Lenovo PC International is a multinational technology company based in Beijing, China founded by Liu Chuanzhi 1984. It designs, develops, manufactures, and also sells laptops, PC’s, tablet computers, workstations, smartphones, servers, and other electronic devices. It is the world’s largest personal computer vendor based on units sold. Various lines of Lenovo include the ThinkPad, IdeaPad, Yoga, IdeaCenter, and ThinkCenter. Lenovo products are sold to over 160 countries and it has operations in more than 60 countries. In 2005 Lenovo acquired IBM’s personal computer business and its server business in 2014. In 2014, Lenovo also acquired the Motorola Mobility cell phone maker from Google. In 2016, its revenue was more than $43 billion. Lenovo also acquired many other smaller firms to move to the top of the industry.
Following is a detailed Porter Five Forces Model Analysis of Lenovo:
Competitive Rivalry – High
The technology industry is one of the most competitive industries. Currently, there are three major players: Lenovo, Dell, and HP. They jointly hold more than 50% of the market share out of which approximately 16% belongs to Lenovo. The products these companies make differ very little with regard to quality and features. The main competition is on bringing the latest innovation to the market first and second is providing the best customer support. The launch of the products by the market leaders differ only by weeks and days. All of these players are financially strong, have excellent R&D facilities, and have developed their distribution worldwide to make maximum sales. Therefore, the competitive rivalry for Lenovo is intense.
Threat of New Entrants – Medium
There is a lot of potential of new entrants in the personal computer industry. It is an industry that is continuously growing. But still, the entry barriers are high. Manufacturing setups and research facilities require a lot of investment. Economies of scale also are important to earn profits. Access to worldwide distribution is required which takes a lot of time to establish. Also, in the technology world, a brand develops a reputation and a loyal customer base after becoming an established company. Customers avoid purchasing from any other brand and directly go for a brand they have had a good past experience with. One way for a new entrant to succeed is to come up with innovation never foreseen in the market. Recently, there have emerged many new brands in this industry especially in China (Adia, 2014). Therefore, the threat of new entrants against Lenovo is a medium level.
Bargaining Power of Suppliers – Low
Like all other personal computer manufacturers, Lenovo does not make its own parts. Rather it outsources and purchases from suppliers. These suppliers are few in number due to the complexity of this manufacturing process. They all operate from the Asia Pacific region due to the availability of cheap labor. However, these suppliers are fiercely competitive and thus do not raise their prices in attempts to bargain. The suppliers of Lenovo also include Microsoft that provides it with operating system software (Wu, 2013). The bargaining power of these suppliers is low against Lenovo.
Bargaining Power of Buyers – High
Since there is a lack of product differentiation, high competition, and no switching cost for the buyers, the bargaining power of the buyers in this industry is high. This is especially for the corporate clients that purchase in bulk for their offices. What Lenovo offers to its buyers, the same product with almost the same features and quality is available from other competitors as well. This increases the array of choices for the customers. The number of buyers is also large. Thus, the buyers of Lenovo have a high bargaining power over it.
Threat of Substitutes – High
The substitutes of personal computers include tablets, smartphones, and convertible tablets. The prices of these products also have gone down after recent developments. All of these devices can perform the functions a normal computer can perform and they are less bulky and easier to operate as well (Newsome, 2012). Therefore, the threat of substitution is high for Lenovo and is increasing day by day.
References
Adia, F., 2014. Porter’s Five Force Model and Value Chain of Lenovo. [Online] Available at: https://www.slideshare.net/farranadia91/porters-40398359 [Accessed 12 July 2017].
Newsome, T., 2012. Lenovo. [Online] Available at: https://prezi.com/mpkrw-jcnt2w/lenovo/ [Accessed 12 July 2017].
Wu, D.Y., 2013. Porter’s five forces and value chain model: Lenovo. [Online] Available at: https://www.slideshare.net/diyiwu79/task2-26779666 [Accessed 12 July 2017].