Team 1

Daniel Fernandez <IA12B003>Kenichiro Yoshida <IM10O015>

Kaori Onodera <IM12O006>Kathleen Choo <IM12Y001>

Mark Li <IM12Y008>Rachel Liu <IM12Y009>

Natt Nijianskul <IM12Y011>

International Business – Final Group Project Assignment

: U.S. MARKET NEW ENTRY STRATEGY

Overview

Smaller picture – How can Lenovo-NEC Japan use its unique resources and capabilities to effectively enter into and compete in the U.S. consumer laptop market with “Thin-and-Light” ultrabooks and Halo concepts?

Bigger picture – For Lenovo as a group, what is the key advantage, if any, of utilising the capabilities from Lenovo-NEC partnership to serve the U.S. consumer market? Can Lenovo successfully compete in the U.S. with or without the Japanese assets and capabilities?

Key questions

Use CAGE Distance Framework together with internal/external analysis of Lenovo-NEC to identify SWOT. Analyse the value chain and Lenovo’s activities using ADDING Value Framework to identify activities that

should be undertaken to add value to Lenovo Group through successful entry into the U.S. consumer market. Define the concepts of “Thin-and-Light” and “Halo” and devise a detailed plan for entry.

Our methodology

Pros and cons of Lenovo-NEC’s strategy as presented to us by Rod Lappin. Comprehensive suggestions with respect to the new entry strategy, including what the new concepts should

look like in terms of strategic positioning , operational configuration, and marketing mix. How we expect our suggestions will directly (profit) or indirectly (brand) add value to Lenovo Group.

Our findings

New Entry Strategic Positioning

Local Adaptation

GlobalResponsiveness

Lenovo’s way of doing business: History = Lenovo grew inorganically

(through M&A) to become a force in PC industry.

Strength = Lenovo has historically been successful in integrating the assets and capabilities acquired through M&A transactions.

Note on X-Y Axes: Global responsiveness = more

standardised business processes, including products and services.

Local adaptation = be in the locality and operate the business to fit in.

Local adaptation ≠ localisation of language, etc. but rather to be able to cope with local demand in all senses of products and services.

No need to be at the extreme of any dimension to achieve market leadership Apple, for instance.

HP & Dell: Globally responsive because

business processes are highly standardised.

Locally adaptive because their offerings are sold to all segments (e.g. consumer, commercial, SMB-SME, large enterprise, government).

Both are facing turmoil at the moment. Lenovo can gain market-share by more effectively adapting to the U.S. market.

Where shouldwe be for the U.S. Market?

Source: C.A. Bartlett, S. Ghoshal, P.W. Beamish, Transnational management : Text and Cases, 5e, Chapter 4, McGraw-Hill/Irwin, 2008

AAA Triangle for Lenovo: how should the new entry’s MNE strategy evolve for the U.S.?

Efficiency

Innovative

Locallyadaptive

Today

Today

New Entry

How: Efficiency => Aggregation Locally adaptive => Adaptation i.e.

customising processes and offerings to meet local markets' unique needs

Innovative => Arbitrage i.e. exploiting differences

Note on Adaptation: Does not necessarily mean that

design has to be changed or adapted to local taste.

Go service-oriented something that customer appreciate more in the longer term and will add brand loyalty as a surplus to brand equity.

Is Apple locally adaptive?: Product-wise: NO! Service-wise: NO, too! The almost universal

standardisation of Apple products and services aim to serve a relatively homogenous end-user.

So what for Lenovo?: Prioritise local adaptation without

compromising other strengths. Be more innovative, exploit existing

scale, do better at leverage existing international assets (especially in the U.S.).

Don’t try to be Apple; the relative position on each axis is dictated by Lenovo’s strategy. Being on the extremes is not necessarily optimal.Source: P.Ghemawat, Managing Differences: The Central Challenge of Global Strategy, Harvard Business

Review, March 2007Available at http://hbr.org/2007/03/managing-differences-the-central-challenge-of-global-strategy/ar/1

Lenovo’s Strategy

Lenovo’s strategy is to Protect and Attack. It protects its core markets and attacks rivals in their core markets. Lenovo-NEC’s entry into the U.S. consumer market purports to serve the following strategic purposes: • Attack rivals HP and Dell by increasing Lenovo’s

competitiveness in the U.S. consumer segment.• Increase willingness to pay of entire product line, both

consumer and commercial, by offering upscale, high-priced NEC Lenovo offerings that build brand equity for Lenovo.

