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NewMarkets/NewEntrants
GlobalStrategyandOrganization
ElenaObukhova
MITSloanSchoolofManagement
February2008
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Lenovo Group
Lenovo
Dell
Figure by MIT OpenCourseWare.
FrameworksforAnalysis
Industry
Country/region (Porters diamond)
Firm (virtual diamond)
Firm (organization)
Leadership roles
Action
HowglobalisPCindustry?
Market similarity
Scale, scope economies
Global regime integration
Locational advantage
5
Businessdrivers
China,India
US,WE
Corp
SME
HH
Corp
SME
(huge
potential
growth)
HH
By2010,morethan250millionhouseholdsinthekeyRDEswillpassthe$20,000threshold.
GDPper
capita
6
Isitaglobalgame?
Locational adv
LeadmarketintheUS
RiseofsuppliersinEA
Scale
CloutreIntel,AMD,MS
Poolcapacityacrossdemands
Mktsim
High
Regimeintegration
Nosignificantbarriers
ChinaasaHomeBase(198090)
WhatweretheprimarycharacteristicsofChinathatallowedLegend/Lenovoto
buildagloballeadershippositioninPCs?
Factor
Conditions
Context for
Strategy/Rivalry
Demand
conditions
Related and
Supporting
Industry
Institutionalprocurement
GrowingBusiness&
Household
MNCentry
Domesticfirms
ZGC:CASICT,engineers
South:manufacture
HKJV:capital,legal
ZGC:internet,software
South:electronics
manufacture
ADD access to
lead markets
Invirtualdiamondterms(2000)
Factor
Conditions
Context for
Strategy/Rivalry
Demand
Conditions
Related and
Supporting
Industry
Global
Similarforeverybody:
EAformanufacturing
USforR&D
Similarforeverybody:
EAformanufacturing
USforR&D
DELL: China
growing market
LENOVO:US
lead market
DellandLenovo
1984FoundedbyMichaelDell
1985StartsmanufacturingPCs
1992DistributingXeroxmachinesin
LA
1995SourcingplantinMalaysia
1998ProductionfacilityinChina
1998FirstPCshippedtoChina
2002NamechangedtoDellIncto
reflectdiversification
1984FoundedbyCASICTscientists
1985Chineselanguageaddoncard
1987Soledistributoragreement
withAST
1989PCmanufactureJVinHK
1996#1inPCsinChina
1999#1inAsiaPacific(ex.Japan)
2003NamechangetoLenovo
2004AnnouncedacquisitionofIMB
PCdivision
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ComparingBusinessModels
Dell Lenovo
Product Customizable Primarily pre-designed
Manufacturing J ust-in-Time Manufacturing happens
after customer places order
Longer production cycles: Manufacturing
happens before customer places
order
R&D Outsourced to Suppliers; low
expenditures
Innovation in-house; high percentage of
investment
Suppliers/Architecture WINTEL/Standards-based technology Differs depending on the product and the
client.
Inventory Minimal; Build-to-Order Relatively high; Build-to-Stock
Distribution Direct-to-Consumer Sales Model Indirect - via channels such as
distributors and retailers (buyer
intermediaries)
Home base Home Base with historical strong
demand conditions (close to
customer), strong context for
strategy and rivalry, and strong
related and supporting industries
Home base as source of low-cost
production (inexpensive
factor/input conditions) and future
market with potential for
large/growing demand
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What should Dell do?
DoesDellsmodelwork inChina?
Student responses removed due to
copyright restrictions.
15
ShouldDellAdaptitsStrategyforChina?
Student responses removed due to
copyright restrictions.
WhatshouldLenovodo?
Lenovo:3000Series
Student responses removed due to copyright restrictions.
18
Lenovo IBMBrand
Student responses removed due to copyright restrictions.
19
What are the Pitfalls of Lenovos Strategy?
Toocomplex
Differentsegments
Differentbrands
Differentmarkets
However,iftheyareabletokeepthebusinessmodels(IBMandLenovo)
separatedandChinascompetitiveadvantageissustainable(atleastfora
while),theymightgetDellintotrouble.
Student responses removed due to copyright restrictions.
20
Dontforgettherestoftheworld
Student responses removed due to copyright restrictions.
Whowouldyoubeton?
22
What has happened?
DellvsLenovoCase
February 2008Update
23
What has happened?
Market:
In2006,theglobalPCshipmentreached228.6millionunits,a10.9%
growth
Dellsmarketsharefellfrom18.9%to15.2%
Lenovomaintaineditsglobalmarketposition
HPbecamethenewleader
ACERwasthefastestgrowingcompany
26
What has happened? Lenovo
Lenovohasdefinedthreemarketobjectivestofullytransformits
internationalbusiness:
Holdmarketshare
Maintainprofitability
Reduceexpenses
Lenovogroup(Lenovo+IBM)maintaineditsglobalmarketshare
(LenovoexperiencedasmallincreaseandIBMasmalldecrease)butis
nolongerthe3rdglobalplayer(ACERhasexperiencedanimpressive
growthinthelastyearandahalf)
Lenovohasannouncedarestructuringprogramtoimproveprofitability
ScottSmith,thePresidentofLenovosAmericanBusinessresignedto
pursueotherinterests.
LenovohasbeenfightingtogainmarketshareintheUSwhilereducingitscosts
andimproveprofitability
27
What has happened? Dell
DellisreconsideringtheDirectmodel:
"Thedirectmodelhasbeenarevolution,butisnotareligion,"Dell
saidinamemo,obtainedonFridayApril28byReuters."Wewill
continuetoimproveourbusinessmodel,andgobeyondit,togiveour
customerswhattheyreallyneed.
Dellistryingtodesignnewformulastobesuccessfulinemerging
markets,consideringamongothers,directdistribution
Dellisrebuildingitsmanagementteam:
TheresignationofCEOKevinRollinshasbeenfollowedbyanumberof
newappoinmentsincludingMikeCannon(Solectron,Maxtor,IBM)and
RonGarriques(Motorola)
DellfinallyincorporatedAMDchipsintoitscomputers,latein
2006
QUESTIONSFORP&G
HowshouldP&GrespondtotheLeverSkipMicroinitiativeinFrance?
TowhatextentdoesyourproposedresponsechallengetheEurobranding
approach?
Someoftheissuesyoumaywishtoconsiderinansweringinclude:
Whatarethebenefitsofa(unified)panEuropeanproduct/brand?
Whatarethedrawbacks?
Whichelementsoftheproduct/brandbenefitmostfromaPan
Europeanapproach,whichleast?
HowconsistentshouldP&Ghavesoughttobeonthedegreeof
Europeannessorlocalness?
HowsuccessfulwasP&Ginthedevelopmentprocess?