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Lenovo Company’s Multinational Operation Strategy Research Paper

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Updated: Sep 7th, 2021

Introduction

Background and Significance of Enterprise Internationalization

The globalization phenomenon has raised the level of competition in the business landscape, forcing multinational enterprises (MNEs) to go global in a bid to survive. It has also liberalized markets, thus, creating opportunities for firms to exploit by setting up profitable operations in foreign locations. Improved cross-border labor flows and foreign direct investment (FDI), technological advances, and changes in the competitive domains of firms are the leading forces behind the internationalization of enterprises in the 21st century (Buckley 76). Today, national frontiers have diminished as international horizontal and vertical integrations continue to grow in a borderless world. Over the past decade, countries have formed regional and international trading blocs, paving the way for political and cultural consolidation.

As a result, nations have developed strong economic ties in doing business. The global interconnectedness promotes trade and FDI flows between countries. It allows MNEs not only to search for new market opportunities to sell their products but also to identify intellectual capital – talented workforce and innovative ideas – to strengthen their competitive positioning (Buckley 77). Thus, the significance of internationalization for enterprises is in growing sales or revenue and exploiting knowledge, resources, and talent available in different locations.

The Significance of this Research

Internationalization is the ultimate ambition of most domestic enterprises. In this regard, the multinational operation strategy is significant for firms that desire to enter and perform well in foreign locations. Lenovo is one of the few MNEs that have been quite successful in the global market. This Chinese technology firm implements value-adding strategic actions to attain competitive gains in the international arena. Using Lenovo as a case study, this research will uncover how the company formulates and executes its multinational operational strategies. Thus, it will reveal the strategic processes critical for internationalization success. Other local firms can learn from Lenovo’s global expansion strategies to make effective strategic decisions for successful international operations.

The Content of the Research

The analysis focuses on different aspects of Lenovo’s multinational strategy. First, the research provides the background of Lenovo, i.e., its history, growth, and internal structure. Subsequently, it introduces the concept of enterprise multinational operation. The third part of the research gives the reasons why firms need to go global. A SWOT analysis of Lenovo is given in the fourth section. The fifth part is the most critical component of the research; it is here Lenovo’s strategies are described. The sixth section involves an analysis of the strategic effect of the firm’s market actions. Lenovo’s present issues and challenges are explained in the seventh part. Finally, we will describe solutions to the strategic problems described previously.

How to Research the Topic

The phenomenon of globalization had a profound influence on multinational operations. This research will review internationalization models, including the internationalization theory, the stages framework, and the Uppsala model, in a bid to explain MNE’s global expansion practice. The theoretical framework will help describe the pattern, type, and competitive gains related to Lenovo’s multinational operations. The research will also involve an empirical analysis of various studies and literature on the firm’s internationalization processes and strategies.

Background of Lenovo

The History of Lenovo

Lenovo Group Limited is a multinational technology firm with products in over 160 nations. It is headquartered in Beijing, China. It was incorporated in 1984 as a tech company after the approval by the Chinese authorities (Xiaolu 3). Its founders were eleven IT experts working at the Chinese Academy of Sciences; they established the company with a capital of $32,000 (Xiaolu 4). They named their startup the “Chinese Academy of Sciences Computer Technology Research Institute New Technology Development Company” (Xiaolu 4). Lenovo encountered failure in its initial business venture, i.e., the importation and sale of television sets. In 1986, the firm diversified into the technology market by assessing the quality of computers entering the Chinese market.

Since the computer market in China was at its nascent stage, the digital age presented an opportunity for Lenovo to recover. When IBM first entered the country in the late 1980s, it faced the challenge of developing PCs that could display Chinese characters. It contracted Lenovo to create a plug-in card that could process Mandarin for its computers in 1990, marking a major turning point in the company’s history (Ahrens and Zhou 5). Following this success, the firm began manufacturing PCs primarily for the Chinese market. Initially, the firm was called ‘Legend’, but would later rebrand to ‘Lenovo’ in 2002 as part of its global expansion plans. In 2005, the firm acquired IBM’s PC operations at a cost of $1.25 billion, marking its entry into the international market.

Lenovo’s acquisition of IBM made it the world’s third-largest computer manufacturer by the units sold (Ahrens and Zhou 8). In 2008, the company decided to dispose of its cellular and tablet segment for $100 million to focus on PCs. However, a year later, the division was reacquired for $200 million to bolster its strong position in the Chinese smartphone market (Ahrens and Zhou 8). In 2012, China topped the world as the leading market for cellular and tablet gadgets. Consequently, Lenovo invested $783 million in R&D and a new plant in Wuhan metropolis (Ahrens and Zhou 9). Following the successful acquisition of IBM, the company entered the US market through its operations in Morrisville, North Carolina. Since 2012, Lenovo has engaged in aggressive internationalization efforts, setting up operations in Russia, India, and the UK in 2014.

