PESTLE and SWOT analysis of Lenovo 2017
Kush, J., & Nanjekhe, P. (2018) "Pestle and Swot Analysis of Lenovo 2017" 123 Writing [Online] at https://www.123writing.com/free-sample/pestle-and-swot-analysis-of-lenovo-2017
Analyse the internal and external environment of Lenovo & the global PC industry using Pestel, Swot, Porters five forces & BCG
- For Xiaomi Pestle and Swot analysis, see Xiaomi Pestle & Swot.
- For Huawei Pestle and Swot analysis, see Huawei Pestle & Swot.
Lenovo is a Chinese technology firm founded by Liu Chuanzhi in 1984, currently engaged in the design, manufacture and marketing of personal computers, tablets, smartphones, smart televisions, servers as well as related software, accessories and third party applications. Key products include ThinkPad and Yoga tablets, smartphones as well as desktops and laptop PCs under the Think and Lenovo brand names. Lenovo’s global turnover totalled US$43bn for the fiscal year ending 2016 (Annual Report 2016). Lenovo is the bestselling PC brand in China as well currently being the largest producer of personal computers in the world accounting for over 21.3% of the global market share, ahead of closest rivals Hewlett Packard and Dell (Annual Report 2016; Fortune 2016).
On the other hand, according to Mintel (2017), it lags behind Apple in terms of overall market volume share when it comes to tablet computers. It also lags behind Chinese rivals Huawei, BBK (which offers the Oppo and Vivo brands) and Xiaomi in the Chinese smartphone market (Dunn 2017) as well as Apple and Samsung in the global market for smartphones.
2.0 Lenovo PESTLE analysis 2017(Opportunities and threats)
Nevertheless, current macro trends actually favour Lenovo to expand global market share in the desktop, laptop and tablet computer markets if it can utilize its innovative strengths and market opportunities. As will be looked at shortly, some of the favourable trends Lenovo can benefit from include firstly, the exit of Toshiba from the European PC market in 2016 which has already had a positive impact on the volume share of other major players in the UK computer market. Secondly, PC sales volumes are faring better in markets such as the UK compared to tablet sales volumes that are in decline at a faster rate as consumers switch to hybrid laptops, an opportunity favouring core PC manufacturers including Lenovo, HP and Dell in the near future (Mintel 2017).
Thirdly, Lenovo has been investing heavily in new innovations in form to try and capture global market share of the desktop, laptop and tablet markets. These include a new concept laptop in June 2017 that could be folded rather than having a hinge. It follows other innovations such as a foldable tablet in 2016, a Lenovo smartphone that could wrap around a user’s wrist like a bracelet and the launch of its most innovative hybrid devices in late 2016 when it released the Lenovo YOGA Book (Mintel 2017). Such innovations have increasingly been a feature of Lenovo’s competitive strength.
Using PESTLE, SWOT, Lenovo’s BCG matrix and Porters Five Forces framework, the report thus examines how Lenovo can take advantage of certain core strengths, as well as opportunities arising out of a very competitive external environment (see Toshiba) in order to benefit.
2.1 Political environment - Impact of Brexit on Lenovo
The British Exit from the European Union (Brexit) led to an increase in PC (desktops, workstations, notebooks) prices in UK by a third due to increased import tariffs which has led to increase in product prices by OEMS such as Lenovo, Apple, Asus, and HP. Further, with the increased standards of living in UK, consumers have less disposable income which has led to decrease in PC sales (Easton 2017). This has led to a general decrease of PC sales but the exit of Toshiba from the European PC market in 2016 created a gap in the market which Toshiba took advantage of by acquiring NEC and Fujitsu in 2017 (Japan Times 2017).
2.2 Economic environment
China’s high economic growth has facilitated an increase in sales of Lenovo smartphones, laptops Think Pads and Yoga tablets. This is attributed to China’s high population and low unemployment rate which has resulted in lower labor costs, low production costs and thus lower product prices, enabling Lenovo to grow and become one of the world’s top Chinese firms as perceived by people outside China (Handley 2018).
