China is a prospective market for PC products with increasing population income and growing number of net users. The PC market growth is also facilitated by the Chinese government’s initiatives and economic support. Lenovo, being the market leader in China as well as an important global player, is facing intense competition with other renowned brands such as HP, Acer and Dell in China. In the past fiscal year, its profit growth in China was comparatively lower than its competitors. In order to maintain and strengthen its leading position, it is essential for Lenovo to take advantages of its core competence and continue to improve. Therefore in this essay, external and internal environment analyses are first carried out to identify a difficulty Lenovo is facing in China now. After that, strategies regarding the difficulty will be suggested with elaboration.
Lenovo Group Limited is a personal computing company operated in more than 160 countries including China, America and Europe. It provides personal computer products (PC), computer accessories, software, technological solutions for different business and government segments, and recently also mobile devices. Lenovo’s business model focuses on innovation, operational efficiency and customer satisfaction as well as investment in emerging markets.
Lenovo created three production lines including relatively premium line of Thinkpad/ThinkCentre targeting big/medium size of business sector or business users, stylish line of idealpad/idealCentre targeting consumer sector and younger users, and lower-end line Essential that charged comparably with its competitors targeting smaller business sector.
Formerly called Legend, Lenovo has acquired IBM PC business in 2005 and grown from a prestigious Chinese brand to an important global player. It has been the market leader in the China PC market for many years with 28.8 % of market shares in 2009. It also ranked number 4 in the global market with HP, Acer and Dell representing its major competitors.
External and internal environment analyses
A PEST analysis has been conducted to and the important findings are listed in table 1(Please refer to Appendix 1 for table 1). A SWOT analysis is also carried out and the important findings are shown in table 2(Please refer to Appendix 2 for table 2)
After analyzing the external and internal environments, its major difficulty is identified. As an aggressive company, Lenovo made decisions with heavy investment such as acquisition of IBM PC, buying back of its mobile business and global restructuring. It also takes sponsorship of large public events such as Beijing Olympic 2008 and World Expo 2010 and increasingly invests in Research & Development. These investments incur a large sum of spending and debts.
However, its profits from its traditional business lines are declining and the profit margin has lowered in China, which may be caused by aggressive price cutting in price war, currency fluctuations and significant operating loss induced by restructuring charge. Though it managed to increased sales in the first half of 09/10 fiscal year compared the same period in the last fiscal year, the profits lowered. Besides, evaluating its asset and liability of China segment, it is discovered that the current ratio does not performed well and has declined.
The hidden unfavorable financial condition may be due to the large spending in investment, sponsorship and R&D but relatively unsatisfactory profits gained to cover the cost. The lowered current ratio may mean its ability to meet unexpected needs for cash is lower. The flexibility of cash flow is particular important in China with fast changing political environment. In order to improve the less favorable condition and maintain stability, it seems that Lenovo should be able to increase profits and derive more profits from current sales to support investments.