GLOBAL STRATEGY ANALYSIS- The External and Internal Environments
LENOVO COMPANY
China is the leading market for PC and smartphones for the Hong Kong based Lenovo Company. According to the latest financial statements, China contributed 38 percent of the company’s total revenue. Europe, the Middle East and Africa contributed 25 percent and America contributing 25 percent. The company believes that the outside regions have more growth potential given that the domestic Market keeps dropping by 10 percent each year.
The company has to venture into these other three regions for it to achieve its goal of selling 100 million smartphones by 2015. The aim of any business is business maximization and cost minimization. (Dwived, 2009) Currently, Lenovo’s long-term strategy is to replicate its success in China in other regions and countries. This calls for a decentralized management approach whereby each country or region will have a manufacturing plant and its own sales and distribution center.
Lenovo’s key growth areas remain in Africa, Asia and the Middle East; this is especially because developed countries have a stiff competition because of other major players’ presence. The African continent presents a good opportunity if the statistics are anything to go by. The collective GDP of the continent grew by 4.7 percent on average in the past decade. Figures also show that in the recent years Africa’s consumption of goods and services has grown to surpass that of India and Russia. It is projected that by 2020, Africa will spend $1.4 trillion worth of goods and services. This presents numerous opportunities to multinational companies like Lenovo. It only means that sales will increase in this region. With the recent development of more stable governments and rising democracies, Africa presents endless opportunities.
The company can also explore the Asian region because of the vast population and low presence from competitors. One such country is India; India’s smartphone market is one of the least explored in Asia. Lenovo already has a competitive advantage over other companies with its low prices and it can use the strategy to penetrate India. Already the company has a 17 percent presence in the country with regards to PC sales and it can count on this goodwill to boost its smartphone sales.
Exploring global markets is also a way of diversification and a possibly increase sales in future. Initially most expansion strategies cause operating losses in the short-run with profits expected in the long-run. (Villagra, 2005). With the company’s demand for its PC products facing high competition in developed countries it is only prudent to invest in these new fronts.
Diversification can also help in absorbing the shock in the event that one market segment or product line fails by other segments. In the case of Lenovo, the recent years have seen the company apply product differentiation with products such as tablets, smartphones and convertible laptops breaking away from its traditional PC.
China has been known to be a low labor cost country in the world but the company’s move to decentralize operations is aimed to stabilize their global presence. Currently Lenovo has manufacturing plants in Brazil, Japan USA and is planning to put up a new one in India, this is according to a report published in the Company’s website.
Lenovo has always focused on low cost products and it is therefore important to analyze the economic viability of the new markets with regards to this strategy. Let us start with Africa; Africa presents the biggest opportunity in mobile phones in the world. In fact, researchers say that Africa is the fastest and biggest growing mobile telephone market after China. The main reason being that Africa lags behind other continents when it comes to fixed-line phone subscribers. Only under 5 percent of the African population has ordinary phone services. Mobile phones offer an opportunity for many to access the service that has not been there for so long. It is estimated that by the year 2017 the number of mobile users in Africa will hit 1.2 billion.
Currently all major mobile phone manufacturers such as Nokia, Samsung, Motorola (now under Lenovo) and even Apple have a presence in the African continent. Most of these companies have distribution centers, which means that Africa is a net importer. Other PC products still have a low penetration with only a few educated and wealthy individuals possessing these devices. Africa is making progress in all fronts and the market can only increase.
Different countries in Africa present different opportunities because of the different government regimes. South Africa is the leading mobile phone consumer followed by Nigeria. However, Africa still lags behind in the easy of doing business. Generally, the tax regime is exploitative with very low skilled labor. A few economies are also not stable due to political conflicts and wars. The economy is easily affected by recession of major economies such as the US leading to unfavorable exchange rates (Martor & kogan, 2002). The governments still control how business is done largely. Even in these conditions, Africa remains a huge potential market for Lenovo because of the changes the governments have initiated and general growth of the continent.
