Negotiation and Strategy Essay
In modern conditions of intensive economic development, management is one of the pivotal tools for the development of a company. Management regulates the material and labor resources, their implementation and the effectiveness of their use to reduce costs and increase revenues. In addition to the regulative function, management functions include the preparation of direction of the organization and analysis of the state of the company in the market, considering a competition. To analyze a large company, such as Lenovo Group Limited, it is necessary to reckon with several factors affecting its state and development: Computer hardware in Electronics Industry, company history, structure, strengths and weaknesses of a company, opportunities and threats, revenues and costs, negotiations , investment, partnership, strategy and tactics of the manufacturer.
Lenovo Group is a global technology leader who produces smart devices. In electronics manufacturing, Lenovo has a special place in the production of personal computers, laptops, smartphones, hardware and software, scanners and printers. Lenovo operates in more than 60 countries with worldwide serving. This market is developing rapidly, and competing companies are contending to cover the largest share of the global electronics market. Major competitors in this area are Lenovo Group Limited, Seagate Technology PLC, Logitech International, and Hewlett Packard Enterprise, Dell Technologies Inc, HP Inc.
According to Chart comparison for sector Computer Hardware, Lenovo Group had the best performance from 2014 to 2015, but further competitiveness has declined. Currently, Seagate Technology PLC, Logitech International, and Hewlett Packard Enterprise (HPE) are leading the market. Dell Technologies Inc is gaining momentum from December 2018 to the present, competing with Lenovo at the same level. HP Inc lags behind its competitors. It should be noted that Legend Holdings Corporation is a Chinese investment holding company, the controlling shareholder of the Lenovo Group (Legend Holdings Corporation, 2015).
According to the data in the Sector Computer Hardware table, the capitalization level of Lenovo Group Limited lags behind Dell Technologies Inc., HP Inc., Hewlett Packard Enterprise, and Seagate Technology PLC. Anyway, Lenovo Group Limited, and Legend Holdings Corporation are leaders in Valuation. Profitability is below average, and it shows that the Lenovo Group is not using its resources efficiently, with an average level of finance. Lenovo Group Limited has a below-average Price-to-Earnings Ratio, which shows an average investment attractiveness, and in this aspect, the company is straying its competitors, excluding Logitech International.
In 1981, the company first introduced its computer, the IBM PC, and after three years created its portable computer, and two years later, Lenovo launched the laptop computer, receiving the national award for scientific and technological progress in Hong Kong. The company regularly introduced innovations, developing its technology, creating the first notebook with integrated CD-ROM and its server, and in 1997 the company for the first time in the techno-industry equipped the notebook with a DVD-ROM. Due to these innovations, Lenovo, the Chinese manufacturer, became the leading PC supplier in the Asia-Pacific region in 1999. The company received a certificate from the Trusted Computing Platform Alliance for a laptop with an integrated security chip, which allowed the company to reach new heights and strong consumer demand. Achieving a significant market share in Asia has enabled Lenovo to distribute its products globally, becoming a worldwide computing equipment partner (Lenovo, 2016).
It should be noted that the Chinese economy was strict, and the government did not encourage start-ups, which meant that the government was not willing to invest in the company, so the founder head of the Chinese Academy of Sciences provided a loan of 200,000 yuan ($24,000) to the founder of Lenovo, at the beginning named Legend.
Another of the difficulties of establishing a company was the lack of a market expert in the staff who could analyze the business; Mr. Liu Chuanzhi, as Chairman of the Board, managed the company, where the higher part of the team consisted of young people upon the 90s (Yourtechstory.com, 2005). The founder believed that despite some inexperience, young employees are talented and energetic enough to move the company towards progress. The lack of business knowledge created problems and misunderstandings between management and employees. Liu Chuanzhi and managers developed their leadership skills by exploring large companies, such as HP, and IBM, to advance a marketing and business strategy. The company began selling its products six years after its foundation, and in the course of development, in 1996, the company ranked first in the list of computer manufacturers, overtaking IBM. In 2006, Legend was forced to rename as the Lenovo Group to promote products on the UK market, where the name Legend was taken over by another manufacturer.
Having gained more experience since the company was founded, in 2009, Lenovo announced the renewal of its organizational structure, which included two business sub-entities: customer focus in a sustainable market in Europe, Africa, and the Middle East, and in a evolving market in Russia, and Asia- Pacific region (Rttnews.com, 2009). These sub-entities are substituting Lenovo’s market organizations in the regions to improve the link between the company’s new strategy and the dynamics of the supply and demand market. This solution will allow Lenovo to quickly react to sharp changes in market trends while serving customers. The company announced its reorganization to focus on product development innovations. Since the early 2000s, IBM and investment companies of the Texas Pacific Group, General Atlantic, and Newbridge Capital have acted as Lenovo shareholders (Lenovo, 2019). Since 2006, Lenovo has been installing Windows operating systems on its computers, and this cooperation brings Microsoft to about $1 billion a year (Referenceforbusiness.com, 2006). In the third quarter of 2010, Lenovo and NEC created a joint division of the NEC Lenovo Japan Group, which brought a profit of $ 175 million. Under this arrangement, Lenovo and NEC received 51% and% 49 shares, respectively (Clenfield & Shiraki, 2011). The following year, the Lenovo Group bought the German company Medion, which allowed the Chinese manufacturer to increase its share in Germany and the Western Europe market. In June 2011, Lenovo acquired the German retail company Medion, which sells and services electronics. The acquisition will allow Lenovo to take third place in Germany’s largest European market and double its share in this region and in Western Europe as a whole (Lenovo, 2018). In early January 2014, the Lenovo Group concluded both deals: buying servers from IBM and expanding the alliance between the companies; purchase of Motorola Mobility from Google, after which Motorola Mobility is a subsidiary of the Lenovo Group.
