International Business Final Group Project Assignment

U.S. MARKET NEW ENTRY STRATEGY

Team 1
Daniel Fernandez <IA12B003> Kenichiro Yoshida <IM10O015> Kaori Onodera <IM12O006> Kathleen Choo <IM12Y001> Mark Li <IM12Y008> Rachel Liu <IM12Y009> Natt Nijianskul <IM12Y011>

Overview

Key questions
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?

Our methodology
Use CAGE Distance Framework together with internal/external analysis of Lenovo-NEC to identify SWOT. Analyse the value chain and Lenovos 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 findings
Pros and cons of Lenovo-NECs 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.

New Entry Strategic Positioning

Global Responsiveness

Where should we be for the U.S. Market?

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. 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. Globally responsive because business processes are highly standardised. Locally adaptive because their offerings are sold to all segments (e.g. consumer, commercial, SMBSME, large enterprise, government). Both are facing turmoil at the moment. Lenovo can gain marketshare by more effectively adapting to the U.S. market.

Lenovos way of doing business:

Note on X-Y Axes:

HP & Dell:

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

Local Adaptation

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

Today

Efficiency
Today New Entry

Efficiency => Aggregation Locally adaptive => Adaptation i.e. customising processes and offerings to meet local markets' unique needs Innovative => Arbitrage i.e. exploiting differences 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. Product-wise: NO! Service-wise: NO, too! The almost universal standardisation of Apple products and services aim to serve a relatively homogenous end-user. 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.). Dont try to be Apple; the relative position on each axis is dictated by Lenovos strategy. Being on the extremes is not necessarily optimal.

How:

Note on Adaptation:

Is Apple locally adaptive?:

Locally adaptive

So what for Lenovo?:

Innovative
Source: P.Ghemawat, Managing Differences: The Central Challenge of Global Strategy, Harvard Business Review, March 2007

Lenovos Strategy

Lenovos strategy is to Protect and Attack. It protects its core markets and attacks rivals in their core markets. Lenovo-NECs entry into the U.S. consumer market purports to serve the following strategic purposes:
Attack rivals HP and Dell by increasing Lenovos 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 Opportunity Risk
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] 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]

External Internal

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] 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]

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/

Product Strategy

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

QUALITY PERCEPTION Future COMMERCIAL CONSUMER Premium Category ESSENTIAL IDEAPAD THINKPAD BYOD trend
LaVie

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

Made in Japan

NEC

HIGH

Yoga

1200 700
Expected positioning loosely drawn from reviews of the La Vie:
http://www.cnet.com.au/whyyou-cant-have-the-worldslightest-ultrabook339341473.htm http://www.engadget.com/201 2/11/15/lenovo-ideapad-yoga13-review/ http://itstruck.me/nec-lavie-xultrabook-gets-launched/

MEDIUM 599 500 LOW

Also see next slide for table of Lenovos included product features.

Market Positioning: Fighting the Right Fight?

Market Positioning a potential weak connection in dual-prong strategy

$600 $1,100
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.

$300 $1,300

SEGMENT: Basic Productivity

SEGMENT: Entertainment

HP and Dell: Core Market

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

HP and Dell: Niche Markets

Strategy: Gain traction in the U.S. consumer market by successfully outcompeting rivals in the high-end niche markets.

Capturing Highly Profitable Market Potential?

Price positioning and Profit calculation

10%

25%

$ 1300 PC
70 %

18% 16% 14% 12% 10% 8% 6% 4% 2%

Distribution of volume and Sales

Revenue Volume

$ 700 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% (retailers 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 Lenovos extra 10% segment share would yield ~

US$ 150 US$ 200 US$ 250 US$ 300 US$ 350 US$ 400 US$ 450 US$ 500 US$ 550 US$ 600 US$ 650 US$ 700 US$ 800 US$ 900 US$ 1,000 US$ 1,100 US$ 1,200 US$ 1,300 US$ 1,400 US$ 1,500 US$ 1,600 US$ 1,700 US$ 1,800 US$ 1,900 US$ 2,000 US$ 2,500 US$ 3,000

45 %

0%

Product Strategy

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

U.S.s poor infrastructure conditions coupled with wide geographic spread = high cost impact on supply & distribution
Source #1: The Economist, April 28 2011, Americas 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

Global Supply-Chain for La Vie

MANUFACTURING

PROCUREMENT

Lenovos Global Procurement Strong bargaining power vis--vis input suppliers

Factories in Japan

DISTRIBUTION

Customisation in U.S.

Lenovos Distribution Channels Economies of scale

Improve brand-image and Willingness to Pay Improve market responsiveness and CRM Normalise exchange rates

Cost savings

High-quality input materials purchased at competitive prices

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 Campaign
PRELAUNCH Concept 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 & Banner-ads linked to LENOVO E-SHOP Consistent Ads channels as PRE-LAUNCH but product focused

Improve WTP by ADDING-VALUE

Extended Warranty
Customised Consultancy and Support Service Gift card/vouc her & trade-ins credits
Offer software/service packages Business-related for BYOD User Games/Movie editor For FUN users Trade-ins as extended CRM tool

24-HOURS
PROLONGED
PROFESSIONAL
COMPREHENSIVE END TO END

On-site EXPERTS QUICKRESPONSE U.S. CALL CENTERS

La Vie Segmentation and Recommendation

BYOD-ORIENTED

La Vie Z
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

La Vie X
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

[Future] La Vie G?
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
Retailer e.g. BestBuy Etailer e.g. Amazon, newegg Lenovo Web

Channels
Retailer e.g. BestBuy Etailer e.g. Amazon, newegg Lenovo Web

Channels
Top-shelf at premium retailer (not limited to IT retailer)

Summary: Successful U.S. Entry

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

Do! Do Not!

Attack HP and Dell by selling La Vie Expect to win most of the U.S. X and Z to the U.S. consumer; consumer market with an expensive, improve Lenovos brand perception high-end Thin-and-Light product. with consumer users. Underestimate the demands of the Recognise the limitations of ThinAmerican consumer. She will expect and-Light; it does not lead to high-end technical features at sustainable competitive advantage. market competitive prices and lead View as design philosophy, not as global purchasing trends. Users are stand-alone product. heterogeneous in their needs. Incorporate NEC Lenovos design View NEC Lenovo simply as an philosophy into all of Lenovos future experiment in selling products made product offerings. for Japan to U.S. consumers.

Thank you very muchquestions?