Lenovo’s International Strategy Step 1:Abstract:In the 21st century, the globalization has become an unconvertible objective reality and “global thinking, global acting ”has already been a rule for multinational companies to observe. For most Chinese companies that have been or is going to be international companies, there is only one way to become a “visionary company”and gain lasting competitiveness : that is to involve themselves in the globalization trend and face the challenge in the future positively. The Lenovo Group has been an vanguard for the Chinese IT companies, and after its acquisition of IBM PC division, Lenovo has become an important PC manufacturer.The purpose of this paper is to revelatory and indicative to the New Lenovo and other companies that desire to become great global companies through deep study of the success and failure of Lenovo’s international practices during the past twenty years. Introduction:Origins:The company was founded in 1984 by a group of eleven engineers, headed by Liu Chuanzhi, in Beijing. Originally known as Legend Group Ltd and New Technology Developer Incorporated, the listed holding company was incorporated in 1988 in Hong Kong. The company had become the biggest PC manufacturer of domestic and distributed third party products through its wholesale business.The company underwent restructuring and separated into two entities. They were Lenovo and Digital China Holdings Limited. Lenovo became the personal computer manufacturer and Digital China took on the wholesale and distribution of IT products and services.In 2005 Lenovo purchased IBM's PC Division which transformed it into a major international personal computer manufacturer. Lenovo paid $1.27 billion to IBM which consisted of $655 million in cash and $600 million in Lenovo stock. As a result of the acquisition, Lenovo gained the rights to the product lines as well as licensed trademarks such as ThinkVision, ThinkPad, ThinkVantage, ThinkCentre, Aptiva, and NetVista. As of May 1, 2005, IBM owned 19.9% of Lenovo.development：1980s1981: IBM PCD introduces its first personal computer, the IBM PC.1984: IBM PCD introduces its first portable computer, the IBM Portable PC, weighing 30 pounds. With an initial capital outlay of only RMB300,000 (US$30,000) Lenovo’s founding chairman Liu Chuanzhi, together with 10 like-minded colleagues, launches the New Technology Developer Inc. (the predecessor of the Legend Group) funded by the Chinese Academy of Sciences.1986: IBM PCD announces its first laptop computer, the PC Convertible, weighing 12 pounds. 1987: IBM PCD announces the Personal System/2 personal computer. Legend successfully rolls out the Legend Chinese-character card.1988: Legend’s Chinese-character card receives the highest National Science-Technology Progress Award in People's Republic of China. Legend Hong Kong is established.1989: Beijing Legend Computer Group Co. is established.1990s1990: The very first Legend PC is launched in the market. Legend changes its role from that of an agent for imported computer products into that of a producer and seller of its own branded computer products. Legend PCs are ratified and accepted by the China Torch Program.1992: IBM PCD introduces ThinkPad series, the industry’s first notebook with a 10.4 inch color Thin Film Transistor (TFT) display and a TrackPoint (red ball) pointing device. Legend pioneers the home PC concept and Legend 1 + 1 home PCs enter the Chinese marketplace.1993: Legend enters the Pentium era, producing People's Republic of China’s first “586”PC. Legend establishes 1+1 retail network.1994: IBM PCD introduces the industry’s first notebook with integrated CD-ROM, the ThinkPad 755CD. Legend is listed on the Hong Kong Stock Exchange. The Legend PC business division is formally established.1995: IBM PCD introduces the “butterfly”keyboard. Lenovo moves from Boca Raton, Florida, to Raleigh, North Carolina. Legend introduces the first Legend-brand server.1996: Legend becomes the market share leader in China for the first time. Legend introduces the first Legend brand laptop.1997: IBM PCD introduces the industry’s first notebook equipped with a DVD-ROM, the ThinkPad 770. Legend signs an Intellectual Property agreement with Microsoft, the most valuable deal ever made in China at the time. Legend launches the first multi-function laser printer.1998: IBM PCD introduces the ThinkLight, a small light that illuminates the keyboard for use in low-light work environments, such as aboard an airplane. The millionth Legend PC comes off the production line. Intel Chairman Andy Grove attends the ceremony, and takes the PC for Intel’s museum collection. Legend establishes the first Legend Shop.1999: IBM PCD introduces the industry’s first sub-notebook, weighing under three pounds, with standard ports and a keyboard that is 95 percent the size of full-size keyboards. Lenovo announces its exit from the retail business. IBM PCD introduces the industry’s first PC with an embedded security chip. Legend becomes the top PC vendor in the Asia-Pacific region, and heads the Chinese national Top 100 Electronic Enterprises ranking. Legend launches pioneering Internet PC, with its “one-touch-to-the-net”feature, which enables millions of Chinese PC users to easily access the Internet.2000s2000: IBM PCD ships its 10 -millionth ThinkPad notebook PC. Legend becomes a constituent stock of the Hang Seng Index - HK. Legend ranked in top 10 of world’s best-managed PC vendors.2001: An IBM notebook with an embedded security chip becomes the industry’s first notebook with a security chip designed to the Trusted Computing Group