Lenovo: Building a Global Brand

SEC B
ANAND SINGH
SRINIVAS CHITTURI
BODHISATTA BISWAS
AISWARYA RAM
SOURABH GUPTA

PGP/19/004
PGP/19/015
PGP/19/025
PGP/19/035
PGP/19/055

Global PC Industry
1970

IBM introduces its first PC

8080 Microprocessor from Intel
DOS Operating System from Microsoft
VisiCalc from Software Arts

1982

Compaq develops an entire industry of IBM compatible computers

Made $111 Million in 1st year cloning IBM PCs
Raised $67 Million in an IPO

1984

Compaq introduces a PC that included Intels 80386 class of

microprocessor beating IBM to market
HP introduces Inkjet and Laser printing technology

1999

Dell founded in 1939 and entered computer market in 1980s

outstripped Compaq in sales

2001

HP acquired Compaq for $20 billion

2003

eMachines has profitably sold $1.1 billion of machines through

established retail channel

2004

PC manufacturer Gateway acquired eMachines for $290 Million

Created a company with 7% share of US market

2004
Half of the PCs sold around the world came
from 5 vendors
Dell-17.9%
HP 15.9%
Lenovo 8%
Acer 3.5%
Fujitsu-Seimens 3.5%
Other major players:
Gateway, NCR, Sony, Toshiba

2005
Manufacturers sold 46.57 million PC in
second quarter
Sales in Europe, middle east, Africa grew
at over 20% compared to 11.7% in US
Average price of PC fell from $1700 in
1999 to $1000 in 2005
Worlds top five PC brands sold over
23.52 million units, more than half of the
market

From Legend to
Lenovo

1987
Legend Chinese
character card
introduced

1989
NTD renamed to Legend
Computer Company

1990
Own brand of PC
launched by legend in
Chinese market

1995
Legend became worlds
5th largest manufacturer
of Motherboard

1994
The company got listed
on the Hong Kong stock
Exchange

1993
Introduction of a line of
Home PCs

1992
Sold 17000 units up from
2000 units in 1990

1996
First Laptop model
introduced in China
carrying Intels Pentium
chip

1997
Alliance with IBM
allowing distribution of
IBM software product in
China

1999
PC with preloaded 1 year
internet connection
introduced
Chinas PC market
leader with 21.5% share

2003
Legend faced increased
domestic competition
and sensed a growing
global opportunity

1984
Establishment of NTD

2004
Aiming for international expansion new name Lenovo was adopted
Joined the Olympic partner program and became exclusive provider of computing equipment
and services for Turin Olympic winter games in 2006 and Beijing Summer Olympic Games in
2008
Acquired IBMs personal computer division for $1.75 billion

Why IBM wanted to sell its PC business

IBM was not the key player in the PC industry Dominated by Dell and H.P

High revenues and low profits industry

An opportunity to shed an unprofitable operation

Concentrate on consulting and middleware solutions

As PCs became cheaper The number of customers who buy from IBM would reduce Need to have differentiation from other brands (Exhibit 2)

To improve the financial performance of IBM

HK mn$

FY05

FY06

FY07

FY08

Sales

22555

111119

131751

148415

COGS

19228

94921

112542

126987

Net Profit

1092

1726

2364

2503

From Exhibit 1
(P&L forecast of
Lenovo)

Why IBM sold its PC business to Lenovo

Lenovo was the largest PC maker in China
Promise from Lenovo not to compete with IBMs services and consulting
group
Ongoing support from partner and channel management programs
Leverage Lenovos contacts and benefit from Lenovos strong position in
China
Alliance with IBM for distribution of IBMs software products in China

Why Lenovo acquired IBMs PC business

In 2003, Lenovo faced increased domestic competition (from Dell and Haier)
thus wanted to go global for diversification.
With Chinas admission into WTO the company the company envisaged
that the protectionist Chinese regime would change.
Lenovo can shed its Chinese heritage (usually associated with low quality)
by acquiring a highly revered company in US.
IBMs Thinkpad is already a winner brand, owning such a brand would
surely be a huge opportunity for Lenovo.
Lenovo would get access to many path breaking patents on design and
engineering.

Lenovos Success prior to acquisition

Stage 6
Stage 5

Stage 4

Stage 3

Stage 2
Stage 1

Lenovo
succeeded in its
early years by
being able to
gauge the market
demand and
responding
accordingly.

Its first original

product was
Legend Chinese
character card
which would
translate English
software. It was
very helpful for
young Chinese
business and
home owners

Lenovo bundled
the product by
itself with
computers it
sold to
customers
thereby
popularizing
computers.
This marketing
strategy
boosted the
sales of and got
it more
contracts.

The company
banked on
relationship
marketing for the
sale of the
product and
reorganized into a
PC business
division in the
wake of the
success of this
bundled product.

A new and young

general manager
boosted the sales
by taking
strategic
measures such as
Slashing prices
of the product
Eliminating
direct sales
force
This was very
unusual by
Chinese
standards

With the
advent of the
Internet in
China the
company
bundled its PCs
with one-year
Internet
connection.
This further
boosted the
sales it became
the top selling
brand in China.

The three pronged Lenovo approach

The Three dimensional

GROWTH
STRATEGY

Developing the
ThinkPad notebook
computer franchise
as a premium
brand for larger
markets.

Expanding into
developing markets
such as India and
Brazil.

Introducing
Lenovo-branded
PCs for small
business
customers in the
US and Europe.

