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Lenovo’s Global Operations Research Paper


Introduction

Lenovo PLC is a Personal Computer and technology company based in China. The company came to the limelight after the merger of IBM Personal Computer Division with Legend Holdings, which had been in operation since 1984 (Lenovo, unpaged).

The company name was changed in 2004 from Legend Holdings to Lenovo as part of a global strategic move aimed at expanding the business (Lenovo, unpaged). Currently, the company is the fastest growing in the PC market globally for the past three years.

The company has recently diversified into other ‘PC’s’ (Lenovo, unpaged). These include smart phones and tablets.

In this category, the company has recently registered tremendous growth especially in China where it currently holds the number two spot in that market. It is diversifying this market globally having created operating stores in countries such as Indian, Russia, Singapore, and Brazil (Jerry, 93).

The company is unique in its business operations as it is a mixture of two different manufacturing cultures. This blend of West and East has created a remarkable market position. Lenovo’s second headquarter is in USA’s state of North Carolina (Lenovo, unpaged).

It also has operations in other countries, which form a mixture of both developed and emerging markets, such as Brazil (John, 514). This is part of Lenovo’s evolving strategy. The company wants to have specific manufacturing bases in various countries to meet the needs of localized markets specifically.

This paper will have a holistic look at Lenovo, including its operations, shareholding, stock performance, location of operating bases among others. It will also detail the manner in which Lenovo is undertaking certain social initiatives under CSR.

Shareholding

The company has a mixture of corporate and individual shareholders. However, the shareholding, though remaining constant in terms of majority and minority, has been altered over the years. Lenovo’s parent company, Legend Holdings owns 33.75% of the company (Jerry, 93).

An investor called Yang Yuangqing is the largest individual shareholder with 8.44%. The company is listed in the Hong Kong bourse with the public owning 57.57% (Lenovo, unpaged).

The other directors own the rest, which is around half a percent. The company’s shares have been performing quite commendably as will be shown further in the paper under ‘stock performance’. The following table is a summary of Lenovo’s shareholding (Lenovo, unpaged).

Summary of Lenovo's shareholding

It is crucial to note that this shareholding has evolved over time. Additionally, the company has made several share repos and acquired stakes in various companies over the years. The busy nature of movement of shares at the bourse has added to the value of Lenovo to the advantage of shareholders (Ahrens & Zhou, unpaged).

Overall Operations

Lenovo is a global company with presence in over 160 countries (Yu, unpaged). In some of the countries, the company has regional operations. This has been the model of operations, which had helped the company to trounce major players in the PC industry such as Dell (Lenovo, unpaged).

However, since the global economic downturn, the company has experienced major reshuffle in its operations strategy to remain relevant and competitive. The company has developed two business groups with different focuses. One focuses on the developed market while the other focuses on the emerging markets (Yu, unpaged).

The two market groups are christened the mature market group and the emergent market group respectively. The former covers traditional markets such as United States and Australia. The latter covers emerging markets such as Brazil, Africa and a huge part of Asia (John, 514).

Using this two-pronged strategy the company has continued to localize its operations. The localizations have gone a notch higher whereby the company is producing some of its products in certain nontraditional countries such as Russia and Brazil (Lenovo, unpaged).

According to the company’s strategy, this is to cater for localized markets and to retain local jobs, which is what immediate governments need. This ultimately creates loyalty and drives sales levels of Lenovo’s products (Jerry, 95).

The magnitude of Lenovo’s operations requires a coordinated and focused supply chain. The company is decentralizing operations with the view that this will strengthen the supply chain even further.

While the company is steadily gaining markets globally, it still treats its headquarters (China) as an emerging market with vast untapped potential. Hence, the company is still finding ways to continue appreciating the potential of China’s market (Jerry, 94).

The company’s long-term focus is to be the best producer of PCs in terms of sophistication of design and engineering. Hence, the company taps into innovative resources such as research and personnel (Yu, unpaged).

In recognition of the ever-growing interest in other gadgets apart from PCs and the declining nature of appeal of personal computers in traditional and emerging markets, the company has intensified its productivity and creativity to create relevant products (Yu, unpaged).