Source: Rod Lappin, February 4, 2012.

Will Japanese Design Work in America?

Similarities and Differences between the U.S. and Japan

High recognition of Japanese-branded products [E] / [C]

High perception of quality and technology from Japan [C]

Similarities in GDP/capita, educational attainment, and productivity [E]

Long delivery time rooted from geographical distance – China and Japan [G]

Territorial disputes in the East China Sea may have disastrous consequences on world trade and international relations [A]

Local adaption possible through complementary capabilities (i.e. principal operations and research center) both from Japan and the U.S. – from Yonenzawa to North Carolina [C]

Export from Lenovo-NEC to the U.S. will benefit from the depreciation of YEN [E] / [A]

Disposable mentality in the U.S. discourages purchase of expensive electronics [C]

Low WTP for multi-functioned products; simplicity in functionality is preferred to complexity is design [C]

Exte

rnal

Inte

rnal

Opportunity Risk

Based on CAGE analysis in Appendix : (C ) Cultural distances, (A) Administrative distances, (G) Geographical distances, (E) Economical Distances

Is “Thin-and-Light” Good Enough?

What is the Definition of “High-End” in the U.S.?Thin and light are only two of many necessary dimensions…

• At $1,300 and above, an American will consider the following

dimensions in a laptop and expect: – Long battery life. – High quality display.– Low heating and noise.– Sleek, intuitive design.– High quality A/V components.– At least 2 years of product durability.– Thin volume and lightweight.

Source: “CNet Laptop buying guide: Breaking out the most important things to know when shopping for a new laptop.” October 4, 2012. Available at http://reviews.cnet.com/laptop-buying-guide/

Leverage the NEC "Made in Japan" rub-off to best advantage, consider-ing the higher relative costs of an R&D & manufacturing capability focused on sophisticated consumers with high WTP.

Expected positioning loosely drawn from reviews of the La Vie:• http://www.cnet.com.au/why-y

ou-cant-have-the-worlds-lightest-ultrabook-339341473.htm• http://www.engadget.com/201

2/11/15/lenovo-ideapad-yoga-13-review/• http://itstruck.me/nec-lavie-x-u

ltrabook-gets-launched/

Also see next slide for table of Lenovo’s included product features.

NEC

Product Strategy

ESSENTIAL IDEAPAD THINKPAD

HIGH

MEDIUM

LOW

CONSUMER COMMERCIAL

1200

700

599500

QUALITY PERCEPTION

Product Family - perceived positioning; and leveraging NEC R&D

Yoga

LaVie

Future Premium

Category – BYOD trend

Made in Japan

Market Positioning: Fighting the Right Fight?

$1,100

$600

$1,300$300

SEGMENT:Entertainment

SEGMENT:Basic Productivity

“Halo” products:+ Have the potential to raise brand perception.- Not clear that consumers prefer an all-in-one device to a product ecosystem.

Thin-and-Light:+ Supplies a key product feature demanded by consumers.- Easily copied by competitors; not a sustainable competitive advantage.

HP and Dell: Core MarketStrategy: Steal market share by offering superior products and services at similar prices to HP and Dell.

HP and Dell: Niche MarketsStrategy: Gain traction in the U.S. consumer market by successfully outcompeting rivals in the high-end niche markets.

Market Positioning – a potential weak connection in dual-prong strategy

Price positioning and Profit calculation

$ 700 PC

$ 1300 PC

>>>>> Calculations and assumptions (all assumptions are done conservatively)

67.4 M cumulative units sold (all vendors) × 10% (volume share of high-price segment of over $1,300 range) × $1,500 (average retail price) × 25% (retailer’s margin // generally retail-cut in the U.S. is not this high) × 3% (operating margin generated by high-end PC) 67.4M× 10% × $1,500 × 75 % × 1% × 3% = $227.48M [Assume Lenovo’s extra 10% segment share would yield ~ $30M]

45 %

70 %

10%

25%

Distribution of volume and Sales

Potential~ $220 MillionProfit!!!

Capturing Highly Profitable Market Potential?

