Analysis of the external environment of Lenovo
The current business scenario is highly competitive in nature and with the growing intensity of globalization; challenges for the contemporary business organizations are becoming more diverse (Alden et al., 2013). This is due to the fact that, contemporary business organizations operate in different countries around the world and thus they face diverse business environment and competition. Thus, it is important for the contemporary business organizations to have effective and efficient mechanisms to determine the environmental factors and the intensity of the competition. It will help them to initiate their business policies accordingly. However, multinational organizations are having the major need of determining the diverse factors due to the reason that, they operate in different locations around the world.
Lenovo is one of the leading multinational organizations in the market of electronic gadgets in the world. They were being incorporated in 1984 in China and currently they are having their market presence in more than 160 countries (About Lenovo | Lenovo India, 2018). Moreover, Lenovo is the largest electronics gadget company in the world in terms of sales. Two of their major revenue generating products is personal and notebook computers and mobile devices. In the recent times, they have acquired Motorola Mobility in order to strengthen their presence in the highly competitive market of smartphones.
This report will discuss about the political, economical and socio-cultural environment being faced by Lenovo with the help of the PESTEL analysis. Moreover, Porter five forces will also be involved in order to determine the intensity of the competition faced by them. In accordance to the identified challenges, various recommendations will also be discussed in this report.
As discussed in the previous section, Lenovo is having their operations in different locations around the world and thus they are facing different and diverse environmental factors. In order to analyze the external environment for Lenovo, PESTEL analysis will be used. This is due to the reason that, with the help of the PESTEL analysis, different elements ranging from the political to environmental can be analyzed. However, in this report, three environmental factors namely, political, economical and socio-cultural factors will be discussed.
Political environment refers to the political scenario being faced by the business organizations in different countries around the world along with differences in rules and regulations (Lawton, McGuire & Rajwani, 2013). The more effective will be the alignment of the business policies with the different political scenarios, the more effective will be the business operation of the organizations. Lenovo is having their presence in more than 160 countries and thus, the political faced by them is also diverse in nature. The home country of Lenovo, China is having autocratic communist type of government, while major western countries are having democratic type of government that is their major markets. However, in the recent time, the removal of the trade barriers by the World Trade Organization helped Lenovo to ease the process of doing business in different countries around the world.
Political environment
There are various challenges also being faced by Lenovo in terms of the instability of the political scenario in the world. One of the key challenges is the growing popularity of the populist ideologies and extremism in different countries (Kee, Neagu & Nicita, 2013). According to the reports, the influence of authoritarian populism is increasingly rapidly. Thus, it is leading to the imposition of barriers in the process of globalization. It will be challenge for Lenovo to operate in the global scenario if the political differences and barriers get increased.
Figure: 1
Growth of the populism ideologies
Source: (Heinö, 2018)
Lenovo mainly caters to the mass market with their affordable products. Thus, it helps them to increase the volume of their sales. Moreover, China, their home country is having lower cost of production, which further helps them to gain cost leadership in the market (Banker, Mashruwala & Tripathy, 2014). In the global market also, Lenovo is having their manufacturing facilities in Brazil and Argentina, which are having lower cost of production. However, there are various economical factors that have negative impact on their business operation. One of the key negative impacts faced by them is due to the emergence of the global economic crisis in 2008. This caused reduction the sales volume of them.
Moreover, with the frequent fluctuations in the currency rates between different countries, it becomes difficult for them to maintain their profitability (Schulmeister, 2013). The mass market where Lenovo is currently operating is highly competitive in nature and with the recent influx of different low cost Chinese vendors in the market of electronic gadgets; the competition is becoming more intense for Lenovo. It is affecting their profitability in the market.
Figure: 2
Impact of economical factors on Lenovo
Source: (Dawson, 2018)
One of the key negative impacts of the social environment in the current global business is the shifting of the customer preference from the personal computers. Thus, the personal computer business of Lenovo is taking the toll and witnessing negative growth in the recent time (Pearce & Rice, 2013). However, Lenovo is having the advantages of having the presence in the mobile device market, which is showing positive growth in the global market. With the increase in the literacy level of the global population, the demand for technological products is also increasing. This will have positive impact on the business operation of Lenovo.
