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Some business ideas for any company in the same Lenovo's business area

Some business ideas for any company in the same Lenovo's business area

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Lenovo Lenovo Presentation Transcript

  • Lenovo Analysis of business opportunitiesJairo Enrnesto Ramirez CardonaStrategy analystco.linkedin.com/in/jairoramirezjerc_colombia@hotmail.com+8613162417851 (mobile)jerc_colombia (Skype) December 6th of 2012, Shanghai, China
  • ContentsContents..........................................................................................................................................................1Brief summary.................................................................................................................................................2Current landscape............................................................................................................................................3Business opportunities.....................................................................................................................................6Ideas for further analysis.................................................................................................................................9Conclusions....................................................................................................................................................11References.....................................................................................................................................................12Appendix 1.....................................................................................................................................................13 1
  • Brief summary necessity for those products but few resources to acquire them.Lenovo has implemented successfully a mixed strategy The third one, “For those who do the future” is anof protect and attack. Nonetheless, the results in endeavor to push the company into the future trendsemerging are still showing red numbers. Hence, taking aligned with one key element in the strategy of Lenovo:into account the current environment as well as the “PC+”. In this case, the idea is to take advantage of thetechnological trends, it is possible to define some exhaustive portfolio of Lenovo (Smart phone + Tablet +business concepts aligned with the strategy of the Laptop + TV) to create a digital home surrounding it.Company. All those ideas are presented with a brief analysis of theIn the present document three different business relation to the strategy and the possible market size. Iopportunities are depicted. All of them can be would be more than happy to clarify or detail any of theimplemented in any region worldwide, but giving the business concepts described.current economical environment Latin America seems tobe one of the best options to start. My experience and knowledge in strategy planning in the telecommunication sector along with my strongThe first business opportunity is called “For girls who network of contacts will be a key element to quicklydo”. As it can be understood from the name, the idea is implement any of those opportunities in Colombia, andto design and to market a group of devices for girls. It is even in Latin America.founded on the lack of a clear device aimed to thefemale market. In fact, based on my contextualobservation and knowledge of this industry, femalesseem to pay more attention to elegant designs than totechnical characteristics of the devices.The second opportunity is “For students who do”. It is aspecial offer for students including discount andfinancing of laptops or tablets, supported by theeducational institutions and Governments. Thehypothesis in this case is that students have a high 2
  • Current landscape However, since those regions were defined in 2012 for this analysis the previous segmentation is utilized:Lenovo • China • Developed countriesStrategy - “Protect and Attack” • Emerging countries Financial resultsLenovo has been implementing a strategy of protectingits core markets in China and worldwide, while attacking Lenovo has shown impressive results during last yearsand by increasing market share and improving with a constant annual growth rate, CAGR, of almost 26profitability in Emerging Markets and Mobile Internet percent for revenues and over 24 percent for grossdevice sales. profit. The evolution of revenues and gross profit can be observed in the figure 1.Additionally, there are some key elements that havehelped to leverage the strategy such as: $30,000 CAGR • Mobile Internet Digital Home (MIDH) $25,000 25.7% • “For Those Who Do” brand campaign $20,000 • PC+ Era $15,000 • Continuing investments in innovation $10,000 CAGR $5,000 24.2%Geographies $0 2009 2010 2011 2012Nowadays, in order to support the growth worldwide, Revenue Gross profitLenovo have distributed its organizational structure in Figure 1. Evolution of revenues and gross profit (in USDfour different regions as follows: million) • China • North America Even though those numbers are outstanding, the • Europe-Middle East-Africa (EMEA) difference in the growth rates of gross profit revenues is result of an increase on cost of gods sold, cogs, in • Asia-Pacific Latin America (APLA) proportion to the sales, likely due to the aggressive price 3