Post acquisition challenges

Customer
perception

PC Business

Branding

Competitors

Consumers associated ThinkPad with IBM

Sceptical on sustaining the brand equity

The way IBM and Lenovo sold PCs was complementary

Difference in target customer segments

Little known brand outside Asia- experts uncertain about new ownership
arrangement
Creating a international brand from scratch leveraging IBM legacy

Increase in number of competitors in Chinese market

Global players are already having strong hold in different markets

Challenges (Cont.)
CAGE Framework

Cultural
Cultural and
operational clashes
between Chinese
and American
nationals.

Administrative
With Chinas entry
in WTO many of the
regional
protectionist laws
will change and it
can no longer enjoy
the regional
advantage

Geographic
Difference in work
timings leading to
strain in day to day
business activities.
Late night meeting
and early hour
meetings can effect
work culture

Economic
Huge income gap
between China and
western countries
will distort
positioning of price
sensitive and
premium brands.

Resolutions:
50% of non Chinese staff hired to make it into an international company
Working language was changed from Chinese to English
Opened an office in New York to reduce administrative distances
Specific positioning of brands for Western and Eastern customers to reduce economic distances.

Role of Brand Management

Respect each
others
position and be
ready to
compromise for
better business

Equal
distribution of
resources such
as operation
centers and sales
teams

Positioning of
small
headquarters near
IBMs offices and
research centers in
China

Management
restructuring
integrating top
executives across
different regions
Providing full
authority to CMO
of IBM to set the
branding strategy

Did Lenovo face a problem coming from China

Factor 1

Perception of Lenovo as a
company from China providing
cheap products might devalue
the Lenovo brand

Factor 2

Positioned and Perceived as

low-cost PCs with no
differentiation could affect the
ThinkPad brand

How successful do you think Lenovo has been in managing integration of the two companies and
how can this success contribute to Lenovo becoming a global brand?

Lenovo undertook several measures aimed to realize the integrational benefits from acquiring IBMs PC Business. Rather
than a narrow one-sided approach to integrating the organizations, Lenovo relied on an interactive integration process, with
the engagement of both organizations.
The integrational measures adopted include:
Address to key executives by Yang Yuanqing, emphasizing on trust and compromises for better gains.

Always remember that the real competitor is outside.

Establishment of Lenovo headquarters in New York, close to IBMs corporate headquarters to facilitate closer coordination
and benefit from shorter lines of communication.
Employee split Half the employees were from IBM, of which 40% were already based in China. This indicates greater
employee familiarity with the Chinese PC landscape and minimizes informational integration challenges.
Yangs management restructuring to integrate the Lenovo and IBM organizations American, Australian, European and
Indian executives rendered in control of over half the key organizational roles Signifies the companys attempts to portray
its international scope and avoid chances of bias and resentment amongst employees of either organizations.
Use of English as the working language ensured uniform exchange of information, and facilitated integration.
Emphasis on mutual learning by imparting flexibility so as to leverage on each companys competence Giving Deepak
Advani the leeway in implementing intensive market research.
Use of teleconferencing, albeit the challenges associated with the same.
Cultural similarity within the organizations with a focus on meritocracy.

BENEFITS FROM INTEGRATION

Efficient management of the integration can foster Lenovos attempt to build a global well-renowned brand
through utilizing the product, market and geographic complementarities.
Gaining from IBMs experience in catering to large accounts and corporate customers by having access to IBMs
enterprise sales team Building competence in operating across the market pyramid.
Leveraging on IBMs knowledge of worldwide markets and benefitting from its global presence. (Learn from best
practices of other countries).
Gain some scale economies by catering to the 138 different markets that IBM operates in.
Benefitting from the use of IBM logo and its brand associations to establish familiarity and credibility amongst
customers. The IBM association would be perceived by customers as a testimony of high quality of Lenovo.
Relying on the strategic partnerships of IBM in its growth and expansion in other geographies where Lenovo has
limited experience and expertise The IBM partnerships could be leveraged for insights on the local PC market
dynamics, appropriate market promotional strategies etc.
Alleviation of product concentration risk as the integration provides opportunities for Lenovo to expand into
laptops, besides PCs which accounted for 85% of Lenovo sales prior to the acquisition.
Avail support from IBMs partner and channel management programs.

Branding Strategies
Master
Brand

House of
Brands

Synergy

Toyota/Le
xus

Master Brand:
Create a master brand which would focus almost all
marketing resources on building Lenovo worldwide
House of Brands:
Spending little on corporate brand umbrella and
committing significant resources to each sub brand
Synergy Approach
A hybrid model whereby master brand is marketed in
conjunction with a hero sub-brand
Lexus/Toyota Approach:
Different brands would represent separate luxury and mass
marketing offerings

Approach taken by Lenovo(ThinkPad)

One-two punch
Build up Lenovo as a strong master
brand and continue to strengthen
ThinkPad product brand
Lenovo Price sensitive
ThinkPad - Premium

Recommendation Whether Lenovo was right

in introducing a product number(3000) ?

NO
High risk of damaging the master brand by using a product number
If a particular model of the 3000 series fail it would drastically damage the
reputation of the master brand
With use of different names, Lenovo could have created differentiated
product lines with separate names instead of a common 3000 series
This approach would preserve the brand reputation of Lenovo and also
target specific customer segments with use of different names
Firms from China score less on trustworthiness A named brand would
help Lenovo to dissociate itself from the Chinese perception

Lenovos Way Ahead.

Innovation, Efficiency or both?
Trying to combine Efficiency ( supply chain operations in China) and
innovation ( Mix of innovation from East and West) which is evident from
the Mission statement

How long should Lenovo use the IBM logo?

Lenovo should try to build its master brand by using the synergy approach
by securing the loyalty from ThinkPad customers.
Although Lenovo has a right to use IBM logo for 5 years, it should try to
disassociate ThinkPad from IBM and concentrate its efforts on building its
own master brand by bringing out innovation in ThinkPad series.

Thank You