Some business ideas for any company in the same Lenovo's business area

1. Lenovo
Analysis of business opportunities
Jairo Enrnesto Ramirez Cardona
Strategy analyst
co.linkedin.com/in/jairoramirez
jerc_colombia@hotmail.com
+8613162417851 (mobile)
jerc_colombia (Skype)
December 6th of 2012, Shanghai, China

2. Contents
Contents..........................................................................................................................................................1
Brief summary.................................................................................................................................................2
Current landscape............................................................................................................................................3
Business opportunities.....................................................................................................................................6
Ideas for further analysis.................................................................................................................................9
Conclusions....................................................................................................................................................11
References.....................................................................................................................................................12
Appendix 1.....................................................................................................................................................13
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3. Brief summary necessity for those products but few resources to
acquire them.
Lenovo has implemented successfully a mixed strategy
The third one, “For those who do the future” is an
of protect and attack. Nonetheless, the results in
endeavor to push the company into the future trends
emerging are still showing red numbers. Hence, taking
aligned with one key element in the strategy of Lenovo:
into account the current environment as well as the
“PC+”. In this case, the idea is to take advantage of the
technological trends, it is possible to define some
exhaustive portfolio of Lenovo (Smart phone + Tablet +
business concepts aligned with the strategy of the
Laptop + TV) to create a digital home surrounding it.
Company.
All those ideas are presented with a brief analysis of the
In the present document three different business
relation to the strategy and the possible market size. I
opportunities are depicted. All of them can be
would be more than happy to clarify or detail any of the
implemented in any region worldwide, but giving the
business concepts described.
current economical environment Latin America seems to
be one of the best options to start.
My experience and knowledge in strategy planning in
the telecommunication sector along with my strong
The first business opportunity is called “For girls who
network of contacts will be a key element to quickly
do”. As it can be understood from the name, the idea is
implement any of those opportunities in Colombia, and
to design and to market a group of devices for girls. It is
even in Latin America.
founded on the lack of a clear device aimed to the
female market. In fact, based on my contextual
observation and knowledge of this industry, females
seem to pay more attention to elegant designs than to
technical characteristics of the devices.
The second opportunity is “For students who do”. It is a
special offer for students including discount and
financing of laptops or tablets, supported by the
educational institutions and Governments. The
hypothesis in this case is that students have a high
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4. Current landscape However, since those regions were defined in 2012 for
this analysis the previous segmentation is utilized:
Lenovo • China
• Developed countries
Strategy - “Protect and Attack” • Emerging countries
Financial results
Lenovo has been implementing a strategy of protecting
its core markets in China and worldwide, while attacking
Lenovo has shown impressive results during last years
and by increasing market share and improving
with a constant annual growth rate, CAGR, of almost 26
profitability in Emerging Markets and Mobile Internet
percent for revenues and over 24 percent for gross
device sales.
profit. The evolution of revenues and gross profit can be
observed in the figure 1.
Additionally, there are some key elements that have
helped to leverage the strategy such as:
$30,000 CAGR
• Mobile Internet Digital Home (MIDH) $25,000 25.7%
• “For Those Who Do” brand campaign $20,000
• PC+ Era $15,000
• Continuing investments in innovation $10,000
CAGR
$5,000 24.2%
Geographies $0
2009 2010 2011 2012
Nowadays, in order to support the growth worldwide, Revenue Gross profit
Lenovo have distributed its organizational structure in Figure 1. Evolution of revenues and gross profit (in USD
four different regions as follows: million)
• China
• North America Even though those numbers are outstanding, the
• Europe-Middle East-Africa (EMEA) difference in the growth rates of gross profit revenues is
result of an increase on cost of gods sold, cogs, in
• Asia-Pacific Latin America (APLA)
proportion to the sales, likely due to the aggressive price
3

5. strategy of the Company and to a greater effort on the Industry
sales.
It is expected a faster growth in sales of electronic
Nonetheless, operating expenses improved during the devices in the developing countries. That, partially as a
period analyzed. That implies a better expense to consequence of a lower growth in Europe and US
revenue ratio which in turn is translated in a better economies, but also due to the decrease of the
EBITDA. Details of those results are showed in the table technological gap between advanced and emerging
1. economies.
Group Results 2009 2010 2011 2012
World economy and PC sales
Revenue 14,901 16,605 21,594 29,574
COGS -13,104 -14,815 -19,230 -26,128
Gross profit 1,834 1,790 2,364 3,446 On one hand, as it is depicted in the figure 2. during
Gross profit margin (%) 12.3 10.8 10.9 11.7 last years PC sales worldwide have been shown an
Operating expenses -1,811 -1,586 -1,982 -2,862 instable growth rate with fluctuations ranged from high
Expense-to-revenue growth to low or even negative for different periods.