  • strategy of the Company and to a greater effort on the Industrysales. It is expected a faster growth in sales of electronicNonetheless, operating expenses improved during the devices in the developing countries. That, partially as aperiod analyzed. That implies a better expense to consequence of a lower growth in Europe and USrevenue ratio which in turn is translated in a better economies, but also due to the decrease of theEBITDA. Details of those results are showed in the table technological gap between advanced and emerging1. economies.Group Results 2009 2010 2011 2012 World economy and PC salesRevenue 14,901 16,605 21,594 29,574COGS -13,104 -14,815 -19,230 -26,128Gross profit 1,834 1,790 2,364 3,446 On one hand, as it is depicted in the figure 2. during Gross profit margin (%) 12.3 10.8 10.9 11.7 last years PC sales worldwide have been shown anOperating expenses -1,811 -1,586 -1,982 -2,862 instable growth rate with fluctuations ranged from high Expense-to-revenue growth to low or even negative for different periods. 12.2 9.6 9.2 9.7ratio (%)EBITDA 305 432 603 821 28.6% Table 1. Financial highlights of Lenovo (in USD million) 23.0% 21.4%Even though they have been showing a high growingrate in revenues, results in emerging markets are not aspositive as in the other segments of the company. Theincome before taxes obtained for Lenovo has been 8.4% 7.3%negative during the periods analyzed (see table 2). 5.1% 3.1% 2.5% 2.0% 1.9%Group Results 2009 2010 2011 2012 -0.1% 0.9% -1.4%Revenue 2,353 2,640 3,860 4,803 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 -4.3%Pre tax income -107 -97 -62 -94 -7.8% Annual growth PC Sales worldwide -8.3%Table 2. Financial highlights of Lenovo in emerging markets Figure 2. Evolution of PC sales (in USD million) 4
  • As it was already mentioned, it is partially due to of PC In fact, for several Tech companies it is clear that anunits sales seem to be highly dependable of economic important part of the growth will come from developingenvironment in each region. That relation is illustrated in countries. Examples of this are new the openings ofthe figure 3 Apple and Amazon services in Latin America.15.0% Mobile trends10.0% On its part it is expected a high growth of smart mobile 5.0% devices, mainly in smart phones and tablets along with a decrease in the price of electronic devices. That is 0.0% massive adoption due to the reduction in the prices of 2009 2010 2011 2012 those devices and reduction in the cost because of mass -5.0% production.-10.0% Annual growth PC Sales worldwide According to Gartner smart devices will sales the Annual growth world GDP, current prices (U.S. Billions) amount of 821 million units during 2012 and are Figure 3. Annual growth of PCs vs. annual growth of GDP foreseen to reach 1 billion for 2013.On the other hand, there is a smaller technological gap With that, it will bring a strong adoption of Apps andbetween developed and developing countries. Today, Webapps (html5) as well as in the use of Cloudhigh end and cutting edge technologies arrive to computing and personal cloud services. And it is alsodeveloping countries just some months after they were clear a tendency of an even more integration of thelaunched in the developed ones. ecosystem (i.e. devices + services + Apps).Examples of this are the recent implementations of Android is arising as the new standard for mobile OS.networks & services in several countries in Latin Similar to what Windows was in PC industry some yearsAmerica. While deploying the infrastructure for EDGE ago. However, given the completeness of its ecosystemand HSDPA took place several years after, for LTE the Windows 8 could treat in some years the monopoly ofimplementation started almost at the same time almost Googles OS. Meanwhile, if apple does not release a newat the same time than in Europe or US. breakthrough innovation it is very likely that the company will keep dropping its market share. 5
  • Trends and new technologies The absence of a product clearly designed for this niche along with the lack of interest from most of the girls forInternet is not limited to computers or smart devices the detailed technical parameters create a uniqueanymore. Now the connections can be present in business opportunity. An example of a product that isdifferent devices and yet it is expected that most of the indirectly addressing this opportunity are the laptops ofdevices will use the global network in a human to Apple.machine or in a machine to machine interaction. Thistendency is called Internet of things. Other aspects to take into account can be analyzed from the women behavior. For instance, given that they are inIn turn, it is expected an increase of social media power general smaller than men, it can imply a preference forand mass collaboration. Communities will take an lighter laptops. As they use to be more fashioned its alsoimportant role in the definition of the companies’ expectable for the computer appearance to be relevant.strategy and in the design of products and services. On the side of the smart phones, as women usually have a purse with them, it is likely that they will put less importance to the size of the cell phone than a man whoOther technological trends relevant to have them in the should carry it on his pocket.radar are those ones related to the human way ofinteraction with the technology such as volumetric andholographic displays, speech-to-speech translation (like Link with Lenovo strategythe one announced by some weeks ago DoCoMo),augmented reality, NFC, gesture control, virtual worlds, • Protect: Defend PC leadership in China and keepbiometric authentication methods and speech growth in mature markets.recognition, just to mention some of them. • Attack: Accelerate the growth in EmergingBusiness opportunities economies and make this segment more profitable.For girls who do • Attack: Gain market share in smart phones and tablets. In general, in MIDHDeveloping a product and marketing strategy specially designed for girls. • Innovation: Expand product offerings and enhance user experience 6
