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Porter's Five Force Model and Value Chain of Lenovo
1. LENOVO
Porter's Five Forces
Model and Porter's Value
Chain
Syarifah Farranadia (P74133)
Management of Information Technology
2. Porter's Five Forces Model and
Porter's Value Chain
Lenovo Company Background :
Lenovo Group Ltd. is a Chinese multinational
computer technology company with
headquarters in Beijing, China, and
Morrisville, North Carolina, United States. It
designs, develops, manufactures and sells
personal computers, tablet computers, smart
phones, workstations, servers, electronic
storage devices, IT management software
and smart televisions. In 2013 Lenovo was
the world's largest personal computer vendor
by unit sales (Wikipedia, 2014).
3. Porter's Five Forces Model and
Porter's Value Chain
In 1984, Legend Holdings was formed with
200,000 RMB (US$25,000) in a guard house
in China. The company was incorporated in
Hong Kong in 1988 and would grow to be the
largest PC Company in China. Legend
Holdings changed its name to Lenovo in
2004 and in 2005, acquired the former
Personal Computer Division of IBM, the
company that invented the PC industry in
1981 (Lenovo, 2014).
7. Porter's Five Forces Model and
Porter's Value Chain
Rivalry among existing competitors :
Source: Gartner (October 2014)
8. Porter's Five Forces Model and
Porter's Value Chain
• There are three major players in the corporate PC
market, Lenovo, HP, and Dell roommates take up
around 50.5 % of the market share. As seen in the
table above, HP and Dell is a strong competitor.
• There are relatively few differences among these
top three players in terms of product features and
product quality.
• Lenovo has the best product support and the
strongest business relationship with customers
among the three, for Lenovo to catch up with the
other two competitors, keeping the brand name is
the key, especially when the IBM trademark rights
are lost.
9. Porter's Five Forces Model and
Porter's Value Chain
Threat of New Entrants :
There is a potential entrance that seen from the
corporate PC market growth. However, barriers to entry
are relatively high - generally, enterprises seem to be
satisfied with their notebook providers, with little
incentive to look their current suppliers. It is generally
considered a constant possibility for a new company to
leapfrog the competition with a new invention. As a
result, existing companies attract new engineering talent
and attempt to complementing to make major changes
in IT providers but unprofitable. This is a significant
reason that Lenovo maintain its dominant positions in
the corporate market.
10. Bargaining Power of Buyers :
Buyer bargaining power in this market is
relatively low, since the store sales mode.
However, improving product with offering extra
features and service quality, then maintaining
strong customer relationship is still the key to
success.
11. Porter's Five Forces Model and
Threat of Substitute Products Porter's Value Chain
or
Services :
The threat of substitute products Lenovo is on
the critical role of the consumer in replacing
most of the products are readily available at a
lower price. For example, if a customer cannot
buy the entire PC system from Lenovo, then
when assembling, customer buy the CPU from
Lenovo, but for monitors, keyboard, mouse and
modem buy from some other company.
12. Porter's Five Forces Model and
Bargaining power of suppliers
Porter's Value Chain
:
Lenovo like the other PC suppliers who did not
manufacture own materials. Majority PC's raw material
suppliers came from Asia Pacific countries because its
cheap labor and material cost. The raw materials like
boards and chips supplier is fewer and powerful, they
are not easy to drive up prices. The material suppliers
are poor, fiercely competitive and usually rely on their
buyers. Because they should according to the other
company’s business order to produce products and also
the whole supply chain control by giant PC companies.
16. Porter's Five Forces Model and
Inbound Logistics :
Porter's Value Chain
Generally, components obtained from multiple
sources.
Lenovo's PC division was formed in 2005
through its acquisition of IBM's PC business.
17. Operations :
Porter's Five Forces Model and
Porter's Value Chain
Utilize original equipment manufacturers
(OEM) ’s economies of scale.
Lenovo outsources production to third party
OEM partners to utilize their economies of
scale while removing the burden of
production management from the firm.
18. Services :
Porter's Five Forces Model and
Porter's Value Chain
Lenovo delivers the quality, reliability and peace
of mind to consumers and keep consumers up
and running, no matter where resides and
anytime.
19. Porter's Five Forces Model and
Porter's Value Chain
Outbound Logistics :
Lenovo used variety of direct and indirect
distribution channel, such as online stores,
retail stores, 3rd party cellular network
carriers, retailers, wholesalers, and value
added resellers.
Continue to expand and improve its
distribution capacities by expanding the
number of its own retail stores worldwide in
order to ensure a high quality buying
experience for its product.
20. Porter's Five Forces Model and
Porter's Value Chain
Marketing and Sales :
Lenovo became the first personal computer
manufacturer to divide countries into emerging
markets, such as China, India, and Brazil, and
mature markets, such as the United States,
Japan, and Europe.
Lenovo then developed a different set of
strategies for each category.
Lenovo made a major effort to expand its market
share in developing economies such as Brazil
and India through acquisitions and increased
budgets for marketing and advertising.
22. Porter's Five Forces Model and
Firm infrastructure :
Porter's Value Chain
To sustain this momentum and create a
structure that will help growth in new
businesses, Lenovo announced several
organizational. Lenovo has established four
new, distinct business groups, effective April 1,
2014.
PC Business Group (including Lenovo and
Think brands), this group will ensure we
continue to innovate, drive profits and expand
our lead in our core PC business worldwide.
23. Porter's Five Forces Model and
Porter's Value Chain
Mobile Business Group (Smartphone, tablet,
smart TV), this group is focused on making
Lenovo a profitable global player in the fast-growing
Smartphone and tablet and developing
our smart TV business.
Enterprise (including servers and storage), the
goal of this group is to aggressively build a new,
fast-growing profit engine in enterprise, where we
already have a solid foundation.
Ecosystem and Cloud Services (including both
Android and Windows opportunities), the goal of
this group is to continue building their China
ecosystem and drive a strategy for monetization
and ecosystem expansion.
24. Porter's Five Forces Model and
Human Resource and
Management :
Porter's Value Chain
This is the technique of employment
management that can create positive
improvement and add value by the combination
of employment policies, programs and practices.
25. Porter's Five Forces Model and
Porter's Value Chain
Technology Development:
Lenovo must learn to innovate to become the
true high-tech leader.
26. Procurement :
Porter's Five Forces Model and
Porter's Value Chain
Deliver lowest overall cost and greatest
competitive advantage.
Improve client perception of values through
increased influence and exemplary customer
service and support.
27. References :
Porter's Five Forces Model and
Porter's Value Chain
Porter M. [2008]. The Five Competitive Forces That Shape
Strategy. http://hbr.org/2008/01/the-five-competitive-forces-that-shape-
strategy/ar/1 [17 October 2014]
Wikipedia. http://en.wikipedia.org/wiki/Lenovo [17October 2014]
Lenovo. http://www.lenovo.com/lenovo/us/en/our-company.shtml
[17 October 2014]
Pettey, C,. [2014]. Gartner Says Worldwide PC Shipments in the
Third Quarter of 2014 Declined 0.5 Percent.
http://www.gartner.com/newsroom/id/2869019 [17 October 2014]
Mind tools.
http://www.mindtools.com/pages/article/newSTR_66.htm [17
October 2014]
