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Lenovo's Vertical Integration

By Edited Jun 22, 2015 0 0

In a world where many companies are outsourcing their labor to cheaper locations, the Chinese computer company, Lenovo Group Ltd., has decided to keep a good portion of their production within China. Despite being a major outsourcer in the past, Lenovo has recently changed their approach to business and it has shown hopeful results.

Lenovo is one of the world’s largest in the computer assembling industry. Unlike some other major computer building companies like Dell and Hewlett Packard, Lenovo has an advantage by  being based outside of the United States. This helps in paying for their labor, but there are still other countries that are cheaper when it comes to the cost of labor. For example, Lenovo once was a major outsourcer to Taiwan.

There are numerous advantages to keeping production labor within their region. By doing so, Lenovo gives themselves better control over adjustments in their technology, which is a trick that Apple has used within the U.S. By further monitoring the production process, Lenovo creates an edge in case technology advances beyond where they currently are. If trends change, this too becomes an important feature to have on their side. In short, the more control they have, the better off they will be when it comes to their production process and the costs associated with it.

Vertical integration is innovative in the world of computers and computer manufacturing. In a world where outsourcing seems to be the prevalent trend, Lenovo has decided to change course.  Even Apple often gives up a portion of their control to other manufacturing companies when it comes to assembly. This approach is a one of a kind, and if it is successful, they will likely serve as a model for other computer businesses to copy in the future. In fact, other market sectors might look to this business model, too, if it proves to be successful.

Hewlett Packard (H.P.) is the world’s leader in manufacturing computers, but their market share has recently dropped from 18 to 16 percent of the world’s computers. They have led the industry for the last five years, but Lenovo is quickly becoming greater competition. In the fourth quarter of 2011, they shipped over 13 million units and saw their market shares climb up to 14 percent. This definitely puts Lenovo in range of surpassing H.P. in the near future.

Lenovo is in the process of building more factories, too. There are three more on slate for construction, including a factory in Brazil. Despite this being in another country, it will remain Lenovo owned and thus is not really a form of outsourcing. There are currently eight Lenovo owned factories and these three new ones will bring the total up to 11.

In the computing industry, innovation moves quickly. By staying on top of things, Lenovo is hopefully giving themselves a slight edge over the competition. With so much competition, this will be difficult, but any edge is a good edge in this business. Lenovo has definitely taken a unique and ultimately successful approach to expanding their business.



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