CAN LENOVO ACHIEVE A COMPETITIVE ADVANTAGE IN THE GLOBAL SMARTPHONE INDUSTRY BY ACQUIRING MOTOROLA MOBILITY

INTRODUCTION:

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There are nearly 3.5 billion users of smartphones today which is a result of growth in the smartphone and communication industry. Chinese MNC Lenovo acquired Motorola mobility in the year of 2014, a famously spoken deal all over the world and was publicized to grow bigger and gain profits in the sector. This deal by a Chinese Manufacturers was one of the biggest deals made overseas in the respective sector (Pal,2017). Acquisition with Motorola was an opportunity for Lenovo to capture the US market as well as the European market whose access Motorola had, as Lenovo was already hitting its saturation in the industry of smartphones, making such an expensive deal was a big opportunity for it to succeed with its acquisition’s business models. Porter's five force model will be used in this case study analysis of the smartphone industry. Analysis of Motorola and Lenovo’s core competencies is also done in this report followed by conclusion which is derived and based on resources which have been bought by acquisition in the US market.

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INDUSTRY ANALYSIS:

Motorola Mobility, owned by Google at the end of January, was recently announced as having been acquired by Lenovo. It was heavily reported in the United States that Google paid $12.5 billion for the firm, only to sell it for $3.3 billion. One of the most intriguing things about the purchase is what it tells us about Lenovo's growth plan and where it sees itself in the global power struggle.

The purchase of IBM's PC division by Lenovo in 2005 was mostly unknown outside of China and had very little impact on China's PC market. Lenovo was able to establish itself as a PC product supplier by handling the shift from “IBM ThinkPad” to “ThinkPad” to “Lenovo ThinkPad” and “Think.” By placing the Think brand alongside the Lenovo brand, the firm now benefits from its great reputation in the wider U.S. and worldwide PC markets.

Prior to its latest smartphone purchase, Lenovo was the fifth biggest phone supplier in the world, since it has traditionally been a leading player in China and Asia-Pacific with its mid-tier and service provider-branded smartphones. Both technical capability and user approval are required to enter the Chinese smartphone industry, which is increasingly being dominated by such devices. Winning the right to use the Moto brand, a well-respected one in China, allows Lenovo to use the technologies it needs to build competitive handsets as well as establish a prominent spot in the market alongside Apple and Samsung. Outside of China, Lenovo will acquire a well-known brand name that it can use to rapidly go from making T-Mobile or AT&T branded devices for carriers to launching and selling its own smartphones and other items.

This study anticipates the firm to imitate its past success by defining itself as Moto and promoting the connection between the two brands. This will help it to become successful in both high-end and low-priced sectors, particularly outside of China.

In the eyes of our study, Lenovo is one of the most aggressive of the "Second Mouse" Chinese corporations. As we recently discussed, Lenovo serves as the paradigm for competing in China's mid-market, where they provide “almost as good” items at a substantially lower price point than global companies. As opposed to “the Worm That Got the Cheese”, they are the “Second Mouse that gets the cheese. As the market and Lenovo's innovation leadership have combined to diminish the premium to a drastic degree, Lenovo went out and acquired the “former Early Bird” firms when they became available. The release time was just right in the PC industry, as buyers now see each brand as an alternative. Whether there are any significant advancements in mobile phones still to be made remains to be seen, but if not, then keep an eye on Lenovo.

An all-in-one technology that brings together telephone, personal computers, and internet service all into one device (Kenney & Pon, 2011). Porter's five force model is used to research the fast-growing smartphone sector by researching five areas: Negotiating power of the buyer, bargaining power of the suppliers, the existence of new entrants, and the possibility of alternatives are all important in determining the price for a product. Table 1 presents the model built around the five forces of the smartphone business. Apple and Samsung put a lot of resources into R&D for innovation, and this creates fierce rivalry among competitors. Customers maintain market power in the sector since there is a broad range of information accessible about the items and the number of alternatives accessible in the market. New entrants are deterred by high financial needs and the loyalty of consumers to existing businesses. However, in the case of innovation in the field of technology or an unusual business approach, it may be possible for a brand to join the market. Xiaomi, the Chinese cellphone maker, which replicated Apple's approach of creating the feeling of scarcity by selling items directly to customers through the internet skipping the necessity for a distribution network, is an ideal example.?(Shih, et al., 2014).

