A Look at Lenovo’s Strategy and Business Model

How the company became the world’s largest PC vendor

Fact checked by Katrina MunichielloReviewed by Amilcar ChavarriaFact checked by Katrina MunichielloReviewed by Amilcar Chavarria

After its founding in 1984, Lenovo Group Limited (OTCMKTS: LNVGY) enjoyed a prodigious rise to become the top PC provider in the world.

In this article, we take a look back at the strategic model that powered one of China’s most successful corporations.

Key Takeaways

• Lenovo is a Chinese technology company that designs, manufactures, and sells personal computers, tablets, smartphones, smart televisions, workstations, and servers.
• Lenovo is the world’s largest PC vendor, claiming a 23.4% market share for the second quarter of 2024, ahead of HP Inc., Dell, and Apple.
• Lenovo has had impressive competitive advantages over its rivals in the PC marketplace, including its large distribution network and its ability to expand its presence in emerging markets.
• Over the years, Lenovo used strategic acquisitions and partnerships to access new markets and increase sales.
• Lenovo’s focus on artificial intelligence involves pioneering AI-driven PCs.

The Protect and Attack Strategy

At the heart of Lenovo’s growth was a strategy known as “protect and attack” that was put in motion by CEO Yang Yuanqing in 2009. As its name suggests, this strategy combined defensive and offensive elements. 

Defensively, Lenovo built upon its success in China, where it occupied a dominant position as China’s (and the world’s) top vendor of PCs. Offensively, Lenovo sought to grow internationally by leveraging acquired assets and expanding sales to emerging markets.

Business Models

In carrying out this strategy, Lenovo used two interrelated business models, referred to by Lenovo executives as their transactional and relationship models.

The transactional model emphasized sales to retail consumers and small to medium-sized businesses, both directly (through online and physical Lenovo storefronts) and indirectly through distributors and retailers.

The relationship model targeted enterprise customers such as educational and governmental institutions, as well as large businesses.

Sales in this second model were characterized by a greater degree of personalized service by Lenovo staff. They were executed by a combination of internal sales representatives and business partners.

Protect: Lenovo’s Competitive “Moat” in China

As Warren Buffett famously remarked, the most enduringly successful businesses are those that possess economic “moats” that protect their profits from encroachment by competitors. At face value at least, Lenovo has had many such moats in China.

Distribution Advantage

Perhaps the most impressive advantage enjoyed by Lenovo in China is its immense network of distribution channels. Lenovo has access to thousands of sales points in its Chinese distribution network, the majority of which are exclusive distributors of Lenovo products.

The advantages of this network extend beyond mere scale. Lenovo’s local expertise as a company born in China lent it an advantage over non-Chinese competitors.

A case in point is Lenovo’s “wedding computer,” a low-cost product adorned in red (a color connoting luck in China) and emblazoned with the Chinese character for happiness.

The local insight embodied in this product, which proved wildly popular among rural Chinese consumers, suggests that foreign competitors would face difficulty in unseating Lenovo in the hearts and minds of Chinese consumers.

Lenovo’s executives made it clear that protecting these competitive advantages in China was a top strategic priority. But they also felt that their ambitions did not end there.

Attack: Emerging Markets and the World Stage

For most companies, becoming a market leader in China would be amply ambitious. For Lenovo, however, it was only the start of its dreams. Having established itself as the leader of China’s PC market, it undertook to expand its presence in emerging markets such as India, Russia, and Brazil.

This strategy was not without sacrifice. Initially, these expansions generally caused operating losses as the company invested in establishing its sales presence in the target market.

However, this unprofitable period had a goal: Once a double-digit market share was attained, Lenovo would prioritize a balance of continued growth and profitability.

In theory, Lenovo’s long-term goal was to recreate the dominant position it enjoyed in China in each of its expansion markets. In practice, however, this was far easier said than done.

Lenovo’s executives were and still are well aware that the diverse markets in which the company operates—which include the Americas, Europe, Africa, the Middle East, and Asia—are each home to unique consumer preferences, competitive landscapes, and regulatory regimes.

Lenovo’s Use of Acquisitions and Partnerships

Simply exporting the factors that contributed to Lenovo’s success in China seemed unlikely to bring success in other markets. Instead, Lenovo has sought to gain competitive advantages through strategic acquisitions and partnerships.

• In October 2014, Lenovo completed its acquisition of Motorola Mobility from Google Inc. (GOOGL).

• In November 2017, Lenovo announced its purchase of a 51% stake in Fujitsu’s PC division. The deal was part of a joint venture between Lenovo, Fujitsu, and the Development Bank of Japan.

The goal of the venture was to drive growth in the development and manufacture of client computing devices (CCD) for the global PC market.

• In June 2024, Lenovo’s technology service arm, Lenovo PCCW Solutions, announced that it had completed the acquisitions of Explora and Eleven Digital. The advantages acquired will enhance Lenovo’s data practice and marketing cloud capabilities, which are essential to the company’s Smarter AI for All vision.

From PCs to PC+

Although Lenovo’s rise depended mainly on the PC market, it has moved toward more diverse revenue streams.

The PC+ Era

Underlying this movement was CEO Yang Yuanqing’s belief that PCs were moving toward what he called the “PC+ Era.” In this era, PCs would exist as the central hubs linking a network of interconnected devices such as tablets, smartphones, and smart TVs.

Implicit in this vision was a desire to steer Lenovo from being only a world leader in traditional PCs and toward becoming a world leader across the range of PC+ devices.

While the company sought to diversify, it had a long way to go to achieve the huge market share enjoyed by its top competitors in both the smartphone and tablet markets.

On to Smarter AI for All

Lenovo announced its innovation-focused intelligent transformation strategy in 2021. As of its FY 2024, this strategy is still in force and Lenovo continues with its plans to capture the massive artificial intelligence opportunities transforming smart devices and the tech sector, as well as the lives of people all across the world.

It’s vision, Smarter AI for All, is focused on AI changes already happening and the potential which the company expects to become a reality. Lenovo believes that, in particular, Hybrid AI will be prominent. It defines it as “a coexistence of public, personal and enterprise AI to supplement and enhance each other.”

It’s seeking to embed AI into personal computing devices and plans to use its design and manufacturing expertise, operational capabilities, and global scale to create products that are a “natural platform” for AI applications.

What Is Lenovo’s Intelligent Transformation Strategy?

The company’s intelligent transformation strategy was launched in 2021. It is its strategy to drive its transformation from “a global devices company to a technology leader in global devices and solutions, services, and software.”

Is Lenovo Still Selling PCs?

Yes, in fact it is the leader in the global PC market, shipping more units than any other company.

What Is an AI PC?

It’s a personal computer with the hardware and software to run artificial intelligence applications for improved results relating to security, productivity, gaming, entertainment, and more.

The Bottom Line

Lenovo’s protect and attack strategy helped the company achieve and maintain its leadership position in China and the global PC marketplace. It also supported its strengthening foothold in emerging markets and “PC+” product categories such as smartphones and tablets.

The company took significant strides using the the strategy and is now well-positioned to capitalize on the enormous opportunities presented by AI, and especially AI-driven PCs and other smart devices.

At the time of publication, Jason Fernando had no positions in any of the securities mentioned in this article. He does not intend to trade any of the securities mentioned in this article within 48 hours of publication.

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