A Five Forces Analysis of Lenovo
Lenovo was originally known as Beijing Legend computers and was officially renamed as Lenovo at the time of its incorporation in 1988. In a very short period of time, it has registered several critical achievements based on a smarter strategy. One of its most critical achievements was the acquisition of the IBM’s PC division. Now, a leading name in the PC world, the computer brand has gained market share at the loss of its competitors. However, it does not just build computers and IT solutions but also a wide range of electronic products including smartphones, tablets and smart TVs. Technological innovation is the reason that the brand has achieved so many critical successes in such a small period of time. Here is a five forces analysis of the Lenovo brand that explains how these forces impact on its competitive strength and position. This five forces model was developed by Michael E Porter and discusses five factors that are a part of every market and industry. It is an important analytical tool used for strategy making and can help a brand strengthen its competitive position against these forces.
Bargaining power of suppliers: weak
The bargaining power of Lenovo suppliers is low because of their high number. Most of its suppliers are smaller companies that supply individual parts for the making of Lenovo products. Forward integration is not a possibility for these smaller suppliers. Moreover, Lenovo holds immense clout based on its strong brand image and market position. The result is that suppliers have to follow the code of conduct set by Lenovo to avoid losing business.
Bargaining power of buyers: moderate
The bargaining power of Lenovo buyers is moderate. Its customers include individuals and small and big businesses plus large corporations. However, the PC market has faced a decline in the recent years. This has resulted in increased power of the buyers. Lenovo has not been able to penetrate the smartphone market deeply. However, it has managed to retain its PC market share through innovation, competitive pricing and better offers for its customers. Some of the buyers’ bargaining power gets moderated by the brand image and technology of Lenovo. These are some key competitive advantages that help it mitigate several major threats. Overall, the bargaining power of Lenovo buyers is moderate.
Threat of new entrants: low
The threat of new entrants is very low in the PC industry. First of all there is a large investment required to build a brand. Apart from setting manufacturing facilities and distribution networks, a lot will have to be invested in technology and skilled human resources. There is also the competitive pressure from existing brands. Small players would not be able to offer as competitive prices either. Marketing is required to create brand recognition and this will take both capital and time. PC market can be tough and full of challenges where the entry barriers are high. These factors discourage any new players from entering the market.
Threat of substitutes: Moderate
The threat of substitute products for Lenovo is high. There are other laptop and PC brands in the market that offer products with similar capabilities. There are several other brands making similar electronic products. Moreover the mobile devices are now increasingly in use. The millennial generation has embraced the mobile technology at a faster rate. Tablets and smartphones too can provide several of the same features and services as the laptop. Lenovo’s position in tablet and smartphone is weaker against competitors. However, the PC is yet very far from dying which is because throughout a large number of organizations work cannot continue without PC. Professionals too like to keep a laptop for their personal use and several gaming PCs have also grown popular now a days. Thus, overall, the threat from substitute products is moderate.
Rivalry among the existing brands:
The level of rivalry in the PC market is quite strong. It is because while the PC market has declined in the recent years, the players are all of them big and well recognized brands. The top players compete on the basis of prices and technology plus product design. All of them have released new and smarter models of Pcs and laptops to attract customers. Apart from technology and features, design and looks have also become important for the customers. These things along with the changing face of demand have intensified the competition in the industry.