Lenovo International Operations Management Strategy Analysis

Introduction

Many observers have suggested that the 21st century will be the "Century of Asia," with China leading the way. The recent economic performance of China appears to be fulfilling this observation, with companies such as Lenovo being among the major success stories. Having been transformed from a minor player known as Legend Group, Ltd., Lenovo has emerged as a frontrunner in the computer manufacturing industry in recent years, fueled in large part by its acquisition of IBM's personal computer division in 2004. Other factors driving the company's growth have included the Chinese government's emphasis on developing markets for Chinese-branded products both domestically and abroad, as well as the broader forces driving globalization.

This paper provides a review of the relevant literature to evaluate the current international operations management strategy of Lenovo and the extent to which that strategy is likely to remain appropriate in the future. A summary of the research and salient findings are presented in the conclusion.

Internationalization of Lenovo's Operations Management

The drivers of globalization in operations are: (a) technological; (b) political; (c) economic; and (d) socio-cultural. Each of these drivers is apparent in the internationalization of Lenovo's operations management strategy to varying degrees. For example, the operations management strategy currently in place at Lenovo has been developed through a series of joint ventures, acquisitions, and strategic partnerships designed to increase its access to technology within a political sphere that hampered growth for others, yet actually helped the company grow its business in both its domestic market and overseas.

Likewise, the socio-cultural aspect is apparent when one considers that the company entered the personal computer (PC) market as early as 1988 by being the only firm offering Acer computer Chinese word-processor add-on cards. It quickly began marketing its own brand through a joint venture with a Hong Kong company that had the financial resources and international experience to help Lenovo during this start-up period (Yusuf & Nabeshima, 2006). Finally, the economic aspects are apparent in that this strategy proved highly effective, and sales quickly grew, supported by a nationwide distribution system as well as service centers located throughout China. In 1990, the company sold just 2,000 PCs in China, but by 1995 sales had increased to more than 100,000 PCs a year (Yusuf & Nabeshima, 2006).

Other aspects of the company's internationalization can be viewed through the lens of Vernon's product cycle theory, which is highly applicable to Lenovo in this area. As Saxon notes, "The Chinese are now taking steps to gain world recognition for Chinese-branded products. For example, Lenovo (formerly Legend Group, Ltd.), the Chinese computer company that bought IBM's personal computer business, is now selling computers under its own brand in the United States" (2007, pp. 37–38). Anchordoguy (2008) points out that IBM's divestiture of its PC division was based on its foundering performance, whereas Lenovo's management recognized the profit potential available in its acquisition. This point is also made by Xiang and Teng (2007) and Junarsin (2009), who note that Lenovo used the IBM acquisition specifically to facilitate its entry into global markets.

The generic international operations strategy is also apparent in Lenovo's drive to increase its market share at home and abroad, as well as through the internationalization of its management. The generic international operations strategy consists of two basic elements that can be used simultaneously:

1. Market access strategy — operations are internationalized in order to access attractive markets outside the home country; and,

2. Resource seeking strategy — operations are internationalized in order to access specific resources (e.g., low cost, scarce, or superior) outside the home country.

Both of these elements can be found in Lenovo's international operations management strategy. Liu (2007) reports that in 2002, pursuant to the Chinese government's "go global" policy encouraging Chinese companies to take their core competencies and expertise to a global level, Lenovo did precisely that. As a forerunner in the Chinese IT sector, Lenovo revamped its image and in 2003 changed its brand name from the New Technology Development Company (Yusuf & Nabeshima, 2006; Bhattacharya, 2008) — and subsequently from Legend Group — to its current name. The company did not remain in mainland China, however; it established branches in Hong Kong and used these to make investments in China as a way of avoiding the bureaucratic entanglements that characterize the Chinese government (Huang, 2006). In this regard, Huang reports that "At the time of its founding, Lenovo was denied a license in PC manufacturing because it was not a traditional state firm. It ventured into PC manufacturing only under the legal cover of a Hong Kong firm, QDI, which Lenovo acquired" (2006, p. 288).