The smartphone industry

In the realm of mobile devices, the smartphone sector is known as one of the most competitive. Cellphones are defined by having more computer capacity than conventional or regular smartphones, as well as having new features. Due to this, the smartphone sector has seen steady growth and development over the last two decades. In 2020, it is expected that shipments of smartphones would rise to a worldwide total of 1.7 billion devices. One-quarter of Chinese smartphone users are projected to be using their phones, and it is anticipated that the population of China will include 45 percent of the people who use smartphones by 2020. Following the recent acquisition of Motorola Mobility from Google, Lenovo is one of the largest smartphone firms in the world. According to the company's statistical data, Lenovo is already in a position to dominate the Chinese and worldwide smartphone marketplaces.

Why Lenovo purchased mobility from Motorola?

·????????Motorola was not present in the US smartphone market, but Lenovo was. Motorola is still well-known in Western Europe, India, and Latin America's larger markets. Lenovo thinks that the acquisition of Motorola Mobility would help it acquire a significant and rising share of the smartphone market. That would serve as a shortcut to the company's goal of being a worldwide leader in mobile phone segments. Lenovo thinks it can build a brand, and asset, and acquire additional loss-making enterprises if it is strong in the nation it's present in and present in the United States, Europe, India, and Latin America.

·????????This alliance will allow Lenovo to establish strong strategic relationships with Google, the owner of Android, and Apple and Samsung to battle with each other. Also, creating commercial contacts with carriers in the US will be advantageous, since Motorola already has relationships with carriers in the US that are favourable and Motorola is always willing to use these relationships to grow its market share in the US.

·????????It is Lenovo’s aim to retain its standing among the leaders in the smartphone market by acquiring Motorola Mobility, an inorganic growth plan that keeps them in the lead. Not only does it convey a signal that Lenovo wants to be a competitive contender with Apple, Samsung, and other Chinese manufacturers, but it also indicates Lenovo's intent to be a challenger to Apple, Samsung, and other Chinese companies. After Motorola Mobility's purchase, Lenovo expects its 1/3rd income to come from smartphone sales. However, the numbers do not seem to be consistent with this premise.

Deal – A case for google

·????????Prior to Google's acquisition of Motorola Mobility, the company was on the lookout for patents held by the manufacturer. Google's retention of patents as part of the Lenovo partnership demonstrates its commitment. In the future, these patents might be a valuable asset for Google. From the information in Table 3, it is clear that Google's future value of Motorola Mobility patents is roughly estimated at $3.44 billion. It is possible that these patents were not as useful against rivals like Apple, Microsoft, or Nokia as expected, but it is also possible that in the future these patents might be of great use in the litigation context against rivals. Additionally, patents will be used as a tool to help with purchasing from all of the many components of Motorola Mobility assets. This will prevent Google from litigations with Microsoft, according to Marriman (2014). A long-time patent-sharing arrangement between Lenovo and Microsoft includes the potential for certain lawsuits to be solved without much conflict.

·????????The corporation behind Google's set-top box venture has been purchased by Arris, a manufacturer of cable boxes. Savitz (2012) said that investors in Arris shares showed their approval of the proposed transaction by going up $2.45 (or 16.9 per cent) at the end of the trading day, resulting in an increased price of $16.99 for the company. Google shares fell from $718.50 to $718.05, a change of 0.2 per cent. It was a good choice for Google, although, under the theory of the synergy trap, it was the opposite. Google agreed to licence Motorola Mobility patents to Arris as part of the acquisition agreement. The patent portfolio Motorola was selling to Google implies Google is making a killing. Another $75 million was also auctioned off from Google's facilities to Flextronics for a total of $150 million.

PORTER FIVE FORCE MODEL FOR THE GLOBAL SMARTPHONE MARKET

HIGH: WITH BUYERS IN A POSITION TO BARGAIN

easy on the wallet

a lot of options to choose from

the most expensive Elastic and Vulnerable pricing.

