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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 efficiencyand customer satisfaction. The acquisition of IBMs PC division helped it become theworlds third biggest PC-maker. The business model Lenovo appeared to be following was

based on a combination of raising brand awareness, consolidating domestic production andexpansion 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 secondplant, Lenovo expected to improve its supply chain efficiency and better serve its growingcustomer 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 PCcompanies, through selling Lenovo-branded products through retail stores. In Europe, it islooking to acquire Packard Bell BV, the fifth biggest PC-maker in Western Europe. Frommid-2007, Lenovo plans to target Chinas low-income consumers by offering a new PC at aretail 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 followsa relationship business model under which it receives bulk orders of pre-configured PCsfrom big enterprises. On the other hand, to target small- to mid-size companies andindividual customers, the company follows a transactional business model servingcustomers with common requirements and who need less customization. The relationship

business model approach focuses on long-term relationship building particularly with largeenterprises, while the transactional business model is focused on small to medium sizedenterprises, whose requirements are less individualized. Lenovo believes its transactional

model helps it gain market share with customers in small cities. Lenovos plans for globalexpansion are based on extending this dual-model approach into global markets. In terms ofrelationship-building, it entered into agreements with the Turin and Beijing Olympic Gamesand the National Basketball Association in US. An efficient supply chain has been identifiedas key to Lenovo being able to get its products to the end-user quickly and efficiently, andfulfilling 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 Lenovosbiggest 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 touse Lenovo computers prevented it from gaining a strong foothold in the US, and signalled to

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other potential customers a reluctance to choose a Chinese computer manufacturer over morewell-known rivals. Improving its supply chain network internationally is another majorobstacle to Lenovos growth. Lenovo, as a Chinese company, seems to be particularlyaffected by Chinas reputation as a leading producer of counterfeit goods, including computercomponents. Chinas porous borders for these types of goods mean that overseas customers

associate Chinese manufactured products with fakery. Lenovo is also threatened by morelocal PC companies establishing strong distribution networks to offer PCs at lower prices. Aswell as looking to expand overseas, Lenovo must also be wary of intrusions into its owndomestic market, as companies like Dell increasingly focus on establishing themselves in the

potentially lucrative Chinese market. Lenovos domestic market is becoming an environmentwhere margins are directly correlated to units sold, and cost-cutting has become a profitmantra.