In markets such as the UK, the pounds depreciation resulted in a 3.1% inflation rise with a decrease in annual growth rate from 2.8% to 1.3% between 2016 and 2017 leading to muted consumer spending attributed to decreased disposable income (Chu 2017). And with Increased PC and smart phone prices, fewer electronics were sold since customers prefer cheaper products hence a decrease in Lenovo product sales (Kunert 2018).
2.3 Social environment
Chinas high literacy rate of 96.4% has enabled consumers to purchase smartphones, tablets and PCs from manufactures such as Lenovo, Huawei, Apple, hence increasing their sales. The ability of people to read and write has revolutionized self-technology through text messaging, social media; among others hence literate people feel the urge to own smartphones, personal computers or tablets (Country Meters 2018).
2.4 Technological environment
With the continuous evolution of technology, virtual and mixed reality is set to become a $165 billion-dollar industry by 2020. To increase its profitability and oust its competitors through innovation of new products, Lenovo has invented several products such Tri-Fold display laptops as well as smart glasses that combine augmented reality (AR) and artificial intelligence (AI) and operate through the user’s smart phone to help business users improve their workflow (Rayome 2017).
2.5 Environmental factors
Large companies are investing in sustainable practices to control costs as well as improve their brand images. To reduce on its e-waste, Lenovo has invested US $1.2 billion in Artificial intelligence and Virtual Reality (VR) to drive operational efficiency, minimize disposal and facilitate reusable energy (Perez 2017). In addition, to reduce on air, water and soil pollution, Lenovo has introduced the takeback program in US where Lenovo and some IBM computer products get free recycling regardless of their value.
2.6 Legal environment
Different countries have set many strict laws against copyright and patent infringement in various sectors for instance the Apparel and fashion industry, the smartphone and PC sector, which could result into huge fines for the violating party. For example, Nokia sued Apple Inc for infringing several of its mobile patents which resulted in Apple paying Nokia $2billion as part of the patent lawsuit settlement (Statt 2017).
3.0 Lenovo SWOT analysis 2017-2018
LENOVO’S SWOT ANALYSIS 2017-2018
4.0 Lenovo Porters Five Forces Analysis 2018
4.1 Competitive rivalry
Lenovo faces intense competition in both smartphone and PC markets both locally and internationally from major competitors like Huawei, Samsung, Apple, Xiaomi, Oppo-Vivo dual, among others which manufacture similar products like tablets, laptops, smart phones with similar prices hence low product switching costs. This has led to price wars, innovation through use of technology and intense product advertising. For example, Lenovo has designed a laptop having a Tri-Fold display which allows the device to be folded in a way that screens are facing both sides with multiple viewing regions and will be useful for presentations as well as multi-player games. This is intended to oust its competitors and grab a bigger market share (Jeet 2018).
4.1 Bargaining power of suppliers
Most of Lenovo’s suppliers have high bargaining power due to the technical nature of the components that go into PC and smartphone making. Suppliers of memory, LCDs, DRAM, SSD, have a high bargaining power due to scarcity of their products hence suppliers request for the highest price possible for their products from technology companies which has resulted in an increase in Lenovo PC prices (Shah 2017).
4.3 Bargaining power of buyers
Lenovo’s customers have high bargaining power due to many similar products present in the market for example, IPad from Apple, Tablets from Samsung, extra, from other technology companies like Huawei, Samsung, Xiaomi, extra. These products have similar price ranges hence low product switching costs which gives customers power to choose between a wide range of products. For example, varieties for tablets include Apple I pad, Lenovo tab 7, Samsung Galaxy tab, Acer Chromebook tab, Huawei media tab, among others (Gadgets 2018).
4.4 Threat of entry
This is perceived as a low threat by Lenovo because it requires huge capital investments, skilled human resource and plenty of time to fully establish a technology company and be able to compete with existing companies globally. In addition, establishing distribution channels in major markets. And with the high competitive pressure between existing brands that has resulted in price wars, a new entrant would not be able to offer competitive prices because it would result in losses. For example, Samsung lowered the price of its Galaxy S8 to induce more sales (Snelling 2017).
