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Assignment on Lenovo

Jan 19, 2016

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LENOVO

ABOUT LENOVOWhile 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.SUMMERYPARTICULARS FINDINGS

IndustryComputer hardwareComputer system

Founded1984

HeadquartersMorrisville, NC,U.S.Beijing,ChinaSingapore

Area servedWorldwide

Acquired IBM 2005

Porters Six Forces & LENOVO

We can use Porters 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.

Buyers 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 CTOs, 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.

Suppliers 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 dont 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 312011US$ million2010US$ millionYear-on-yearChange

Sales 21,59416,60530.0%

Gross profit 2,3641,79032.1%

EBITDA60343239.6%

Pre-tax income362161124.7%

Pre-tax income margin (%) 1.71.00.7 pt

Profit attributable to equity holders of the Company273129111.2%

EPS basic (US cents) 2.841.421.42

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

SALES ANALYSIS BY GEOGRAPHY2011 US$ million2010 US$ million

China46%48%

Mature Markets36%37%

Emerging Markets (excluding China)18%15%

total sales21,59416,605

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

LENOVOs GLOBAL OPERATIONsPrincipal OperationsResearch CentersSales HeadquartersManufacturing Centers

BeijingBeijingBeijingMexico

RTPRTPRTPHungary

JapanSydneyBeijing

Shenzhen

Shanghai

Xiamen

The Reasons for operating in China

ECONOMIES 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. Still, per capita income is below the world average

LABOR FORCE Agriculture:36.7% Industry:28.7% Services:34.6%

The Reasons for operating in Mexico

ECONOMIES Mexico has a free market economy in the trillion 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 2011

LABOR FORCE agriculture:13.7% industry:23.4% services:62.9%

The Reasons for operating in Japan

ECONOMIES 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 billion to $310 billion, and GDP declined almost 1% in 2011.

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

The Reasons for operating in Hungary

ECONOMIES 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 billion. 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 Australia

ECONOMIES 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 billion 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. Lenovos 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 companys 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.

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