|
Lenovo's New Challenge
Why
Lenovo is Looking to Protect, and Attack
Lenovo
India wants to protect its leadership in PCs, and attack for gains in its
new mobile and tablet businesses. Can it succeed where Acer and Dell have
failed?
We want to win in India—that’s the biggest
initiative this year,” says Yang Yuanqing, 47, chairman & CEO of the
$30 billion Lenovo Group. For the global chief of the world’s second
largest computer maker, this means selling one million smartphones and 300,000
tablets this year in India, where it has just started selling these two
categories of gadgets. Amar Babu, the 48-year-old managing director of
Lenovo India, has his task cut out. He toes his boss’ global strategy for
India. “It will be protect and attack,” he says. Protect its numero uno
position in PCs, and go all out to build the smartphone and tablet
businesses from scratch. IDC, a technology research firm, expects
smartphone and tablet sales in India to grow at a compounded annualised 57%
and 29.1%, respectively, over the next five years. By comparison, growth in
PCs is expected to stay flat, at 0.7%. “The PC market is marred by
challenges owing to continued market contraction and shift in demand to
portable devices like smartphones and tablets,” says Kiran Kumar, research
manager, client devices, IDC India. Still, as challenges go, this
transition for a computer company is not just about riding piggyback on
segment growth. Two of Lenovo’s illustrious peers, Dell and Acer, failed to
cross over. And notable electronics majors like Sony Ericsson and LG hit a
wall after recording initial gains, such is the overcrowding—there are
about 30 smartphone makers—and price sensitivity characterising these
businesses. For Lenovo, there are challenges unique to it as well. The
Chinese company made its mark in India by selling PCs to large companies,
via bulk orders. For example, in 2012, a single order from the government
of Tamil Nadu, for one million laptops, made it the market leader. But
smartphones and tablets are sold mostly to individual consumers, making it
an entirely different proposition. “PCs and laptops is a 50-60 cities
market. For smartphones, it’s 400-500 cities and villages,” says Arvind
Subramaniam, partner & director, Boston Consulting Group, a management
consulting firm. “How you set that distribution up will be the key.”
Different Distribution
Lenovo distributes most of its PCs through its five national
distributors, including Ingram Micro and Redington, who also distribute
Apple, Samsung and BlackBerry. But, for tablets and smartphones, it is also
fanning out through regional distributors, who are typically statespecific
and do business worth 300-1,000 crore, against the 10,000 crore for an
Ingram. So, for example, in Gujarat, where it started test marketing
smartphones in October 2012, it has tied up with Aegis; the local
distributor is Supreme Computers in Tamil Nadu and Peripheral Solutions in
the NCR. “To reach out to small towns and the hinterland, we have tied up
with 40 regional distributors,” says Babu. Lenovo started engaging with
regional distributors about two years ago, when it tied up with about 20 of
them. Once it decided to sell smartphones and tablets, it struck more
regional tie-ups, which is its sales model in China as well. “We want our
regional distributors to be exclusive to us,” says Babu. “We will, in turn,
ensure they have exclusive rights to distribute Lenovo products in their
catchment area.” “Lenovo is a new entrant and is yet to make a mark,” says
Simpy Singh, owner of KL Sons, a distributor in Haryana servicing Ambala,
Karnal and Kurukshetra. “Samsung throws carrots—you meet targets and get
freebies, holidays, bonuses. Motorola, Sony Ericsson and Videocon failed as
their retailer engagement was not great. The Dell sales team was too
overqualified and could not speak our language.” According to Babu, Lenovo
has about 6,000 retailers for tablets and smartphones. “But this is not
enough to cover the country,” he adds. “We have to ramp up to at least
25,000 and this should happen soon.” It is also looking to increase its
franchisee outlets from 1,200 to 2,000 over the next year. In February,
Lenovo also tied up with Reliance Communications to sell its smartphones.
“It’s a dual SIM phone, which offers both GSM and CDMA on a single device,”
says Babu. However, unlike western markets, the Indian market is not
carrier-driven and people buy phones independent of the carrier. “India is
a tough market to win in,” says Subramaniam of BCG.