specification, anindustry body setting data security standards. Legend successfully spins off Digital China Co. Ltd., which is separately listed on the Hong Kong Stock Exchange. Legend appoints Yuanqing Yang as President and CEO. Legend first introduces “digital home”concept and launches accessories-enabling PC.2002: Lenovo PC outsourcing pact with Sanmina-SCI. Legend debuts the DeepComp 1800 supercomputer. It is People's Republic of China’s first computer with 1,000 GFLOP (floating point operations per second) and PRC's fastest computer for civilian use, ranked 43rd in the Top 500 list of the world’s fastest computers. The mobile handset joint venture announced, marking Legend’s formal entry into the mobile handset business.2003: Lenovo introduces a notebook with battery life up to 11 hours. Lenovo introduces its ThinkCentre desktop PC line. IBM PCD ships its 20-millionth ThinkPad notebook PC. 2004: IBM PCD introduces the ThinkCentre desktop PC. Lenovo ships its 100-millionth PC. Lenovo becomes an Olympic worldwide partner. Lenovo launches the “Yuanmeng”PC series designed for home users in small villages. Lenovo and IBM announce an agreement by which Lenovo will acquire IBM’s Personal Computing Division, its global PC (desktop and notebook computer) business.2005: Lenovo completes the acquisition of IBM’s Personal Computing Division, making the company the world's third largest computer manufacturer (after Hewlett-Packard and Dell). Lenovo announces it closed a US$350 million strategic investment by three leading private equity firms: Texas Pacific Group, General Atlantic LLC and Newbridge Capital LLC. Lenovo establishes a new Innovation Center in Research Triangle Park, N.C. Lenovo introduces theThinkPad X41 T ablet and Z60. William Amelio is appointed as CEO and President of Lenovo. 2006: Lenovo introduces dual-core ThinkPad notebook PCs. Lenovo supplies the 2006 Olympic Winter Games in Torino, Italy with 5,000 desktop PCs, 350 servers and 1,000 notebook computers. The first Lenovo-branded products outside of China debut worldwide. 2007: Lenovo introduces the ThinkPad R61 and T61 notebook PCs. These are the first notebooks to use the new Santa Rosa platform from Intel.2007: Lenovo announces that they are to start selling laptops to business and consumers with Linux pre-installed on their machines.2008: Lenovo enters the Worldwide consumer PC market with the new "Idea" Brand. Lenovo announces 3 new IdeaPad laptops, the Y510 and Y710 desktop replacement computers available by the end of January and the ultraportable U110 available by March 2008 Products：Lenovo produces desktops, laptops, servers, handheld computers, imaging equipment, and mobile phone handsets. Lenovo also provides information technology integration and support services, and its QDI unit offers contract manufacturing. Lenovo also offers Internet access through its portal.Lenovo Group Limited is the fourth largest personal computer manufacturer in the world today, after Hewlett-Packard and Dell of the US, and Acer of T aiwan.Its executive headquarters are located in Beijing, People's Republic of China and in Morrisville, North Carolina, USA. It is incorporated in Hong Kong.Step 2:Reasons for International Strategy:Background:2001 to 2004, the diversification strategy which is designed by Yang (the chairman of the board) is ultimately lost, ending up as a failure.After strategic reflection, Yang’s final choice is the tightening strategy, and putting the focus back to PC business. PC again become the top priority of the conpany.Because the capacity of the domestic market limits, as well as the intensified competition. Internationalization is Lenovo’s inevitable choice.Increase market share:Since 1996, Lenovo had become the top 1 seller for 11 years in domestic market,.In the second quarter of 2002, sales of Lenovo desktop computers became the world's top five for the first time. Until the end of 2003 March , Lenovo Group has been the first in Asia-Pacific market (excluding Japan) for 12 consecutive quarters.So, Lenovo has occupied the domestic market, Lenovo needs to open up overseas markets, he needs a springboard to increase the market share in worldwide.Return on investment:The president Liu and Mary Ma and his entourage visited London, Edinburgh, New York, Boston, Denver,LA, made a total of more than 60 speeches to the Fund. At the same time, Lenovo share price raise from HK $ 5.3 to HK $ 8.2. Mainly because the major fund investorsand the managers of Lenovo had deep communication, deepen the confidence in the management of Lenovo. Investors are very optimistic about the current situation and prospects of the Chinese economy. So it’s important to show the foreign investors some confidence,to let global markets to justify the capital outlays.Economics of scale or learning:Lenovo needs a further expand of the scale of the enterprise. The international market is able to offer opportunities for Lenovo to share resource and technology with other giants in the industry as well as learning experience.Location advantage:We have lower cost labor in China, which is a good advantage, but we are lack of brand awareness in foreign market. And IBM ,as a PC giant in US have great brand loyalty and the key suppliers.Step 3:Lenovo’s International Strategy:Business-Level International Strategy--International Differentiation: Brand differentiation:In 2008,Lenovo created a new brand "idea" facing the global consumer PC market, and the Think brand would focus more on the commercial market. Such an action would break the Lenovo’s past plight of lacking product diversity in the international