In the past, most multinationals have preferred the Middle East and Asia because of more stable economies. Countries like India enjoy a high presence of multinational companies including Lenovo. The Indian market for instance has all the dominant players in the PC and mobile phone industry. The company faces high competition from brands like HP, Dell and Acer in the PC market with the smartphone and tablet market being fairly competitive.
India like most of the Asian countries is a lower middle income earning economy. In the latest report by World Bank on easy of doing business India moved the rank of doing business in 2015 from position 134 to a possible 130 in the year 2016. Government has to work a lot harder to make the parameters considered in doing business more favorable. This includes taxes, business registration, access to credit and government incentives. With the company’s plan to set a manufacturing plant in the country, the company will be able to offer its customers cheap products. The country’s large population provides both work force and market for the company. Lenovo should take advantage of the new legislation being implemented by the Indian government to venture into the unexplored market.
Currently the company has lost its number one slot in the Chinese market to Samsung. The company also continues to face tough competition from other technological giants such as Apple and Hewlett Packard (HP). In the year, 2013 HP overtook Lenovo as the world’s largest PC vendor by unit sales.
HP is currently one of the leading companies in PC technology market. The company specializes in computers, printers and PC brands. The HP brand is a globally known product but has high presence in developed countries especially in America and Europe. In order to counter competition the company ventured into manufacturing light and portable PCs. The company is also trying to venture into the server industry, a move that will see the company compete with Lenovo’s IBM. The company is also known for its good customer relations, it has an online feedback system to ensure customers are satisfied and ensure they have a competitive advantage over industry players. The company strives to produce cheap and quality products. Unlike Lenovo, the company has most of its operations centralized in the US with offshore offices in many countries across the world. This means it can keep costs low while at the same time competing globally.
Samsung also poses a great competitive challenge to Lenovo, not only in the domestic market of China but also globally. Samsung uses the product differentiation approach to counter competition. The company is known for launching a series of products to meet both its low-end and high-end market target. For instance, the company has been releasing a series of Samsung galaxy smartphones. In the past, the company has been doing well in the low-end market but it is increasingly gaining momentum in the high-end market with the release of smart phones and tablets.
From the company’s financial statement, revenue from the smartphone product segment has been increasing in the recent years. Samsung has a global presence just like Lenovo but the company uses a mixture of strategies to gain competitive advantage. The company uses the 4P strategy because it has a range of products, which includes tablets, mobile phones, televisions, Cameras, refrigerators, air conditioners, washing machines, microwave ovens, laptops, printers and its accessories. Samsung employs a single distributor strategy for each region, whereby one large distributor controls the market. The company also uses multiple fronts to advertise its products.
Apple is also another competitor in the PC industry. The company’s products targets mainly students and professionals, for record keeping. Apple products are popular in developed countries especially the US. The company stands out in producing unique products that gives it a competitive advantage. The company also uses low cost approach per unit to secure its market position, unlike other players, the company has not explored offshore markets effectively but it is slowly gaining momentum.
For Lenovo to remain competitive it has to continue defending its position in the local market of china and the global market as well. The industry also needs players to remain innovative as new and better products are introduced by each day.
References
Dwivedi, D. N., & Dwivedi, D. N. (2009). Essentials of business economics. Noida, U.P: Vikas Pub. House Pvt. Ltd.
Martor, B., Kogan Page (Firm), & Organisation pour l'harmonisationenAfrique du droit des affaires. (2002). Business law in Africa: OHADA and the harmonization process. London: Kogan Page.
Nigh, D., Toyne, B., & Conference. University of South Carolina. (1997). An emerging vision. Columbia, SC: Univ. of South Carolina Press.
Villagra, E. S. (2005). Does product diversification lead to sustainable development of smallholder production systems in Northern Patagonia, Argentina?.Göttingen: Cuvillier
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