The company’s recent history is dotted with mergers, acquisitions, and partnerships with international brands. In 2011, Lenovo entered into a joint venture with NEC – an electronics firm based in Japan – to form Lenovo-NEC Company that operates in the Netherlands (Xiaolu 11). In the same year, it acquired Medion, a European technology brand, to expand its operations in Germany. Lenovo also bought CCE, an electronics firm based in Brazil, in 2012 in preparation for the 2014 World Cup (Xiaolu 13). Most recently, in 2014, the company bought the Motorola Mobility brand from Google. The mergers and acquisitions have seen Lenovo expand its operations to over 60 economies, becoming the third-largest computer producer by volume globally.

Scope of Business

Lenovo makes and sells diverse tech goods and services as its core business. It is basically a personal technology firm that designs, manufactures, and markets PCs, smartphones, and mobile Internet gadgets that exhibit a high-level localization (MarketLine 4). Lenovo also provides businesses with servers and workstations. It has set up operations in over 60 countries in Asia, Europe, North America, and the Pacific. Geographically, Lenovo runs four main segments, namely, “China, the Americas, the Middle East and Africa (EMEA), and Asia-Pacific” (MarketLine 4). The Chinese segment, despite being the firm’s biggest business operation, contributed only $12,358 (27.5% of $44,912 million) in revenue in 2016. According to MarketLine, the Americas constituted the most profitable market; it accounted for 30.2% of Lenovo’s earnings (26). The revenue contributions of the other two regions, EMEA and the Asia Pacific were 26% and 15.9%, respectively, in 2016.

The firm’s product and service portfolio contain four divisions that serve different consumer segments. The first category – the ‘PC and Smart Business Group’ – includes technology goods such as PCs, tablets, laptops, smart televisions, and game consoles that can run on the main operating systems, including Android OS (MarketLine 22). Important products in this category are the ThinkPad-branded, YOGA-branded, and IdeaPad personal computers. They include ThinkStation, ThinkPad, ERAZER, etc. Lenovo also offers commercial computers, including workstations, to commercial enterprises globally through its Smart Business Group. It accounted for 66% of Lenovo’s 2016 revenue.

The second division is the Mobile Business Group. The role of this unit is to create mobile Internet gadgets or phones for local and international markets. It encompasses a family of smartphones, including those sold under the Motorola brand. This business comprises two subdivisions: the Chinese unit that concentrates on the domestic demand and the international group that drives growth established and emerging markets globally (MarketLine 4). The mobile business group accounted for about 22% of the company’s total earnings in 2016.

The third business division is the Data Center Group. This unit is responsible for the development and marketing of servers and storage gadgets to individual and corporate users. It also provides cloud computing services and business solutions to corporations. The data center group accounted for 10% of the firm’s 2016 revenue. The ‘Lenovo Capital and Incubator Group’ is primarily concerned with R&D. It is the smallest division in terms of revenue contribution (2%). It explores commercially viable technology spin-offs with the potential of driving the firm’s future growth. In addition to the four business divisions, Lenovo makes and sells mobile, tablet, and computer “accessories, upgrades, batteries, and power, carrying cases, docks, and monitors”, etc. (MarketLine 23). The product diversification strategy accounts for the company’s rapid growth both locally and internationally.

The Background of Enterprise Multinational Operation

Definition of Enterprise Multinational Operation

Multinational enterprises (MNEs) have operations across the globe, control a large capital base, and dominate most productive industries. Economic globalization has created oligopolistic markets that have a high concentration of MNEs. Technical definitions of multinational enterprise operations differ between scholars. Paik et al. define an MNE as a “for-profit enterprise” characterized by two qualities: engagement in business processes, such as production and R&D, in a foreign nation, and the use of local strategic decisions (73). Thus, a multinational enterprise is dependent on its operations in two or more foreign locations. It concentrates on the adaptation of its products and services to each geographical segment in which it operates.

An MNE may be a public entity, i.e., it is partly owned by the government or federal institutions, e.g., Enron, or a private business. In most cases, a parent company headquartered in the mother country controls the operations of its subsidiary abroad (Paik et al. 75). The nature of the relationships between the two varies widely. An MNE desiring to enter a new market has several options, including acquisitions, joint ventures, mergers, etc. However, it must first adopt its operations – strategic actions – to the foreign business landscape to which it wants to expand.

The process of growing from small local enterprises to MNEs with operations in other countries can be explained by the stages theory. It holds that global expansion by multinationals occurs gradually and incrementally with greater international engagement (Roldan and Fernandez 136). The stages involved include indirect oversea selling, direct exports, the setting up of a sales division abroad, and ownership of a production plant in a new country (Roldan and Fernandez 136). Therefore, the internationalization of MNE operations follows an incremental order. The experiential knowledge acquired informs the strategic decisions to expand into more foreign locations. The Uppsala model holds that although enterprise multinational operations occur in an incremental fashion, they are dependent on oversea business experience (Roldan and Fernandez 139). Thus, a firm may first utilize licensing or exporting to enter a new country and later establish a production plant after gaining adequate knowledge of the market.

