Analysis of macro(pest) and micro(swot) – how those affect the business of lenovo ?
Their business strategy and Five porter’s forces?
Lenovo group is one of the leading manufacturers of personal computer in the world. It mainly produces desktops, laptops, handheld computers, servers, PDA’s and phones. Lenovo group started its business as a distributor of computer and computer products for the major companies like IBM and sooner it will became the leading PC manufacturer in China. Lenovo continue its growth into official and personal technologies by acquiring companies like Motorola, which makes him the third largest Smartphone Company in the world. It started to create real and challenging business model in order to differentiate the products on the competitive market.
The company is expanding in both the foreign and domestic markets by investing in manufacturing as well as in the sales and distribution. It continuous to create new market opportunities by developing technological products like cloud computing, mobile internet and digital home. It has number of labs and research centers which are established in 46 countries like Japan, China, and U.S etc. The company has acquired more than 5000 remarkable employees which help them to stay ahead on the business and to achieve a sustainable growth in the field of manufacturing and distributing personal computers.
Lenovo is very much focused on improvising the lives of the customers by delivering the products and services to fulfill their need of technology. It also determines the values of technology in human’s life and always tries to deliver the best.
In 1984, the company established as Legend Group in Beijing, China and acquired distribution facilities around UK, US, Malaysia, Mexico, Hungary and China. In the year of 1994, Lenovo became a public limited company and listed himself on the Hong Kong Stock Exchange. Later on 2003, the company change its brand name from Legend to Lenovo and in the year of 2005 it buys the IBM”S Pc division and became one of the leading PC manufacturer. Further it expands by introducing new brands like Idea and by forming joint ventures with Japanese company IT Company. After that the company started to manufacture high tech products and try to capture most of the market share.
The new and innovative ideas of the company attract the consumer towards its product. The competitive strategies of the Lenovo is very much different from the other high-tech companies because others give priority to manufacturing and sales but Lenovo focuses more on the extension of market. Its core value is to expand the company in every locality which helps to increase both revenue and profit margins. Lenovo continues to develop the new marketing strategy and also in the development of technology. It also introduces himself as the technology sponsor in Olympic Games and in the world Expo 2010. Lenovo forms a joint venture to sell servers and develop storage solutions.
The industry of technology is growing very rapidly due to the consumer’s changing life style. Lenovo is continuing to create the most advance personal technology to grow globally. A Pest analysis is used to identify the macro factors of the company relates to political, Economic, Social and Technological environment in which the company is operating (Camillus, 2011). It also analyzes the market growth and decline and identifies the position and direction of the company to help in the future marketing planning and decision making. To make a marketing strategy it is very necessary to develop a plan analyzing the external and internal environment (Das, 2015). The following PEST analysis will help to analyze the factors which influence the environment of the Lenovo Group:
The developed economy of South Korea and increasing personal income of the people offers a vast and growing market for Lenovo Group in the future. The political environment of South Korea is very good for the foreign investors as it helps in the growth and development of the company (Pellikka and Malinen, 2015). It supports the high-tech companies to develop new and latest technology in order to compete with the developed economies. The foreign companies not only develop the economic lives of the people but also helps to develop the social life of the people by trending the latest technology. It also reduces the labor and gives more comfort and satisfaction to the consumer’s life. The significant changes in technology also keep the process of learning among the individuals (KlovienÄ—, 2012). The company is to keep a track of the latest changes in technology and try to develop the technology according to the need and demands of the customers.
As South Korea has a huge population and modern customer base which requires high-tech products of Lenovo for the purpose of business and education, it’s going to be a great region for the development of business. Lenovo focuses on more and more on customer satisfaction and development of technology to increase its business in South Korea. The above analysis clearly indicates the external and internal environment of the Lenovo Group and also suggests the future distribution and marketing decisions of the company (Westney, 2011).
Strengths: Lenovo is one of the leading manufacturers of personal computers. The company’s knowledge towards the South Korea market is very extensive. It continues to develop new strategy to get a sustainable growth in the global market. It implements research and planning to reach the organizational goals by increasing its technology as well as the distribution centers. Though it manufactures in a bulk size the production cost keeps on low. Acquisitions with global high tech companies like IBM makes the Lenovo group a most respectable brand which attracts the consumer towards it s products (Zapunnaya, 2015).
Weakness: Though it was a Chinese brand it got the poor image in developed economies like U.K and U.S. Its main market is Asia and is very difficult for the company to get access in the European market. Lenovo Products are not much as differentiated as another companies. The competitors offer a much low price in reference to Lenovo’s product. The large amount of profit comes from the selling of personal computers and laptops hence the computer hardware product fails to generate more revenue.
