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What is Lenovo up to in India?
Amit Ranjan Rai | February 02, 2006
It's been almost a year since Chinese personal computer giant Lenovo acquired IBM's PC business for $1.75 billion in cash, stock and debt. At a stroke, Lenovo vaulted from being the world's eighth-largest PC maker to the third-largest, after Dell and Hewlett-Packard.
With the deal came access to IBM's customers, its 160-country-strong distribution and sales network, skilled staff, advanced technology and, not to leave out, the ownership of IBM's popular 'Think' family of PC products.
As for the brand, Lenovo chalked out a five-year transition to switch to a Lenovo-only brand -- it has a five-year brand licensing agreement with IBM to use its brand.
The biggest strategic change this year to come, in a few months' time, is Lenovo entering the consumer market worldwide -- IBM was confined largely to the enterprise PC market.
Currently, outside China, 75 per cent of the company's sales come from large enterprises, close to 25 per cent from small and medium businesses (SMBs) and almost nothing from consumer sales. In China, it's the reverse: 75 per cent of Lenovo's sales come from transaction customers, which include SMBs and consumers.
One year after the deal, we examine how the company is transforming from an IBM-Lenovo to a Lenovo-only identity, and where India figures in its growth strategy.
Lenovo Chairman Yang Yuanqing recently pointed out that the company sees 'emerging markets' such as India and Brazil as the key growth drivers. And he's keen on 'duplicating' in these markets Lenovo's success in China -- where the company is the number one PC player with a market share of about 35 per cent, the next branded PC player having only about 10 per cent share.
That Lenovo is targetting India as one of its biggest markets is corroborated by the fact that this year it has elevated India as a separate geography -- along with the Americas; Europe, the Middle East and Africa; Asia Pacific; and China -- in its market positioning.
"India is a very strategic market for us. A high level advisory board has been set up for India under the chairman's leadership," says Neeraj Sharma, managing director, Lenovo South Asia.
Adds Andrew Sortiropoulos, Lenovo's Asia Pacific general manager, "We see tremendous opportunity here. It's among the fastest-growing PC markets in the world." That's because, he adds, global technology research firm IDC expects PC sales to grow at 32 per cent year on year -- much faster than the global average. There is strong economic growth and personal incomes are continuing to rise, not only in urban but also rural areas.
So what is Lenovo's India plan? First, consider Lenovo's brand portfolio and how it plans to expand it. Currently, the company is offering only its 'Think' line of products -- ThinkCentre desktops, ThinkPad notebooks and tablet PCs -- which it bought over from IBM in the acquisition deal.
The primary target at present is enterprise customers. But with the entry into the consumer market, the company will roll out Lenovo-branded PCs for the first time outside China. These PCs will also cater to SMB and small office/home office (So-Ho) segments.
"The strategy has been carefully planned towards a smooth transition. Lenovo is leveraging the strengths of the Think brand, which IBM had built over the years, to retain old customers as well as to gain a greater foothold in the enterprise market. At the same time, it has also gained time to understand markets and gear up for a consumer launch," says an industry analyst.
Of course, the company has no plans to discontinue or re-brand Think in the near future. In fact, it still uses, except in China, the IBM logo for all its Think products -- and will continue to do so for another two-three years.
Sharma explains that post-acquisition, rather than disrupt the strong base established by IBM, Lenovo is leading with the Think line to drive sales and build a strong corporate brand. "During the transition we are leveraging this brand appropriately to communicate that the same quality, innovation and service continue," he says.
In India, Lenovo is currently gearing up to penetrate the consumer segment, which among the branded players is dominated by HCL, HP and LG.
According to IDC, in the overall PC market (both commercial and consumer) in terms of unit shipments, Lenovo ranks third with a 9 per cent market share, after HP (19 per cent) and HCL (13 per cent). Lenovo says it's not looking at a top position in the consumer market space within a set timeframe, but is positioning itself aggressively in the space.
The company will reach out to this market initially through more than 40 Lenovo exclusive storefronts and 100 multi-branded outlets.
Those numbers may look small in comparison with HCL and HP: HP has some 150 exclusive storefronts, 750 multi-branded outlets and close to 3,500 channel partners. HCL also has some 3,500 channel partners, of which 350 sell HCL products exclusively. But Lenovo says this is just the beginning.
Pointing to a departure from IBM's strategic focus, Sharma says, "We intend to be more local in nature and nimble in reacting to local trends." And indeed, it's trying to tap local trends. Like all major PC vendors, Lenovo's key focus in the consumer segment will be the SMB and So-Ho markets, and primarily the non-metro regional markets.