12.2 9.6 9.2 9.7
ratio (%)
EBITDA 305 432 603 821 28.6%
Table 1. Financial highlights of Lenovo (in USD million) 23.0%
21.4%
Even though they have been showing a high growing
rate in revenues, results in emerging markets are not as
positive as in the other segments of the company. The
income before taxes obtained for Lenovo has been 8.4%
7.3%
negative during the periods analyzed (see table 2). 5.1%
3.1% 2.5%
2.0% 1.9%
Group Results 2009 2010 2011 2012 -0.1%
0.9%
-1.4%
Revenue 2,353 2,640 3,860 4,803 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
-4.3%
Pre tax income -107 -97 -62 -94
-7.8% Annual growth PC Sales worldwide -8.3%
Table 2. Financial highlights of Lenovo in emerging markets
Figure 2. Evolution of PC sales
(in USD million)
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6. As it was already mentioned, it is partially due to of PC In fact, for several Tech companies it is clear that an
units sales seem to be highly dependable of economic important part of the growth will come from developing
environment in each region. That relation is illustrated in countries. Examples of this are new the openings of
the figure 3 Apple and Amazon services in Latin America.
15.0% Mobile trends
10.0%
On its part it is expected a high growth of smart mobile
5.0% devices, mainly in smart phones and tablets along with a
decrease in the price of electronic devices. That is
0.0% massive adoption due to the reduction in the prices of
2009 2010 2011 2012 those devices and reduction in the cost because of mass
-5.0%
production.
-10.0%
Annual growth PC Sales worldwide
According to Gartner smart devices will sales the
Annual growth world GDP, current prices (U.S. Billions) amount of 821 million units during 2012 and are
Figure 3. Annual growth of PCs vs. annual growth of GDP foreseen to reach 1 billion for 2013.
On the other hand, there is a smaller technological gap With that, it will bring a strong adoption of Apps and
between developed and developing countries. Today, Webapps (html5) as well as in the use of Cloud
high end and cutting edge technologies arrive to computing and personal cloud services. And it is also
developing countries just some months after they were clear a tendency of an even more integration of the
launched in the developed ones. ecosystem (i.e. devices + services + Apps).
Examples of this are the recent implementations of Android is arising as the new standard for mobile OS.
networks & services in several countries in Latin Similar to what Windows was in PC industry some years
America. While deploying the infrastructure for EDGE ago. However, given the completeness of its ecosystem
and HSDPA took place several years after, for LTE the Windows 8 could treat in some years the monopoly of
implementation started almost at the same time almost Google's OS. Meanwhile, if apple does not release a new
at the same time than in Europe or US. breakthrough innovation it is very likely that the
company will keep dropping its market share.
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7. Trends and new technologies The absence of a product clearly designed for this niche
along with the lack of interest from most of the girls for
Internet is not limited to computers or smart devices the detailed technical parameters create a unique
anymore. Now the connections can be present in business opportunity. An example of a product that is
different devices and yet it is expected that most of the indirectly addressing this opportunity are the laptops of
devices will use the global network in a human to Apple.
machine or in a machine to machine interaction. This
tendency is called Internet of things. Other aspects to take into account can be analyzed from
the women behavior. For instance, given that they are in
In turn, it is expected an increase of social media power general smaller than men, it can imply a preference for
and mass collaboration. Communities will take an lighter laptops. As they use to be more fashioned its also
important role in the definition of the companies’ expectable for the computer appearance to be relevant.
strategy and in the design of products and services. On the side of the smart phones, as women usually have
a purse with them, it is likely that they will put less
importance to the size of the cell phone than a man who
Other technological trends relevant to have them in the
should carry it on his pocket.
radar are those ones related to the human way of
interaction with the technology such as volumetric and
holographic displays, speech-to-speech translation (like Link with Lenovo strategy
the one announced by some weeks ago DoCoMo),
augmented reality, NFC, gesture control, virtual worlds, • Protect: Defend PC leadership in China and keep
biometric authentication methods and speech growth in mature markets.
recognition, just to mention some of them.
• Attack: Accelerate the growth in Emerging
Business opportunities economies and make this segment more
profitable.
For girls who do • Attack: Gain market share in smart phones and
tablets. In general, in MIDH
Developing a product and marketing strategy specially
designed for girls.
• Innovation: Expand product offerings and enhance
user experience
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8. Size of the opportunity For students who do
In order to forecast the possible sales of this product, Developing a special offer for students in Latin America,
the methodology for new product sales forecasting with discounts and financing when needed.
developed for the professor Jehiel Zif is used.