Another model explaining enterprise multinational operation is the internationalization theory. It argues that MNE production is often centralized because of profitability considerations. One strategy of going global is technology transfer. The theory explains that since it is difficult to sell the intellectual property rights profitably to an overseas company, setting up a new enterprise in a new location to maximize their profits (Roldan and Fernandez 139). The second strategy entails greater vertical integration to alleviate supply chain risks and control prices. Therefore, based on the internationalization theory, MNEs can either employ licensing to market their products overseas or set up a factory in a foreign location via FDI. The optimal option depends on a firm’s profit maximization goals in the host country.

Representative Type of the Strategy of Multinational Operation

MNEs have different strategic options for expanding their operations to international markets. The main types include “international, multi-domestic, global, and transnational” strategies (Paik et al. 73). Each of these strategic choices has its pros and cons that influence its usage. The representative type of strategy that will be discussed in this paper is the international approach.

International Strategy

A multinational enterprise that pursues an international strategy exhibits greater coordination of its “key assets, responsibilities, and localized decisions” (Roldan and Fernandez 137). The approach is also characterized by a high degree of centralization, whereby a company’s headquarter exerts a strong influence on its subsidiaries abroad. Thus, foreign operations are not autonomous but are viewed as the appendages of the parent firm. International companies often transfer their experiential knowledge to foreign geographical segments to strengthen their competitive position against local players that lack those capabilities (Paik et al. 75). Thus, the goals of the overseas activity are tied to those of the home market. The competitive advantage in the country of origin is exported to host economies.

As stated, centralization is a key feature of the international strategy. A firm pursuing this strategic option often centralize its R&D group in the country of origin to protect its intellectual property rights. It will then produce differentiated brands adapted to each foreign market. In some instances, the company may set up a plant in an oversea market or region and align its marketing strategy to local conditions. According to Paik et al., while most international companies often do product localization, most organizations choose to retain the original brand (78). Evidently, the international strategy is attractive when a firm has unique capabilities that its foreign rivals lack. It is also useful when the need for product localization is low. However, if the pressure for customization is high, pursuing an international strategy will reduce a company’s performance and competitiveness.

A multinational operation strategy sets the stage for market entry. An international company can enter a new country using different modes, namely, licensing, franchising, subcontracting, FDI, mergers and acquisitions, born-global, supply agreements, etc. (Paik et al. 74). The entry mode encompasses strategic decisions on marketing approaches and scale of operations. A firm pursuing an international strategy must consider economic and political variables in the new country. Further, factors such as market size and income levels of the customers are important considerations in making strategic decisions. Thus, it makes sense to perform a SWOT or a 5-forces analysis prior to a global expansion move.

Reasons Why Enterprises Need Multinational Operations

MNEs often build on domestic success by going global. Today’s knowledge economy allows firms to establish transnational operations based on locally developed products with some adaptation to host country needs. The key reasons for expanding to international markets include global competition superiority, revenue and profitability growth, economies of scale, and ease of doing business.

Global Competition Superiority

Successful multinational corporations utilize internal competences – specialty skill – developed in the home country to gain a competitive edge in the international arena. They deal with competitor skills by expanding their operations to new untapped markets. In the digital age, global recognition is critical in creating a competitive brand. Dispersing innovative technologies through high-end products will help a business consolidate its top competitive position internationally. For instance, American firms, such as Microsoft Corporation and GM, have relied on their monopoly of knowledge to compete with international brands and gain competitive superiority over the past few decades (Xiaolu 17). Their multinational operations have seen them emerge as top quality brands in different markets.

Domestic market saturation can affect a firm’s competitive gains. The opening up of borders during the globalization era has allowed firms to explore new opportunities elsewhere. The domestic market capacity for particular products or services declines over time. As such, firms need to go global to capitalize on the world market demand in order to remain competitive. For example, the high demand for smartphones in the Chinese market has forced American companies, such as Apple, to set up operations in China. The aim is to use unique technical skills to take a commanding competitive position globally.

Revenue and Profitability Growth

Domestic success increases the likelihood of improved revenue through overseas expansion. Firms leverage on an impressive local performance to expand into emerging markets (Buckley 75). Therefore, there is a revenue growth potential in the global consumer segments. In particular, if a company has certain technological advantages, it is likely to perform well abroad. The demand for its unique products will be high relative to that of rivals, contributing to growth in revenues and profits. However, some local adaptations may be necessary to penetrate new markets. For instance, for a software firm, introducing a Chinese language version would increase the market to a large population of Asian consumers, resulting in a revenue increase.

Firms also extend to global markets to improve their profits. The price pressures in emerging economies are lower than those in established markets are. In addition, production costs in most countries are low. As such, setting up multinational operations would lead to higher margins for the firm. Further, the premium pricing of exported products adapted to local needs would improve a company’s profit. Thus, going global comes with better performance than localizing all business operations.