The company intends to expand, to introduce innovations not only in production but also in the management structure, led by Yang Yuanqing, as Chairman and Chief Executive Officer. Lenovo has created a team that is working on the integration of absorbed companies (Holstein, 2014). Every year, hundreds of top managers hold meetings to discuss cooperation with other companies to draw up a global strategy.
To create a strong strategy for development, business analysts and managers use SWOT analysis, which identifies the company’s strengths and weaknesses, opportunities, and threats. Among the advantages we can highlight the fact that in the first quarter of 2019, Lenovo remained the leader in sales, has shown the most significant increase compared to the previous year among competitors. This share of sales came from cooperation with the Japanese corporation Fujitsu, and therefore a considerable percentage of the products is supplied to Europe, the Middle East, Africa, and Japan. In the first quarter of 2018, Lenovo had 20.1% of the Market share in the PC market, and in the first quarter of 2018, its Market Share increased to 22.5% (Conn, 2019). According to new Stock Quote reports, Lenovo shares are growing since April 2018 (Lenovo, 2019). This fact testifies to the growing popularity of products from Lenovo and the improvement of the company’s image. It worth to consider that the brand image is also influenced by feedbacks, for example, when the company recalled a several products, or the manufacturer Xiaomi criticized Lenovo products, and it harmed the Lenovo brand.
The company’s weakness is the slow growth of its market share, although Lenovo is increasing its market share, this process is prolonged due to the competition. Lenovo has various opportunities in emerging markets in Russia, the regions of Asia, and the Pacific, due to the expected growing demand for smartphones in the medium term.
Cloud Computing has significant potential in the coming years, so Lenovo is focused on development in this area for a possible increase in profits in the future. The main strategic goal of the company is the acquisition of other companies to expand the range of products and expand the customer base, and therefore increase revenue. Expanding its presence in the global market helps the company to distribute profits in the organization properly, and to operate direct finances for development in different regions. Since the company has a strong position in the market, it has advantages in the PC market and smartphones, the demand for which is continuously growing (Conn, 2019). The biggest threat to the Lenovo Group is high competition in both the PC market and the smartphone market. A strong competitor may take a significant market share or force a company out over time if the manufacturer does not know how to adapt to changes quickly. Therefore, the progress and existence of the company are directly dependent on innovations and accurate management decisions. For example, in the first quarter of 2019, shipments to the United States decreased by 6.3% compared with the previous year, while HP Inc. became the leader in shipments in the US, and Dell ranked second.
The company must be prepared for the trend of declining demand for personal computers, due to significant consumer interest in smartphones and tablets.
Reducing the average selling prices can reduce the profitability of the company, as competitors use cheap production costs. The decline in demand for personal computers threatens the company’s revenues since this manufacturer receives its primary income from the sale of personal computers (Bhasin, 2019). Consequently, the company must be ready to reorient and increase the production of portable devices, reducing the production of personal computers.
Since the company does not provide any additional services, it must proceed in this direction to increase its competitiveness. The Lenovo Group does not provide analytical services to its customers, as this company works on its analysis and development only. At present, this Chinese manufacturer is developing only in the electronics industry, but if Lenovo significantly increases its market share, the company will be able to expand in other sectors. Lenovo is withdrawing from the usual approach to manufacturing operations that are typical of outsourcing with contract manufacturers. Lenovo is committed to vertical integration, which avoids dependence on the original manufacturers and reduces costs. The transition from the sale of products to the provision of additional services will allow the company to increase revenues and expand relationships with customers for the long term. Despite the company’s shortcomings and weaknesses, the Lenovo Group is a successful company because it was able to advance with a starting capital of $ 24,000, turning it into an income of $ 45.35 billion by 2018.
According to the SWOT analysis, Lenovo must use an aggressive strategy to increase its presence in the market in different regions quickly, and especially in the United States, since Lenovo has recently been lagging behind its competitors in America. The company may enter into strategic alliances with other manufacturers, but the participating companies do not occupy each other’s market share. The manufacturer must constantly introduce innovations in production and other structures of the organization for better interaction at different levels of the company’s infrastructure. Lenovo and IBM can expand their alliance to integrate enterprise, business, and individual technology solutions. Horizontal integration will give the company the advantages to create a long-term strategy since this method of integration means the growth of the company through the acquisition of similar companies, which leads to the elimination of competitors. It is a preferred direction for Lenovo, and this method may provide access to new markets in the future. It should be noted that Lenovo has profitable partnerships and many subsidiaries. In production, Lenovo focuses on the customer but does not provide related services, and it is a disadvantage. A significant advantage is a desire for cooperation and absorption of similar manufacturers. Lenovo has a strong position in the Application Programming Interface but is not advertised correctly, and this company can provide quality products in response to competitor innovations, and respond to changing customer needs. To increase market share, Lenovo must evolve separate strategies for each region: cost orientation for Asia, focusing on value in Europe to be a successful global company.
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