Business

HP sets sights on China's rural market

(China Daily)
Updated: 2010-12-01 11:27

Editor's note: This year marks Hewlett-Packard's 25th anniversary in China. Like many high-tech companies, HP has found it harder to turn a profit from big cities in China, where markets are highly saturated.

But the company has responded by taking a series of actions, including setting up a center in Chongqing, southwestern China, and devoting more distributors to the rural market.

Isaiah Cheung, vice-president and general manager of HP Personal System Group (Chinese mainland/Hong Kong), talked with China Daily reporter Wang Chao about its business strategy.

Q: HP has been talking a lot on exploring China's rural market. How is it going?

A: Tapping the rural market is our priority since the first-tier market is getting saturated. So far, we have entered 2,000 counties across China and are ready to conquer villages and towns. Hopefully we can find enough capable distributors to do that. Our goal is to cover 10,000 villages by the end of this year.

Q: What's different when shifting the focus from big cities to small ones?

A: We found the rural market very different from the urban since the rural ones are not evenly developed. For example, sales volume in a town in southeastern China may well exceed that in a county in western China. Therefore, we have to adopt different management mechanisms to sell our products.

Q: How do you make the shift?

A: We classify our Chinese market into six tiers, based on market capacity. Beijing and Shanghai belong to the first tier, while most provincial capitals are second-tier. The fifth- and sixth-tier markets, mostly in remote areas, can hardly earn us anything now. People there don't even know what HP is. In that case, we have to promote our brand first. In some towns where the demand is small, we set up a booth and sell products at weekends.

Q: How do you maintain the mature market in big cities?

A: In big cities, business and consumer products are getting more and more diversified. Consumer products come in multiple sizes and colors, more consumers tend to buy all-in-one computers, and the demand for touch screen is surging. For business applications, the workstation market is booming.

Our solutions are getting more client-oriented. We incorporate hardware with solutions required by our clients, who are mainly from retail, education and finance.

Q: What is more important to HP? Business or consumer products?

A: We try to balance the two since there are fluctuations in the two markets. If our consumer products don't do very well, we can still profit from our business machines. Every year we adjust to the national policies and distribute our resources accordingly. If there is no such balance, we might suffer in the long term.

Q: Some domestic companies, such as Lenovo, entered the rural market earlier than HP. How do you compete with them?

A: Frankly, we are studying what our competitors are doing and are learning from them. At the same time, we pay close attention to the customer needs.

Some competitors use regional distributors to explore local markets, and we adopt that strategy, too. We believe the local distributor is always the one who knows local market best. Our business now relies heavily on local distributors.

Four or five years ago, our major competitor Lenovo did better than us, but after years of efforts, we might do better than them. We are transforming from an American company to a local company. Now all the senior managers are Chinese.

Q: Speaking of local market expansion, why did you choose Chongqing as a new center?

A: Chongqing is a perfect place for HP, both in terms of government policies and human resources. Its location makes it the transportation hub of western China, and the local government is very supportive. Of course, cost is important and Chongqing is cheaper than cities in the southeast coast. But if we only consider cost, Southeast Asia can be even cheaper. Chongqing is also our frontier of the emerging markets as it has convenient transport links to Southeast Asia, which is also our emerging market.

Our goal is to produce high-end products and do R&D in Shanghai, while operating most manufacturing in Chongqing. We do this to split the risk.

Q: With the exit of Google, some companies are worried about the business environment in China. What about you?

A: I think the environment in China is getting much better, and much more transparent. It is good for the foreign market. Although we are not enjoying as favorable policies as we had 10 years ago, we are very confident in this growing market.

Besides selling products, we are also investing in China. We now have software, hardware and R&D centers in China, and China is our second largest market after the US. We are also trying to be a responsible company citizen by producing environmentally friendly products and donating money to society.

Q: What's your strategic plan in China for the next five years?

A: Every year we invest $3.6 billion into our R&D. We have a three-component R&D system comprising an HP lab, global business unit and China Development Center. This ensures we will be the first to meet market demand. The first two are in the US, while the center is in China. The products are also destined for Brazil and other countries.

We are also considering a China innovation center to work with local governments and companies on future technologies.

China Daily