LENOVO

ABOUT LENOVO

While the Lenovo brand came into existence only in 2004, the company has a much longer
history. In 1984, Legend Holdings was formed with 25,000 RMB in a guard house in China. The
company was incorporated in Hong Kong in 1988 and would grow to be the largest PC Company
in China. Legend Holdings changed its name to Lenovo in 2004 and, in 2005, acquired the
former Personal Computer Division of IBM, the company that invented the PC industry in 1981.

Lenovo has the leading position in the fastest growing market in the world. Their acquisition of

IBM's PC business makes them the third largest PC supplier in the world. In addition, the people
of ThinkPad® notebooks & ThinkCentre™ desktops are now part of the Lenovo team - the
award-winning engineers, the manufacturing teams, the sales representatives, the business
partners.
SUMMERY

PARTICULARS FINDINGS

Industry Computer hardware

Computer system
Founded 1984

Headquarters Morrisville, NC, U.S.

Beijing, China
Singapore
Area served Worldwide

Acquired IBM 2005

Porter’s Six Forces & LENOVO

We can use Porter’s Six Forces to analyze the state of the current international corporate PC
market to get a better sense for the environment in which must approach our problem.

Threat of New Entry

With the growth of the PC corporate market, there are foreseeable potential entrances in this
market. However, the entry barrier is relatively high – enterprises generally seem to be satisfied
with their current notebook providers, with little incentive to look beyond their current
suppliers. However, in technology markets, it is generally considered a constant possibility for a
new company to leapfrog the competition with a new invention. As a result, existing companies
are rigorous about attracting new engineering talent and attempt to use complementing to
make major changes in IT providers unprofitable. This is a significant reason that Dell, HP and
Lenovo maintain their dominant positions in the corporate market.
Buyer’s Bargaining Power

The buyers’ bargaining power in this market is relatively low in this market, since the customers
are enterprises, which purchase bulk volume of PCs to their employees. The cost to switching to
another PC suppliers is high to our customers, and the RFP process consumes too much of the
office of the CTO’s, PC sourcing analysts’, and desktop managers’ time. However, improving
product and service quality, offering extra features and maintaining strong customer
relationship is still key to success.

Supplier’s Bargaining Power

This does not apply to Lenovo, who manufactures its own materials to a great degree – mainly,
raw materials like boards and chips have reasonably standard prices.

Substitute products

The most probable substitute products are ultra light laptops and ultra mobile PCs. Despite the
heavy advertisement of these products in the media, enterprises don’t see them as useful to
their organization. These products tend to be produced as a fashion statement, which get more
attention from younger customers. The consumer market is more promising for these products.

Rivalry

Currently, there are three major players in the PC corporate market, Dell, HP and Lenovo, which
take up around 90% of the market share. According to the customer satisfaction survey, there
are relatively few differentiations among these top three players in terms of product features
and product quality. While Lenovo has the best product support and strongest business
relationship with customers among the three, for Lenovo to catch up with the other two
competitors, keeping the brand name is the key, especially when the IBM trademark rights are
lost.
% of annual sales & returns both from Home Market & Host Market

2011 2010 Year-on-year

For the year ended March 31 US$ million US$ million Change
Sales 21,594 16,605 30.0%
Gross profit 2,364 1,790 32.1%
EBITDA 603 432 39.6%
Pre-tax income 362 161 124.7%
Pre-tax income margin (%) 1.7 1.0 0.7 pt
Profit attributable to equity
273 129 111.2%
holders of the Company
EPS – basic (US cents) 2.84 1.42 1.42

SALES ANALYSIS BY 2011 US$ 2010 US$ *Here mature market includes
GEOGRAPHY million million Europe, Middle East & Africa and
China 46% 48% America.
Mature Markets 36% 37% *Emerging market includes Asia
Emerging Markets (excluding Pacific.
18% 15%
China)
total sales 21,594 16,605

60%
year
Emerging 2011 50%
Markets year 2010
(excluding
China), 40%
18%
China, 30%
46%
Mature 20%

Market 10%
s, 36%
0%
China Mature Markets Emerging Markets
(excluding China)
LENOVO’s GLOBAL OPERATIONs

Principal Operations Research Centers Sales Headquarters Manufacturing Centers

Beijing Beijing Beijing Mexico
RTP RTP RTP Hungary
Japan Sydney Beijing
Shenzhen
Shanghai
Xiamen

