Lenovo, the personal computer, smartphone and tablet maker is all set to grow its presence in India and aims to become a numero uno vendor for PCs and smartphone. The company which has already achieved a very strong market presence in China is now setting its feet firm in India and is establishing strong distribution network to fulfill its goal.
Milko Van Duijl, the head of Lenovo for Asia region that covers India, Japan, Hong Kong, Association of Southeast Asian Nations (ASEAN) countries, Taiwan, Korea, Australia and New Zealand in chat with Senthil Chengalvarayan of CNBC-TV18 discusses the company’s plans for India, trends in PC and smartphone market and some of newly launched products.
Van Duijl said that Indian PC and smartphone market is not much different from China. “Indian market is not much different from the China market in terms of its vastness, in terms of its tier-I, tier-II, tier-III, tier-IV, tier-V cities, that is the same as in India,” he said.
PC market has been seeing some declining trend with increasing popularity of smart hones and tablets. But Van Duijl believes that ‘PC is anything but a dying breed’
“Although the market may not be growing or even slightly shrinking as we have seen in International Data Corporation’s (IDC) numbers the PC market is still huge. Over 350 million PCs will have been shipped in the calendar year. So even when the market is not growing that much or even shrinking by 2 percent it is a huge market,” he said.
Below is the verbatim transcript of his interview
Q: You are coming from a fairly good quarter as far as your PC shipments were for Lenovo worldwide. So PCs are not a dying breed as a lot of people seemed to think. What is the future for PCs?
A: You said it very well. PC is anything but a dying breed. Although the market may not be growing or even slightly shrinking as we have seen in International Data Corporation’s (IDC) numbers the PC market is still huge. Over 350 million PCs will have been shipped in the calendar year.
So even when the market is not growing that much or even shrinking by 2 percent it is a huge market. When you have 15 percent as we now have, to gain 5 points of market share over the next couple of years which we think we can do that would still add on about 17 million PCs, so that would mean about USD 10 billion of extra revenue. So it is a big market.
Q: It is a big market, yet companies like HP and Dell are struggling to keep their PC business. There are lots of rumors that they could sell off and industry sources tell us that they really keep those businesses on because it gives them a foot into the enterprise business. You could have an enterprise business. What keeps you in the PC business?
A: What keeps us in the PC business is our belief that this industry of providing the individual with a productivity tool which has become almost an extension of one’s personality, is very important and for us to turn that into a global business.
Becoming the leader in the PC business has always been our big driver and our protect and attack strategy has worked now for about three years. We continue to grow profitably in China in our think business, the commercial side of the business for large account and then growing very fast in emerging markets and specific markets like India where we want to get to number one and we have achieved to do so.
Q: How are you evolving the PC market? It is courtier business you can also say that the other players also sale personal computers, but to you it is core. You could really lead the evolution of this market. How do you plan to evolve this market?
A: We are doing that in couple of ways. First of all, we have moved beyond just notebooks and desktops. If you look at our announcement at Consumer Electronics Show (CES) at the beginning of the year we launched the hybrid or convertible segment which really is an ultrabook notebook.
Q: The Yoga?
A: Yoga for example. That is not only just a notebook. It is an ultrabook notebook, lightweight, one of the best in the industry, but also at the same time a tablet. So multi-use; this was not there before.
Q: The Yoga is a large tablet…
A: We have a 13 inch. We are going to bring out an 11 inch. We already have an 11 inch out. We are going to bring out another 11 inch on Windows 8. So you will see us evolving that and not just one price point in higher end of the market, but you will see us extending the price points down so we can cover multiple price levels and sell many more of those products. The other product of course is not just the hybrids or the convertibles but the actual tablets and now as you will have known the smartphones. So we see PCs, smartphones, tablets and smart TVs in China, they are all extension of what used to be the PC technology.
Q: In China you are the number two smartphone and mobile player. You launched in India about a couple of months ago in December, but we have not seen it rollout with the speed that we have seen other companies do it. What is holding you back in India?
A: We have done it very explicitly and on purpose and the reason why is that we could provide a full line-up. We do not want to position one product like some of our competitors do, but we do want to cover all the price levels. So we have put our strategy together what we call four Ps plan.
Q: You are talking about the fruit.
A: We are talking among others the fruit. But what we want to do is really address all aspects of the markets. All price levels starting from the entry, mainstream as well as the high end.
Q: Don't you have that in China?
A: We do and that is exactly the reason why we have been successful in China. We brought out about 22 different models and if you combine that product set with a massive distribution network that our colleagues in China have, not just in the main cities, but even down to tier-3-4-5 cities. That is exactly what we are going to do in India as well. But it means setting up your distribution network, working with the right partners, making sure that you have the products enabled for India. Once we start we really put a commitment in place, we are going to execute to it. We needed to be ready.