Economies of Scale

A multinational operation is a good way of growing a firm’s product portfolio. Exposure to foreign markets allows players to build a global brand with wider acceptability. Additionally, internationalization allows businesses to benefit from the economies of scale associated with the high demand in the international market. Thus, a firm can expand its production volume to serve multiple geographical segments. It may also capitalize on a differentiating advantage, e.g., unique skill or patent, to increase its product shipments to foreign markets (Buckley 76). The globalization of knowledge allows firms to produce more similar products for all consumers as opposed to customizing commodities to local needs. Alternatively, a manufacturer can establish regional operations that concentrate on the needs and preferences of consumers in specific countries to benefit from the economies of scale.

Ease of Doing Business

Countries have removed trade barriers and created a business-friendly environment to increase FDI inflows. Therefore, the ease of doing business is a key reason for moving operations abroad. MNEs may find it cheaper to manufacture and sell products in multiple host nations than to produce in the home country and export the goods. They establish long-lasting business relationships with foreign governments that are mutually beneficial to both parties. MNEs may move to a new country where resources exist to cut down transportation costs (Buckley 79). Higher tariff rates may also discourage multinationals from transporting raw materials to the home country and exporting finished products. They would prefer to relocate to host nations with resources and a high ranking on the ease of doing business index.

SWOT Analysis of Lenovo

SWOT Analysis

Lenovo is a major player in the global technology industry. Its product portfolio is broad, ranging from PCs to smartphones and other internet devices. The firm’s market leader status gives it competitive advantages related to a strong brand image that helps drive its internationalization efforts. However, the high competitive rivalry in its industry threatens Lenovo’s future global performance. A SWOT analysis (Table 1) will reveal the company’s situation that is important for its strategic expansion plans.

Table 1: A SWOT Analysis of Lenovo.

Strength
  • Global leader in the PC market
  • Strong performance across all segments
  • Greater exposure to the Chinese market
  • Strong presence in the Smartphone market
Weakness
  • A high product recall rate
  • Poor brand reception abroad
Opportunity
  • An emerging Smartphone market
  • Good prospects in cloud computing
  • Strategic acquisitions – M&As
Threat
  • Intense competitive rivalry
  • Declining PC sales
  • Decreasing market prices

Strength

Global Leader in the PC Market

Lenovo is the world’s top manufacturer of personal computers. According to MarketLine, in 2015, the company enjoyed a dominant position in the global PC industry with a market share of 20.7% (27). Lenovo’s main competitors, HP and Dell, controlled 19% and 14% of the market, respectively. The company is also a leading vendor in the Americas, followed by Dell and Apple. Its leading position in the PC segment gives it a competitive advantage, which is a strong impetus for its multinational operational goals.

Strong Performance

Another of Lenovo’s strengths is the record-high performance of its top brands. In the personal computer segment, the firm outperformed its rivals by executing an ambitious expansion plan to emerging markets. In 2016, Lenovo’s PC sales rose to 19.5%, an increase of 1.1% from the 2015 performance (MarketLine 27). Its market share in the global PC industry grew by 1.5% to reach 22.5%, accounting for 66% of the company’s total earnings (MarketLine 28). It also experienced significant growth in its mobile business and data center group. The record-high performance in all its core businesses means that the firm’s profits are growing. It is also an indicator of the high popularity of Lenovo’s brands in global markets.

Greater Exposure to China

Lenovo’s country of origin is China. Therefore, it has a competitive advantage related to an experiential knowledge of the rapidly growing Chinese market. It has high exposure to an emerging market that has a high demand for PCs. Lenovo’s early growth was hinged on producing PCs primarily for the Chinese market (MarketLine 28). The macro-environmental factors in this country have helped the firm position itself as the global tech provider. Its strong brand and supply chains gave it a competitive advantage over rivals entering the Chinese market. Lenovo’s dominant presence in China provided a solid footing for its product and geographic diversification plans.

Strong Presence in the Smartphone Market

Lenovo capitalized on the capabilities developed in the PC segment to produce competitive smartphones, televisions, and tablets. Currently, it is ranked as the third-largest player in the mobile devices segment (MarketLine 29). This division contributed 21.8% of its earnings in 2016. The company enjoys a 5.1% market share in the smartphone subsector. Although companies such as Samsung and Apple dominate this segment, Lenovo is making inroads in line with its product diversification strategy.

Weakness

A High Product Recall Rate

In recent years, the firm has had a number of product recalls. For example, its lithium-ion batteries used with the ThinkPad PCs were recalled in 2015 after faults were discovered (MarketLine 29). Similar global recalls were made for power cords used with the IdeaPad PCs. The high rate of recalls implies dwindling production quality, which may affect Lenovo’s brand image and result in poor sales.

Poor Brand Perception Abroad

Lenovo primarily served the Chinese market before expanding first to North America after the acquisition of IBM and later to Europe. Its brand image in the US and most European markets is unclear. Further, Lenovo is a new entrant in these two geographical regions. It has no prior experience in the PC segment in the US or Europe. Therefore, it requires time to study these mature markets to outcompete established competitors.