The company’s tablet and smart phones are featuring second in the Chinese market with a notable appreciation outside the Chinese market.

Hence, the company needs to continue its steadfast adherence to operational efficiency to understand the performance of all these products in the various markets (Yu, unpaged).

Investment Plans

Over the years, the company has evolved to be the number two PC manufacturer and seller in the world after HP (Xing, unpaged). Market analysts and experts argue that Lenovo is likely to trounce HP in the recent years to be the number one seller of PCs.

It is also notable that its affiliate businesses are performing quite commendably. This is not because the organization has grown from a company in China (Xing, unpaged). The company has acquired various strategic Competitors and Strategic Partners its bid to be the best producer and seller of PCS.

The most notable merger and arguably the most crucial was the acquisition of IBM’s PC division in 2004 (Lenovo, unpaged).

Happening against a backdrop of the hosts declining appeal the world over and a shakeup in its internal operations, Lenovo was quite a shock purchaser of the division. However, it quickly turned this misfortune into profits and fortunes (Xing, unpaged).

In light of previously commendable acquisitions and mergers, Lenovo has continued this business practice in various countries. The company’s global presence desire is the most compelling factor in this endeavor (Lenovo, unpaged).

Hence, the company continues to acquire small and strategically placed players in local markets where they ship camp. This is quite helpful with amalgamation into the local markets and eventual appreciation of its products (Xing, unpaged). Entry into new markets from a local position is easier that from main headquarters.

Production Sites

Lenovo, as noted before, has a commanding global presence. It is headquartered in China and North Carolina, USA. These are the main production sites. In recent years, however, the company has diversified these sites in a bid to enhance its supply chain and tap into local markets (Xing, unpaged).

It is also quite convenient as this blend well with the immediate government and citizens’ need for job creation and employment respectively. In the end, this creates product loyalty and enhances Lenovo’s position in those particular markets.

Hence, the company has mini production sites situated in emerging markets such as Brazil, Russia, Singapore, Canada, and UAE. Although this creates a somewhat complicated coordination headache, it is quite beneficial to the immediate needs of the company (Xing, unpaged).

It helps the company to fight competition from both local players and international players such as Samsung and Apple. According to Lenovo’s management, this approach is likely to be new modus operandi as the company considers its future operations.

It comes with inimitable benefits such as cutting of taxation and creation of subsidies as governments try to cure the ripples created by the global economic downturn (Ahrens & Zhou, unpaged).

Destination of Sales

Lenovo has recorded a continued rise in sales for the past two years. In the 2012/2013 financial year, the company recorded a 12% increase in total sales bolstered by the exemplary performance of the tablet market (Lenovo, unpaged).

Although the company’s destination of sales cannot be singled out, tremendous growth in the market for tablets in china is notable. The company came in second in tablet sales in china after Apple. The company also recorded a steady performance in PC sales (Lenovo, unpaged).

Although there was not significant growth in traditional markets, the sales of PCs in emerging markets was quite notable (Ahrens & Zhou, unpaged). For example, shipments in Asia and Middle East and to some extent Africa increased.

This trend is likely to continue as more governmental effort is directed towards improvement in digital penetration across those nations. In future, it is likely that Lenovo will record more and more sales of PCs in these emerging markets (Suranovic, unpaged).

Regarding the sales of tablets, smart phones and other technology leaning gadgets that replace PCs, traditional markets are the main attractions. However, in emerging markets Lenovo is struggling to market its new gadgets effectively because of the disadvantage created by second mover (Lenovo, unpaged).

First movers such as Apple and Samsung have entrenched themselves in these markets with notable authority. Hence, it is incumbent upon Lenovo to continue its two-pronged approach towards market penetration to tap into these markets exhaustively with its new products (Buck, 172).

Location Choices

Traditionally, Lenovo’s location choices have been in selected countries. Production has previously been carried out from these locations and shipments made to the relevant markets.

However, since the economic downturn of 2008, the company has taken an about turn strategy and adopted a different route where they have formed localized production areas in various countries (Buck, 172). The countries include Brazil, Russia, Singapore, and Australia among others.

