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BW Businessworld

‘We Bring China...’

Photo Credit :

President and CEO,
Lenovo (Amit Verma)

The beijing legend computer group — known as Lenovo since 2003 — has come a long way from lording over the Chinese computer market to becoming the world’s third largest PC manufacturer, just trailing HP and Dell. Comp-aratively, Lenovo is still less-known in India, but it has raised its market share from 7.1 per cent (when it took over IBM’s PC business) to over 10.3 per cent now. It’s yet again No. 3, behind market leader HP’s 21.6 per cent share, but has narrowed the gap with HCL’s 12.3 per cent. Lenovo’s president and CEO William J. Amelio spoke with BW’s Rajeev Dubey on how the company has managed the transition from a Chinese brand to a global one, and how soon it would aim for the second spot. Excerpts:

How has the integration with IBM gone through?
It has been two years since the integration and by all major parameters we have done well. The first year was important for us to demonstrate that we were a good steward of the Thinkpad brand. We were able to demonstrate that to our customers by releasing as many as 20 new products and to our users that we make Thinkpad better. We did that by working towards making it reliable, more rugged, and by improving the reliability of the Thinkcentre and Thinkpad by 10 per cent. Since then, according to third-party estimates, we are 20:30 per cent better when compared with other brands of notebooks and desktops.

What else we consider important is looking at customer retention rates. In the first year, we were able to retain almost 95 per cent of our customers. In the second year, we acquired many more new customers and have gained share in the past couple of quarters. So I think we have made great progress. From the point of sales and cost synergy, we have been able to improve our supply chain, bring down costs and drive sales (growth straight) to our bottom lines. This has helped us be profitable, outside China, over the past several quarters. So we have got momentum now and are continuing to see the benefits of that.

Is the brand transition complete now? Is IBM out of the brand?
IBM is almost completely out. Essentially, on Thinkpads it’s 99 per cent Lenovo today. We made that transition two years early, specifically because customers said that they trusted us but didn’t understand why a Lenovo man sells the product and it gets delivered with a different logo on it. They were happy to have just one logo on it.

It is important from the standpoint of one name, one culture, one system and a single logo, that is, Lenovo. The only product where we still have the IBM brand is the Thinkcentre and that will be phased out as we bring in new products.

How difficult was it to transition the brand in western countries? Lenovo is a Chinese brand and a Chinese brand intuitively implies low quality, and has a low-value reputation.
What we demonstrated with the Think brands is that we are a great steward of this brand that quickly got customised, at least in the SMBs (small and medium businesses).

So you started out penetrating the bottom of the pyramid?
No, we started out with the large enterprise. Over the past two years we have converted the Think brand to the Lenovo Thinkpad brand and that we could do because we gained the trust of our consumers. In the consumer space, it is all about having compelling product designs and features to keep people turning their heads. The commercials that played on features of the product were the ones most effective at get-ting customers to our stores because they ma-de the connection that this is a cool company.

How do you view the Indian market for Lenovo right now? Has the growth here been to Lenovo’s satisfaction? Lenovo is certainly seen a lot more but I’m not sure if it is selling a lot more.
Going by statistics (by IDC), we have been growing at two to two-and-a-half times the market over the past several quarters. I think what is important to note is that India is an important market — from the standpoint of what we have learnt from China and how quickly we can apply it to another emerging market such as India. We have been able to take the best practices out of China, explore them in India and then take them to other markets around the world.

What we call the transaction model worked very well for us; in this, we take the SMB model that we used in China and replicate it in India. This has helped expand our growth considerably over the past several quarters.

We would always like to do more, but, given where we stand today, we are pretty confident about the success that we have had in India.

You see the ads. We have used certain features to get customers very excited about our product. The face recognition password commercial, I think is the perfect example of some of the excitement associated with our product.

How is the China model different from what you notice anywhere else?
We actually took the exact copy from China and brought it into other countries, along with getting the right organisation in place, getting the right talent in place, making sure we had tier-II partners listed, becoming little product evangelists, and making sure we cut the inventory levels down between us and our channel partners as much as possible. And to build a community in that relationship, we behave like one company.

In terms of supply chain, have you followed the Dell model in any manner or has it largely been distribution driven?
Most of our business is based on (distribution) channel but we have also always had some direct business in the company. I think it’s important to be a hybrid company since it allows us to cater to different needs. Whatever the way customers want to buy, we are available. But we are clearly big partners to our channel companies. We respect the supply chain and have worked very hard to improve our cycle time, reduce defects and take down costs. One of our big issues has been improving our supply chain and there is plenty of room to get more cost-efficient.

What are your current volumes in the Indian plants and what is your current market share?
We have two plants in India, one in Pondicherry and the other at Baddi with a total capacity of up to 5 million units for both laptops and desktops, and a market share of 10 per cent.

We have seen Lenovo tie up with news channels and films. What other route do you see for yourself? How else will you innovate in the marketplace?
Using celebrities for brand endorsement has been very useful to us, and so have sponsorships — of cricket, for example. We think it is necessary to get our name constantly in front of our consumers. We have been able to get our brand awareness up to a high 70s-low 80s, compared with where we were a couple of years ago. So, product placements or advertisements with people who are known and loved in India is, I think, important to us.

What is your experience about the price sensitivity of the desktop segment in India?
If I look at anywhere in the world, the prices are seriously competitive, and on an average the prices are dropping everywhere in the world. Similarly, the trend in the Indian market is downwards. Thinkpads have held up reasonably well but the price still continues to come down. We constantly work towards getting as much value and features in it for the customer, all at an affordable price.

In your experience, does in-house manufacturing work better than outsourcing, such as, say, Dell and HP have done?
The issue is that of complexities. We realised that it is very difficult to manage with the partner as we had a buy-sell relationship associated with high-end parts management and it became very cumbersome for us to ensure that we got a year’s supply. That’s one of the key inertias we have in the system — inherited from IBM — where we have to change the entire system but we are probably a third of the way there. We have aggressive rollouts all through the next year till we completely convert the company from a system that was managed by IBM to a standalone Lenovo system.
A majority of it (manufacturing and assembling) we are handling ourselves and are bringing in more in-house. We’ve announced some factories in Mexico, the US and Poland, for example. We are also expanding our current capacities such as the one here in India. That’s a demonstration of depending more on ourselves. But we also use ODMs (original design manufacturers) to do some of the products we do not design ourselves.

Does your website allow customisation of products?
Only in one market today, the US. As we roll out our strategic system, we will be able to have customisation capabilities across the world.

What is the next step for Lenovo India on the value curve?
As I mentioned, we have already implemented the transaction model. We will also focus on service areas, a virtually untapped segment for us, but close to the box and not extending too far away, so that we stay close to our core strength. Our services business, for example, is growing year-on-year at 65 per cent in bookings, and delivers a lot of profit to the business. Software peripherals is another area that can add high value to our business. We have launched workstations and have received great reviews for the same; though there is not much volume, it’s a profitable market, nonetheless. Also, in the near future, we plan to expand our server capabilities outside of China.

Like Apple, as a company, are you working on anything other than computers?
I think we have a lot to work on. Workstations and servers will surely keep us busy for a good long time.

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(Businessworld Issue 05 - 11 February 2007)

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