Lenovo group limited, formerly legend group limited, is a famous information technology corporation in the People’s Republic of China (PRC). The company develops and markets its own legend brand of personal computer (PC). Besides manufacturing and selling PCs, the company manufactures handheld devices, mobile handsets, and motherboards, and provides IT consulting services. Lenovo is the largest corporation in the PRC and its own brand PC has been the country’s best seller since 1997 and had a market share of 27.0% in 2003, according to international data corporation. From 1996 to 1999, Lenovo was able to establish its own in house SCM system that led to the creation of its primary electronics SCM system. In 2000, Lenovo adopted an ERP system in order to be able to integrate the full range of its information systems. By June 2002, Lenovo was able to manage three product lines, i.e., desktop PCs, notebooks, and servers (Lan and Unhelkar, 2006, p.163).
History of the company
Based in Beijing, Lenovo Group Limited is the largest manufacturer of personal computers (PCs) in China with annual sales of more than $24 billion in U.S. dollars (U.S.D.) in 2004, and a market share of 30 percent. Its sales for first quarter of fiscal year 2004–2005 have risen by more than 21 percent. It remains one of China’s powerhouses in its bourgeoning and fast growing high-technology industries.
Lenovo (originally known as Legend Group) began as a spin-off of the Chinese Academy of Sciences’ (CAS) new technology unit in 1984. Initially, Lenovo was a reseller/distributor for AST computers in China and Hong Kong and then expanded to resell other foreign brands like Hewlett-Packard and IBM. Lenovo started making its own brand PC in 1990. Lenovo became the first Chinese brand to outsell any foreign brand (not just PCs) in China in 1996. By 1997, it had become the country’s best-selling PC. In 2003, it had a market share in China of approximately 30 percent, according to International Data Corporation. Lenovo is the number-one PC brand in the Asia Pacific market (excluding Japan) with a market share of 12.4 percent. It provides IT (information technology) consulting services. The major shareholder of Lenovo is the Chinese Academy of Sciences, providing Lenovo with strong technological support and broad connections (guanxi) in the PRC. This is strategically important because Liu Chuanzhi, Lenovo’s founder and chairman, is able to maintain close working relationships with the Chinese Institute of Technology, where he has established strong relationships with the government (Biediger et al, 2005).
Lenovo offered customers a blend of affordable prices, technical efficacy, and patriotism. The company priced computers above cheap clones made in China but still competitively low in comparison with international imports. Lenovo recognized that income levels in China would remain low for sometime and that penetration of PCs in the household market was limited by income levels. Lenovo positioned itself as the high-quality domestic brand, and its pricing strategy was to stay above the foreign competitors. Lenovo established its far reaching domestic distribution network and sold through traditional dealers and retail outlets. Moreover it had cost advantages over foreign competitors in terms of tariffs and VAT (Spulber, p.176).
Lenovo’s managers made certain strategic choices related to their fundamental decision to remain focused on the PC industry and produce their own branded PCs. Firstly, they would offer the Chinese customer’s PCs with the latest processors, unlike the multinationals, which did not place a priority on supplying their latest models to the Chinese market. For example, the multinationals were selling their newest 486 based PCs in the United States but only their older and slower 386 based PCs in China and these older models were also selling at prices higher in China than the newer ones in other markets. Lenovo, in contrast, quickly introduced PCs to the Chinese market that incorporated the latest intel chips. This strategy simultaneously boosted Lenovo’s image as a fast and technology intensive producer and also reduced the stigma of lagging technology attached to the local brands by Chinese consumers (Tsui et al., p. 286).
Since Lenovo has been a rising star since its creation, progress and expansion at Lanovo is a process on its own. Every decision made at any location in Lenovo’s vastly distributed enterprise can affect the overall operation in business. The complex nature of Lenovo’s operations is inherited by its SCM system. Therefore it is common for Lenovo to drop excess components and to add newly created modules when expansion is needed. Lenovo chose intel as one of its strategic partners strictly for business reason. Intel had a proven record of successful implementations at Lenovo. Another reason to decide on intel was the ease and flexibility of intel platform. To Lenovo, using intel based technologies meant plenty of support and expertise. By using intel platform, based on intel ® frame, it took only 10 months for 30 engineers to complete the SCM system at Lenovo (Lan and Unhelkar, 2006, p.164).
Purchasing of IBM in 2005
Lenovo, although was a renowned brand in China, it was not much known globally. So when IBM put its unprofitable PC business up for sale, Lenovo saw the acquisition as a vehicle to help the firm leapfrog from local to global league overnight. The US $1.75 billion purchase, announced in December 2004, and sealed in 2005, would quadruple Lenovo’s annual revenue to US $11 billion and catapult the company to become the world’s largest PC supplier, after Dell and Hewlett- Packard, with 9 to 10 percent global market share. Over 72 percent of its revenue was expected to come from overseas sales, compared to almost zero before the acquisition. Not only is Lenovo allowed to use the IBM brand under license for five years, most significant it owned IBMs premium think trademark that covers the prestigious Think Pad notebook brand, and the Think Center desktop line. Equally important is Lenovo’s gaining access to IBMs international expertise, especially in areas such as management of manufacturing and distribution channels in the 160 countries where IBM had already established its presence (Yeung, 2006, p.157).
Future of the company
Yang Yuanqing, who took the helm of Lenovo group, prepared for its accession to the WTO. He was concerned about the concerned about the company’s prospects for the future in the face of intensified competition from global computer companies. Foreign computer giants such as Acer, Dell, HP, IBM, Samsung, Sony, and Toshiba were already establishing plants in China and making deals with local partners for a renewed run at Chinese consumers and business consumers. Dell computer has opened a large scale manufacturing plant in Xiamen, Fujian Province, and brought its direct sales approach to China. Computer companies operating in China are cutting their PC prices and Lenovo expected further price pressures. Many new challenges lay ahead as a transformed Lenovo entered into the global arena. However, Yang believed that Lenovo could meet the challenges and become a successful global player (Spulber, 2007, p.170).
As Lenovo and IBM undertake their merger, the newness of the business model and its setting requires exchange of information that is not easily processed through a database, simple announcements or other standard information systems. Knowledge of new markets, products, culture, and creation of new ways of doing business in a novel context demand many one-to-one personal exchanges among members of both organizations. Online discussion groups and other unstructured ways of exchanging ideas and designing methods of working together as a new company are needed. A people driven approach to information systems design is appropriate in the formative stages of this new organization (Burton et al., 2006, p.170). Lenovo today is confronted with numerous strategic challenges as the firm considers its future not only in newer generations of PCs, but also in other electronic gadgets and information technology services. In some ways, how well Lenovo manages its own growth and strategic direction may be a bellwether for the transition and integration of the entire Chinese economy into the global economy (Biediger et al, 2005).
Beidiger, J., Decicco, T., Green, T., Hoffman, G., Lei, D., Mahadevan, K., Ojeda, J., Slokam, J., and Ward, K., ( 2005) Strategic action at Lenovo, Organizational Dynamics, Vol. 34, issue 1, pp.89-102
Burton, R.M., DeSanctis, G., and Obel, B., (2006) Organizational design, Cambridge University Press, pp.235
Lan, Y and Unhelkar, B (2006) Global integrated supply chain system, IGI Global Publishers, pp.349
Spulber, D.F.(2007) Global competitive strategy, Cambridge University Press, pp.290
Tsui, A.S., Bian, Y., and Cheng, L.K.H., (2006) China’s domestic private firm, M.E. Sharpe Publications, pp.342
Yeung, H.W.C. (2006) Handbook on Research on Asian Business, Edward Elgar Publishing, pp.488