market. Lenovo’s chairman Yang Yuanqing said that in the future there would be only Think and idea--the two major brands in the world, other existing sub-brand would gradually transit to the two brands.This strategy has been very clearly shown that in the overseas market, Lenovo is planning to use the IBM brand identity as well as Lenovo's own brand.Given of the Lenovo brand is not yet recognized by the international market, the implementation of the dual-brand strategy is the best choice. Early in the integration, the brand identity of IBM played a crucial role in stabilize customers, agents and overseas staff,.With the help of the giant IBM, Lenovo’s PC sales increased 30%, overseas customers has also been impressed by the Lenovo brand and good quality of computers. In foreign countries,the brand Think is a very well-known, so Lenovo’s brand strategy in foreign markets is to enhance the visibility, using the IBM brand to expand the international market,then Lenovo would begin trying to dilute IBM brand effect.Gaining brand loyalty in the world wide is the ultimate goal of Lenovo, diluting the IBM brand is inevitable, sooner or later.Product differentiation:Product differentiation is that the corporate design a series of products to distinguish the products of competitors’. Lenovo sell more than products, it emphasizes the product's features. Lenovo focus on product design, research and development and also the quality, to ensure to always stay ahead in technology, so as to provide users comprehensive and reliable applications.At he same time Lenovo has always been concerned about the individual needs of the user, so the design is very fashion and unique, to meet all kinds of users’ preferences. Lenovo also develop a variety of softwares to make PC more friendly. Lenovo gain competitive advantage through technological innovation. Lenovo technological innovation is divided into three stages--product technology innovation, functional technology innovation and coretechnology innovation. Lenovo’s successful differentiation strategy is based on maintaining the technological leadership through innovation. Innovation is the core competitiveness of the enterprise,in fact, the “novo”in Lenovo is a latin root, which means innovation. Service differentiation:The entire industry is restructuring from product-oriented to service-oriented , Lenovo is also trying to achieve innovation in all aspects, seeking service differentiation. According to Lenovo’s policymakers, Service is the main line of development throughout the Lenovo, is Lenovo's core values. Lenovo Benefit much from this , after which, in the face of the new situation after the accession to the WTO, Lenovo would do service work more practical. "They think that technology is always impersonal, technology will only be accepted by more people if it is developed more friendly and has emotional communication functions. Therefore, in the final analysis, who are willing to stand at the view of consumers, who can provide consumers best service, will firmly grasp the initiative in the market, will finally become a truly outstanding enterprise.In order to turn from a product-oriented to a service-oriented enterprise one, Lenovo made a promise of “4-hour response, 48-24-hour repair”to meet the needs of customers’quick repair, which is the first in the industry to commit repair time vendors. To improve the quality of service of the service personnel, Lenovo has developed a strict system of Training and auditing mechanisms, which play a significant role in improving maintenance standard.By these methods, Lenovo build a good image of allowing users to not only buy the best, but also receive the best service. According to the latest market survey, over 50% of constomers claimed that Lenovo was their first choice for a personal computer. Through these serviceinnovation, Lenovo is able to shape the brand and establish a differential advantage. Corporate-Level International Strategy--Global Strategy:In order to shape their own international brand, Lenovo has implemented a three-step strategy of globalization:First:Lenovo announced a global brand change . Legend is the English name adopted in Hong Kong in 1988. After 19 years, the Lenovo brand name has grown from the earliest product’s name to a brand that worth more than 600 billion today. However, when it is to embark on a journey to become an international brand, there comes some problems.According to Liu(the Chairman of the Board): "When I established the company which was named Legend at the first time. Hong Kong had already has many Legends, for example, in auto industry, there’s almost dozens of Legend companies, and hundreds of Legend products "In the world, there’s more companies named LEGEND and it is almost impossible to buy them all. "At first, I just want to make a living, so I did not think about the international problem." Liu said. Without a simple logo, how could Lenovo start the international expansion, so in 2003, Lenovo global changed their brand name from Legend to Lenovo. “Le”refer to legend, which shows the determination to make a legendary company. “novo” is a latin root which means innovation, pointing out the significance of creative thinking. From then,Lenovo has taken their first step to real internationalization and the world's top 500. At that time,Lenovo and IBM were still in secret contact. Lenovo’s acquisition of IBM PC business is still unknown, but Liu’s determination to build a global enterprise has been set.Second:tthe acquisition of IBM PC business.Lenovo paid $ 1.5 billion in cash and stock in total in the