Product Strategy

• Source #1: The Economist, April 28 2011, America’s Transport Infrastructure, Life in the slow lane• Source #2: A New Economic Analysis of Infrastructure Investment; Report by the Department of the Treasury with the Council of Economic Advisers, March 23, 2012

>> Source #1 available at http://www.economist.com/node/18620944]>> Source #2 available at http://www.treasury.gov/resource-center/economic-policy/Documents/20120323InfrastructureReport.pdf

U.S.’s poor infrastructure conditions coupled with wide geographic spread = high cost impact on supply & distribution

Distribution – U.S. geographic disadvantage and the efficiency of targeting only the dense markets

Global Supply-Chain for La Vie

PRO

CURE

MEN

TLenovo’s Global

Procurement

Strong bargaining power vis-à-vis input suppliers

High-quality input materials purchased at

competitive prices MAN

UFA

CTU

RIN

G

Factories in Japan

Customisation in U.S.

Improve brand-image and Willingness to Pay

Improve market responsiveness and CRM

Normalise exchange rates

DIS

TRIB

UTI

ON

Lenovo’s Distribution Channels

Economies of scale

Cost savings

Manufacturing factory in North Carolina

High demand for La Vie

Let us make it in the U.S.!

Adding Value through Effective Promotion

Tools for Effective Promotion of Lenovo in the U.S.

Integrated Marketing CampaignImprove WTP by ADDING-VALUE

PRELAUNCHConcept promotion focus on LIGHTNESS• Product in dark, concept only • Multimedia ads to cover all targeted

customers (Creative YouTube features, Ads on Financial Times, Sponsored stories on Facebook)

DEBUT

TRADE SHOW as the debut to improve exposure (CES, MOBILE WORLD, E3)

AD CAMPAIGN

Multimedia, EXPERIENCING• Premium shelf space, free-trial –To EXPERIENCE the LIGHTNESS & EXCELLENCE• Banner-ads linked to LENOVO E-SHOP• Consistent Ads channels as PRE-LAUNCH

but product focused

PROLONGED

PROFESSIONAL

COMPREHENSIVE

END TO END

24-HOURS

On-site EXPERTS

QUICK-RESPONSE

U.S. CALL CENTERS

Offer software/service

packagesBusiness-related for BYOD User

Games/Movie editorFor FUN users

…Trade-ins as

extended CRM tool

Extended Warranty

Customised Consultancy and Support

Service

Gift card/vouch

er& trade-ins

credits

La Vie Segmentation and Recommendation

La Vie Z La Vie X [Future] La Vie G? Affluent College Students $1,300 - $2,000 11” - 13” Display Key Features• Thin and light• Long battery life• Low heating and noise• Sleek, intuitive design Channels• Retailer e.g. BestBuy• Etailer e.g. Amazon, newegg• Lenovo Web

Young Urban Professionals $1,500 - $2,500 13”- 15” Display Key Features• Enhanced productivity• Thin and light• Longer battery life• Sleek, intuitive design• Large SSD storage Channels• Retailer e.g. BestBuy• Etailer e.g. Amazon, newegg• Lenovo Web

PC Gamers $2,500 - $3,500 17” Display Customised Components Key Features• High quality CPU, memory,

display, and graphics card • Desktop replacement• Low heating and noise• Sleek, intuitive design Channels• Top-shelf at premium retailer

(not limited to IT retailer)

BYOD-ORIENTED

Summary: Successful U.S. Entry

La Vie in the U.S. Consumer Market: Strategic Keys to Success

Do! Do Not!① Attack HP and Dell by selling La Vie

X and Z to the U.S. consumer; improve Lenovo’s brand perception with consumer users.

② Recognise the limitations of “Thin-and-Light”; it does not lead to sustainable competitive advantage. View as design philosophy, not as stand-alone product.

③ Incorporate NEC Lenovo’s design philosophy into all of Lenovo’s future product offerings.

① Expect to win most of the U.S. consumer market with an expensive, high-end “Thin-and-Light” product.

② Underestimate the demands of the American consumer. She will expect high-end technical features at market competitive prices and lead global purchasing trends. Users are heterogeneous in their needs.

③ View NEC Lenovo simply as an experiment in selling products made for Japan to U.S. consumers.

Thank you very much…questions?