Opportunity

An Emerging Smartphone Market

Market forecasts indicate that the demand for smartphones is likely to rise in the coming years. The reason for the robust growth is the increasing preference for Smartphone devices over PCs and laptops by consumers (MarketLine 30). The top markets for smartphones are Japan and China. Lenovo is a major player in the Smartphone industry with a 2016 market share of 4.5% (MarketLine 30). A greater focus on emerging economies will improve Lenovo’s future performance and sales in this industry.

Good Prospects in Cloud Computing

The next frontier in technological advancement is cloud computing. The demand for services such as Software as a Service (SaaS) is likely to increase in the future because it lowers operational expenses. According to MarketLine, the global demand for cloud computing will increase at a rate of 19.5% between 2015 and 2019 to a high of $141 billion (30). Lenovo is well-positioned to perform well in this sector. It has developed software platforms, such as the Cloud-Ready Clients, that support cloud services on the Think-branded machines (MarketLine 30). Another offering included in the firm’s portfolio is the EMC Personal Cloud. This service enables users to establish clouds for backing up data on their PCs and tablets. Lenovo can capitalize on its infrastructure and future opportunities in the cloud computing market to increase its revenue.

Strategic Acquisitions

Over the past few years, Lenovo has acquired multiple technology firms to expand its product offerings and geographical diversification. In 2014, it accomplished the acquisition of Google’s Motorola Mobility, a strategic move that brought into its portfolio highly sought-after products such as Moto X smartphones (MarketLine 31). As a result, the company is poised to become the third-largest player in the Smartphone industry. Other strategic acquisitions contributing to Lenovo’s impressive performance include that of IBM’s server business, PCs, and LTE technologies (MarketLine 31). The expansion strategies will give the firm many market entry opportunities in emerging economies to increase their earnings even further.

Threat

Competitive Rivalry

All the segments that Lenovo operates in are characterized by intense competition. Established global brands, such as Dell and Acer, dominate the PC market. They compete on price, quality, and global supply chain efficiency (MarketLine 31). Localized brands in Europe and Asia, e.g., Sony, are another source of competition. In the netbook market, Lenovo faces Asustek, as they compete for dominance. Furthermore, the firm’s mobile segment contains established competitors, including Apple and Samsung (MarketLine 31). Thus, increasing competitive pressure is a threat to Lenovo’s future growth and profitability.

Declining PC Sales

Mobile computing gadgets, e.g., smartphones, are gradually replacing PCs. As a result, the demand for personal computers is likely to drop in the coming years. For instance, global PC sales in 2015 stood at 276 million units, a value that was 10.2% lower than the 2014 figure (MarketLine 31). Further, projections indicate that PC sales will drop to 261 million in 2017 with desktop computers being the most affected. Therefore, the decreasing demand for PCs, which contributed 66% of Lenovo’s 2016 earnings, is a threat to its future profitability.

Decreasing Market Prices

Intense competition in the Smartphone market has led to price wars. Lowly priced mobile devices are increasing in the market, straining the profit margins of firms. It is projected that global smartphone prices will drop from $293.6 to $236.4 in between 2015 and 2019 (MarketLine 32). The threat of new entrants is also high, as most hardware vendors can produce cheaper phones running on the Android OS. The decreasing prices will affect Lenovo’s profit margins in the coming years.

The Competitive Strategy of Lenovo

The PC business is characterized by intense competition pitting established players, e.g., HP and Dell, and new entrants. Firms that are relatively young, such as Lenovo, must build a strong, renowned brand to compete well in this market. Thus, effective branding is everything. Although Lenovo occupies the second position as the technology industry, its identity is not as strong as that of firms such as Dell. Based on the SWOT analysis above, the company identified its weaknesses as poor brand perception and inadequate presence abroad. Its competitive strategy is designed to address these limitations. It centers on rebranding, product promotions, and mergers and acquisitions (M&As) (Xiaolu 19). Thus, Lenovo utilizes a three-pronged strategic approach to compete internationally as shown in Table 2 below.

Table 2: The Structure of Lenovo’s Competitive Strategy.

Industry Situation Internal Environment Elements of Lenovo’s Strategy
  • Intense competition
  • New entry
  • Poor brand perception
  • Inadequate international presence
  • Concentrated in Asia
  • Rebranding
  • Sports sponsorships and promotions
  • M&As

The company’s growth strategy was achieved by remodeling its brand image, sponsoring major tournaments, cutting down production costs, and acquiring key tech firms, such as IBM. The firm’s strategic directions fall into three categories, namely, investment, branding, and marketing strategies (Xiaolu 20). These approaches have guided Lenovo’s internationalization efforts, making it the third-largest player in the PC market. The structure of Lenovo’s competitive strategy encompasses specific objectives. Its brand strategy concentrates on building its brand image in established and emerging markets, product placement in sponsored tournaments, and oversea publicity. In contrast, the marketing strategic objective centers on promotional activities in foreign markets and M&As. The investment strategy entails reducing operational costs and the acquisition of key technology firms.