acquisition of IBM PC business and at the same time Lenovo set up a new joint venture company. This meant that Lenovo would promote as the world's third-largest PC manufacturer. The acquisition range of IBM PC business included notebook and desktop PCs. After the acquisition, Lenovo would have the right to use IBM's famous "Think" brand! After the completion of the acquisition, the new Lenovo Group’s global headquarters is located in New York and the main operations centers are set up in Beijing and Raleigh (North Carolina). Two years after the implementation of the investment strategy, Lenovo had branched in 60 countries around the world, throughout the sales network of the world's 160 countries. Lenovo now has not only the leading business notebook product, leading R & D and leading product differentiation capacity, but also the more powerful innovation capability and richer product mix. Lenovo and IBM formed a long-term strategic alliance, IBM became Lenovo's preferred services and customer financing provider and Lenovo became IBM’s preferred PC suppliers,.So that IBM can provide a variety of PC solutions to its customers.Three overseas private investment institutions invested $ 350 million as share in the new Lenovo Group after the merger. Lenovo stock soared all the way since issuance, especially because Lenovo’s rising stock price-earnings ratio in the past six months,. Its market value was almost the number of times exceed its total assets. At that point, the Lenovo was not only international in product marketing network, but also in the shareholding structure and financing channels. Third:support great international events in China(the Olympic Games and World Expo).In march 26,2004, Lenovo Group signed a cooperation agreement in Beijing with the International Olympic Committee (IOC),announcing that it officially became the sixth (2005-2008) Worldwide Partner of the International Olympic Committee (referred to as TOP, TheOlympicProgramme). This was the first time that a Chinese enterprise to become an Olympic top partner. Lenovo's Olympic strategy helped Lenovo beat a lot of competitors. Lenovo also regarded "the World Expo" as part of its planned market strategy for a long time. As early as before the Beijing Olympics, Lenovo has begun an "Expo" project. First, this is the responsibility as a national enterprise. Second, this was a fantastic opportunity to demonstrate the Lenovo’s strength. It’s obvious that Lenovo never forget to pay attention to seize the opportunity to complete its goal to build a multinational enterprise.Step 4:Lenovo's Internationalization Strategy effectiveness analysis: Beneficial effects:●Expand the size of the market.Build the foreign markets. Increase revenue.Lenovo has become more attractive after entering the international market.●Promote the economies of scale and learning effects.Lenovo’s international market expansion led a further expand of the scale of the enterprise. The international market offered opportunity for Lenovo to transfer its core competitiveness . it created the conditions for the resource and knowledge sharing across borders. In addition, different markets and different practice provided a lot of opportunity to learn.●Make full use of the advantages of the company's capabilities and resources. Lenovo notonly establish a competitive position in the domestic market, but also gained a competitive position in the international market.●Disperse the business risks.Lenovo established a wide range of market-based companies operating in foreign markets, thus spreading the risks rather than entirely relying on the domestic market.●Improve the brand value .Lenovo had become an international brand.Adverse effects:●Loss of customers.After Lenovo's acquisition of IBM's PC division, a conservative expectation said that lenovo may lose at least about $ 2 billion’s market value.●Different corporate culture.Lenovo and IBM has a huge difference between management and the laws of enterprise, and how to fix it is a great challenge for Lenovo.●Brand Risk.Lenovo’s corporate brand need a lot of improvement in the international market,and thinking about how to get rid of IBM’s effect is imperative.●Sports market stategy is not very mature.Lenovo had spent millions dollars on sport market stratedy.How to effectively control its risks needs a lot of work.Step 5:Major risks and solutions:Market risk:After Think is acquired and the brand was owned by the Chinese.Customers’brand loyalty needed attention. Lenovo had taken a lot of measures: First, the establishment of two headquarters (in China and the United States).Second, ensure that the CEO is an foreigner.Third, send 2000 IBM salemen to visit all big buyers to explain the situation.At last, Think’s sales didn’t suffer a lot.Staff loss:Staff were worrying about that Lenovo’s large-scale investment would receive less than expecting, and also were worrying about that the acquisition would fail.Culture conflict:The so-called culture conflict is about how to make managers, especially top ones work together effectively, which is one of the most fundamental factors to decide if a company can develop well.When financial crisis appeared, Lenovo took a heavy loss. The surface reason for this is that the direct impact of the financial crisis. Fundamentally, there are problems in management. So, on February 2, 2009, the Board determined to reconstruct the company.Six months later, Lenovo not only reached a strong growth in business above the market average, but also achieved a good integration in team and culture.。
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