The company is targeting tier II and tier III cities as key markets and is in the process of expanding channel networks in these markets. "That's logical, considering that urban markets are becoming more saturated," says Piyush Pushkal, senior analyst, Computing Products and Channels Research, IDC India.
In the past one year, all major vendors have revealed an enhanced focus on the SMB market. A large part of this untapped market lies in the non-metros and that's where vendors are focusing to attain growth, adds Pushkal.
Lenovo India's marketing division says it's all geared up for the consumer launch. Every quarter new regions and territories are chalked out to expand the channel network. New dedicated acquisition teams have been set up to tap these markets and to ensure they reach every potential channel partner.
A non-metro team, for instance, is committed to seeking new partners in regional markets. Targets and regions change every quarter.
For the SMB market, though, Lenovo India has an "express strategy" in place. Working on the premise that small enterprises can't afford the luxury of looking at every configuration available, under the express strategy Lenovo offers them combination packages designed to suit a variety of needs and budgets.
For instance, the company has recently introduced its low-budget ThinkCentre E series, with PCs at around Rs 20,000 targeted at this segment. Products under the "express" are available off the shelf and delivered within a day of purchase, either by the dealer or the distributor. "We offer the right products, at the right prices, and through a fast delivery mechanism," explains Rahul Aggarwal, general manager, marketing, Lenovo India.
Aligned with its strategy to tap regional markets and create a strong retail presence, Lenovo India is on a hiring spree -- but it isn't just looking for people with IT backgrounds. The necessary condition is good marketing skills, and non-metro experience the icing on the cake.
In the past eight months alone, the company's marketing division has taken on board about seven-eight senior national level executives with experience in diverse fields such as advertising, FMCG and media marketing.
They'll be pushing two brands: Think and Lenovo. The company has already taken steps to increase its visibility and brand recall -- Lenovo ads are running in print, radio, television and the Internet. It's also trying some innovative product placements. "Computer-ji" on Kaun Banega Crorepati 2 is a Lenovo and the brand will make its Bollywood debut with upcoming film Corporate.
How are competitors reacting to Lenovo's entry into the consumer segment? They take it seriously enough, but aren't too worried -- yet. There's room enough in this industry for many such players, is the generally held belief. Besides, considering Lenovo is starting from scratch, establishing itself in India will be an uphill task, they point out.
Says Rajendra Kumar, executive vice president, frontline division, HCL Infosystems, "This market cannot be penetrated overnight. The infrastructure is different; it requires huge investments, commitment and time. One wonders if Lenovo will be able to scale up so fast."
Another issue Lenovo is likely to face is its Chinese pedigree -- Chinese companies haven't proved too successful in the consumer durables market, and there's no reason to suppose computers will be any different. Then there's the pricing.
HCL's Kumar points out that Lenovo China hasn't been particularly competitive. "HCL and HP have both been aggressive on pricing. It remains to be seen what Lenovo's approach here will be," he adds.
Is Lenovo likely to replicate its China strategy in India, especially given Chairman Yang's desire to duplicate its success in that country in other markets as well? "Lenovo's strategy in India is the same as it is for all markets," declares Sharma.
Of course, he adds, the two markets are very similar. Both are on a tremendous growth path; both have large and geographically dispersed markets, with significant numbers in non-urban areas. And both are incredibly price-sensitive.
So there are lessons to be learnt from the China experience. Lenovo has a very successful and extensive retail strorefront delivery network in China. "There can be lessons in marketing, inventory and channel management that can be used here in India," Sharma says.
More important, perhaps, is Lenovo China's research-oriented approach. The company regularly conducts intensive research to understand what consumers are seeking in terms of technology and practical innovations; and the result often is new products that are first in the field.
One of the most successful innovations by Lenovo China is a computer designed specifically for older users. The low-cost PC doesn't have a keyboard; instead, elderly users can write directly on the screen with their fingers, or touch icons and menus to control the computer.
Then there's one-touch Internet access, which Lenovo pioneered. Before Lenovo introduced the "one touch service," users who wanted to get onto the Internet had to make a trip to a government telecommunications office, fill out a special application form, and then wait for approval.
Then came the issue of finding an ISP, buying a modem and so on. Lenovo figured out a way to cut the red tape and make the process a lot more hassle-free and Chinese consumers who bought the new computer could get online just by hitting one key.
"Most products global vendors introduce are not designed in the home market, or customised to the needs of local people. We will be focusing on the customer and on innovation," promises Aggarwal. Concludes Sharma, "Our business model is a global strategy customised for local market demands."