Opportunities: Growing market for smart phones in South Korea leads the Lenovo to be in the third largest smart phone company. The continuous growth in tablet and PDA’s market help the company to generate more and more revenue. In the meantime the company is introducing more and more products in relate to the life style of the consumer to become as a handy brand. The acquisitions with the global high-tech companies like Motorola and Japanese technology helps the company to expand its vision in technology market.
Threats: The major threat of the company is increment on the price of the computer hardware products. As the sales of the company laptops are increased the need for the hardware is increasing also and the high cost of hardware is going to cut the profit margins of the company. The continuous changes in technology force the company to deliver the products according to the latest technology. The competitive nature of the business is the major threat of Lenovo because new firms are delivering the same products on much low price.
Fig 3: It shows Porter’s Five Forces Analysis for Lenovo
The above diagram shows the Five Forces Analysis by Michael Porter. The competitive atmosphere faced by a company depends on a number of factors existing in the market and industry. The industry analysis for Lenovo shows the following outcomes which are described below in details:
It shows all the existing companies in the market which are competing with Lenovo. These are mainly the companies which deal in almost same kind of business like Lenovo and are of almost the same size like Lenovo. To name a few – Dell, Acer, Apple, HP, ASUS, Toshiba, etc are the major competitors fighting for dominance in market share. Each of the companies has its own advantages and disadvantages over the others. In case of Apple, we may say that it has excellent designing and product innovation (Fillon et al.2015). Acer dominates in more effective supply chain in many regions compared to others and also in significant presence in the market. The focus of Dell is on the markets which have more technically sound and mature programmers, various ranges of services and products for the enterprise customers. According to a 2013 global survey of market share it is observed that the following was the trend of market share: Lenovo- 15.8%, Dell- 10.5%, Acer- 10%, and HP- 15.6% (Miller, 2015).
In order to sustain and gain competitive advantage, Lenovo follows a very effective strategy of product differentiation and increases new market opportunities by introducing services like Cloud Computing, Digital Home and Mobile Internet. The company has also a good brand image and brand equity which gives the company a significant edge (Jewo et al. 2015).
The modern era of globalization and liberalization has made it possible for new market players to enter the market with low cost into the Korean market. From these threats Lenovo is well protected due to its economies of scale and the necessity for a very high amount of capital investment for the companies who are willing to enter the Korean market. The advantage of Lenovo is that it has already an established brand name and image which cannot be easily challenged by any new emerging company (Fang et al. 2015). Also, Lenovo has a very efficient Research and Development Team which has done an extensive survey on the tastes and preferences of the customers and it also helps in reducing the costs of ownership and offers the customers high quality and products which have longer life span (Do et al. 2015).
Threats of Substitutes
There has been an abundance of the substitute products in the markets with each passing day as more and more companies are coming up every day with diverse products and services. The main substitutes are the products like iPads and others. Under this situation of threat from substitute products, Lenovo has come up with a very innovative strategy of product differentiation and diversification which will help it to cope up with the ever-changing and dynamic market of computers and laptops. The extreme high quality of the products helps the company to overcome the threat of substitution. The other crucial factors in favor of Lenovo are the durability and the reliability of its products (Dam et al. 2015).
Bargaining Power of the Suppliers
In Korea, there is an abundance of suppliers who are willing to provide supplies to Lenovo. This is the reason why a single supplier cannot dictate the prices. There is availability of cheap raw materials and labor supply which can be used by the company if required. Hence, Lenovo has an advantage in this region compared to some of the other parts of the world (Crotty, 2014).
Bargaining Power of the Buyers
The availability of a large number of products to choose from and to match the various needs of the different customers, give the buyers the opportunity to dictate the prices of the products in this modern era. There is a wide range of alternative products and substitutes which the customers of different ages and preferences can select from. To combat the situation, Lenovo has come up with a very well chalked out and effective differentiation strategy to diversify the products for various purposes and situations. In Korea, the company has gained huge success by following this diversification and innovation strategy. The competitors have not still been able to challenge Lenovo like they have done to some of the other brands. The company’s access and service delivery to some remote localities have given a good reputation by way of which it has been able to command the prices of their products in some cases, which the other rival companies would not fancy of doing (Banerjee, 2015).
