Assignment on Lenovo

LENOVO

ABOUT LENOVO

While the Lenovo brand came into existence only in 2004, the company has a much longer

history. In 1984, Legend Holdings was formed with 25,000 RMB in a guard house in China. The

company was incorporated in Hong Kong in 1988 and would grow to be the largest PC Company

in China. Legend Holdings changed its name to Lenovo in 2004 and, in 2005, acquired the

former Personal Computer Division of IBM, the company that invented the PC industry in 1981.

Lenovo has the leading position in the fastest growing market in the world. Their acquisition of

IBM's PC business makes them the third largest PC supplier in the world. In addition, the people

of ThinkPad® notebooks & ThinkCentre™ desktops are now part of the Lenovo team - the

award-winning engineers, the manufacturing teams, the sales representatives, the business

partners.

SUMMERY

PARTICULARS FINDINGS

Industry Computer hardwareComputer system

Founded 1984

Headquarters Morrisville, NC, U.S.Beijing, ChinaSingapore

Area served Worldwide

Acquired IBM 2005

Porter’s Six Forces & LENOVO

We can use Porter’s Six Forces to analyze the state of the current international corporate PC

market to get a better sense for the environment in which must approach our problem.

Threat of New Entry

With the growth of the PC corporate market, there are foreseeable potential entrances in this

market. However, the entry barrier is relatively high – enterprises generally seem to be satisfied

with their current notebook providers, with little incentive to look beyond their current

suppliers. However, in technology markets, it is generally considered a constant possibility for a

new company to leapfrog the competition with a new invention. As a result, existing companies

are rigorous about attracting new engineering talent and attempt to use complementing to

make major changes in IT providers unprofitable. This is a significant reason that Dell, HP and

Lenovo maintain their dominant positions in the corporate market.

Buyer’s Bargaining Power

The buyers’ bargaining power in this market is relatively low in this market, since the customers

are enterprises, which purchase bulk volume of PCs to their employees. The cost to switching to

another PC suppliers is high to our customers, and the RFP process consumes too much of the

office of the CTO’s, PC sourcing analysts’, and desktop managers’ time. However, improving

product and service quality, offering extra features and maintaining strong customer

relationship is still key to success.

Supplier’s Bargaining Power

This does not apply to Lenovo, who manufactures its own materials to a great degree – mainly,

raw materials like boards and chips have reasonably standard prices.

Substitute products

The most probable substitute products are ultra light laptops and ultra mobile PCs. Despite the

heavy advertisement of these products in the media, enterprises don’t see them as useful to

their organization. These products tend to be produced as a fashion statement, which get more

attention from younger customers. The consumer market is more promising for these products.

Rivalry

Currently, there are three major players in the PC corporate market, Dell, HP and Lenovo, which

take up around 90% of the market share. According to the customer satisfaction survey, there

are relatively few differentiations among these top three players in terms of product features

and product quality. While Lenovo has the best product support and strongest business

relationship with customers among the three, for Lenovo to catch up with the other two

competitors, keeping the brand name is the key, especially when the IBM trademark rights are

lost.

For the year ended March 312011

US$ million2010

US$ millionYear-on-year

Change

Sales 21,594 16,605 30.0%

Gross profit 2,364 1,790 32.1%

EBITDA 603 432 39.6%

Pre-tax income 362 161 124.7%

Pre-tax income margin (%) 1.7 1.0 0.7 pt

Profit attributable to equity holders of the Company 273 129 111.2%

EPS – basic (US cents) 2.84 1.42 1.42

% of annual sales & returns both from Home Market & Host Market

*Here mature market includes Europe, Middle East & Africa and America.*Emerging market includes Asia Pacific.