Strategies of Lenovo Multinational Corporation

A multinational operation process demands that a firm integrates its business processes with the global knowledge economy (Buckley 74). Enterprise expansion to foreign markets requires an effective strategy that builds on domestic success. It encompasses a suite of strategic choices meant to move a firm from a local focus to international operations. In implementing such a strategy, a company must first expand its production capacity, supply chains, and economies of scale. Lenovo uses five primary strategic options in its internationalization efforts: OEM strategy, branding, marketing, joint ventures, and mergers and acquisitions.

OEM Strategy

In certain arrangements, a firm uses its resources and capacity to produce and sell another company’s products in the domestic market. Through the OEM (original equipment manufacturer) approach, an enterprise can enter into foreign markets using its partner’s distribution channels (Buckley 73). In so doing, a firm benefits from international market opportunities that come with being a contract manufacturer for another multinational (Buckley 74). This strategic model leads to companies focusing more on production than on technology. Lenovo’s entry into the technology industry involved the OEM strategy. Its initial success can be attributed to the production of plug-in cards that could read the Chinese characters for IBM PCs intended for the Chinese market (Xiaolu 4). Lenovo owns the distribution channels for IBM, Apple, and other companies expanding to China. The strengths of this strategy lie in enhanced production capability and exposure to R&D.

Brand Strategy

This approach entails the production and sale of company-branded products abroad. The aim is to enhance the firm’s image and create brand equity in international markets. Lenovo uses various strategic tactics to build its brand overseas with the key one being pricing. The firm carves a brand image of offering high quality, inexpensive products (Xiaolu 6). The company primary markets are China, Asian countries, and the US, where it targets the middle-income group with low-priced PCs and mobile devices. Lenovo’s brand strategy includes messages and promotional campaigns that depict its products as affordable to the middle-end segment. Through this approach, the firm has been able to sell over 50% of company-branded PCs and create a clear brand position (Xiaolu 12).

In addition to pricing, Lenovo implemented naming to create a distinguishable global brand. The company, which until 2003 was called ‘Legend’ rebranded to ‘Lenovo’ in line with its international expansion plans (Xiaolu 3). Since many companies in various markets use the name ‘Legend’, the company had to modify its name into a trademarked identity for its overseas business. Thus, naming was a critical step in Lenovo’s multinational expansion process. It provided the company with a new identity, enabling it to manufacture and market branded products on the international stage.

Marketing Strategy

Businesses market their products to achieve sales growth and obtain competitive advantages. An effective marketing strategy can help a firm realize these objectives. Lenovo adapts its marketing strategy to the geographical market in which it operates. Nevertheless, the firm relies on product placement in sports tournaments to reach out to all segments (Xiaolu 12). In particular, it markets its products through athletics or soccer events, live broadcasts, and player sponsorships. The aim is to project the brand as dynamic and lively. Lenovo leverages the global popularity of sports to market to consumers from different regions. For example, in the USA, the firm advertises its brands through the NBA, while in the EU it uses product placement in Formula 1 (Xiaolu 12). The company collaborated with sports organizations such as the International Olympics Committee and FIFA to market its PCs and smart phones during the 2008 Beijing Olympics and the FIFA World player of the year events (Xiaolu 13).

Joint Ventures

Companies form business partnerships to share risks or skills. A joint venture involves two or more entities that pool resources, such as capital, supply chains, and technical expertise, together to attain mutually agreed objectives (Paik et al. 87). Companies can engage in either equity or cooperative ventures to share revenue, operational costs, and losses according to the agreement. Lenovo has established international joint ventures (IJVs) with global technology firms to reduce risks when setting up foreign operations. Through its partnership with NEC Cooperation (a Japanese PC firm), a new entity – Lenovo-NEC Holdings – was born in 2011 (Paik et al. 88). Lenovo owns 51% of the joint venture, which targets the Japanese PC market that is highly competitive and is ranked the third biggest globally. Thus, through the new company Lenovo could sell its products to the consumers in Japan in line with its internationalization plans in Asia.

Mergers and Acquisitions

Multinationals use M&As as a corporate strategy to grow rapidly in their industry. Since 2004, Lenovo has completed the acquisition of leading tech firms globally such as IBM, CCE, Stoneware, etc. (Xiaolu 18). The approach has enabled the company to expand and compete in emerging and mature markets. In 2004, it acquired IBM’s PC segment at a cost of $650 million, allowing it to enter and start operations (the second headquarters) in the US (Xiaolu 14). The acquisition enabled Lenovo to obtain unique technology, supply chains, and an international presence. As a result, it made a big leap to become the third-largest player in the global PC market. Similar acquisitions include those of a German technology firm, Medion (2011), a Brazilian PC company, CCE (2012), and a US software giant, Stoneware (2012) (Xiaolu 15). The acquisitions are a part of Lenovo’s multinational operation strategy that accounts for its success in foreign markets.

