Investments in Research and PC related Technologies

Since early Chinese laws highly restricted foreign PC manufacturers’ activities, most foreign products did not meet customer needs. Deng (2009) asserts that while most foreign PC brands required customers to personally customize their computers, Lenovo provided localized solutions to its customers. This was due in part to the discoveries it made while serving as a distributor to the foreign firms. For example, through the marketing research it gathered first hand information on physical factors that affected the local consumers’ internet connectivity. Consequently, it offered stronger internet networks. On the other hand, foreign competitors such as IBM and Compaq focused mainly on profitable market segments.

Moreover, China’s strict regulations hindered foreign Pc producers from importing latest products into the country. Liu (2007) argues that low incomes that were associated with the Chinese consumers implied that foreign companies only brought in their cheapest products and exported expensive products to high income countries. Therefore, the old brands were the most prevalent PCs in China. Owing to this fact, Lenovo’s growth was adversely affected by the cost and price constraints. For instance, in 1996 was forced to reduce its prices by over 25% while it introduced its latest central processing unit. However, in the end Lenovo’s market share dramatically increased. In fact, the company became top PC seller in China.

Similarly, in 1998 Lenovo launched its Intel Pc brand. The brand Chairman Andy Grove together with other employees from its Beijing branch conducted a major marketing campaign that further increased the firm’s popularity. Lenovo (2013) cites that by the end of 1998 it market share had jumped to 17.9% and was ranked in the third position in the Asia Pacific region. This further motivated the firm to implement more aggressive marketing campaigns. In 1999, Lenovo market share rose again by over 10%, thereby rising to the top position in Asia Pacific region (Lenovo, 2011).

Lenovo’s Expansion to International Markets

When China became a full member of World Trade Organization in 2001, it lifted all the quotas and tariffs on ICT products. This intensified competition in the PC market but Legend continued to dominate Chinese market. However, since it had penetrated to all the markets in the country, it began searching for growth opportunities in the international market. Millman (2008) asserts that Lenovo’s experienced at the domestic enabled the firm to establish its brand name in the international markets. In 2003 Legend changed its name to Lenovo particularly because several other firms had a similar name. In the same year, Lenovo was the official Olympic Games sponsor. Nevertheless, its most rewarding strategic move occurred in 2004, when it acquired IBM’s ThinkPad PC business. The firm’s combined resources significantly increased; that is, its employees increased to thousands while the customer base rose by millions. Liu (2007) Lenovo not only retained IBM creative employees but also sent a marketing team to reassure its loyal customers that it would continue providing high quality services. This indicates that despite the merger, Lenovo retained its unique corporate culture. Since 2004, Lenovo has maintained a steady growth. For instance, Lenovo’s present assets are valued at US$34 billion. Moreover, Lenovo Company has over 33, 000 employees and operates in more than 160 countries.

In conclusion, Lenovo strong position in the global market was largely contributed to by its dominant position in China. Since Chinese government restricted foreign computer manufacturing firms from creating distribution and retail operations in the country, such firms were influenced to form alliances with the domestic firms. At the time, Legend was the fastest growing firm therefore it was admired by several worlds’ leading PC manufacturing firms. As a result, Lenovo’s competitiveness increased due to the fact that it better understood the local consumers’ tastes and preferences. In addition, it developed more comprehensive distribution channels than the rival firms. Through the distribution channels it made cutting edge technologies that allowed it to strengthen its market position.

 

References

Deng, P. (2009). Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44(1), 74-84.

Lenovo. (2011). Lenovo to acquire IBM personal computing division. Retrieved 12, March, 2014, from http://news.lenovo.com/article_display.cfm?article_id=1287

Lenovo. (2013). Our company. Retrieved on 12 March, 2014, from http://www.lenovo.com/lenovo/us/en/our_company.html.

Liu, C. (2007). Lenovo: An example of globalization of Chinese enterprises. Journal of International Business Studies, 38(4), 573-577.

Luo, Y. (2008). A strategic analysis of product recalls: The role of moral degradation and organizational control. Management and Organization Review, 4(2), 183-196.

Millman, G. J. (2008). Global growth from East to West. Financial Executive, 24(10), 31-33.

Zhou, Y., & Ahrens, N. (2013). Case study: Lenovo. Washington DC: Center for Strategic & International Studies.

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