Lenovo Five Forces Analysis

The PC industry is marked by an intense level of competition. At the top of the sector, based on number of shipments and market share is the Chinese technology brand Lenovo. It currently holds the dominant position and largest market share in the global market. While its market share in China is higher than one third of the total PC market, in the other leading markets too including the United States, Lenovo is among the largest players.

While other leading players like Dell have seen their market share in the Chinese PC market drop, Lenovo has maintained its dominant position there. The second largest PC brand in the Chinese market is HP, which holds only a small ten percent market share there.

Lenovo’s fast growth has been driven by innovation and a diverse portfolio of PCs and laptops for all segments of customers in varying price ranges. It means Lenovo offers something for nearly everyone1. However, the company’s position in the smartphone sector has weakened and as a result, Lenovo is focusing more on other emerging areas including its datacenter business. The company has been experiencing a decline in revenue over the past several quarters as demand for Pcs worldwide has continued to decline. Increased competition and growing raw material costs are driving operating expenses for Lenovo higher.

In this Porter’s five forces analysis, we will analyse the competitive position of Lenovo in the industry sectors that it operates in. These five forces are a part of every sector and affect all businesses and a porter’s five forces analysis, helps us understand the competitive strength of a brand in any sector.

Bargaining power of suppliers: Low

In the PC sector, the bargaining power of suppliers is low to moderate. Some of the suppliers that hold some bargaining power is because of their high level of differentiation, advanced technologies and large size. For example, Intel is a supplier of microchips for the PC industry and holds strong bargaining strength because of its brand image and innovative technology.

However, most of the suppliers to the PC sector whether in China or the other parts of the world are smaller businesses supplying various parts to the OEMs (Original Equipment Manufacturers). Another leading supplier that holds strong bargaining power in the PC sector is Microsoft that supplies software and operating system for PCs and laptops. Microsoft also enjoys strong bargaining power because of its specialized technology and differentiation. Otherwise, most of the remaining suppliers are smaller firms that have little bargaining power since they depend mainly on the OEMs like Lenovo for business.

The overall bargaining power of the suppliers in the PC sector is low. In the smartphone sector, also apart from Google that offers the Android operating system for smartphones, there are few suppliers holding any significant bargaining strength. The suppliers depend on smartphone manufacturers for business and are smaller firms that do not pose any significant threat of forward integration. Lower level of differentiation is also a result that the suppliers in both smartphone and PC industries hold low bargaining power.

Bargaining power of buyers:- Moderate

Buyers in the PC sector include both individuals and firms including small and large businesses that buy PCs and laptops as well as other computing related products from Lenovo and Datacenter products for their business operations. These buyers hold moderate bargaining power. While the bargaining power of consumers has increased in recent decades due to several reasons including increased access to information, higher number of substitutes, technological advancement and higher competition in the PC sector, there are some factors that have helped Lenovo moderate the bargaining power of customers in the PC sector.

Lenovo is the largest player in the PC sector with a strong market presence in almost all the leading markets of the world. It is an innovative brand that offers a wide range of products to cater to almost all consumer segments with computing needs. Its product offerings are of good quality and its pricing strategy and innovative technology also help moderate the bargaining power of customers. The company places a strong focus on innovation and therefore, its products enjoy higher demand and popularity throughout the world. Lenovo also enjoys strong brand awareness and is a highly competitive brand.

Threat of substitutes:- High

The threat of substitutes faced by Lenovo in both PC and smartphone sectors is high. In both the PC and smartphone sectors, the threat of substitutes comes from the rival brands offering similar products. Both the industries are seeing an intense level of competition among the existing players. In the PC industry, the threat of substitutes for Lenovo mainly comes from the products made by the rival brands including HP, Dell, Apple and others. These brands also make and sell a similar range of products throughout the several markets in the world. Moreover, the industry leading brands of PCs and laptops including HP, lenovo, Dell and Apple invest heavily in innovation.

In the smartphone sector also, the threat of substitutes is very high and it is also one of the leading reasons that Lenovo’s share in the smartphone sector has shrunk in recent years. There are many smartphone brands in the market including Samsung, Apple, LG, Oppo, Xiaomi, and others that sell a vast range of smartphones in diverse price segments. Samsung, Apple and other market leading brands are quite aggressive about market share and therefore invest heavily in innovation to maintain their market share and market position.

Overall, the threat of substitute products faced by Lenovo is high.

Threat of new entrants: Low

The threat of new entrants in the PC and smartphone industry sectors is low because of the higher entry barriers. While technological know-how is a critical barrier that prevents the entry of new firms into the PC or smartphone sectors there are several other barriers apart from technological including regulatory and financial barriers that prevent the new players from entering the market.

The threat of new entrants is also reduced by another critical factor which is the high level of competition in these sectors. The existing brands are quite aggressive about maintaining their market share and retaining their position in these sectors. They invest heavily in innovation and marketing. As a result, any new entrant will face heavy competitive pressure. Moreover, growing into a significant brand requires a strong investment in product design, manufacturing, innovation, supply chain management and other areas.

In this way, there are several significant barriers to entry in both PC and smartphone sectors that prevent any new entrants from entering these sectors. Overall, Lenovo faces minimal threat from new players.

Intensity of competitive rivalry: High

The intensity of competitive rivalry faced by Lenovo is very high. It operates in a highly complex and intensely competitive industry environment. The company operates in the PC and smartphone sectors as well as a few other sectors where there are several strong and well established players in the market. The main rivals of Lenovo in the PC sector include Apple, HP, Dell, Acer and Asus. However, there are more players in the market which also make and sell PCs. Almost all the players in the PC sector are well recognized brands. These brands invest heavily in innovation. Price competition is also a significant factor in the PC sector. While the leading PC brands including Lenovo, HP and Dell make a nice range of premium products, they also make and sell a significant range of products that are priced more affordably to attract the price sensitive customers.

The same is also true about the smartphone sector where there are several significant players in the market that are well established brands enjoying solid brand awareness globally. The main competitors of Lenovo in the smartphone sector include Apple, Samsung, LG, Oppo, Xiamo, and Huawei. These are all highly competitive brands aggressive about retaining their market shares. The strong competition in the smartphone sector is also a critical factor that Lenovo has been experiencing a decline in its market share in the smartphone sector.

There are various factors that have helped Lenovo moderate the competitive threat from other players and successfully maintain its market position in the PC sector. It is a highly innovative brand and strongly focused on innovation, product quality and customer experience. However, despite all these factors, the competitive threat faced by Lenovo remains high because of the presence of several strong players in the market. The high level of competitive pressure faced by Lenovo requires the company to invest in continuous innovation and to diversify its business further.

Further Reading: Lenovo Pestel Analysis