Lenovo to cement distribution sales
By Mu Jin (China Business Weekly)
Updated: 2004-09-07 11:29

Lenovo, China's largest IT supplier, is making moves to consolidate its distribution channels nationwide in a move to streamline its sales in retail sectors and spark profitability.

The move is the latest step in a series of measures taken by the giant firm to further focus on its core PC business to combat its rivals and boost market share.

Lenovo will transform at least 100 distribution terminals into franchise stores with a full range of sales, exhibitions and services in the coming four months, said Jia Zhaohui, general manager of Lenovo's retail business, and the number of those stores will see a dramatic increase over the next several years.

Prior to the move, Lenovo's 4,000-plus stores in China were either in the form of its traditional 1--1 retail stores for home PCs, retail stores for business PCs or flagship stores in large cities.

The new stores will be positioned as the firm's retail terminals to distribute Lenovo's household PCs, office PCs for small enterprises, notebooks and other peripherals to retail clients, including individual consumers and smaller enterprises, said Lu Yan, vice president of Lenovo.

These stores, combined with its flagship stores in key cities, will be first located in hub cities in developed regions, and then will be expanded into smaller cities and even rural areas in a move to promote its penetration into the country's vast market.

"These firms will not only be equipped with sound hardware facilities, but also strong capabilities for services such as maintenance and consulting," said Jia.

After making its debut in the mid 1990s, Lenovo developed a distribution network nationwide, which consists of about 4,000 terminals, including flagship stores, 1--1 stores and stores for key business PCs.

But the product-oriented definition does not efficiently respond to the present market situation, according to Jia. And the reshaping will help translate these stores into customer-oriented service centers.

Lenovo speeded up its pace of tough business restructuring this year with a focus on its competitive PC businesses following a failure to meet investor's expectations from a bold expansion into many other business sectors in the previous years since Yang Yuanqing was named president to head the company's Chinese IT empire.

But its share prices on the Hong Kong market also suffered from a historical low at the beginning of the year.

Under the restructuring plan, the company sold its loss-making since late last year and launched several campaigns to strengthen its leading position in China's PC market, including the introduction of low price products to tap the vast rural and small cities market and the launch of more diversified products catering to different customers' needs.

Jia said one of the firm's next business opportunities in the coming years would be growth of small and medium-sized enterprises, complying with the rapid expansion of the country's private economy. '

'Our target is to take 20 per cent of the share in the segmented business PC market for small firms, which is set to stand at 1 million to 1.2 million units this year."

According to IT data information tracking company IDC, growth of China's office PC market for small businesses could grow by 15-25 per cent annually on average, hitting 1.71 million units in 2005 and 3.19 million units by 2008.

This market was long in the hands of small vendors but neglected by large PC manufacturers, which, for a long time, focused on developing large corporate and individual clients.

According to IDC statistics, small and medium-sized enterprises takes a combined 40.5 per cent of China's office PC market, with large enterprises taking 17.3 per cent while the remaining 41.1 per cent goes to governmental and educational institutions.

"We can see that there is still huge potential to tap into the small and medium-sized firm sectors, given they are much encouraged to growing in line with China's economic reform," said Jia.

To better cater to the needs of smaller firms, the company launched its Yangtian series of office PCs last week. The series of PCs, targeted to small firms with less than 50 employees, will be priced at between 4,000 to 10,000 yuan (US$483-1,207).

"The product could not only boost Lenovo's sales, but also offer a hand in boosting performance for China's 8 million-plus small firms," said Zhao Bo, vice-director of the Department of Electronic Products under the Ministry of Information Industry.

This is also a key step taken by the firm to regain stakes it lost previously to its peers, which include both foreign giants, such as Hewlett-Packard (HP) and IBM, and domestic rivals, such as Great Wall and Founder.

China's PC market, although untypical of other markets reeling from drastic global shrinkage, has nevertheless been plagued by sluggish growth in the past several years following the burst of the Internet bubble in the late 1990s. But it has begun to pick up since last year.

According to data tracking firm CCW Research, business desktop shipments reached 2.93 million units in the first half of the year, up 19.4 per cent year-on-year.

And a report by research firm Gartner's said Lenovo has outperformed its arch-rival (HP) during the second quarter of the year to regain its position as the No 1 player in the Asia Pacific region's PC market.

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