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The bargaining power of suppliers is moderate

·????????lighter weight

·????????weak financial position

·????????insufficient integration with the surrounding area

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the threat of new entrants is low

·????????High Capital requirements

·????????the price of new technology and innovation

·????????Current brand image.

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a low to moderate threat of substitute

·????????Substitutes are not available.

·????????All smartphone functionality in one device.

the threat of rivalry is quite high

·????????plenty of fierce competition

·????????Several substantial expenditures in R&D by organizations

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RESOURCE-BASED ANALYSIS:

Because of the decreasing PC market and other acquisitions that have been successful, Lenovo has Motorola Mobility as a means to establish a foothold in the smartphone sector. Other companies' aims had a role in Lenovo's purchase of this company. The three primary drivers were Motorola's market presence in mature regions like the United States and western the United Kingdom, the high regard in which the company is held by major telecommunications carriers like Verizon and AT&T, and the fact that the brand name Motorola is respected among smartphone manufacturers. (DePamphilis, 2015). Pal (2017) believes that in India, Latin America, and Western Europe, Motorola is already regarded as a popular brand, which will provide Lenovo with an entry point into the rapidly rising and massive smartphone markets. This agreement allowed Lenovo to additionally make use of Motorola Mobility's patents and trademarks. The Motorola mobility assets and competencies are shown in Table 2. (Marketline, 2019).

Motorola Mobility's core competencies, resources, and capabilities

fundamental competencies

to open new markets, such as the United States and the United Kingdom

acquisition of brand awareness

forward-looking product innovation

Innovation and R&D

? available resources

The quality of a brand's reputation

designers and developers of smartphone applications

skill sets for infrastructure and labour

?Capabilities

The company's future product roadmap

Telecommunication companies in the US including AT&T and Verizon have a strong partnership with us.

Distribution and sales channel

?In this case, Lenovo maintained its own competitive position because Motorola Mobility brought in its skills. Lenovo's smartphone business was doing very well in countries such as China, India, and Russia, due to the rapid growth in developing markets. The increased buying power of first-time consumers has been a significant factor in increasing smartphone sales in these emerging nations(Zwanenburg & Farhoomand, 2018). When Lenovo's rising success in developing countries and Motorola Mobility's prominent presence in established countries were taken into consideration, the company predicted worldwide smartphone supremacy. The overlap between smartphones and personal computers was also mentioned by Zwanenburg and Farhoomand (2018). PCs and smartphones have different markets and feature sets, however, certain PC- and smartphone-specific components like a motherboard, speakers, central processing unit, etc. are shared, which might allow for production efficiencies. Advanced R&D resources in Lenovo's PC sector are capable of augmenting the innovative efforts of the company's smartphone division. (Zwanenburg & Farhoomand, 2018).

This case study investigates the impact of Motorola's purchase on the smartphone business, particularly in the U.S. Us Smartphone Industry is a case study using the five-force model to identify implications for the global marketplace.

ENTRY BARRIERS: The biggest US entrance hurdle is due to the telephone service providers. AT&T and Verizon are not just wireless providers, but they are also smartphone retailers, selling devices that come with Android, iOS, and Windows Phones. These phones are often sold at a substantial discount to their list price, enticing a lot of users with a contract of either one year or two years. Independents can't sell to the consumers directly, therefore this makes it difficult for them to stay in business(Kenney & Pon, 2011). Despite having excellent relationships with telecom providers in the United States, Motorola cannot rely on the partnership alone to help it succeed in the US market, as shown by the Google Pixel phone. This is despite Google and Verizon's agreement to sell fewer than 1% of all cell phones sold in the United States (Gallagher, 2018). To gain entrance into the US market, the government strictly regulates its industry. Additionally, Chin (2018) describes Huawei, one of the world's top smartphone makers, as unable to join the U.S. market due to US government limitations. Bolstered by leading businesses like Apple and Samsung, the smartphone industry's entry hurdles are strengthened. In short, with everything being accessible to the market, manufacturers have shifted their emphasis on securing patents through R&D in order to become industry leaders. The many patents that are found in a smartphone are all now held by Samsung and Apple, making it very impossible for a new company to join the market (Osawa, 2016). However, only patents may fully characterize an organization's performance in an industry. In his example, Osawa (2016) mentions Lenovo's acquisition of Motorola and claims that the former bought the latter for patents but is having a hard time in the global smartphone market. Here, all of these issues have a significant impact on an organization's ability to join the US market, although the use of new technology or a breakthrough idea might assist. Therefore, Lenovo will have to think about all the restrictions in the US marketplace that are tough to overcome and focus on R&D to develop innovative ideas.