Analysis of the Strategic Effect

From the internationalization strategies analyzed above, it is clear that Lenovo employed the OEM approach to build its initial capabilities in the PC sector. Subsequently, the firm employed a brand strategy by renaming itself to ‘Lenovo’ in preparation for multinational operations outside its traditional Chinese market. A marketing strategy – product placement in sports – was then used to bolster its global image and awareness and pave way for M&As and joint ventures.

Beneficial Effect

Lenovo has obtained multiple benefits from appropriate multinational operation strategies. First, it has grown its market share and presence globally. It operates in over 60 countries and has its brands in 160 markets worldwide (Ahrens and Zhou 7). Through IJVs and M&As, Lenovo has been able to penetrate highly competitive markets, such as the US, with Think- and Idea-branded PCs and tablets. Second, the internationalization strategies have enabled the company to build its brand value and popularity across the globe. Initially, Lenovo suffered a poor brand perception outside China. However, its acquisition of IBM, CCE, Stoneware, etc., allowed it to leverage on the acquired technologies, distribution networks, and marketing resources to perform well in mature markets.

Lenovo’s successful globalization strategy has also inspired more Chinese firms to expand into foreign markets. The OEM/IJV strategy has enabled firms, such as TLC, to take advantage of the low production costs and R&D base in China to set up operations abroad (Ahrens and Zhou 16). The M&As have allowed Chinese MNEs to acquire critical technical capabilities to succeed in targeted markets. Lenovo’s ability to tap into various regions for technologies through acquisitions has been critical for its success. The OEM strategy has helped Lenovo and other Chinese firms realize economies of scale abroad. They are able to capitalize on the brand advantage of the international company to achieve production efficiency, cost reduction, and sales growth.

Adverse Effect

The implementation of a multinational operation strategy has come at a cost to Lenovo. Firms, e.g., IBM, were struggling at the time they were acquired. Lenovo is forced to buy the entire manufacturing, technical, and R&D facilities of the foreign companies, posing significant financial risks to the firm. In addition, the lower labor costs in China relative to developed markets give this enterprise cost advantages. Thus, the wide wage gap affects Lenovo’s profit margins. The firm’s internationalization strategy has exposed the variations in corporate culture between China and the West. A culture conflict may be a threat to the performance of its foreign operations.

Another effect of pursuing an internationalization strategy relates to the cost of customization or localization. Each market has specific preferences and price sensitivities. Lenovo is forced to adapt its PCs and smart phones to the income levels of each geographical segment. In addition, the firm’s products are more popular in China than in the other markets due to poor brand perception (Ahrens and Zhou 8). Lenovo’s globalization strategy has also come with operational risks. Changes in labor or corporate laws in foreign locations will affect its operations. Other factors such as industrial actions and natural disasters will have an adverse impact on Lenovo’s performance in a specific market.

Lenovo’s Present Issues and Challenges

Lenovo faces certain obstacles in pursuing an internationalization strategy. Its present challenges relate to cultural integration, competitive pressure, dwindling profitability, and poor brand image.

Cultural Integration

Cultural differences pose a threat to the international expansion of Chinese firms. In particular, differences in the corporate cultures of Lenovo and acquired companies create an environment of mistrust between partners, affecting teamwork. For example, the acquisition of Western firms, IBM and Medion, expanded the company’s staff by over 10,000 staff (Ahrens and Zhou 14). Integrating the different human capital and businesses is a challenge to Lenovo. Moreover, cultural clashes are likely to arise because the firms use different management styles. Language differences also affect the efficacy of corporate communications and coordination of international operations. Lenovo also lacks adequate knowledge of foreign markets, thus, it has to hire local managers to run its subsidiaries.

Competitive Pressure

Another challenge that Lenovo faces is intense competition from established global brands and local players. The competitive pressure relates to pricing, quality, brand image, technical expertise, supply chains, and product lines (Ahrens and Zhou 12). In the PC segment, its main competitors include Acer and HP and generically branded producers operating in specific regions. For instance, in Asia and the EU, Asustek poses a strong challenge to Lenovo’s netbooks (MarketLine 31). Further, in the mobile division, the company faces competition from innovative international brands such as Apple and Samsung. Although it has a strong R&D base, converting its capabilities into a commercial value is a challenge (Ahrens and Zhou 15). The competitive pressure will affect its performance, especially in markets outside China. International brands use innovative marketing campaigns to snatch away customers of the acquired firms. They portray Lenovo as a company supported by the Chinese government to lure US customers into switching to American products (Ahrens and Zhou 16). Thus, the issue of customer loyalty coupled with intense competition is a major challenge for this MNE.