SALES ANALYSIS BY GEOGRAPHY

2011 US$ million

2010 US$ million

China 46% 48%Mature Markets 36% 37%Emerging Markets (excluding China)

18% 15%

total sales 21,594 16,605

China Mature Markets Emerging Markets (excluding China)

0%

10%

20%

30%

40%

50%

60%

year 2010

China; 46%

Mature Markets;

36%

Emerging Markets (excluding China);

18%

year 2011

LENOVO’s GLOBAL OPERATIONs

Principal Operations Research Centers Sales Headquarters Manufacturing CentersBeijing Beijing Beijing MexicoRTP RTP RTP Hungary

Japan Sydney BeijingShenzhenShanghaiXiamen

The Reasons for operating in ChinaECONOMIES China in 2010 stood as the second-largest economy in the world

after the US The dollar values of China's agricultural and industrial output each

exceed those of the US; China is second to the US in the value of services it produces. Stil l,

per capita income is below the world averageLABOR FORCE Agriculture: 36.7%

Industry: 28.7% Services: 34.6%

The Reasons for operating in MexicoECONOMIES Mexico has a free market economy in the tril l ion dollar class.

It contains a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector

Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports

GDP posted positive growth of 5.4% in 2010 and 3.8% in 2011LABOR FORCE agriculture: 13.7%

industry: 23.4% services: 62.9%

The Reasons for operating in JapanECONOMIES Japan in 2011 stood as the third-largest economy in the world after

China A sharp downturn in business investment and global demand for

Japan's exports in late 2008 pushed Japan further into recession. Government stimulus spending helped the economy recover in late

2009 and 2010, but the economy contracted again in 2011 as the massive 9.0 magnitude earthquake in March disrupted manufacturing.

Electricity supplies remain tight because Japan has temporarily shut down almost all of its nuclear power plants after the Fukushima Daiichi nuclear reactors were crippled by the earthquake and resulting tsunami.

Estimates of the direct costs of the damage - rebuilding homes, factories, and infrastructure - range from $235 bill ion to $310 bill ion, and GDP declined almost 1% in 2011.

LABOR FORCE agriculture: 3.9% industry: 26.2% services: 69.8%

The Reasons for operating in HungaryECONOMIES Hungary has made the transition from a centrally planned to a

market economy, with a per capita income nearly two-thirds that of the EU-25 average.

The private sector accounts for more than 80% of GDP. Foreign ownership of and investment in Hungarian firms are

widespread, with cumulative foreign direct investment worth more than $70 bill ion.

The economy began to recover in 2010 with a big boost from exports, especially to Germany, and achieved growth of approximately 1.4% in 2011.

At the end of 2011 the government turned to the IMF and the EU to obtain a new loan for foreign currency debt and bond obligations in 2012 and beyond.

LABOR FORCE agriculture: 4.7% industry: 30.9% services: 64.4%

The Reasons for operating in AustraliaECONOMIES The Australian economy grew for 17 consecutive years before the

global financial crisis The former RUDD government introduced a fiscal stimulus package

worth over US$50 bill ion to offset the effect of the slowing world economy

The economy grew by 1.3% during 2009 - the best performance in the OECD - by 2.7% in 2010 and by 3.0% in 2011.

Unemployment, originally expected to reach 8-10%, peaked at 5.7% in late 2009 and fell to 5.0% in 2011.

As a result of an improved economy, the budget deficit is expected to peak below 4.2% of GDP and the government could return to budget surpluses as early as 2015.

Australia was one of the first advanced economies to raise interest rates, with seven rate hikes between October 2009 and November 2010.

LABOR FORCE agriculture: 3.6% industry:  21.1% services: 75%

CONCLUSION:

Chinese computer maker Lenovo Group is planning to alter its 17-year tradition of targeting

high-end business users by refocusing its ThinkPad notebooks at small businesses and home

offices settings. Lenovo’s long-term development is inseparable from a unified and correct

guiding ideology.

Only with the right long-term strategic planning for the guide, use its own characteristics with

people in enterprise management strategy for the management of Lenovo, Lenovo will be able

to establish a sound management system in order to guide the company to be stable, healthy &

rapid development.

Suggestions for LENOVO

Lenovo should concentrate effort on outperforming competition in the high-end market,

maintaining the ThinkPad brand identity for quality products

Lenovo should begin marketing mid-range laptops along with the ThinkPad to corporate

clients, becoming a “one-stop shop” for a company’s notebook needs, providing top of

the line Thinkpads to executives, and a range of less expensive but similarly high quality

products to lower spectrum employees.

Lenovo should considering spinning off a company to market their high-end ThinkPad

line under a brand name that might not raise suspicion about quality.