However, the differences in the social preferences in the global market are having negative impact on the business operation of Lenovo. This is due to the fact that, customers from the developing countries are having the preferences for the low cost products, while customers from the developed countries are having the need of technologically advanced products (Batel, Devine-Wright & Tangeland, 2013). Thus, it is a challenge for Lenovo to meet the diverse criterion of the customers in the global market.
Economical environment
As discussed earlier, Lenovo is operating in highly competitive market and thus, they are facing intense competition and rivalry in the industry. Porter five forces model will be used in order to determine the competitive environment of Lenovo.
Bargaining power of the suppliers refers to the influence of the suppliers in bargain price with Lenovo (Sheu & Gao, 2014). Presence of good number of suppliers in the global market is providing upper hand to Lenovo. Majority of the suppliers are smaller brand compared to Lenovo. They gain their brand value by supplying to renowned brand like Lenovo. Thus, Lenovo is having the upper hand in managing the bargaining power of the suppliers (Fabbri & Klapper, 2016). It can be concluded that, bargaining power of suppliers is low for Lenovo.
Bargaining power of buyers refers to the influence of the buyers or customers in business process of Lenovo (Moatti et al., 2015). Buyers for Lenovo are segmented in both individuals and industrial sectors. However, with having huge number of competitors in the market, customers is having more options available to them to choose from. Switching cost is also low for the customers (Blut et al., 2014). However, the brand value and identify possessed by Lenovo along with their innovative products helps in having distinctive image in the market. Thus, bargaining power for buyers for Lenovo is moderate.
Threat of new entrants refers to the possibility of the entry of the new players in the market. Huge capital investment is required to enter in the market of electronic gadgets. This is due to the reason that, it involves global supply chain management, brand promotion, setting up manufacturing facilities and investing in research and development (Fresard & Valta, 2016). Thus, it is difficult for the new entrants to match up with the economies of scale of Lenovo. Moreover, the brand value gained by Lenovo in the global market is difficult to imitate by the new entrants. Thus, the threat of new entrants for Lenovo is low.
Threat of substitutes refers to the influence of the substitute products in the business process and revenue generation of Lenovo. As earlier discussed, there are number of similar players operating in the market with Lenovo (Porter & Heppelmann, 2014). Majority of the players are offering similar set of products. However, diversified range of products helps Lenovo to cut off the intensity of the threat of substitutes. Thus, threat of substitutes is increasing with the increase in the number of competitors. Therefore, threat of substitutes for Lenovo is high.
Socio-cultural environment
Industry rivalry refers to the pace of competition in the market and to what extent the companies are going to stay ahead in the competition. With having more number of players in the market, the intensity of the rivalry in the industry is also high (Ellram, Tate & Feitzinger, 2013). More companies are introducing technologically advanced products in the market in order to attract more customers. Cost of promotion is rapidly increasing in order to maintain the existing customer base. Thus, the industry rivalry for Lenovo is high.
Brand extension
It is being recommended that, Lenovo should initiate the strategy of brand extension by introducing premium products in the market. This is due to the reason that, from the above discussion, it is being seen that, Lenovo is having their market presence only in the mass market. Thus, having premium products will help them to gain the positive and niche brand value in the market. Moreover, it will help to enhance the market coverage for Lenovo by catering to top of the pyramid also. The profitability in the premium products is more and the intensity of the competition is less.
Change management
The internal management and organizational process should be effective enough to cope with the frequent change in the market trend and requirements. Thus, it is being recommended that change management process should be initiated in the organization in order to put a flexible organizational process, which can be adjusted according to the market requirement. This will increase their effectiveness in the market.
Product diversification
It is also being recommended that, Lenovo should initiate the product diversification strategy in order to have their market presence in different sectors. With the help of the product diversification strategy, Lenovo can introduce electronic devices such as gaming consoles in the market. The positive brand image of them will help to push the new products in the market effectively. Moreover, it will also help them to increase their customer segments in the global market and will reduce the dependency of them from their existing product category.