It is crucial to note that Lenovo’s main area of focus is the emerging markets. Though traditionally its main market and the location of its headquarters, the company categorizes China as an emerging market (Ahrens & Zhou, unpaged).

The company is quickly reshaping its market strategy to tap into new markets in Africa and Asia. It is also radically changing its manufacturing strategy to factor the local needs of specific markets.

In its new smart phone and tablet market among other new technologies, the company prefers to initiate the products in traditional markets such as China and USA first (Ahrens & Zhou, unpaged).

Stock Performance

The company profits and cash flows represent a financially healthy company. Lenovo has a huge asset base though it is in technology market. In a random portfolio analysis of ten viable stocks, Lenovo’s stock is among the most volatile (Lenovo, unpaged).

With a Beta value of 34.17%, the stock response to market changes and dynamics is quite high. The most stable stock is IBM at close to 6% volatility. This means that investment in Lenovo may present a risk in a situation where global markets go south (John, 510).

In the recent years, the global downturn has presented a situation where investing in such a stock would have been dangerous. The economic crises witnessed in United States and Europe was a pointer for any investor to be careful with long-term stocks (Buck, 172).

However, governments and world organizations are making efforts to ensure a stable global economy. Hence, a long-term investment in Lenovo is likely to present some good tidings (Kan, 110). From the portfolio, the nature of business the investor should focus on is quite evident. The Beta ratios are all above one.

This indicates a highly volatile market characteristic of the technology world. This is because of the ever-changing nature of the industry.

Companies record high prices over a short time, which culminates in comparatively new and trendy products. However, the technology market remains quite open with massive investment opportunities (Buck, 172).

Lenovo’s stock is quite volatile. To mitigate the risk of the sensitive nature of this stock, an individual may invest in the list of portfolio provided where stocks such as Apple inc. and HP are less volatile.

However, when a stock responds rapidly to market changes it shows how well management can notice opportunities (Suranovic, unpaged). Hence, investment may be directed towards growing shareholder value.

Additionally, this volatility is crucial since it helps management to identify potential pitfalls in investment decisions. Hence, management can avoid some management decisions they embark on to mitigate corporate risk (Ahrens & Zhou, unpaged).

Corporate Social Responsibility

CSR obligation surpasses what the law requires a firm to do. It is the responsibility an organization takes upon itself to better the social lives of both the workforce and society. Currently, this is a worldwide trend (Ahrens & Zhou, unpaged).

This is because of the pressure from society and governments for organizations to feel more responsible for the sources of their resources. The members of society are also more sophisticated than sometime back.

The competitive environment is also cutthroat with more companies joining the framework (Ahrens & Zhou, unpaged).

Lenovo has committed to undertake various corporate responsibility initiatives. Lenovo is a major player in a quickly evolving industry. The industry is sometimes at the center of various quality and safety antagonism.

In this regard, the company has undertaken to be at the forefront of fighting for the highest attainable levels of safety and quality (Lenovo, unpaged). The company is also at the forefront in safeguarding the environment by undertaking various futuristic green initiatives (Ahrens & Zhou, unpaged).

This mitigates the environmental impact of manufacturing. The company also strives to form a green supply chain in which production and transfer of commodities caters for the various processes (Lenovo, unpaged). The global supply chain is an initiative that reduces wastages and enhances productivity.

The company is also at the forefront of ensuring preservation of the highest ethical standards in business. This includes fair business practices and adherence to legal standards (Ahrens & Zhou, unpaged).

Competition

Lenovo operates in an environment in which many players abide. The following were the PC shipments in 2011.

PC Shipment for 2011
1Q11 Shipments 1Q11 Market Share (%) 1Q10 Shipments 1Q10 Market Share (%) 1Q11-1Q10 Growth (%)
Firm
HP 14,797,299 17.6 15,312,468 18 -3.4
Acer Group 10,893,793 12.9 12,412,859 14.6 -12.2
Dell 9,984,370 11.9 10,210,766 12 -2.2
Lenovo 8,137,904 9.7 6,976,683 8.2 16.6
Toshiba 4,821,600 5.7 4,580,746 5.4 5.3
Others 35,615,953 42.3 35,686,995 41.9 -0.2
Total 84,250,918 100 85,180,518 100 -1.1

From the above, it is evident that Lenovo was on the path to becoming the number one pc producer in the world (Ahrens & Zhou, unpaged).

