Lenovo Returns to Its Roots

Computer Maker Tries to Escape the Recession in the West by Focusing on Emerging Markets like China, India and Russia

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Lenovo is designing low-priced products it hopes will appeal to young consumers in China, India and other emerging markets
Lenovo is designing low-priced products it hopes will appeal to young consumers in China, India and other emerging markets
BEIJING (AdAgeChina.com) -- One of the first major Chinese companies to expand into western markets, Lenovo Group is going home.

The average PC penetration rate in emerging markets such as China is only 12%, much lower than the average rate of 50% in mature markets, meaning huge growth potential, said Lenovo CEO Yang Yuanqing at a press conference in Beijing on April 3, 2009.
Lenovo introduced some of the new products at an event in Beijing on April 3, 2009
Lenovo introduced some of the new products at an event in Beijing on April 3, 2009
The world's No. 4 PC maker is backing out of the U.S. and western markets, where sales have shriveled due to the poor economy, and turning its focus on its home market and other fast-growing economies like India, Mexico, the Middle East and Turkey.

Lenovo has long been the market leader in China, where Lenovo is courting a wide target market that includes young office workers, computer gamers, university students and rural customers. For instance, the company plans to open 100 stores on college campuses. It is also partnering with the National Basketball Association to do a campaign targeting 120 college campuses with Lenovo-NBA special edition PCs, and will continue to sponsor the International Electronic Sports Tournament, a role it has held since 2007.

Going after rural consumers
As part of its "PCs for Rural China" program, Lenovo is developing affordable products, services, and training for rural consumers, a potential market of about 700 million people. It will establish 700 branded stores in less developed areas and open 7,800 affiliated sales outlets across the country in the next three years.

The company laid out its recovery strategy late last week in Beijing, two months after Yang Yuanqing, then Lenovo's chairman of the board, replaced Bill Amelio as CEO. Lenovo Group previously announced plans to lay off 2,500 staff worldwide during the first quarter of this year, about 11% of its total workforce.

Mr. Amelio, a former Dell VP, joined Lenovo in December 2005, shortly after the Chinese company acquired IBM's personal computing division. Lenovo's dream was to become the world's largest computer company, but that vision was derailed by the global recession. Despite aggressive--and expensive--marketing programs from Ogilvy & Mather, JWT and Dentsu, Lenovo's ambitious attempt to build one of China's leading global brands failed.

Lenovo also made a significant investment in a global sponsorship deal for the 2008 Olympic Games. Four years ago, that looked like a brave move by a budding Chinese conglomerate to impress western consumers. Unfortunately for Lenovo, the U.S. and European financial markets began collapsing just days after the closing ceremonies.

"Emerging markets have enormous growth potential," said Chen Shaopeng.
Expensive marketing efforts and the launch of a wide range of new models did not improve sales last year, leading to Mr. Amelio's departure. Lenovo lost $97 million during the fourth quarter of 2008, when sales dropped 20%, to $3.6 billion, from $4.5 billion a year earlier.

Instead of moving past western rivals like Dell and Hewlett Packard Co. to take the No. 1 spot, Lenovo has fallen behind Acer into the No. 4 slot. While Lenovo focused on corporate sales in the West, a market that has almost disappeared, its Taiwanese rival focused on the newly-popular netbook segment and adeptly rolled out a low-cost line with features and a price tag that consumers love.

With sales across the Pacific Ocean continuing to fall, Lenovo now expects China to account for a greater share of its global revenue. The company plans to roll out 50 new and mostly low-cost products this year designed to appeal to local consumers, particularly models specializing in multimedia, entertainment and portability.

Emerging markets are key focus
More than 20 of the products are part of Lenovo's new IdeaPad notebook range, including the ultra-portable U series, the value range G series, the netbook S series, and the Y Series for multimedia and entertainment.

As part of its cost-cutting efforts, Lenovo has stopped looking for acquisitions in emerging markets, especially Brazil, India and China, and streamlined management. Two new business units, representing Western markets and the developing world, are replacing regional market organizations.

Paris-based Milko Van Duijl, formerly president, Europe, Middle East and Africa, is now president of Lenovo's Mature Markets organization. Chen Shaopeng in Beijing, formerly president, Asia/Pacific and Russia, became president of its Emerging Markets organization.
Lenovo is going after rural consumers in China, about 700 million people
Lenovo is going after rural consumers in China, about 700 million people
According to IDC forecasts, in the next four to five years, PC sales in emerging markets will grow twice as fast as in mature markets, and reach 70% of global sales.

"Accounting for almost 80% of the world's population, emerging markets have enormous growth potential and will be the key focus of Lenovo's global consumer business," Mr. Chen said at the same press conference.

Lenovo has entered more than 20 emerging markets including Russia, India, Southeast Asia and Turkey, and quickly become a major PC maker there, Mr. Chen added. But he said that consumers in emerging markets are "younger, have differentiated needs and are price-sensitive. A younger population means demands for more fashionable designs."

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