Targeting developing market
Lenovo should target the emerging market such as India more in order to gain revenue. This is due to the reason that, emerging economies are having huge untapped market and with the growth in the economy, the purchasing power of the customers is increasing rapidly. Thus, offering their products in these countries will help them to obtain huge untapped market along with huge market opportunities. Moreover, the mass market and affordable products of Lenovo will be more applicable for the growing economies of the developing countries.
Determination of competitive environment of Lenovo
Conclusion
Thus, from the above discussion, it can be concluded that, Lenovo is one of the leading multinational organizations in the world with having their business operations in different countries around the world. This report discussed about the political, economical and socio-cultural factors being faced by them in their global operation. It is being concluded that, Lenovo is facing diverse environmental factors in their business due to the fact that, these factors vary in different locations around the world. On the other hand, there are various opportunities also being identified in this report from the analysis of the environmental factors.
Porter five forces model is also being used in this report in order to determine the competitive environment of Lenovo in the global market. It is being seen that, some of the elements are having high and some are having low impact on the business process of Lenovo. Thus, they are having mixed impact from the competition in the market. In accordance to the issues being identified, there are various recommendations being discussed in this report. Effective implementation of the recommended steps will help them to enhance their market share in the global market.
References
About Lenovo | Lenovo India. (2018). Www3.lenovo.com. Retrieved 26 January 2018, from https://www3.lenovo.com/in/en/lenovo/
Alden, D. L., Kelley, J. B., Riefler, P., Lee, J. A., & Soutar, G. N. (2013). The effect of global company animosity on global brand attitudes in emerging and developed markets: Does perceived value matter?. Journal of International Marketing, 21(2), 17-38.
Batel, S., Devine-Wright, P., & Tangeland, T. (2013). Social acceptance of low carbon energy and associated infrastructures: A critical discussion. Energy Policy, 58, 1-5.
Blut, M., Beatty, S. E., Evanschitzky, H., & Brock, C. (2014). The impact of service characteristics on the switching costs–customer loyalty link. Journal of Retailing, 90(2), 275-290.
Dawson, J. (2018). Lenovo | Beyond Devices. Beyonddevic.es. Retrieved 26 January 2018, from https://www.beyonddevic.es/category/lenovo/
Ellram, L. M., Tate, W. L., & Feitzinger, E. G. (2013). Factor?market rivalry and competition for supply chain resources. Journal of Supply Chain Management, 49(1), 29-46.
Fabbri, D., & Klapper, L. F. (2016). Bargaining power and trade credit. Journal of Corporate Finance, 41, 66-80.
Frésard, L., & Valta, P. (2016). How does corporate investment respond to increased entry threat?. The Review of Corporate Finance Studies, 5(1), 1-35.
Heinö, A. (2018). Timbro Authoritarian Populism Index 2017. Timbro. Retrieved 26 January 2018, from https://timbro.se/allmant/timbro-authoritarian-populism-index2017/
Kee, H. L., Neagu, C., & Nicita, A. (2013). Is protectionism on the rise? Assessing national trade policies during the crisis of 2008. Review of Economics and Statistics, 95(1), 342-346.
Lawton, T., McGuire, S., & Rajwani, T. (2013). Corporate political activity: A literature review and research agenda. International Journal of Management Reviews, 15(1), 86-105.
Moatti, V., Ren, C. R., Anand, J., & Dussauge, P. (2015). Disentangling the performance effects of efficiency and bargaining power in horizontal growth strategies: An empirical investigation in the global retail industry. Strategic Management Journal, 36(5), 745-757.
Pearce, K. E., & Rice, R. E. (2013). Digital divides from access to activities: Comparing mobile and personal computer Internet users. Journal of Communication, 63(4), 721-744.
Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88.
Schulmeister, S. (2013). Currency speculation and dollar fluctuations. PSL Quarterly Review, 41(167).
Sheu, J. B., & Gao, X. Q. (2014). Alliance or no alliance—Bargaining power in competing reverse supply chains. European Journal of Operational Research, 233(2), 313-325.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