The following sales forecasts indicate that the market is quite ready for even stricter competition from the players.

However, according to recent strategic shifts, Lenovo is better placed to tap into these markets as opposed to competition. It has formed various production units in different countries to tap into local potential (John, 514).

Tablet Sales Forecast 2010-2015
Year/Platform 2010 2011 2012 2013 2014 2015
iOS 14.7 46.7 69 95.6 122 149
Android 2.5 11 22.9 54.1 85.3 116
Microsoft 0 0 4.3 14.4 24.4 34.4
WebOS 0 2.1 0 0 0 0
MeeGo 0.2 0.5 0.5 0.4 0.3 0.2
Other 0.2 0.4 0.5 0.5 0.4 0.4
QNX 0 3 6.3 12.9 19.5 26.1
Total tablets 17.6 63.6 104 178 252 32.6
PCs 347.1 357 390 434 482 535
tablet as % of PCs 5.07 17.8 26.5 41 52.3 61

The forecast also shows that the market for tablets is likely to continue growing while the market for PCs is likely to continue stabilizing. Hence, the recent strategic shift by Lenovo to enter into and market its new business is likely to bear fruits in the near future as people shift from PCs to tablets (John, 514).

Conclusion

Lenovo’s global presence and meteoric rise is quite remarkable. The company has recorded rising sales in PCs, tablets, smart phones, and other technologically oriented products in both traditional and emerging markets (Ahrens & Zhou, unpaged).

The company has been the leading PC producer for the past three years edging out traditional players such as Hewlett Packard, Apple, and Dell (Lenovo, unpaged).

Since its acquisition of the PC division of IBM in 2004, the company revived this operation and strategically placed itself in an advantage over competitors by enjoying a multicultural approach to markets because of the East and West connections.

Despite Lenovo’s stock volatility and risk, it promises high returns in future (Ahrens & Zhou, unpaged). Additionally, the economic conditions and technology business has massive opportunities which greatly mitigate the risks involved (Lenovo, unpaged).

This is in light of the shrewd management at the company as demonstrated by the continued registration of high profits and shareholder wealth maximization (Buck, 172). Therefore, the company’s future prospects look bright for any investor and current shareholders.

Works Cited

Ahrens, Nathniel & Zhou Yu 2013, China Competitiveness: Myth, Reality and Lesson from United States and Japan: Case Study Lenovo. PDF file. 13 February 2012. Web.

Buck, Trevor. “The internationalization strategy of Chinese firms: Lenovo and BOE.” Journal of Chinese Economics and Business Studies. 7.2 (May 2009): 170-177. Print.

Jerry, Biedeger. “A Strategic Action at Lenovo.” Organizational Dynamics. 34.1 (2005). 92-95.

John, Quelch. “Lenovo: Building a Global Brand.” Harvard Business Review. 9.1 (2006): 507-514. Print.

Kan, Michael. 2011. Lenovo Expands Research, Production Operation In China. 2011. Web.

Lenovo. 2012. Driven By Tablets, Consumer Electronics Revenue to Reach New Milestone. 2012. Web.

Lenovo. 2007. Lenovo Announces Actions to Increase Global Operational Efficiency and Competitiveness. 2007. Web.

Lenovo. 2012. Lenovo Reports Third Quarter 2011/2012 Results. 2012. Web.

Lenovo. 2012. Lenovo’s Commitment to Social Responsibility. 2012. Web.

Suranovic, Steven. 2012. International Finance. 2012. Web.

Xing, Wang. 2012. . 2012. Web.

Yu Zhou. “Synchronizing Export variation with Import Substitution: Creating Competitive Indigenous Companies in China.” World Development. 36.11 (2008). 2364-2365.

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