Local giant Lenovo dominates the industry

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BEIJING--In no other category is the potential and power of China’s growth engine more visible than computers. Local brands dominate the personal computer (PC) market, whose leader Lenovo Group took over IBM’s personal computer business for $1.75 billion in late 2004. If even Big Blue can turn red, Chinese companies are clearly ready to compete on the global stage.

By tightening its grip on the local market, Lenovo’s acquisition has also made it harder for global rivals like Dell and Hewlett-Packard (HP) to grow in China. Lenovo, the world's third-largest PC maker, has absorbed IBM’s market share in China, as well as the global R&D know-how to help it continue to grow in China, and now beyond. Lenovo controls almost 8% of the global PC market, behind Dell’s 17% share and HP, with 16%, according to International Data Corp.

Last week, Lenovo introduced itself to the world outside China with the first Lenovo-branded personal computers offered outside of China. Until now, Lenovo's global brand has been limited to rebranded IBM computers such as ThinkPad and ThinkCenter.

Outside China, Lenovo is relatively unknown, so the launch and marketing of its own products is crucial for growth.

That presents a diverse marketing challenge, given the disparity between the Lenovo brand inside and outside China. For now, the strategy will have two different focuses: one for Lenovo in China and another for the rest of the world, although Lenovo’s international ad agency, WPP Group’s Ogilvy & Mather, Beijing, also handles some of the creative business in China.

“In China, Lenovo is very well known, so building brand there is not the challenge,” said Mark McNeilly, head of brand strategy for Lenovo’s worldwide marketing division. “What is the challenge [there] is changing the perception from a home vendor to an international vendor.”

It was a rapid change for Lenovo, which became global almost instantly through its purchase of the IBM PC division last year. Now in 138 countries with 27,000 employees, Lenovo has broad global ambitions. It will attempt to transfer the brand equity of Lenovo in China even as it capitalizes on the reputation and branding of IBM ThinkPad and ThinkCenter products.

Lenovo was also the first Chinese company to join the elite club of global Olympic sponsors, signing a deal with the International Olympic Committee (IOC) that includes both this year’s Turin Winter Games and the 2008 Beijing Summer Games.

“The bigger challenge is getting out to the unknown audience. A lot of consumers and customers in China are very excited about Lenovo becoming a global brand and want to see that progress,” said Mr. McNeilly.

The Lenovo 3000 product line will only be introduced later in China yet, and under a different name, using already existing Chinese brands. That's because the new products are for the small business market and would duplicate the products Lenovo already sells in China for that market.

Despite the apparent strategy differences, the look and feel of Lenovo advertising in China versus the rest of the world will not be vastly different.

“There may be minor customizations or changes, but 95 percent of [ad executions] will be the same globally. And even within China, about 85 percent will be the same,” said Mr. McNeilly.

So rather than point up differences, global marketing will look to move the Lenovo brand inside China and in the rest of the world onto the same page.

“Innovation is core to both strategies and that’s what we’re going to focus on going forward,” he said.

Inside China, meanwhile, “the foreign players are all here, but big guys are local. Lenovo is almost an international brand in its own right, it is by far the No. 1 leader here, after buying out IBM’s rights,” said Andrew Metcalfe, planning director at Interpublic Group of Cos.’ McCann Erickson, Beijing, which handled Intel.

The biggest challenge for all hardware marketers is the fragmented state of the market. “You have nearly 12 million organizations, in round figures, and around 75% of them have under 20 employees," he said. "And yet many of them, even the small guys, are starting to use PCs, because the government is encouraging everyone to get online for accounting."

“It’s not just the sheer weight of numbers, it’s also the geography. Tier one and even tier two are now pretty sophisticated, they are almost equal with the rest of the world in PC penetration. The big growth potential is outside those main cities in tier three and tier four."

But getting out there and building a brand with that complexity in the market is not easy,” added Mr. Metcalfe.

Many Western companies are taking advantage of the increasing popularity of notebooks. "The perception that being able to outfit staff with laptop computers gives face to company and that helps in dealing with business partners and clients,” said Arthur Tam, director, China for Synovate, an Aegis Group-owned market research company, based in Beijing.

“Foreign brands have a better image, but Lenovo has been playing up its IBM purchase, which makes them seem more international even within China, which is perceived as a good thing. Like with cars, foreign computer brands are still seen as better quality than local products.”

Contributing: Normandy Madden in Hong Kong.

Total PC shipments in China (value in US$ millions):
2004: 15,918,532 ($11,682.5)
2005: 18,722,064 ($12,864.4)
2006: 21,743,136 ($14,677.2)*
2007: 24,837,020 ($16,390.8)*
2008: 28,016,503 ($17,983.5)*
2009: 30,560,082 ($19,026.0)*
Source: IDC

Total laptop shipments in China (value in US$ millions):
2004: 2,479,345 ($3,207.2)
2005: 3,638,344 ($4,136.4)
2006: 5,067,032 ($5,306.6)*
2007: 6,678,931 ($6,398.3)*
2008: 8,379,716 ($7,342.7)*
2009: 9,572,415 ($7,760.3)*
Source: IDC

2005 ad spending by China’s computer industry, by media (% change)
TV: 1,055.45 (40.19%)
Newspaper: 1,059.11 (40.33%)
Magazine: 196.77 (7.49%)
Radio: 25.64 (0.98%)
Outdoor: 288.98 (11.00%)
Total: 2,625.95 (100.00%)
Source: CTR Market Research

Top 3 computer brands by ad spending (in million RMB) in 2005, by media (% change)

1. Intel: 229.38 (8.73%)
2. Lenovo: 222.75 (8.48%)
3. Haier: 87.47 (3.33%)
Others 515.85 (19.64%)

1. Lenovo: 157.18 (5.99%)
2. Dell: 114.65 (4.37%)
3. Intel: 81.57 (3.11%)
Others: 705.71 (26.87%)

1. Dell: 26.87 (1.02%)
2. Lenovo: 24.92 (0.95%)
3. IBM: 12.25 (0.47%)
Others: 132.72 (5.05%)

1. Lenovo: 6.52 (0.25%)
2. IBM: 5.29 (0.20%)
3. Acer: 4.14 (0.16%)
Others: 9.69 (0.37%)

1. Lenovo: 55.45 (2.11%)
2. Intel: 35.05 (1.33%)
3. Founder: 16.62 (0.63%)
Others: 181.87 (6.93%)

Source: CTR Market Research

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