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Running Head: GLOBAL STRATEGY ANALYSIS 1

GLOBAL STRATEGY ANALYSIS 7

GLOBAL STRATEGY ANALYSIS- The External and Internal Environments

Muhannad Assaf

Argosy University

GLOBAL STRATEGY ANALYSIS- The External and Internal Environments

LENOVO GROUP COMPANY

The PC industry in China has been growing rapidly over the past few years. This has led to the growth of PC companies like Lenovo and the entrant of new players in the market too. To understand the business environment and its dynamics, a PEST analysis is carried out together with porter’s five forces to analyze the competitive nature of the PC industry for the company both internally and externally.

Since its inception, China has been the key market for Lenovo’s products. The Chinese PC industry started growing in the 1990s, a time when developed countries had already made tremendous achievements in the industry. As a developing economy, therefore, the country provides a good opportunity for PC companies such as Lenovo as individuals slowly started owning PC products. This even opened room for foreign competitors.

The last few years have seen the general PC market in the world slow down, but that of Asia especially China experienced growth. According to studies, China accounted for half of the PC market in the Asia-pacific area by the year 2006. With saturated markets in developed countries, the development of PC industry in the developing countries like China is the main focus to drive the PC global market.

Most PC products in the market globally are homogenous. This has prompted PC manufacturers to engage in price wars. This greatly affects profits and manufacturers have to look for ways to cut costs in its operations. For instance, the price war between Lenovo and Dell has seen PC prices decrease in China in the recent past. This leads to a negative relationship with channel partners and it remains peculiar how PC companies will work with the channel for a share in China’s PC market.

PEST analysis:

PEST is the external factors to brief economic and social policies that play an important role in the field of commercial activities and globalization. PEST can do the job with several combinations and rely, PEST in plans on the basis of the time factor and the resolution which it considers the most important factors contributing to the success of the company and that the right decisions raise the value of the company through good use of external factors. In China, the political environment is very stable. The country has a good reputation globally, and it attaches importance to the stability of the political environment. This has led to more direct investment in the PC industry from foreign investors.

Regarding the economic environment, China is doing well. The country has grown to be the largest economy overtaking the US. Foreign trade and foreign direct investments are the forces that drive the development of the Chinese economy. The country has a pool of cheap skilled workforce and resources. Many multinationals prefer outsourcing their manufacturing operations to China. (Brahm, 2011) Due to these factors, the PC industry has grown tremendously for Lenovo and the many players in the industry. China with its large population also serves as a market for manufacturers and the more the economy grows, the more the purchasing power of the people increases creating a good market.

Social and cultural factors also affect the business environment. In the early development of the PC, it was mainly used in big companies and people viewed it as a tool of work. A majority of the people relied on radio, TV and newspapers for information. The development of society and the economy has seen people embrace the use of PCs. Today people own PCs for entertainment learning and for storing data. Thanks to the internet, information sharing has become so much easier and this what motivates people to own computers and smartphones. More people gradually accept PCs to be part of their culture by the day in China. Though concentration is more in urban areas, sales are set to increase as young people and children in China and the world over growing under the influence of PC and the internet.

In terms of technological factors, Lenovo is at the heart of the technology industry. Companies in the PC industry always have to come up with innovative and cheap products. Due to innovation and competition, the cost of PC products has been coming down giving so many people an opportunity to own PCs. Technological development and innovations remain the key forces for the PC industry. Technology has also changed the way PC products are sold. Lenovo and other players are using the internet as a platform to reach the global market. Today customers can place orders online or make phone calls for deliveries. This development is set to transform the PC industry by increasing sales and reducing operational costs.

Let us now analyze the competition for Lenovo’s PC industry using porter’s five forces.

Bargaining powers of suppliers:

In this industry, the bargaining power of suppliers is very strong. PC makers like Lenovo depend on other stakeholders for the supply of key technologies like CPU and cameras. The costs of these products affect profitability and the end price greatly. For instance, there are only two CPU providers in the world, Intel, and AMD. For this reason, they have a strong bargaining power. Lenovo entirely depends on these tech providers and must play by their rules. Other providers have a relatively lower bargaining power, but the main core providers have a strong say.

Bargaining powers of buyers:

The bargaining power of buyers in this industry is also strong. Alongside Lenovo, there are other PC makers both in China and globally. In China, alone Lenovo is competing with Founder, Dell, HP and IBM. The consumers have many choices, and the products are homogenous, leading to favorable prices for the customers.

Threats from new entrants:

Threats from new entrants are low both in China and globally. Barriers are few as different governments encourage investments to foster economic growth. PC products are not unique making it easier for new entrants to learn. The start-up cost is also low and technological barriers are minimal. However, with cut-throat competition on prices for a new entrant to survive they must make use of economies of scale, sale many products to cover the costs. (Ahlstrom & Bruton, 2010)

Threats of substitutes:

SWAT helps in determining the external environment factors. For example, if there is one influential factor in the reduced number of the organization clients can factor tracking it with the responsible and of the management of research and development and management of marketing services and product management, as well as customer service management, and if there was a competition based organizations providing services and products with a special stamp "the greatest rates of returns, multiple services to a single vendor,.." can keep track of these factors through research and development department. After examining these factors can assess opportunities and threats through a matrix evaluation of external factors.

Rivalry among competitors:

The rivalry for Lenovo in the PC industry both locally and internationally is very intense. Lenovo is currently lagging behind Samsung after holding the number one slot for a long time. The forces of business control the industry and anyone can be team leader provided they play their cards well. Brand loyalty for PC products in China is low which leaves companies to look for ways to continuously remain relevant.

The company continues to enjoy numerous opportunities. The Indian market has a potential of growing for its smartphone brands. The company has also ventured into the tablet market of late, and it is already making big sales with a possibility of selling more. The company is also penetrating new markets through its acquisitions and mergers. On the flipside, the company also faces a number of challenges; competition is now more intense than ever before. It competes with companies such as Samsung, Acer, Apple, and HP among other brands. The nature of the industry is also highly uncertain with rapid technological changes occurring daily. Lenovo and other companies are under pressure to release new products more often to cope up with the competition.

The company today has a presence in over 160 countries. It has been able to successfully utilize the diversity of its people to create unique products. Further, with the more decentralized approach it is taking, the company will reduce costs greatly and offer cheap products. The company mainly outsources its manufacturing to cheap labor regions such as Asia and South America. The large populations in these regions continue to provide skilled labor and the much-needed market for the company’s products. The company has been able to create a strong patent portfolio from the acquisition of brands related to its PC business. With the internet opening a new avenue for sales, the company definitely has a bright future.

References

Ahlstrom, D., & Bruton, G. D. (2010). International management: Strategy and culture in the emerging world. Australia: South-Western Cengage Learning.

Brahm, L. (2011). Doing Business in China: The Sun Tzu Way. New York: Tuttle Pub.

Pahl, N., & Richter, A. (2009). SWOT Analysis - Idea, Methodology And A Practical Approach. München: GRIN Verlag GmbH.