Nonetheless, it is important to clarify that this is only a Nowadays, computers are a required tool for any
vague approximation due to the insufficient information student in spite of their career. Similarly, tablets are a
available, and hence it is necessary to develop a device more and more used in educational
detailed market research and use the internal environments. However, status of student is usually a
information of the Company's result to get a more synonym of lower monthly income. Hence, financing and
accurate sales prediction. offering special pricing in laptops and tablets for
students are a still veiled opportunity for devices
Sales(t) = Trial sales TS(t) + Repeat sales RS(t) suppliers and manufacturers.
Thus the forecast for this product would be: On one hand, cooperation and agreements with
universities and government will be strategic for
Year1: 22 million units financing those devices. Firstly, the low rate of PC
penetration in emerging countries this kind of initiatives
Year2: 30 million units become relevant for governments who can support
economically the project. Also, in some cases,
computers can be sold directly to universities and thus
Year3: 37 million units
the risk (o part of it) will be transferred to them.
Year4: 44 million units
On the other hand, pricing is an additional aspect to be
included. Different careers will need devices with
Even though the numbers seem to be too high it is specific characteristics and consequently with different
important to understand that this product will prices. However it is important to price the products
cannibalize part of the sales of the other products. Also, carefully to avoid a “cheap” image among users.
those predictions are made with some restrictions on
the real information available internally in Lenovo.
Other relevant element for this business model is the
ecosystem integration between laptops, tablets, other
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9. devices, data bases, and content. In this sense, it will be Year3: 701,690
needed to develop specific Apps for students to use
them in their computers, for instance, one for checking Year4: 874,471
the schedule and homework, one for reviewing the
content of a subject, or one for supporting e-learning.
Explanations about assumptions for this forecasting can
be found in the appendix 1.
Link with Lenovo strategy
• Attack: Accelerate the growth in Emerging For those who do the future
economies. Attack SMB (educational institutions)
Developing a solution to bring the digital home to
everybody's reach
• Innovation: Expand product offerings and
enhance user experience with a more integrated
ecosystem. So far, implementing a digital home is a luxury available
to a very few. This is due to, among other reasons, the
cost of technology required for this and the lack of
• Innovation: Increase brand recognition in young importance perceived for most of the people.
people.
In turn, Lenovo has developed an exhaustive portfolio
Size of the opportunity that can support an important part of a digital home. At
the same time, the Company has a strong brand
Using again the same methodology to forecast the recognition worldwide that would help it to develop the
possible sales of this business concept, the analysis partnerships necessary to complete the elements for this
delivered the followings results: project.
Sales(t) = Trial sales TS(t) + Repeat sales RS(t) One strategic partner is the group of telecommunication
companies of each country. They can reach all the
Year1: 383,911 clients and, like in the previous business opportunity, it
will help to reduce the risk in case of financing the
Year2: 550,418 products.
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10. In general the idea will be sale a basic digital home that • Innovation: Increase brand recognition and
they can pay in a monthly basis and include a yearly up leverage Lenovo as a cutting edge brand for
grade of the solution, with new features and more electronic devices.
advanced technology. Thus, they will be able to reach
the dreamed digital home in a period between 2 and 5 Size of the opportunity
years. (TV should be at every home before the
beginning of FIFA World Cup 2014).
The size of this business opportunity can be estimated
as well using the same methodology for new product
Last but not least, this business could be the entrance of sales forecasting. However, given the complexity of this
Lenovo to one of the next biggest opportunities for the concept, firstly is needed to evaluate which regions,
electronics devices world: “the Internet of things”, countries or even cities are the best options to start a
through a PC centric approach as a center of the digital pilot before expand the idea worldwide.
home.
Link with Lenovo strategy Ideas for further analysis
• Attack: Accelerate the growth in Emerging A factory in Colombia
economies.
Objective: implementation of a technological cluster in
Bogotá, Colombia, consisting on several electronic
• Attack: Gain market share in smart phones, devices manufacturers, along with the development of
tablets and TV. In general, in MIDH extraction and treatment plants for coltan in Vichada
province, Colombia, and construction of the required
• Innovation: Expand product offerings and road network infrastructure.
enhance user experience
• Innovation: Expand product offerings and
enhance user experience with a more integrated
ecosystem around the PC+.
9

11. Note: This proposal is under construction. The first draft will be sent on this
month to the Colombian Ministry of ICT and to the Chinese companies and
investors interested.
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12. Conclusions
Opportunities are like constellations floating in a
universe of ideas, necessities and trends. They are
invisible for those who can not link the dots forming a
pattern.
The analysis described involves a link between strategy
of Lenovo, industry trends and some personal ideas
identified. Thus, more important than the ideas is the
capacity of generating them using a clear methodology,
and of course the ability of implementing them.
By identifying the importance of innovation for Lenovo,
plus the accelerated adoption of mobile devices, and
plus the absence of a product for the female segment,
the opportunity “For girls who do” arose.
