Case Study: Lenovo’s “PC Plus” Strategy

Lenovo is the largest personal computers (PC) maker in the world as ranked by IDC, but global PC market is a hyper-competitive market with tough competition from competitors like HP, DELL and Acer. The industry also suffers from low profit margins too where Lenovo’s profit margin is around 2% only compared to Apple’s profit margin of 25-30%. Also the PC market itself is declining as consumers are buying more tablets and smartphones which is affecting the sales of desktop computers and laptops. All these factors have pushed Lenovo to adopt a new business strategy called as “PC Plus” Strategy, which covers terminal products like PCs, smart phones, table PCs and smart TVs. Lenovo’s acquisition of Motorola Mobility’s handset and tablet business from Google, following its acquisition of IBM’s x86 server business, puts the company exactly where it wants to be: at the forefront of the computing and smart devices businesses. Starting with its strong base in the world’s fastest growing market, China, Lenovo has thrived by acquiring, integrating and reengineering leading global hardware businesses. Already the world leader in PC sales and one of the largest tablet vendors, the IBM acquisition made it a major global player in data center hardware; the Motorola Mobility acquisition makes it a major global player in handsets. “It’s a very logical extension of our strategy,” said Gerry P. Smith, the head of Lenovo’s Americas business. “A couple of years ago, we recognized that the business is not just about PCs anymore.” Lenovo has been successfully implementing this strategy as highlighted by June 2013 IDC numbers, Lenovo has a 7% share of the global “smart interconnected device market” — smartphones, tablets, and PCs and the market is dominated by Samsung with 24% and Apple 14% market share, Lenovo is followed by, HP, with 3.6%.… Read the rest

Definition of Globalization

A very commonly used term, globalization can mean different things to different people. At a broad level, globalization refers to the growing economic interdependence among countries, reflected in the increasing cross border flow of goods, services, capital and technical know how. At the level of a specific company, globalization refers to the degree to which competitive position is determined by the ability to leverage physical and intangible resources and market opportunities across countries.

“Globalization refers to the multiplicity of linkages and interconnections between the states and societies that make up the present world system. It describes the process by which events, decisions, and activities in one part of the world come to have significant consequences for individuals and communities in quite distant parts of the globe. Globalization has two distinct phenomena: scope (or stretching) and intensity (or deepening). On the one hand, it defines a set of processes which embrace most of the globe or which operate world-wide; the concept therefore has a spatial connotation…it also implies an intensification of the levels of interaction, interconnectedness or interdependence between the states and societies which constitute the world community. Accordingly, alongside the stretching goes a deepening of global processes.” Anthony McGrew 1992

International trade and foreign direct investment have grown rapidly in the last few years, driven by lower tariffs and non-tariff barriers. This has led to the globalization of production and markets.

  1. The globalization of production has occurred, as firms are increasingly able to disperse parts of their production operations around the world, reducing costs.
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Competitive Advantages of International Business

Competition has always been central to the agenda of firms. It has become one of the enduring themes of our times and the rising intensity of competition has continued until this day thereby spreading to more and more countries. As a result of globalization, most industries with the topics of international business and competitive advantage have received much attention from business executives, public policy makers and scholars in recent years. This; in conjunction with the rise of global competitors has helped to explain why a country’s competitive advantage can be determined by the strength of its business firms. This has resulted in numerous rankings, where industries and firms are compared on a global scale to see which are the most competitive. Most firms prefer to compete in the business environment so that it will help determine the competitive advantage of the country in which they operate. A firm’s ability to deliver the same benefits as competitors but at a lower cost or deliver benefits that exceed those of competing products, then such a firm is said to possess a competitive advantage over its rivals. Today’s development in communication, information technology and transportation technology have enabled firms to market their products and services beyond national borders. This level of involvement has contributed to the concept of firms marketing their products in international markets.

