Case Study 9

Lenovos brand building strategies: Taking the competition to competitors with transactional model
Suggested case discussion questions Q1 Explain Lenovos early strategizing efforts and its future plans

Lenovo has production and distribution facilities in the US, UK, Mexico, Malaysia, Hungary, China and Brazil. This growth has been achieved through innovation, operational efficiency and customer satisfaction. The acquisition of IBMs PC division helped it become the worlds third biggest PC-maker. The business model Lenovo appeared to be following was based on a combination of raising brand awareness, consolidating domestic production and expansion overseas mainly through acquisition. Lenovo cemented its commitment to India by investing $11 million to construct a second manufacturing unit in Himachal Pradesh, India, capable of producing two million units annually. With the construction of its second plant, Lenovo expected to improve its supply chain efficiency and better serve its growing customer base in the region. In the US, Lenovo relies mainly on its sales of ThinkPad (a brand of IBM) laptops to business customers. It wants to be among the USs top-five PC companies, through selling Lenovo-branded products through retail stores. In Europe, it is looking to acquire Packard Bell BV, the fifth biggest PC-maker in Western Europe. From mid-2007, Lenovo plans to target Chinas low-income consumers by offering a new PC at a retail price of 1,499 renminbi (100). Q2 Critically explain Lenovos relationship model and transactional model approach to business

In China, Lenovo follows two business models: relationship model and transactional model. To target and establish long-term business relationships with big enterprises, Lenovo follows a relationship business model under which it receives bulk orders of pre-configured PCs from big enterprises. On the other hand, to target small- to mid-size companies and individual customers, the company follows a transactional business model serving customers with common requirements and who need less customization. The relationship business model approach focuses on long-term relationship building particularly with large enterprises, while the transactional business model is focused on small to medium sized enterprises, whose requirements are less individualized. Lenovo believes its transactional model helps it gain market share with customers in small cities. Lenovos plans for global expansion are based on extending this dual-model approach into global markets. In terms of relationship-building, it entered into agreements with the Turin and Beijing Olympic Games and the National Basketball Association in US. An efficient supply chain has been identified as key to Lenovo being able to get its products to the end-user quickly and efficiently, and fulfilling its transactional approach. Q3 Critically analyse the challenges Lenovo faces as it pursues its globalization aim

Building a global brand in a highly commoditised and mature global PC market is Lenovos biggest challenge. US customers have security fears and are suspicious of Lenovo as it is a state-owned Chinese company. The American Department of States recent decision not to use Lenovo computers prevented it from gaining a strong foothold in the US, and signalled to

other potential customers a reluctance to choose a Chinese computer manufacturer over more well-known rivals. Improving its supply chain network internationally is another major obstacle to Lenovos growth. Lenovo, as a Chinese company, seems to be particularly affected by Chinas reputation as a leading producer of counterfeit goods, including computer components. Chinas porous borders for these types of goods mean that overseas customers associate Chinese manufactured products with fakery. Lenovo is also threatened by more local PC companies establishing strong distribution networks to offer PCs at lower prices. As well as looking to expand overseas, Lenovo must also be wary of intrusions into its own domestic market, as companies like Dell increasingly focus on establishing themselves in the potentially lucrative Chinese market. Lenovos domestic market is becoming an environment where margins are directly correlated to units sold, and cost-cutting has become a profit mantra.