LENOVOSyarifah Farranadia (P74133)

Management of Information Technology

Porter's Five Forces Model and Porter's

Value Chain

Lenovo Company Background :

Lenovo Group Ltd. is a Chinese multinational computer technology company with headquarters in Beijing, China, and Morrisville, North Carolina, United States. It designs, develops, manufactures and sells personal computers, tablet computers, smart phones, workstations, servers, electronic storage devices, IT management software and smart televisions. In 2013 Lenovo was the world's largest personal computer vendor by unit sales (Wikipedia, 2014).

Porter's Five Forces Model and Porter's Value Chain

In 1984, Legend Holdings was formed with 200,000 RMB (US$25,000) 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, 2014).

Porter's Five Forces Model and Porter's Value Chain

Lenovo productPorter's Five Forces Model and

Porter's Value Chain

Porter’s Five Forces Model

Porter's Five Forces Model and Porter's Value Chain

Source: Harvard Business Review

Rivalry among existing competitors :

Source: Gartner (October 2014)

Porter's Five Forces Model and Porter's Value Chain

• There are three major players in the corporate PC market, Lenovo, HP, and Dell roommates take up around 50.5 % of the market share. As seen in the table above, HP and Dell is a strong competitor.

• There are relatively few differences among these top three players in terms of product features and product quality.

• Lenovo has the best product support and the 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.

Porter's Five Forces Model and Porter's Value Chain

Threat of New Entrants :

There is a potential entrance that seen from the corporate PC market growth. However, barriers to entry are relatively high - generally, enterprises seem to be satisfied with their notebook providers, with little incentive to look their current suppliers. It is generally considered a constant possibility for a new company to leapfrog the competition with a new invention. As a result, existing companies attract new engineering talent and attempt to complementing to make major changes in IT providers but unprofitable. This is a significant reason that Lenovo maintain its dominant positions in the corporate market.

Porter's Five Forces Model and Porter's Value Chain

Bargaining Power of Buyers :

Buyer bargaining power in this market is relatively low, since the store sales mode. However, improving product with offering extra features and service quality, then maintaining strong customer relationship is still the key to success.

Threat of Substitute Products or Services :

The threat of substitute products Lenovo is on the critical role of the consumer in replacing most of the products are readily available at a lower price. For example, if a customer cannot buy the entire PC system from Lenovo, then when assembling, customer buy the CPU from Lenovo, but for monitors, keyboard, mouse and modem buy from some other company.

Porter's Five Forces Model and Porter's Value Chain

Bargaining power of suppliers :

Lenovo like the other PC suppliers who did not manufacture own materials. Majority PC's raw material suppliers came from Asia Pacific countries because its cheap labor and material cost. The raw materials like boards and chips supplier is fewer and powerful, they are not easy to drive up prices. The material suppliers are poor, fiercely competitive and usually rely on their buyers. Because they should according to the other company’s business order to produce products and also the whole supply chain control by giant PC companies.

Porter's Five Forces Model and Porter's Value Chain

Porter’s Value Chain

Porter's Five Forces Model and Porter's Value Chain

Source: Mind Tools

Primary Activities

Porter's Five Forces Model and Porter's Value Chain

Inbound Logistics :

Generally, components obtained from multiple sources.

Lenovo's PC division was formed in 2005 through its acquisition of IBM's PC business.

Porter's Five Forces Model and Porter's Value Chain

Operations :

Utilize original equipment manufacturers (OEM) ’s economies of scale.

Lenovo outsources production to third party OEM partners to utilize their economies of scale while removing the burden of production management from the firm.

Porter's Five Forces Model and Porter's Value Chain

Services :

Lenovo delivers the quality, reliability and peace of mind to consumers and keep consumers up and running, no matter where resides and anytime.

Porter's Five Forces Model and Porter's Value Chain

Outbound Logistics :

Lenovo used variety of direct and indirect distribution channel, such as online stores, retail stores, 3rd party cellular network carriers, retailers, wholesalers, and value added resellers.

Continue to expand and improve its distribution capacities by expanding the number of its own retail stores worldwide in order to ensure a high quality buying experience for its product.

Porter's Five Forces Model and Porter's Value Chain

Marketing and Sales :

Lenovo became the first personal computer manufacturer to divide countries into emerging markets, such as China, India, and Brazil, and mature markets, such as the United States, Japan, and Europe.

Lenovo then developed a different set of strategies for each category.

Lenovo made a major effort to expand its market share in developing economies such as Brazil and India through acquisitions and increased budgets for marketing and advertising.

Porter's Five Forces Model and Porter's Value Chain

Support Activities

Porter's Five Forces Model and Porter's Value Chain

Firm infrastructure :

To sustain this momentum and create a structure that will help growth in new businesses, Lenovo announced several organizational. Lenovo has established four new, distinct business groups, effective April 1, 2014. PC Business Group (including Lenovo and Think brands), this group will ensure we continue to innovate, drive profits and expand our lead in our core PC business worldwide.

Porter's Five Forces Model and Porter's Value Chain

Mobile Business Group (Smartphone, tablet, smart TV), this group is focused on making Lenovo a profitable global player in the fast-growing Smartphone and tablet and developing our smart TV business.

Enterprise (including servers and storage), the goal of this group is to aggressively build a new, fast-growing profit engine in enterprise, where we already have a solid foundation.

Ecosystem and Cloud Services (including both Android and Windows opportunities), the goal of this group is to continue building their China ecosystem and drive a strategy for monetization and ecosystem expansion.

Porter's Five Forces Model and Porter's Value Chain

Human Resource and Management :

This is the technique of employment management that can create positive improvement and add value by the combination of employment policies, programs and practices.

Porter's Five Forces Model and Porter's Value Chain

Technology Development:

Lenovo must learn to innovate to become the true high-tech leader.

Porter's Five Forces Model and Porter's Value Chain

Procurement :

Deliver lowest overall cost and greatest competitive advantage.

Improve client perception of values through increased influence and exemplary customer service and support.

Porter's Five Forces Model and Porter's Value Chain

References :

Porter M. [2008]. The Five Competitive Forces That Shape Strategy. http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 [17 October 2014]

Wikipedia. http://en.wikipedia.org/wiki/Lenovo [17October 2014]

Lenovo. http://www.lenovo.com/lenovo/us/en/our-company.shtml [17 October 2014]

Pettey, C,. [2014]. Gartner Says Worldwide PC Shipments in the Third Quarter of 2014 Declined 0.5 Percent. http://www.gartner.com/newsroom/id/2869019 [17 October 2014]

Mind tools. http://www.mindtools.com/pages/article/newSTR_66.htm [17 October 2014]

Porter's Five Forces Model and Porter's Value Chain

Thank you

Porter's Five Forces Model and Porter's Value Chain