  • Size of the opportunity For students who doIn order to forecast the possible sales of this product, Developing a special offer for students in Latin America,the methodology for new product sales forecasting with discounts and financing when needed.developed for the professor Jehiel Zif is used.Nonetheless, it is important to clarify that this is only a Nowadays, computers are a required tool for anyvague approximation due to the insufficient information student in spite of their career. Similarly, tablets are aavailable, and hence it is necessary to develop a device more and more used in educationaldetailed market research and use the internal environments. However, status of student is usually ainformation of the Companys result to get a more synonym of lower monthly income. Hence, financing andaccurate sales prediction. offering special pricing in laptops and tablets for students are a still veiled opportunity for devicesSales(t) = Trial sales TS(t) + Repeat sales RS(t) suppliers and manufacturers.Thus the forecast for this product would be: On one hand, cooperation and agreements with universities and government will be strategic forYear1: 22 million units financing those devices. Firstly, the low rate of PC penetration in emerging countries this kind of initiativesYear2: 30 million units become relevant for governments who can support economically the project. Also, in some cases, computers can be sold directly to universities and thusYear3: 37 million units the risk (o part of it) will be transferred to them.Year4: 44 million units On the other hand, pricing is an additional aspect to be included. Different careers will need devices withEven though the numbers seem to be too high it is specific characteristics and consequently with differentimportant to understand that this product will prices. However it is important to price the productscannibalize part of the sales of the other products. Also, carefully to avoid a “cheap” image among users.those predictions are made with some restrictions onthe real information available internally in Lenovo. Other relevant element for this business model is the ecosystem integration between laptops, tablets, other 7
  • devices, data bases, and content. In this sense, it will be Year3: 701,690needed to develop specific Apps for students to usethem in their computers, for instance, one for checking Year4: 874,471the schedule and homework, one for reviewing thecontent of a subject, or one for supporting e-learning. Explanations about assumptions for this forecasting can be found in the appendix 1.Link with Lenovo strategy • Attack: Accelerate the growth in Emerging For those who do the future economies. Attack SMB (educational institutions) Developing a solution to bring the digital home to everybodys reach • Innovation: Expand product offerings and enhance user experience with a more integrated ecosystem. So far, implementing a digital home is a luxury available to a very few. This is due to, among other reasons, the cost of technology required for this and the lack of • Innovation: Increase brand recognition in young importance perceived for most of the people. people. In turn, Lenovo has developed an exhaustive portfolioSize of the opportunity that can support an important part of a digital home. At the same time, the Company has a strong brandUsing again the same methodology to forecast the recognition worldwide that would help it to develop thepossible sales of this business concept, the analysis partnerships necessary to complete the elements for thisdelivered the followings results: project.Sales(t) = Trial sales TS(t) + Repeat sales RS(t) One strategic partner is the group of telecommunication companies of each country. They can reach all theYear1: 383,911 clients and, like in the previous business opportunity, it will help to reduce the risk in case of financing theYear2: 550,418 products. 8
  • In general the idea will be sale a basic digital home that • Innovation: Increase brand recognition andthey can pay in a monthly basis and include a yearly up leverage Lenovo as a cutting edge brand forgrade of the solution, with new features and more electronic devices.advanced technology. Thus, they will be able to reachthe dreamed digital home in a period between 2 and 5 Size of the opportunityyears. (TV should be at every home before thebeginning of FIFA World Cup 2014). The size of this business opportunity can be estimated as well using the same methodology for new productLast but not least, this business could be the entrance of sales forecasting. However, given the complexity of thisLenovo to one of the next biggest opportunities for the concept, firstly is needed to evaluate which regions,electronics devices world: “the Internet of things”, countries or even cities are the best options to start athrough a PC centric approach as a center of the digital pilot before expand the idea worldwide.home.Link with Lenovo strategy Ideas for further analysis • Attack: Accelerate the growth in Emerging A factory in Colombia economies. Objective: implementation of a technological cluster in Bogotá, Colombia, consisting on several electronic • Attack: Gain market share in smart phones, devices manufacturers, along with the development of tablets and TV. In general, in MIDH extraction and treatment plants for coltan in Vichada province, Colombia, and construction of the required • Innovation: Expand product offerings and road network infrastructure. enhance user experience • Innovation: Expand product offerings and enhance user experience with a more integrated ecosystem around the PC+. 9