The marketing strategy adopted by Lenovo for the purpose of capturing the Korean market can be discussed under several heads as follows:
Product Strategy- This strategy is similar to the market segmentation and positioning technique followed by Lenovo. It is better referred to as Middle and High End Market Positioning. With respect to the personal computers, the survey depicts that the refrigerators mainly focus on the middle and high end areas. Lenovo currently owns a 70% market share in products which are high end. The middle end products comprise of 40-50% of the share in the market. The market share is the lowest for the low end products and it is around 10%. Lenovo is the pioneer in developing products as per the chosen demographic. It always designs its computers and the laptops keeping the requirements of the end users and it is very much successful in its attempt. The products are also designed specifically for the different distribution channels that will be used by the company. As for example, for the super markets, Lenovo has manufactured products of medium level and at comparatively reduced prices. The high end products are sold via the electrical chains and the several retail stores. Keeping the concern for the rural markets, Lenovo has come up with the strategy of distributing the comparatively simple products of low prices. This is mainly done so that the students of the rural area can reap the benefits of computing technology at a relatively lower cost (Ghosal, 2013).
Pricing Strategy- The current price scenario of the competing brands show that there is an immense competition is going on in the market. Every company is thinking of reducing prices of their products to capture the lion’s share in the digital market. But, Lenovo is against this policy. Lenovo did not reduce the prices of their products. It put more effort to build its brand image. The excellent service quality helped it to increase the market share. The prudent pricing strategy of Lenovo has helped it to gain excessive capacity. The price strategy is based on the product differentiation strategy. The price strategy is based on top performance of brand value, service value, physical value and other types of value addition to the products, give Lenovo an edge over the competitors. The independent and unique value system and price of the various Lenovo products are built over several years of knowledge and experience and excellent service knowledge. The company has also catered to some locations where the other brands did not venture into. This has given the company a bit of liberty in maintaining the prices of products at a steady level instead of reducing it like the other companies. The brand name is adequate for the customers to purchase products from the company at a price which might be a bit higher than the competitors (Camillus, 2011).
Focus Strategy- This is aimed at a market segment for a particular product or a few range of products for that particular market. It does not include the total market. The advantages of this strategy may be enumerated as follows:
The investment is significantly lower as the target is on a particular market
1. More knowledge about the particular market can be gathered and the focus will be to serve that particular market only and hence the specialization on a particular market can be achieved (Zapunnaya, 2015).
2. Entry to a new market becomes easier and cheaper
Lenovo assumes the strategy of cost leadership as the strategy of development. The core competencies developed from the focus strategy are as follows:
Advanced supply chain
24×7 customer service
Relatively lower prices due to transaction costs which are less
Excellent capacity to search
The excellent brand image in the customers’ minds
High quality of services
Wide range of products and shopping in the single or one stop manner
One of the first market movers in this line of products and it has maintained its good image and brand name (Banerjee, 2015).
Differentiation Strategy- This is entirely based on influencing the customers’ thinking that the Lenovo products are the best available in the market as compared to the othet competing brands. A prudent differentiation strategy will give Lenovo the following advantages:
Less price elasticity of demand for its products compared to that of the rivals
The products will enjoy good selling volumes even at premium prices
Profits earned will be more than the average
Lenovo provides a strong barrier to entry to the new companies who are willing to enter the market
The company is organizing its value chain operations for bringing in product differentiation
Creating a concept in the minds of the customers that the Lenovo products are the best in class and hence the relatively higher prices
Conclusion:
Lenovo start it journey as sales and distribution centers for major IT companies but it further comes to as a leading manufacturer of the Personal computers and laptops. It capability of developing, manufacturing, sales and distribution is keep on rising. As it focuses more and more on the customer satisfaction it grows as a user friendly brand. The company is keep on growing from a corporation to a global brand. The competitive strategy of today’s world in IT industry is focusing mainly on the expansion and capturing of bigger market share. Lenovo grows its deep root in the market of South Korea and always try to implement new strategies to fulfill the need of the customer through latest technologies. The company mission is to deliver the product and services to its customers in such a way that will help them to enhance their life. It operates on almost 60 countries and has the dedication to serves its customers, investors as well as the employees.
The above analysis clearly shows that the company is doing really well in the field of manufacturing and distributions of PC’s and also played a great role in developing technology. The following are some of the recommendations that have to keep up in the future for the development of company:
Continuous process of development: As the industry is being on competitive, Lenovo has to create new and high quality products to attract the customers. More and more investment is required to be in the scenario leading IT manufacturer. It also involves the development of research and production center to catch up the latest technology.
Effective customer service: Losing an existing customer is always bad as the business is focusing more and more on the future earnings. The dissatisfied customer is going to hamper the image of the company by spreading negative information of the company. There will be a chance of losing business in the future by the new or existing customers in order to be a bad service provider
Impact on customer regarding human assets: There is always a correlation between delivering the customers need and satisfying employees. The development of the products and services of the company is very much dependent on the employee as without good employees no organization can reach its goal. Hence the productive employees are to be appraised by some rewards which help them to improve their productivity and loyalty towards the company. The company has to provide training sessions for its employees so they can have the knowledge of the latest technology.
References
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