The Reasons for operating in China

ECONOMIES  China in 2010 stood as the second -largest economy in the world
after the US
 The dollar values of China's agricultural and industrial output each
exceed those of the US;
 China is second to the US in the value of services it produces. Still,
per capita income is below the world average
LABOR FORCE  Agriculture: 36.7%
 Industry: 28.7%
 Services: 34.6%
The Reasons for operating in Mexico
ECONOMIES  Mexico has a free market economy in the trillion dollar class.
 It contains a mixture of modern and outmoded industry and
agriculture, increasingly dominated by the private sector
 Recent administrations have expanded competition in seaports,
railroads, telecommunications, electricity generation, natural gas
distribution, and airports
 GDP posted positive growth of 5.4% in 2010 and 3.8% in 2011
LABOR FORCE  agriculture: 13.7%
 industry: 23.4%
 services: 62.9%
The Reasons for operating in Japan
ECONOMIES  Japan in 2011 stood as the third-largest economy in the world after
China
 A sharp downturn in business investment and global demand for
Japan's exports in late 2008 pushe d Japan further into recession.
 Government stimulus spending helped the economy recover in late
2009 and 2010, but the economy contracted again in 2011 as the
massive 9.0 magnitude earthquake in March disrupted
manufacturing.
 Electricity supplies remain tight because Japan has temporarily shut
down almost all of its nuclear power plants after the Fukushima
Daiichi nuclear reactors were crippled by the ea rthquake and
resulting tsunami.
 Estimates of the direct costs of the damage - rebuilding homes,
factories, and infrastructure - range from $235 billion to $310
billion, and GDP declined almost 1% in 2011.
LABOR FORCE  agriculture: 3.9%
 industry: 26.2%
 services: 69.8%
The Reasons for operating in Hungary
ECONOMIES  Hungary has made the transition from a centrally planned to a
market economy, with a per capita income nearly two -thirds that of
the EU-25 average.
 The private sector accounts for more than 80% of GDP.
 Foreign ownership of and investment in Hungarian firms are
widespread, with cumulative foreign direct investment worth more
than $70 billion.
 The economy began to recover in 2010 with a big boost from
exports, especially to Germany, and achieved growth of
approximately 1.4% in 2011.
 At the end of 2011 the government turned to the IMF and the EU to
obtain a new loan for foreign currency debt and bond obligations in
2012 and beyond.
LABOR FORCE  agriculture: 4.7%
 industry: 30.9%
 services: 64.4%
The Reasons for operating in Australia
ECONOMIES  The Australian economy grew for 17 consecutive years before the
global financial crisis
 The former RUDD government introduced a fiscal stimulus package
worth over US$50 billion to offset the effect of the slowing world
economy
 The economy grew by 1.3% during 2009 - the best performance in
the OECD - by 2.7% in 2010 and by 3.0% in 2011.
 Unemployment, originally expected to reach 8 -10%, peaked at 5.7%
in late 2009 and fell to 5.0% in 2011.
 As a result of an improved economy, the budget deficit is expected
to peak below 4.2% of GDP and the government could return to
budget surpluses as early as 2015.
 Australia was one of the first advanced economies to raise interest
rates, with seven rate hikes between October 2009 and November
2010.
LABOR FORCE  agriculture: 3.6%
 industry: 21.1%
 services: 75%
CONCLUSION:

Chinese computer maker Lenovo Group is planning to alter its 17-year tradition of targeting
high-end business users by refocusing its ThinkPad notebooks at small businesses and home
offices settings. Lenovo’s long-term development is inseparable from a unified and correct
guiding ideology.

Only with the right long-term strategic planning for the guide, use its own characteristics with
people in enterprise management strategy for the management of Lenovo, Lenovo will be able
to establish a sound management system in order to guide the company to be stable, healthy &
rapid development.

Suggestions for LENOVO

 Lenovo should concentrate effort on outperforming competition in the high-end

market, maintaining the ThinkPad brand identity for quality products
 Lenovo should begin marketing mid-range laptops along with the ThinkPad to corporate
clients, becoming a “one-stop shop” for a company’s notebook needs, providing top of
the line Thinkpads to executives, and a range of less expensive but similarly high quality
products to lower spectrum employees.
 Lenovo should considering spinning off a company to market their high-end ThinkPad
line under a brand name that might not raise suspicion about quality.