  • Note: This proposal is under construction. The first draft will be sent on thismonth to the Colombian Ministry of ICT and to the Chinese companies andinvestors interested. 10
  • ConclusionsOpportunities are like constellations floating in auniverse of ideas, necessities and trends. They areinvisible for those who can not link the dots forming apattern.The analysis described involves a link between strategyof Lenovo, industry trends and some personal ideasidentified. Thus, more important than the ideas is thecapacity of generating them using a clear methodology,and of course the ability of implementing them.By identifying the importance of innovation for Lenovo,plus the accelerated adoption of mobile devices, andplus the absence of a product for the female segment,the opportunity “For girls who do” arose.Likewise, a focus in attack emerging markets on Lenovoside, and the students necessity of affordable devicesbring the concept of “For students who do”In addition, based on the PC+ strategy of Lenovo andfuture trends like Internet of things an interestingopportunity like “For those who do the future” wasfounded.This document shows my interest in the Company and itis a brief evidence of my ability to add value to Lenovo. 11
  • WashingtonpostReferences  A gadget’s life: From gee-whiz to junk,Gartner news: http://www.washingtonpost.com/wp-srv/special/ Preliminary Worldwide PC Vendor Unit Shipment business/a-gadgets-life/ Estimates for 3Q09, 4Q09, 1Q10, 2Q10, 3Q10, 4Q10, 1Q11, 2Q11, 3Q11, 4Q11, 1Q12, 2Q12, 3Q12 Engadget Gartner Says 821 Million Smart Devices Will Be Purchased Worldwide in 2012; Sales to Rise to 1.2 Billion  NTT DoCoMo exhibits on-the-fly speech translation, lets both parties just talk (video), May 30th, 2011, in 2013, November 6, 2012 Gartner Identifies the Top 10 Strategic Technology http://www.engadget.com/2011/05/30/ntt-doco Trends for 2013, October 23, 2012 mo-exhibits-on-the-fly-speech-translation-lets-bo Gartner Highlights Six Core Principles to Tap the th-par/ Power of Social Media, August 29, 2012 Gartners 2012 Hype Cycle for Emerging CIA Technologies Identifies "Tipping Point" Technologies That  https://www.cia.gov/library/publications/the-worl Will Unlock Long-Awaited Technology Scenarios, d-factbook/geos/xx.html August 16, 2012IDC Financial Insights Opinion IMF Technology Selection: Worldwide Mobile Payments  World Economic Outlook (WEO), October 2012 2012–2017 Forecast, November, 2012 Android Tablets Gain Momentum in the Third Quarter, Lenovo Expectations Remain High for the Holiday Quarter,  Annual reports 2010 and 2012, According to IDC, November 5, 2012 http://www.lenovo.com/ww/lenovo/annual_interi Android Marks Fourth Anniversary Since Launch with m_report.html 75.0% Market Share in Third Quarter, According to IDC, November 1, 2012  http://www.lenovo.com/us/en/ Smartphones Drive Third Quarter Growth in the Worldwide Mobile Phone Market, According to IDC, October 25, 2012 12
  • Appendix 1. For students who do: Given that this is a smaller segment with a clear geographical scope, it is expected to have a bigger availability. A rate of 50%Sales(t) = Trial sales TS(t) + Repeat sales RS(t) was defined for year 1, rising to 80% by year four.TS(t)= Population * Availability * Variation on Initial Variation of initial purchase: This number dependspurchase (difference between last period) * Quantity mainly on advertising and product quality. Numbers varies from industry to industry. Data used in someRS(t)= Population * Availability * Cumulative Initial simulations ranged around 0.03 in class, this number ispurchase * Repurchase rate * Consumption rate used for the analysis.Population: Total market objective Quantity: Number of units acquired during the initial purchase. For this industry the most probable number is For girls who do: Women world wide population 1. between 15-64 years old → 2,187,838,153 Cumulative initial purchase: A high number for this For students who do: students on 3rd level of variable is around 0.25, but varies for different education (Professional, technical, etc) → 23,267,347 industries. It is assumed a initial number of 0.10 for year one and 26,403,104 for year four increasing by 0.03 yearly. Similarly to variation of initial purchase, it depends on advertising and quality.Availability: Given for the percentage of the productsavailability in the possible points of purchase. For a Repurchase rate: It also depend on advertising, but notcompany like Coca Cola this number should be around need to mention that this kind of advertising is different90%. from the one aiming to promote the initial purchase. Besides, as it can be supposed the number should be For girls who do: For a global company like Lenovo lower for the first period. A high value for repurchased with a wide presence and very competitive prices it is rate is about 30 percent, for this analysis having in mind possible to estimate this number starting in 30% for the highly competitive environment the rate used for the the year one and rising to 45% by year four. first year is 10 percent but increased to 20 percent for the following years due to the perceived value that this differentiated product should have. 13
  • Consumption rate: For girls who do: Users change their computer each 2 or 3 years. For this example, assuming they change computer each 2.5 years they have a consumption rate of 0.4. For students who do: Assuming students change their computer each 3 or more years, a consumption rate of 0.3 was used. 14
  • About the author:http://jerc_colombia.webs.tl