Marketing Strategies

This report analysed the external, internal environment of Lenovo Group Limited, as well as producing SWOT, market segment and strategic alliances analysis.

MACRO ENVIRONMENT - PESTEL

ChinaÐŽ¦s market accounted for the largest percentage of LenovoÐŽ¦s business, while the US and Europe market is the main opportunity for Lenovo to expand its global business, together they accounted for more than 70% of the global PC market revenues. PESTEL is analyzed as below:

- Political: In 2002, China lowered its import tariffs to meet its WTO commitment. It is also working on reducing taxes and unifying income tax rates.

- Economical: In the past decade, China is performing a strong economic growth; it is now the most desired country for FDI due to its cheap and large size of labour force. On the other hand, consecutive interest rate rise in the US results in the forecast slowdown of the US economy. As for Eurozone, the likelihood of a stronger Euro also point to a reduction of economic growth in 2007. The rising energy price may also be a key factor for the decelerating consumer spending growth.

- Socio-cultural: AsiaÐŽ¦s consumer spending power is growing; the percentage of spending growth is predicted to be catching up with the US & Europe.

The economic reform in China also created social problems such as increasing disparity between the rich and the poor, loss of farmlands etc.

- Technological: The trend for PC is going compact, cheap and affordable, while at the same time emphasizes on home entertainment.

- Environmental: There is a rising concern about environmental friendly PCs. The concern is mainly about energy saving, disposal and recycling. Western countries have introduced some measurement and specification to ЎҐgreenÐŽ¦ PCs. Major PC suppliers such as Dell, HP as well as specialized firms also handle disposal of PCs.

- Legal system: Property / intellectual property rights, severe corruption and the Judiciary dependency can be seen as barriers to enter the China market.

COMPETITIVE ANALYSIS & MAIN COMPETITORS

The PC Industry: Global PC market performed well, the market value recorded CAGR 5.2% from 2001 ÐŽV 2005. The sales growth is forecast to decelerate or even decrease in the coming year. This is due to saturated market and price competition. The five forces analysis is used to analyse the PC industry.

Force of new entrants:

- PC market is largely consolidated; make it hard for new entrants.

- Huge R & D investments needed in order to gain competitive advantages.

Force of Buyers

- Large number of suppliers to choose from, also, standardization of PC hardware decreases the demand for branded PCs.

- Increasing spending power in the Asia-Pacific region.

Force of Suppliers (OEMs and Contract manufacturers)

- Intense competition in the manufacturing industry caused most big players suffering from decreasing profit margin.

- The major CMs such as Hon Hai (Foxconn), Flextronics and Solectron have strong dependence of their big customersÐŽ¦ performances.

Force of substitutes

- The PC replacement cycle is getting flattened.

- Different systems such as Apple Macintosh computer posed little threats to the PC market.

- Technology development of multiple home entertainment devices such as PDA, DVD and game devices (PS2, Wii etc.) might replace PC in some areas.

Force of competitors

- Price competition results in slowdown of growth and lower profit margin

- Merger and Acquisition as a mean to win. e.g. HP-Compaq and Lenovo-IBM merger.

Major competitors

HP is the top PC seller, surpassing DELL in the third quarter of 2006. Not hugely dependent of US market, the rest of world market accounted 64.8% of its total revenue. The company size of HP is much larger than Lenovo, it offers diversified services, with PC sector accounted for 30.5% of total revenue.

HP experienced similar stage of Lenovo by acquiring Compaq in 2004. Compared with Lenovo, HP had a tougher after-merger period. Although HP had taken actions for cost cut and the integration of Compaq is smooth, the company suffers from decrease profit margin, and it didnÐŽ¦t meet its quarterly target, finally it had to re-shuffle the management team.

The fundamental reason is that Lenovo-IBM deal is complementary to each other, whereas HP and Compaq are two identical competitors with similar product lines and target market.

DELL ÐŽV Being the 2nd position in PC shipment, DELL has a distant lead to Lenovo which is currently at the third place. The main business of Dell is in the US ( 65.1%).

The main strength of Dell is its direct-selling business model, which gives it cost leadership in the industry.

In 2004, Dell initiated the price cut competition for PC, forcing other competitors to follow, driving down the profit margin.

Acer is the 2nd largest player in Asia-Pacific and the worldÐŽ¦s 4th largest. In 2005 AcerÐŽ¦s performance was very strong; the year-on-year growth and PAT both exceeded their target. This fast growth and its aggressive expanding strategy might impose a pressure on LenovoÐŽ¦s 3rd market position.

Acer has targeted the US, China as key-growth market, and it is focusing on desktop PC sales.

The above competitors all have wider product range than Lenovo; they are more involved in service sector rather than only focusing on hardware sales.

INTERNAL ANALYSIS

Operational issue ÐŽV sales, market share, profit, margins, costs

- LenovoÐŽ¦s business is largely relied on desktop and notebook computer sales, together they accounted for about 94% of its business.

- After the IBM deal, LenovoÐŽ¦s 2006 turnover has rocketed to nearly 5 times higher than in 2005, Fig.1 shows the actual statistics.

Fig. 1 (source: Lenovo FY05/06 annual report)

- The