China's top PC maker remains No. 1 against rivals both foreign and domestic by fostering loyal resellers and responding quickly to market changes
Ever since Legend Computer took the lead in PC sales in China back in 1997, competitors and analysts have been predicting that its rule would eventually come to an end. The pressure from global players would simply be too hard to stave off.
That hasn't happened. As of the second quarter, the company, now called Lenovo, held a commanding 35% market share, more than twice that of its nearest competitor.
There's really no mystery to Lenovo's durability. It built a vast network of resellers who are fiercely loyal to it, and it runs a tightly wound organization that responds quickly to shifts in demand or maneuvers by rivals. "We believe that Lenovo's strength in the China market is deep-rooted and not easily replicable," says analyst Tienyu Sieh of Merrill Lynch (MER).
The main worry for Lenovo is Dell (DELL), which has gradually been gaining share in China since it entered the market eight years ago. It now ranks third, behind domestic PC maker Founder, with a 9.8% market share. Dell has stuck to its knitting with its direct marketing approach rather than venturing into the retail market. It believes that the direct model will gradually come to dominate in China just as it has in the U.S. "We're a long way from overtaking them in China, but we still think we can do it," says Steve Felice, vice-president of Asia-Pacific/Japan for Dell.
Prime Placement: Everywhere
The direct marketing model may gradually come to dominate, but Lenovo won't be sitting still. In 2004, it started selling in two ways—through resellers, and by taking orders directly from customers. Its factory in Beijing, for instance, has three assembly lines dedicated to building PCs for resellers and three for building machines to order, as Dell does.
Lenovo's strength is clear if you take a tour of the Zhong Guan Cun electronics shopping district in Beijing. There, two dozen multistory shopping malls dominate the landscape and roughly 100 stores sell Lenovo products. Lenovo owns only one of the shops, but the others proudly tout its brand on huge signs over their entrances. "We have the best locations in the malls," says Lenovo Chairman Yang Yuanqing. "It sends the signal to customers that ours is the most important brand."
Lenovo's retailers don't even mind that so many stores are clustered so close to each other—sometimes just yards apart. At Lenovo Beijing Flagship Store in the Ding Hao Electronics Mall, store manager Miao Ya Ping says she decided to sell Lenovo products exclusively because of the strong brand and good service. "I get the best customers, too," she says.
Lenovo's reseller network is mighty, indeed. It sells through 6,500 stores and 3,500 companies that market directly to businesses. And it alone has penetrated to the smaller cities in China where PC sales growth is now most rapid. Another key to its success is its customer service network, which is a combination of Lenovo and dealer employees. First-time computer buyers have flocked to Lenovo because service technicians make house calls, often the same day the customer calls for help.
Lenovo's Yang laid the foundation for the company's success in China when he took over the newly formed PC division in 1994. At the time, most Chinese PC companies treated resellers poorly. Among other things, they paid promotional incentives just once a year. Yang switched to once-a-month payments, and he made sure that Lenovo's accounting of money owed to resellers was accurate. "It changed the whole industry. Before, there was no trust, no credibility," says Chen Shaopeng, Lenovo's senior vice-president for Greater China. Yang won the loyalty of many resellers, who began to promote Lenovo equipment aggressively, even though they didn't have exclusive relationships with the PC maker.
These days, Lenovo China operations run like a machine. Every day, sales tallies from all the outlets are funneled into the company's information management system and analyzed. If any region comes in under its goals, regional sales managers study it and present a detailed analysis and plan to the bosses by 10 a.m. the next day. This system allows Lenovo to respond quickly to shifts in the market and competitive threats.
Example: One day in September, a regional manager in Guangdong Province reported sales that fell 20% short of his quota. After investigating, Chen's lieutenants discovered that a competitor had introduced three new, low-priced PCs in the area that day. The Lenovo response was to identify a midrange PC model that could be bundled with a small printer for digital pictures and sold at a price compelling enough to convince consumers to spend a little more and get the Lenovo machines. The new bundle came out within three days and, Chen reports, sales in that region were out of the danger zone within one week.
Now Lenovo is taking lessons from its successes with retailing in China and trying to replicate them elsewhere around the globe. Initial forays into India and Germany have exceeded expectations, the company says. But once Lenovo leaves China and enters markets where Dell and Hewlett-Packard (HPQ) are the incumbents, the competition is going to be a lot tougher.