International Strategy International Strategy

GROUP MEMBERS :SANGEETA SHAHADATE SHAROON TANKA

VIRAL

Started in the 1984 as a small company, founder- Liu Chuanzhi in Beijing

1988 - Turning Point because it hired 58 young people to settle the business up as an international business

Produced first Lenovo PC in 1990 From 1990-2005 its market increased up to 30% in China In 1994 it listed in the Hong Kong stock Exchange In 2005 took over IBM’ (3rd largest computer business) PC

division when it was in 13th position of personal computer business

It has seen up and down as market fluctuate Aggressive marketing, entering in to the new market

gradually

History : Lenovo

Porter’s Diamond

Firm strategy, structure and rivalry

Firm strategy, structure and rivalry

Demandconditions

Demandconditions

Related andsupporting industries

Related andsupporting industries

Factorconditions

Factorconditions

Porter’s Diamond suggests that there are inherent reasons why some nations are more competitive than others, and why some industries within nations are more competitive than others.

National Sources of Competitive Advantages

[1] Factor Conditions : ‘Factors of production’ into making a product or service like raw material, land and labour. Cheap labour cost, raw material and land in China and India (approximate $3.00 per laptop produced, £1.92, in 7 August, 2010 exchange rate)

[2] Home demand conditions : The nature of the domestic national customers can be a source of advantage. Dealing with the sophisticated and demanding customers at national with low cost computers since 1996 and current domestic leader in PC industries in China. Huge market (half population of the world: China and India, and aggressively growing economy with double digit economic growth)

National Sources of Competitive Advantages

[3] Related and Supporting Industries: Local clusters of related and mutually supporting industries is main advantage. Regional based and personal interaction easy and effective. Strategic alliance of Lenovo with TCL in china and IBM in U.S.

[4] Firm Strategy, Industry structure and rivalry: Firm’s strategy to invest in technical excellence in IT industry, Competitive local industry structure & strong rivals with IBM based on government policy Lenovo had achieved USD 1.6 billion in sales accounts 45% of their total worldwide sales even with economic downturn. Its market share rose last year at 1.8 % to overall of 30.5 % (Lenovo Corp, 2009).

National Sources of Competitive Disadvantages

No disadvantage from its China base

But there is no replacement plan when China increases its labour price which is likely to be in the near future.

Example: The case of Apple manufacturing unit in China. (21 people committed suicide due to work pressure till June 2009). (Source BBC, 9 June, 2010)

After that case, Apple manufacturing unit decide to increase their labour price by 100%. (Source BBC, 9 June, 2010)

Also, in the sigma associated with Chinese products with a reputation skimping on quality to achieve low cost which mistrust the customers.

The Cage Framework : Lenovo’s entry in American market

Cultural DistanceCultural Distance

Administrative & Political distanceAdministrative & Political distance

Geographic Distance

Geographic Distance

Economic/ WealthDistance

Economic/ WealthDistance

[1] Cultural Distance : Difference in language, ethnicity, religion and social norms. Importance of consumer tastes and managerial behaviours.

[2] Administrative & Political Distance: Incompatible distance of administrative, political and legal traditions. Slow and corrupt administration.

[3] Geographic Distance: Geographical characteristics of a country such as size, sea access, the quality of communication infrastructure.

[4] Economic Distance: Differing capabilities of companies in different countries. Rich countries are typically weak in serving consumers in poorer markets. Also, it takes long time to learn requirements of middle class from wealthy countries.

The Cage Framework : Lenovo’s entry in American market

The Cage Framework : Lenovo’s entry in American market

AttractivenessTo Entrants

Reactiveness of defenderNote :Size of the bubble indicate relative clout (power)

Lenovo’s Macmillan’s International Competitor Retaliation

Lenovo’s Macmillan’s International Competitor Retaliation

BB

EE

CC DD

FF

AA

As per CAGE framework Cultural difference between U.S. and China , Difference in economy of U.S. & China

Transfer of Technology is costly from China to U.S. but, after merger of Lenovo with IBM, it is in strong position, Administrative, political & legal tradition difference restricted at improvement in R&D

