Lenovo Hones Sales Pitch for Russia, India

DECEMBER 28, 2010 THE WALL STREET JOURNAL

By LORETTA CHAO
BEIJING—Lenovo Group Ltd. is notching gains in emerging markets, picking up market share in such places as Russia and India, where the Chinese company can use experience gained at home to woo lower-income customers.
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Lenovo Group is notching gains in emerging markets.

The world's fourth-largest personal-computer company by volume is tailoring its approach in emerging markets to first-time buyers, who account for a larger chunk of sales in such areas than they do in more-developed markets, Chen Shaopeng, senior vice president of Lenovo's emerging-markets business, said in an interview.
To attract such buyers, Lenovo has employed tactics that have made it China's PC market leader: offering colorful models and products that can cost less than $300, as well as using retail franchisees who have insight on their individual markets. Lenovo also has increased advertising, using one of the world's biggest billboards, a 1,300-foot-long spot near the Kremlin.

Lenovo increased its share of Russia's market to 8.3% of PCs shipped in the third quarter from just 1.4% in the same period in 2008, according to research firm IDC. Lenovo is now the fifth-biggest PC vendor in Russia, up from No. 14.
In India, where the company aims to add 1,000 franchised retail stores to the 350 it has already, Lenovo has grown to 9% of the market from less than 7% at the end of 2008. The company ranks fourth in India, after Dell Inc., Hewlett-Packard Co., and Acer Inc. by volume.

Lenovo has been trying to steer away from relying on advanced markets like the U.S. to fuel overseas growth. The company struggled with weak consumer sales and declining market share after its purchase of International Business Machines Corp.'s PC business in 2005.

Co-founder Liu Chuanzhi returned as chairman, and then-Chairman Yang Yuanqing was named chief executive. The new leadership vowed a renewed focus on China and other developing markets.

Russia and India are only the eighth- and ninth-biggest PC markets in the world, respectively, with the U.S. and China the two biggest. And emerging markets outside China accounted for only 18% of Lenovo's revenue in the quarter through September, with 36% coming from mature markets and 46%, from China.

But Mr. Chen said emerging markets are Lenovo's fastest-growing regions, and helped Lenovo achieve a company-high global market share of 10.3% in the quarter, according to IDC. "In the long term, we expect the percentage mix [of revenue] contributed by emerging markets outside of China to increase as these markets grow," Mr. Chen said.
David Wolf, chief executive of Wolf Group Asia, a Beijing-based marketing strategy firm, said that while Lenovo's international push is yielding progress, the company still has to show it has a solid long-term strategy.

"After many years of having the hell kicked out of them, it's nice to have some positive results," he said. "But it's still very early days. Whether they can scale on whatever modest results they've been getting is a significant question."
Lenovo is struggling to show that it can branch into innovative new product segments that are increasingly important for PC companies. Lenovo introduced its LePhone smartphone this year based on Google Inc.'s Android operating system, but so far the phone is for sale only in China.
The company created a separate videogame-console company but hasn't released a product yet. Lenovo also has been working on a tablet PC, the LePad, but the status of that effort isn't clear. The company also delayed the release of the IdeaPad U1, a hybrid laptop with a screen that can be detached and used as a tablet, which created buzz when Lenovo unveiled a prototype at the January Consumer Electronics Show in Las Vegas.

Lenovo's "strategic vision and execution in new-product development remain weak," said Charles Guo, a J.P. Morgan analyst in Hong Kong. He said the company needs to be more aggressive to capture an opportunity left by management troubles at H-P, whose CEO was ousted in August.
Mr. Chen said concepts like the IdeaPad U1 establish that Lenovo is "a leader in innovation." The company declined to say when the product might be released, however.
After taking the reins of Lenovo's emerging-markets business last year, Mr. Chen said he traveled to such places as Russia and India, where IBM's ThinkPads were well known but Lenovo's brand wasn't, and saw similarities with China.
Lenovo's strategy in emerging markets is what it calls "best fit" computers rather than "best" computers. Much of that has to do with price. Mr. Chen said the company modified a desktop model for India to lower costs, though he declined to elaborate. The machine sells for about $280, including taxes.

The strategy also means knowing which basic features are most attractive to new buyers. Lenovo's Z-series laptops, which come in a variety of colors, are popular in India because "a lot of young users, even at the entry level, want something stylish," Mr. Chen said. In Russia, Lenovo became one of the first PC vendors to offer a laptop with built-in WiMax wireless capability.

Lenovo's rollout in India of franchised stores carrying its products exclusively is similar to its practice at the company's network of 20,000 stores in China. The locations are outfitted by Lenovo but owned and operated by local business owners who can tailor their services and offerings to local buyers.

Vipul Jain, director at Unique Infoways Ltd., which owns three Lenovo stores in New Delhi, said his company invested $40,000 to open its first such outlet in Nehru Place, a hub consisting of hundreds of electronics shops. Lenovo provided training for the store's staff and pays a commission to Unique Infoways, which expects to open another ten stores with Lenovo around the nation over the next year.

While PC users in mature markets feel comfortable buying computers online, first-time buyers in emerging markets want to see and touch the machines, Mr. Chen said, "so our strategy was is to build the retail coverage."