Dwindling Profitability

Although Lenovo has recorded a strong overall growth over the past few years, some of its divisions have not been performing well due to macroeconomic risks associated with internationalization. Its biggest geographical segment (China) experienced a 15.9% drop in sales between 2015 and 2016 (MarketLine 31). The Middle East and Africa regions also recorded a decline of 7.9% in revenue over the same period. Concerning the business divisions, the PC group registered an 11.1% decrease in earnings in 2016 from the previous year. Thus, some of Lenovo’s acquisitions are unprofitable businesses. The acquired companies pass huge overheads and costs to Lenovo, resulting in losses. The challenge is how to facilitate supply chain integration and streamline R&D to reduce costs in the PC business.

Poor Brand Image

Lenovo is struggling with a poor brand reputation abroad. Its products are considered to be of low quality compared to those of other international technology firms, such as Apple. The high product recalls have damaged Lenovo’s reputation even further. In 2015, it recalled lithium-ion batteries for its ThinkPad PCs after discovering design faults (MarketLine 29). Other recent recall relates to the AC power cords and batteries. Thus, defective products serve to reduce consumer confidence in Lenovo’s brands, especially in competitive markets. As a result, the company’s sales will decline. Therefore, future recalls will affect Lenovo’s reputation and performance, straining its global expansion plans.

Solution

From the analysis above, the main challenge that Lenovo faces is strengthening its international image and perception. Unlike its competitors, issues of quality threaten to dent the firm’s reputation. Lenovo’s products are often viewed as low-cost and inferior to premium-priced international brands (Ahrens and Zhou 18). Lenovo should invest more in improving its image in foreign markets to bolster its internationalization efforts. It takes time to achieve global brand recognition; therefore, the company should invest continuously in localized promotional activities in addition to product placement in international sports tournaments. Moreover, it can gain brand advantages through differentiation. Lenovo should capitalize on its R&D capabilities to produce innovative and high-quality PCs and smart phones that will improve its brand recognition and competitive position on the global stage. It should also invest in CSR programs in the domestic markets where it has its operations. This strategy will portray Lenovo as a socially responsible enterprise internationally.

On the cultural front, Lenovo is struggling with the problem of foreignness. It should engage host country managers to deal with issues of differences in corporate cultures and management styles. Another approach may involve retaining the staff and business models of the acquired companies to minimize the risks associated with foreignness. The cultural conflict can be avoided by training the local workforce on Lenovo’s practices before sending them to oversea assignments. In addition, establishing foreign operations in mature markets, such as the UK, will enhance the brand’s credibility and standing. Therefore, local adaptations in product design, marketing, price, etc., are critical. Lenovo should also establish its own supply chains and distribution channels to reduce costs and improve profitability in foreign markets.

Conclusion

A Summary of Lenovo’s Multinational Operations

In this research paper, Lenovo’s internationalization strategy has been analyzed. Its multinational operations journey began with a rebranding from ‘Legend’ to ‘Lenovo’ in 2002. In addition to branding, the company used a host of other strategies to expand to the Americas, Europe, and Asia. Key among them were OEM, marketing, IJVs, and M&As. The most important strategy in Lenovo’s multinational operations entails mergers and acquisitions that saw the company expand to 60 countries. It acquired strategic firms, such as IBM and Medion, allowing it to enter the highly competitive markets of the US and the EU, respectively. Sports sponsorships helped build its global brand recognition. From the SWOT analysis, Lenovo’s strengths lie in its global leadership position in the PC sector, strong performance, exposure to China, etc. However, weaknesses such as high product recalls hurt its brand image. This challenge could be surmounted through improved R&D capability and socially responsible practices.

The Future of Enterprise Internationalization

An internationalization strategy is critical for a firm’s success. More firms with unique technical expertise and resources will go global to tap into opportunities in new markets. Internalization success stories, such as the Lenovo case, offer important lessons for firms that want to expand globally. They should first develop technological competence before investing in global expansion. The entry modes that are likely to grow popular with MNEs include IJVs and M&As. These strategies come with cost advantages, acquisition of patented technologies, and a lower risk of foreignness. Further, in the future, MNEs are likely to employ a localization strategy to deal with the existing challenges of poor brand perception and cultural conflict.

Works Cited

Ahrens, Nathaniel, and Yu Zhou. China’s Competitiveness: Myth, Reality, and Lessons for the United States and Japan. Center for Strategic and International Studies, 2013.

Buckley, Peter. “The Contribution of Internalisation Theory to International Business: New Realities and Unanswered Questions.” Journal of World Business, vol. 51, no. 1, 2016, pp. 74-82.

MarketLine. Company Profile: Lenovo Group Limited. MarketLine, 2016.

Paik, Yongsun, et al. Global Business: Connecting Theory to Reality. Routledge, 2017.

Roldan, Luna, and Guzman Fernandez. “Should be a Process the Internationalization of a Firm? Born Globals as an Exception.” Regional and Sectoral Economic Studies, vol. 13, no. 2, 2013, pp. 135-146.

Xiaolu, Li. Internationalization Strategy: Lenovo China. Dissertation, Centria University of Applied Sciences, 2013. Industrial Management, 2013.

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