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Chinas Competitiveness

Myth, Reality, and Lessons for


the United States and Japan
A case study : Lenovo

Overview
After China adopt opening-up policy since 1978,
Chinese economic situation experienced a great
change.
Boasting an average Gross Domestic Product
(GDP) annual growth rate of 9.4% in the past 30
years, Chinas annual per capital growth rate has
still reached 8.1% even with a large population of
1.3 billion (China Development Research
Foundation and UNDP, 2005).

Overview
In addition, after joining the World Trade
Organization (WTO) since 2003, China has
certainly become an important country, which
absorbs a large amount of foreign investment.
And as the enormous market potential, the
Chinese market is becoming the main focus of
competition for foreign companies (HIS, 2010).
Most of the growth had come from producing
labor-intensive, low-value-added goods

Overview
In addition, Chinese policymakers assisting the
Chinese firms:
-To move up the industrial value chains
-International expansion go global

Lenovo in China
Lenovo got its start in Beijing in 1984
Its name was Legend in the beginning and in 2003
rebranded itself as Lenovo
It was considered a pioneer of Chinese market reform in
the science and technology sectors
Legend Started to build its advantage over foreign
companies as it developed domestic Chinese sales,
distribution and service networks for Apple, Toshiba,
Canon, Sun, and IBM
Lenovos strategy was firmly rooted in the belief that two
things are fundamental for an enterprise, one is
manufacturing base, the second is a distribution Channel

Lenovo in China
By the end of 1998, Legend had a china Market share of 17.9%
and ranked 3rd in the Asia-Pacific region, excluding Japan. At the
end of the next year, Legends Market share had valued to
27.3% in China and to first position in Asia-Pacific region
In 2003 Legend rebranded itself as Lenovo
Lenovo made its first splash internationally as a global
Olympic sponsor.
In 2004 Lenovo purchase of IBMs ThinkPad Business (bn $
1.75)
Most recently, acquisition of Germanys Medion AG, Lenovo
has overtaken Dell to become the second largest PC company
by market share just behind HP

Current Strategy
PROTECT AND ATTACK: LENOVO'S
NEW STRATEGY
ONCE AN UNLIKELY RIVAL FOR HP AND
APPLE, CHINESE COMPUTER MAKER
LENOVO HAS GROWN AND ADAPTED
AS QUICKLY AS ITS HOMELAND. NOW,
WITH A SAVVY BLEND OF EAST AND
WEST, IT'S POISED TO BE CHINA'S
FIRST GLOBAL BRAND.

Protect/attack strategy
Continue to expand its lead in PC market share in
China and grow its share in the commercial sector
with servers and workstations, continue to launch
of consumer and commercial tablet computer lines
Expand share gains in Mature markets
Grow Mobile internet presence globally
Drive convergence with cloud devices, attractive
apps
Reach 10% share benchmark in emerging markets

Competitiveness Indicator
Market Share
At the end of 2011, Lenovo ranked as second
largest PC manufacturer

Competitiveness Indicator
Market Share
China 28.8%

Japan 6%

USA 6%

Competitiveness Indicator
Sales

In 2011 Lenovo had a sales of $21.6 billion,


Representing year-on-year increase 30%

Competitiveness Indicator
Growth
Shipment growth 28.2%
In Mature Markets increase profitability by $143 million,
with shipment growth 27.4%
China shipment growth of 22.2%
Biggest growth in shipment coming from emerging
market shipment with year-on-year growth of 50%
(excluding china)
Fastest growing of top five PC manufacturers for the six
Quarter in a row
Year-on-year sales growth of 25% for desktops, and 24%
for notebooks.

Lenovos Competitive advantages

1-China Market
2-Growth potential in the Asia-Pacific Market
3-Cost Innovation
4-Distribution network
5-In-House manufacturing specialization
6-Labor
7-Government support
8-Lenovos relationship with Japan and United
states

1-China Market
1-The leading role Chinese sales have had and should
continue to have in Lenovos overall sales
2-A low-Cost base not only for manufacturing but also
for R&D, administration, design, and engineering
3-Proximity to the supply chain and availability of
skilled and mobile workers
4-High volumes and increasing Economy of Scale
5-Internationalized R&D in North America and Japan,
as well as China

2-Growth potential in the Asia-Pacific Market


Lenovo can adapt its localized innovation strategy
as it Expands in other emerging markets such as
India
Its Joint Venture with NEC will also give it
Economies of Scale in Japan
Lenovos recent strategy for growth both at home
and overseas has focused heavily on Laptops, and
now Lenovo is recalibrating its product focus to
match consumer preferences (Shifting from Laptops
to mobile internet devices)

3-Cost Innovation

High Technology products at a low cost


Large Variety at a low Cost
Specialty products at a low cost
Lenovo ad Low-Cost design and R&D programs,
Low-Cost manufacturing through its own and
contract manufacturers, Low-Cost engineering
and administration

4-Distribution Network
Pre WTO accession, it was in the special position
of being both the manufacturer and the primary
distributor for its competitors.
Lenovo invested heavily in setting up and
maintaining its distribution network in China
Distribution Channels in China are less
fragmented than those in international markets
which creates greater barriers to entry for
companies not already in China.

Conclusion
1-Developing Distribution Channels (with Government
protection from International Competitors)
2-Helping foreign vendors with sales and low-end
manufacturing
3-Size of Domestic Chinese market was a major factor
that enabled Lenovo to grow into globally competitive
Company
4-It used its acquisition of IBMs PC division to take full
advantage of international talent marketing and supply
chains, it upheld high quality in its products and
international standards in its business operations.