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BARGAINING POWER OF BUYERS: US is the biggest smartphone market in the world, which intensifies the negotiating power of consumers in the smartphone business. As purchasers may transfer from one smartphone to another with no product distinction, there is no cost associated with switching smartphones. In addition to this, affordable smartphones from Chinese manufacturers like Oppo, Vivo, Xiaomi, and many more are offering an increased range of alternatives to customers. Because of this, customers who purchase smartphones have the upper hand. This means that if Lenovo is hoping to market high-end smartphones in the United States, it will have to go head-to-head with companies like Apple and Samsung, who have built up their brand reputations through time. In China, Lenovo will face competition from indigenous companies like Xiaomi, OPPO, and the rest. As such, as Schmid & Polat (2018) have noted, Lenovo will have to spend a lot in R&D to produce new devices, while simultaneously fostering brand recognition via Motorola's reputation and R&D resources.

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THREAT OF RIVALRY: This presents difficulties for the company in the United States, where a significant percentage of the population already has a smartphone. A Statista (2018) study found that two-thirds of American citizens had a smartphone, and 69.6% of these individuals utilized the device. Apple is also the most popular brand in the United States, according to another study done by Statista (2020). The quickest innovation cycle in smartphones sees businesses producing new models with state-of-the-art technological advances. (Makov, et al., 2019). Brand awareness among customers drives the competition in the U.S. market. According to a number of recent researches, shoppers in the United States are brand aware and favour forward-looking technology. It's interesting to note that Apple and Samsung enjoy about 70% of the market share, yet Samsung is nowhere to be found on the list of the world's most valuable brands, with Apple coming in at number one (Makov, et al., 2019). However, this in and of itself will not ensure success for Lenovo, as the company will have to take the necessary steps to penetrate the US market by devoting significant resources to R&D. Although, this hasn't been simple, this is entirely understandable due to the shift in intentions of Lenovo following the purchase from trying to enter mature markets to concentrating on higher-income developing regions (Zwanenburg & Farhoomand, 2018).

THREAT OF SUBSTITUTION: When competition is little, substitutability is low in the smartphone sector. Smartphones are a combination of useful features, implemented into a single device. It's possible to examine iPads by Apple as replacements, but you won't want to choose them over smartphones due to size and functional differences (Kabeyi, 2018).

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BARGAINING POWER OF SUPPLIERS: By raising the price of inputs, suppliers may gobble away your earnings. Smartphones, there are often a great number of them, and the customers don't have much-negotiating power. Asia is where the majority of the raw resources are produced, and the costs of labour and commodities are low. Because of this, they cannot negotiate with smartphone makers the size of giants. As a result, Lenovo has the record for being the world's leading PC maker, and as a result, it has a well-respected position in the supply chain that will aid the smartphone sector as some of the raw materials utilised are widely shared across all the leading brands (Zwanenburg & Farhoomand, 2018).

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CONCLUSION:

This case study explores how the purchase of Motorola mobility by Lenovo might not assist in a mature market like the United States to gain sustainable competitive advantage. Lenovo might find a competitive advantage in India due to the low number of smartphone users and rising number of first-time purchasers. But aggressive price strategies and product innovation must be implemented due to strong Chinese rivals like Oppo, Xiaomi, etc. However, because of heavy entry obstacles and regulations put in place by the US government, American consumers will only have limited access to the market. Because of Apple and Samsung's large expenditures on R&D, the United States has a high level of rivalry for the brand image. There are a number of reasons why success in the smartphone sector doesn't seem to be an achievable aim for Lenovo, but it's important to never underestimate the potential of a revolutionary invention as witnessed with Xiaomi.

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Bibliography

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·????????DePamphilis, D., 2015. Mergers, Acquisitions, and Other Restructuring Activities. 8th ed. s.l.: Academic Press.

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