Likewise, a focus in attack emerging markets on Lenovo
side, and the students' necessity of affordable devices
bring the concept of “For students who do”
In addition, based on the PC+ strategy of Lenovo and
future trends like Internet of things an interesting
opportunity like “For those who do the future” was
founded.
This document shows my interest in the Company and it
is a brief evidence of my ability to add value to Lenovo.
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13. Washingtonpost
References
 A gadget’s life: From gee-whiz to junk,
Gartner news: http://www.washingtonpost.com/wp-srv/special/
 Preliminary Worldwide PC Vendor Unit Shipment business/a-gadgets-life/
Estimates for 3Q09, 4Q09, 1Q10, 2Q10, 3Q10, 4Q10,
1Q11, 2Q11, 3Q11, 4Q11, 1Q12, 2Q12, 3Q12 Engadget
 Gartner Says 821 Million Smart Devices Will Be
Purchased Worldwide in 2012; Sales to Rise to 1.2 Billion
 NTT DoCoMo exhibits on-the-fly speech translation, lets
both parties just talk (video), May 30th, 2011,
in 2013, November 6, 2012
 Gartner Identifies the Top 10 Strategic Technology http://www.engadget.com/2011/05/30/ntt-doco
Trends for 2013, October 23, 2012 mo-exhibits-on-the-fly-speech-translation-lets-bo
 Gartner Highlights Six Core Principles to Tap the th-par/
Power of Social Media, August 29, 2012
 Gartner's 2012 Hype Cycle for Emerging CIA
Technologies Identifies "Tipping Point" Technologies That  https://www.cia.gov/library/publications/the-worl
Will Unlock Long-Awaited Technology Scenarios, d-factbook/geos/xx.html
August 16, 2012
IDC Financial Insights Opinion IMF
 Technology Selection: Worldwide Mobile Payments  World Economic Outlook (WEO), October 2012
2012–2017 Forecast, November, 2012
 Android Tablets Gain Momentum in the Third Quarter, Lenovo
Expectations Remain High for the Holiday Quarter,  Annual reports 2010 and 2012,
According to IDC, November 5, 2012 http://www.lenovo.com/ww/lenovo/annual_interi
 Android Marks Fourth Anniversary Since Launch with m_report.html
75.0% Market Share in Third Quarter, According to IDC,
November 1, 2012
 http://www.lenovo.com/us/en/
 Smartphones Drive Third Quarter Growth in the
Worldwide Mobile Phone Market, According to IDC,
October 25, 2012
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14. Appendix 1. For students who do: Given that this is a smaller
segment with a clear geographical scope, it is
expected to have a bigger availability. A rate of 50%
Sales(t) = Trial sales TS(t) + Repeat sales RS(t)
was defined for year 1, rising to 80% by year four.
TS(t)= Population * Availability * Variation on Initial
Variation of initial purchase: This number depends
purchase (difference between last period) * Quantity
mainly on advertising and product quality. Numbers
varies from industry to industry. Data used in some
RS(t)= Population * Availability * Cumulative Initial simulations ranged around 0.03 in class, this number is
purchase * Repurchase rate * Consumption rate used for the analysis.
Population: Total market objective Quantity: Number of units acquired during the initial
purchase. For this industry the most probable number is
For girls who do: Women world wide population 1.
between 15-64 years old → 2,187,838,153
Cumulative initial purchase: A high number for this
For students who do: students on 3rd level of variable is around 0.25, but varies for different
education (Professional, technical, etc) → 23,267,347 industries. It is assumed a initial number of 0.10
for year one and 26,403,104 for year four increasing by 0.03 yearly. Similarly to variation of initial
purchase, it depends on advertising and quality.
Availability: Given for the percentage of the product's
availability in the possible points of purchase. For a Repurchase rate: It also depend on advertising, but not
company like Coca Cola this number should be around need to mention that this kind of advertising is different
90%. from the one aiming to promote the initial purchase.
Besides, as it can be supposed the number should be
For girls who do: For a global company like Lenovo lower for the first period. A high value for repurchased
with a wide presence and very competitive prices it is rate is about 30 percent, for this analysis having in mind
possible to estimate this number starting in 30% for the highly competitive environment the rate used for the
the year one and rising to 45% by year four. first year is 10 percent but increased to 20 percent for
the following years due to the perceived value that this
differentiated product should have.
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15. Consumption rate:
For girls who do: Users change their computer each 2
or 3 years. For this example, assuming they change
computer each 2.5 years they have a consumption
rate of 0.4.
For students who do: Assuming students change their
computer each 3 or more years, a consumption rate
of 0.3 was used.
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16. About the author:
http://jerc_colombia.webs.tl