The Determinants of National Competitive Advantage

Global competitiveness occur at the cross roads between international economics and strategic management. Michael Porter, in his book ‘’The Competitive Advantage of Nations’ has introduced a model that helped to determine a nation’s international competitive advantage. Read the rest

Technology Transfer in International Business

Technology is a new variable in the equation of economic relations. Traditional theories of international business assumes that all nations have equal access to technology and, therefore, that there is no need to transfer technology from one county to another. Recent research findings have invalidated this assumption. In addition, they point to  technology differences as primary cause of international inequalities in economic achievements. To reduce the inequalities, technology capabilities of the backward nations must be strengthened. The quickest way to do so is to transfer technology from the developed to the developing nations.

Technology is any device or process used for productive purposes. In its broadest sense, it is the sum of the ways in which a given group provides itself with good and services, the group being a nation, an industry, or a single firm. There is a fundamental characteristic of technology that demands clear recognition. Q unites unlike commodities and capital, technology is not depleted or its supply diminished when it is transferred or used. It is usable but not consumable. Once created, technology is inexhaustible until it becomes obsolete. Therefore; export of technology need not cause the source country to reduce its use of the technology. Indirectly, a decline may result if the recipient country creates an industry large to change the global supply and demand equilibrium of the goods produced by the technology involved. For most technology sought by the developing nations this is not the case.

Contrary to the classical assumption, technology is not a free good but a valuable property, nor is it evenly distributed around the globe.… Read the rest

Make-or-Buy Decisions in International Business

International businesses invariably face decisions about whether they make all or just some of the components used in their final product and therefore buy in from other sources (outsourcing) those components they decide not to make. This make-or-buy decision is related to the degree to which a firm is vertically integrated: that is, the extent to which a firm is its own supplier and market. At one extreme a firm can make all of its own inputs and be its own supplier; at the other extreme, it can buy all its inputs and rely on external suppliers. Partial integration implies that some components are made and others bought.

A major benefit of making inputs (backward or upstream integration) is the degree of control maintained over cost, quality and timeliness of delivery. Major drawbacks are the cost of investment and expertise needed to provide these inputs. A benefit of buying is the ability to choose one or more suppliers. A corresponding drawback is the reliance on suppliers. The trade-offs associated with make-or-buy decisions are summarized in following table:

  Make Buy Advantages
  • control over costs
  • control over quality
  • control over delivery
  • not competing for supply
  • develop new expertise
  • choice among suppliers
  • avoid their business risks
  • no additional investment
  • no need to learn about a new business
  Drawbacks
  • increased investment
  • need for expertise
  • need for management
  • may be inefficient
  • overspecialization
  • reliance on outsiders
  • need to compete for supplies
  • supplier may go out of business

Make-or-buy decisions in an international firm may be complicated because they are made relative both to the whole company and to each of its subsidiaries.… Read the rest

Achieving a Sustainable Competitive Advantage

“If you don’t have a competitive advantage, don’t compete.” – Jack Welch

A company has a competitive advantage when its profit rate is higher than the average for its industry, and it has a sustained competitive advantage when it is able to maintain this high profit rate over a number of years. Maintaining a competitive advantage requires a company to continue focusing on the four generic building blocks of competitive advantage – efficiency, quality, innovation, and customer responsiveness – and to do whatever is necessary to develop distinctive competencies that contribute toward superior performance in these areas.

“Competitive advantage is at the heart of a firm’s performance in competitive markets. After several decades of vigorous expansion and prosperity, however, many firms lost sight of competitive advantage in their scramble for growth and pursuit of diversification. Today the importance of competitive advantage could hardly be greater. Firms throughout the world face slower growth as well as domestic and global competitors that are no longer acting as if the expanding pie were big enough for all.” – Michael porter, 1985

Low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. Competitive advantage (and higher profits) goes to those companies that can create superior value—and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price.

Competitive advantage, in order to be valuable, needs to be long-lasting.… Read the rest