As per Macmillan Framework, the initial move of Lenovo to U.S. is aggressive strategic move

Success at first instance due to IBM customer’s loyalty and excellence of IBM workforce and Management Team in U.S. with climbing stock rate in 2003-04

Great competitive market with Dell, HP offering $100 savings with average machine during 2004-05

Comments on Lenovo’s CAGE & Macmillan framework

Comments on Lenovo’s CAGE & Macmillan framework

Lenovo replaced ex-IBM CEO Stephen Ward by William Amelio who is running DELL Asia-pacific Region. Also, launch new range of Lenovo branded PC’s to small and medium sized American Business

Lenovo expands sales to American retailers such as office Depot and new strategic move towards Indian market rather than be stable at U.S. market

Lenovo strongly attack with aggressive strategy with clout of IBM in U.S. so, at first instance it is Type A

But, as the competition increases, Lenovo change its technology and workforce with IBM Brand name as type B, but less reactive

As IBM Think-pad global trademark contract of 5 years over, Lenovo must decide highly reactive strategy like Type D as China product has low quality and life

Comments on Lenovo’s CAGE & Macmillan framework

Comments on Lenovo’s CAGE & Macmillan framework

High

Pressure for Global Efficiency

Low

Low High

Pressure for Local responsiveness

Lenovo’s Generic International Strategy Lenovo’s Generic International Strategy

GlobalGlobal

Simple ExportSimple Export

Complex Export

Complex Export

Multi-domesticMulti-domestic

[1] Simple Export Strategy:

Create value by transferring valuable core competencies to foreign markets that indigenous competitors lack. Centralize product development functions at home

Establish manufacturing and marketing functions in local country but head office exercises tight control over it

Limit customization of product offering and market strategyStrategy effective if firm faces weak pressures for local responsive and cost reductions

[2] Multidomestic Strategy:

Main aim is maximum local responsiveness Customize product offering, market strategy including production, and R&D according to national conditions Generally unable to realize value from experience curve effects and location economies Possess high cost structure

Types of International Strategy Types of International Strategy

[3] Complex Export Strategy:

To meet competition firms aim to reduce costs, transfer core competencies while paying attention to pressures for local responsiveness

Global learning Valuable skills can develop in any of the firm’s world wide

operations Transfer of knowledge from foreign subsidiary to home country,

to other foreign subsidiaries. Difficult task due to contradictory demands placed on the organization

[4] Global Strategy:

Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economiesProduction, marketing, and R&D concentrated in few favorable functionsMarket standardized product to keep cost’s lowEffective where strong pressures for cost reductions and low demand for local responsiveness

Types of International Strategy Types of International Strategy

Lenovo’s Generic International Strategy Lenovo’s Generic International Strategy

In the early stage of Lenovo they are using simple export strategy (having positive excess in the government favour)Up to 2005 they are trying mixed strategy (complex export and Global)Recently, they are using Global strategy with a very little essence of multi-domestic international strategy

Challenges in Global Strategy:Complex Competition with DELL, HP, Apple with slim margin costRetain IBM Think Pad customers while building their own brandCost leadership challenge with six times staff cost in china and only twice the profitDifference in demographic and behaviour with 30 yrs. age group in Lenovo workforce whereas IBM workforce are older and more experienced

Conclusion & RecommendationsConclusion & Recommendations

American Corporate market is slow growing market to focusDiversification with Lenovo Brand name and excellent quality to attack mid-spectrum corporate market to compete DELL, HP and Apple or continuing with high quality under IBM Think Pad brand name for stable reputation

Building more customer awareness to attract customers towards products such as Lenovo’s sponsorship of Winter Olympics in Turin and Summer Sponsorship in Beijing

Marketing with relationship model and transactional modelRelationship model refers to retaining customers with innovative products with satisfaction of consumer’s needs

The transaction model involves making new business deals by spreading to new potential Markets. Focus on Chinese base market with multi-domestic strategy of Lenovo due to DELL and HP are trying to penetrate the Chinese market and dealing with U.S. and Indian market

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