Lenovo to expand in rural areas

China Daily, August 25, 2011

Lenovo Group, China's largest PC maker by market share, announced it will open more than 1,200 new stores in smaller Chinese cities and counties this year to strengthen its presence in the world's biggest PC market, placing the company in competition with international giants including Dell Inc and Apple Inc.

According to Lenovo, 200 stores focusing on mobile Internet products will be established in various fourth- to sixth-tier cities and more than 1,000 stores will be opened throughout China's 20,000 counties and rural areas.

"Lower-tier cities will lead Lenovo's future growth in China, since first- to third-tier cities are facing saturation," said Chen Xudong, vice-president of Lenovo and general manager of its emerging markets unit.

China has 700 million rural residents, accounting for more than half of the country's population. However, less than 10 percent of rural residents have access to computers, compared with 96.5 percent in first- and second-tier cities.

The average annual per capita income in rural areas was around $925 last year, according to the National Bureau of Statistics.

The Chinese government in 2008 began offering rural residents a subsidy for home appliances with international brands such as Dell and Hewlett-Packard (HP) Corp participating in the program.

From April to June, about 60 percent of PCs sold under the subsidy program were made by Lenovo, according to the Ministry of Commerce.

The company attributed the strong figure to its penetrating sales channel and home-field advantage.

However, around 40 percent of rural customers are still unaware of the home appliance subsidy, said Wang Zhong, general manager of China Emerging Market of China Consumer Business at Lenovo China.

After entering rural markets in 1990, the company's sales channel covers 86 percent of China. Dell is also trying to increase its penetration into the Chinese market.

However, according to Wang, the US-based company covers only about 10 percent of China's fifth- and sixth-tier cities, compared with Lenovo, which has almost 100 percent coverage.

HP recently announced it will sell its PC sector, which "will have a positive effect on Lenovo", said Chen from Lenovo. However, he did not confirm rumors that the Chinese company may purchase HP's PC unit.

HP is ranked first in global market share at 18.1 percent last quarter, while Dell had 12.9 percent and Lenovo 12.2 percent, according to the US-based IT research company IDC. "Our aim is to surpass Dell to become number two within two quarters," Chen said.

"Although Lenovo's market share in global mature markets is still relatively small, it has a very strong advantage in the Chinese market. We forecast China will continue to experience rapid growth over the next quarter, especially in the mobile Internet sector," said Kitty Fok, vice-president of IDC Asia-Pacific.

Lenovo China recorded $2.8 billion in consolidated sales revenue from April to June, accounting for 47.9 percent of the company's global figure.