4.5 Threat of substitutes
Substitutes are referred to as products that offer similar benefits to the industry’s product. In this case, threats of substitutes can include landlines, satellite phones, pay phones and fax machines which are of late considered old fashioned in comparison to smart phones. The threat of substitutes for smart phones is very low which is an advantage for companies like Lenovo as more people are relying on smart phones abandoning the use of old technology.
5.0 Lenovo BCG Matrix Analysis 2018
5.1 Cash cows
Lenovo’s PC and Smart Device (PCSD) business units are categorized as cash cows for Lenovo Group because over the years, the business unit has been its major source of revenue. In 2017, the PCSD business unit had a $30.1billion revenue accounting for 70% of Lenovo’s total revenue attributed to high growth in its gaming and detachable segments according to its annual report (Annual Report 2017). However, its 2017 revenue decreased by approximately 2% compared to its 2016 revenue. In the global PC market, Lenovo has a 22.9% market share and is the second leading PC vender in the PC market and since PCSD is the most profitable business unit with a mature PC market, Lenovo does not need to heavily in the unit to keep its revenues high but rather invest in other business units like the struggling mobile business to facilitate its growth into a cash cow with stable revenue (Jiang 2018).
Lenovo’s Data Centers business unit is considered a star for the company because given its growing market, the business has managed to a gross a high revenue of $4,069million contributing 9% to Lenovo’s total revenue. The Data Center’s revenue was mainly driven by its High-Performance Computing (HPC) segment that is currently ranked as world’s second HPC company worldwide on the top 500 list. However, the unit incurred $343million in operational losses in attempts to increase its market share and since its market is expected to grow at a CAGR of 26.32% between 2017 and 2020, Lenovo can invest in its Data Centers business unit to increase its market share through various market opportunities to enable its growth into a cash cow and provide another source of revenue for Lenovo group (PR Newswire 2018).
5.3 Question marks
One of Lenovo’s struggling businesses is its Mobile business and is grouped as a question mark because it has an uncertain future for future development. In 2017, the business had $7,707million in revenue accounting for over 18% of Lenovo’s total revenue. However, the unit also incurred high operational losses amounting to $566million excluding non-cash M&A related accounting charges. Lenovo’s mobile business has a 3.5% market share in the global low-end smartphone market and with heavy investments, the struggling business can attain a bigger market share and grow into a cash cow with high revenue to invest in other businesses (Ngo 2017).
Lenovo’s capital and incubator group business unit is categorized as a dog because since it is a new unit, its future growth is unpredictable. However, the unit through its ecosystem, and cloud computing grossed a high revenue of $1,183million contributing 3% to Lenovo’s total 2017 revenue and given the market maturity of the venture capital industry, Lenovo’s Capital and incubator group unit has limited growth opportunities. Nonetheless, the business unit can invest in companies with growing markets such as the smart internet sector to improve its revenues and market share (Yu 2018).
After the above analysis, we are able to see that the current macro environment has opportunities that may define Lenovo’s competitive advantage in 2018. One of them was high inflation in UK caused by the Brexit that resulted into increase of prices of general computer devices. In addition, new technological developments from Lenovo such as its Tri-Fold display laptop means Lenovo is trying to oust its competitors through innovation of new products. And how Lenovo handles falling PC sales will be determined by how it utilizes current market opportunities while neutralizing threats which were looked at using porters five forces analysis and SWOT. The company possesses critical core strengths such as constant innovation in future technology as evidenced by recent innovative products like the aforementioned Tri-Fold display laptop. Its recent acquisition of Japanese PC makers NEC and Fujitsu in 2017 lays a down a foundation of further consolidation in what is increasingly becoming a consolidated global PC market as weak players leave and are bought off or merged into existing players including Lenovo. It helps that Lenovo has a strong home market in China, which is the worlds largest PC market. It is using this base, in conjunction with a strong performance of business units such as Data Centers as well as the PCSD unit to contest for or maintain top position in major markets including China, Japan, USA and Europe.
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