Despite the inherent complexity involved, Lenovo uses a process focus for its facilities management. The company has built on its success by developing a multicultural leadership team that does not operate from a single international headquarters but is instead able to meet wherever and whenever it is deemed most appropriate. Moreover, the company is committed to developing the "next big thing," but only provided that it can be brought to market within two years (About Lenovo, 2011). The company has also reinvested its profits into expanding its research and development facilities to improve competitiveness, establishing centers in Beijing, Hong Kong, Shenzhen, and California's Silicon Valley (Yusuf & Nabeshima, 2006).

Facilities, Quality Management, and Supply Network

"[Lenovo's] subsequent success," Yusuf and Nabeshima emphasize, "can be traced to the skillful integration of hardware and efficient services. With the creation of the Legend Chinese Word-Processing System Users' Association, the company turned its users into advocates for its products and valuable sources of feedback for further product development" (2006, p. 280). Taken together, this track record of international operations success suggests that the company is doing a great many things right with respect to its operations facilities relative to its competitors.

Despite their successful track record in recent years, the company did experience some quality management problems during the early years of the 21st century. On the one hand, the company lost a domestic computer contract to its rival Dell, after a Chinese government agency concluded that quality had slipped at Lenovo (Saxon, 2007). Although Saxon does not specify what the quality management problems were or how they were resolved, the net impact was the loss of a potentially lucrative contract. On the other hand, Saxon notes that "This was one of the motivations for Lenovo to buy IBM's PC business" (2007, p. 38).

With respect to the company's supply network, Dunning's eclectic model reflects Lenovo's approach to some extent. The company took special pains to identify the most cost-effective approach to procurement and assembly with respect to location-specific factors, and emphasized the internalization of its resources to achieve its corporate goals. Some notable owner-specific advantages included the acquisition of IBM's personal computer division, but there were also location-specific factors that appear to have contributed to the company's success. As Huang notes, "The arrival of firms such as Lenovo is a sign that China has a supportive entrepreneurial environment. Many Western analysts herald its acquisition of IBM's PC business as a harbinger of the rising world-class domestic Chinese companies. Using the success of firms like Lenovo as evidence, a McKinsey Quarterly article has gone so far as to claim that China has the 'best of all possible models'" (2006, p. 288).

With respect to location-specific issues, these are applicable only to some aspects of the company's operations. For instance, "All of the manufacturing, service, and R&D operations of Lenovo in China are legally organized as subsidiaries of its Hong Kong firm and as such they are subject to laws and regulations pertaining to FDI, rather than those far more restrictive laws pertaining to domestic private businesses" (Huang, 2006, p. 288).

Some components of stage theory could also be said to apply to Lenovo's supply network, with the company's strategic approach to business growth being reflective of its situation (Lin & Lin, 2008). According to Lin and Lin, "Probably the most successful merger to date for China has been the purchase of IBM's PC division by Lenovo. Mostly unknown outside of the PRC, Lenovo was launched into the foreground when it announced its intentions to acquire the PC division of IBM" (2008, p. 32). Just two years later, Lenovo began retailing computers in the United States (Silk & Malish, 2006) and established headquarters in New York, with major operations continuing in Raleigh, North Carolina, as well as Beijing (Dowling, 2005), and a number of components being outsourced to other developed nations (Krugman, 2008).

The net effects of this acquisition and its subsequent supply network arrangements are congruent with Stages 3 and 4 of the Stage Theory model, as well as the Configurations for International Operations framework, which is concerned with (a) what products or services to produce at each location and (b) what markets to serve from each location. Lin and Lin add that "The Chinese personal computer manufacturer wanted to increase its share in Western markets. The acquisition hoisted the manufacturer from 9th place to 3rd place in terms of PCs sold. These acquisitions illustrate China's desire to spend low-cost money to acquire existing brands and distribution access, as well as securing additional outlets for other Chinese-produced goods" (2008, p. 32).

Conclusion

The research showed that Lenovo parlayed $24,000 in start-up capital to become the third-largest manufacturer of personal computers and laptops in the world. This rags-to-riches story was fueled by savvy leadership that understood the business environment in which the company was competing and took advantage of every opportunity to grow its business in its domestic market as well as to expand its operations — including manufacturing and retailing — to overseas regions.