Middle Positioning
The Indian market is also underpenetrated in smartphones. Only about
10% of the 700 million users use smartphones. According to Arvind Vohra,
director of Gionee, a $1.5 billion Chinese maker of mobile phones that
entered India last week, 10% penetration is the take-off point for
smartphones. “We have seen this in China and other markets,” he says.
“India is set for hockey-stick growth in these devices now.” Babu’s reading
is similar. “The smartphone market in China was 10% of the entire phone
market about 18-24 months ago,” he says. “Today, it’s 75%. There’s enough
evidence India will also see such an explosion. We will be able to leverage
that scale in China (where it is number two, behind Samsung) to offer a
comprehensive product portfolio in India.”
In India, where 70% of phones are below 2,000, Lenovo is offering five
smartphones, ranging from 6,500 to 28,000, against a 40-strong product
suite in China. In tablets, it is from 14,000-30,000; in other words, its
entry-level price is about twice that of those of HCL and Micromax. “We
don’t want to just be in the premium or mainstream segments, but in the
entry-level segment as well,” says Babu. “As volumes increase, we will look
at lower price points.” A Rajasthan-based regional distributor, who didn’t
want to be named, feels Lenovo will have to lower prices to succeed. Lenovo
India’s current strategy is to deliver good value for money. “We want to
deliver the right mix of features, performance and price,” says Babu. He
gives the example of the Lenovo P700 smartphone, which retails at 12,000
and is targeted at professionals. “The P700 battery gives a one-week
standby,” he says. “We differentiate on battery life, touch-screen,
display, sound quality.”
Successes And Failures
Acer, the Taiwanese company that is globally ranked fourth in PC sales,
went down this road in India, only to pull out within a year; it is open to
a re-entry. “You need lot of upfront investment in smartphones,” says S
Rajendran, chief marketing officer, Acer India. “India is not a
carrierdriven market and hence your costs are high. You need a big ad and
marketing budget to build the market, and overheads can go out of control
when selling in villages and small towns where the market might be smaller
than you expected.” TC Sudhir of United Telecoms, which distributes in six
states, says some global vendors had a high price premium. “But devices
would hang and users dumped them. If the product is bad, you can’t push
it,” says Sudhir, chief operating officer, mobile devices, United Telecoms.
“Besides, computer makers don’t have a good understanding of the buyer as
their DNA is largely enterprise sales. That’s why some of them exited a
growing market.” According to Anil Sharma, managing director of UT
Electronics, a Chandigarh-based distributor for northern regions, India is
not a single market like Singapore or Dubai, but multiple markets. “In
Andhra Pradesh, users don’t want a Hindi keypad. In UP, they are fine with
it,” he says. “Products for each state need to meet local user needs.
Typically, 10-12% of the cost of device is the cost of selling. Companies
need to keep this low.” Vohra of Gionee points out that Samsung spend more
than four times of Apple on advertising and marketing—$11 billion in
2012—to emerge as number one globally that year. “Companies need to create
that visibility to capture the market, but this cash burn can be
counterproductive if other things—technology, pricing and distribution—are
not right,” he adds. Lenovo is nudging at the high end, going up against
the likes of Apple and Samsung. It is also part of the conversation to buy
BlackBerry, the troubled Canadian smartphone maker, with Yuanqing saying
Lenovo could consider it. “BlackBerry is no longer where it was five years
ago. Apple and Samsung have stolen its thunder. It’s trying to do lot of
things to revive its fortunes, but it’s too little, too late, says Sanjay
Dhawan, leader, technology, PricewaterhouseCoopers. “But for its brand and
presence in emerging markets, it will be a good target.” Interestingly, in
India, Lenovo’s brand ambassador for laptops is actor Ranbir Kapoor, who
also endorses BlackBerry. “He has done really well for us in PCs,” says
Babu. “Since he is with BlackBerry, we will not have him for phones.
Actually, it’s early days to sign up a brand ambassador for smartphones and
tablets—we need a certain scale to justify that investment.”
|
No comments:
Post a Comment