Winning Strategic Case 2: Lenovo’s Global Attack
What is Lenovo doing right since its 2005 acquisition of IBM PCs?
By Laurie Underwood
Along with Haier, Lenovo surely tops the short list ? or very short list ? of “made in China” global brands. That’s why CEIBS Marketing Professor Waldemar Pfoertsch has chosen Lenovo as his top pick for a Chinese company with a winning marketing strategy
When Lenovo, which has reigned for more than a decade as China’s largest computer company, made international headlines and sound bites worldwide in March 2005 with the purchase of IBM’s PC business, the move was the latest in a long series of dramatic developments during the company’s 23-year history.
Lenovo’s successes can only be fully appreciated by first understanding its roots. The world’s third-largest computer company got its start in 1994 when the Chinese Academy of Science started a spin-off company manned by 11 scientists. Equipped with a single-story gatehouse as an office and US$25k in seed money but no commercial experience, the group was given the daunting task of introducing PCs to China. The scientists-turned-entrepreneurs’ first corporate decision was to hire a maid to sweep the floor of their tiny office.
The new company, first called New Technology Development Inc., got its start by importing international brand-name PCs to China. During the 1980s and 1990s, the company (then called Legend) began producing OEM computer products for international brands ? and dreaming of branching overseas with its own brand.
As a first step toward this goal, the Lenovo brand name was launched in 2003. Another hugely important step, of course, was the acquisition of IBM PCs two years later. To seal the deal, Lenovo paid US$650 million in cash plus US$600 million in shares. This high price was worth paying, analysts say, in order to gain the instant brand equity of IBM and its sub-brands, and to remove IBM as a competitor.
The acquisition thrust Lenovo into position as the world’s No. 3 computer company with nearly an 8 percent share of the world PC market and expected annual sales for 2007 of US$14.6 billion. The deal also brought Lenovo 10,000 experienced IBM employees plus use of IBM’s popular ThinkPad product line after the acquisition, Lenovo’s newly appointed CEO Stephen Ward reportedly promised that the company “will have more than one-third of China’s PC market and hold a leading position in the world PC market.” Prof. Pfoertsch, along with co-author Philip Kotler, marketing professor at the Kellogg School of Management, name the following as Lenovo’s key “competitive advantages” in their case study Lenovo: Bridging East and West to build a Global Brand (CEIBS, 2007):
• strong brand recognition and market leadership in China;
• excellent relations with Chinese government and educational institutes;
• diversified distribution channels;
• highly efficient operations.
Pfoertsch and Kotler particularly stress the importance of Lenovo’s efficient supply chain systems, stressing that Lenovo fills orders for PCs in just 3 to 5 days, beating Dell’s famous 7-day promise. The company distributes via an impressive nationwide network of 6,000-plus retailers and distributors.
Going forward, the Pfoertsch and Kotler expect Lenovo to use its strong operational base in China to support brand building. The company is now implementing a “two pole” approach in targeting different marketing efforts for different products, they say. On one hand, Lenovo will target developed markets with the IBM brand and the Think product line (including ThinkPad laptops). On the other hand, the company will promote its Lenovo product line in emerging markets such as Russia and India, in part filling the gap that IBM’s departure has left. The professors commend the company for opting against developing co-branded Lenovo-IBM product.
As the next step in Lenovo’s global brand promotion, the two professors recommend building the brand into a “symbol” to which consumers can form an emotional connection. “The challenge for Lenovo now is to develop the brand further to make it accepted widely so that the Lenovo brand can be used to stand for something beyond itself…to make it an icon.”
The professors recommend the following four strategies from Lenovo’s brand-building efforts ? strategies that could also be used by the next Chinese firm eager to go global:
1. Develop firm values that go beyond the product line ? showing commitment to social awareness and corporate social responsibility.
2. Make use of the internet to invite consumers to learn about and interact with the brand.
3. Prepare for the continued splintering of buying populations; consider creating sub-brands, with niche product lines designed to meet specific needs of different groups.
4. Create value by developing services as well as products. For example, rather than simply developing a computer brand, also supply convenient maintenance and trouble-shooting services.