Q: Have you left it till too late? Is the Indian market very different from the Chinese market? At the top end you have got the Apple, Samsung and the others and then you have got the local Indian companies who really source from China and rebrand and sell like Karbonn and others like Micromax. So is this a more difficult market than China and have you left it till too late?
A: I do not think it is more difficult market. In many aspects India is very, very similar to what we have seen in China and we have had tremendous success in China already. We are undisputed number one and bigger than numbers two-three-four combined in the PC space and we have gotten to number two in the PC plus space. So when you look at a market like India, its definitely not too late.
The reason is when you look at the compound growth rate in smartphones it is astronomical. This market is at max flat on PC, grows about 22 percent Compounded Annual Growth Rate (CAGR) on tablets and 68 percent on smartphones in India. So we are just at the start and when people are able to buy a smartphone they are going to trade up in brand, so that is why you see us focusing on an entire range, distribution network, and this is only the beginning of a massive expansion.
Q: Last year about a billion smartphones were shipped around the world. How big can that market get?
A: I think that market is going to grow beyond a billion and a half, definitely. The new generation of consumers, young people they will not have grown up with a keyboard. They are grown up in a world of touch. They will have grown in the world where the internet has always been there, but they will not have accessed the internet through a PC, but they will access the internet through a smartphone.
Q: Retail sales versus institutional sales, how is that growing for you? Is it any different in India compared to rest of the world for Lenovo? We believe that in India in the last three years you have really grabbled large institutional share and how is your retail business doing?
A: We are looking at our three segments. We have the large account public sector and education as one segment, we call it enterprise as well. That is still very good and we are number one in that segment. When you look at consumer and SMB, those are the fastest growing segments. Particularly in India consumer it is and within consumer it is a little bit of a public web. People are buying online, but massive retail is the key. We are focusing tremendously on retail. That is also where we have a lot of progress seen also in mature markets. So retail will definitely start to win from enterprise. That is where the biggest demand will be in the future.
Q: What are the margins there? We know that your biggest order perhaps was to the state of Tamil Nadu where you have supplied PCs at low cost. We believe Rs 14,000 a PC.
A: You got to look at on average. When you look at the large government deals, price point is lower as the government wants to distribute it to the masses. When you look at enterprise those price points are higher. But consumer is a big range. Of course mainstream and entry are lower AURs, but there is more and more demand for premium smartphones. Look at the success that some of our competitors have had, you referred to one of them. That is not a low-end product. That is a premium product. But it is all about creating value for consumers. Creating value around the brand and this is also what we are doing in India. Consideration rate has never been as high as it has been in last year. Over 50 percent of the people know us and consider purchase of the Lenovo brand, which is great. So premium is still there in consumer segment and we believe that will continue. The people will grow into the brand. Start at the low end. I have seen it when I grew up in Netherlands with Phillips. Your first transistor radio was Phillips and then you grew up stereo equipment and TVs that you will see happening with entry as well as mainstream as well as growing up within that brand as well.
Q: Let us talk about enterprise technology spending, is it different for the segment that you operate in that is basic hardware and PCs compared to the problems or the technology spending that people do for software that a lot of our Indian companies are doing, is yours a more less discretionary?
A: I would say PC is a discretionary spend. When the economy is poor, people use the products slightly longer, we do not need to migrate to next version of Windows. So that is definitely true, it is a discretionary spend.
However, when you look at enterprise, they cannot do without a PC. You see that the spend increases in enterprise with its software, services, the Cloud has come up in a lot of enterprises, storage, there is more and more data that needs to get stored.
Q: What is the outlook, let me tell you why I asked about the outlook because we have just had a very interesting quarter for Indian companies. I am not going to ask you to comment on what they said but we have not seen such divergent outlooks from Indian technology majors in a very long time, we have had two of the big Bangalore boys saying that market looks very uncertain, we had Cognizant which operates out of Chennai and were saying that they are going to go to 24 percent, you have TCS saying they are growing at 15 percent, we haven't had such divergence, so what is your outlook for global technology spend?
A: We are moderate in our outlook regarding corporate spend because what you see is that a lot of companies have not made the transition to Windows 8 or even to Windows 7. What we do believe though is with the hard stop that Microsoft has put in place for next year that Windows XP is not going to be supportive anymore. People will have to move to Windows7. That will come with a demand, a drive to buy PCs. That is number one. However, people are taking it very cautiously because the economy is connected and we are still not out of the woods yet regarding economic instability, economic uncertainty. The more uncertainty, the less people are eager to spend. We look at consumers, it is different. I think that a smartphone particularly or PC or tablet becomes an expression of one’s personality, people want to be connected even if people have not so much money to buy food even, they want to be connected. This social connectivity seems to have taken over the world and it is one of the hygiene factors.
Q: That seems like two very different markets.
A: They are.
Q: So, how does a brand like you address both of them, build your brand in both those markets?
A: We are doing it in two different ways. One is that we are working very hard to position a Lenovo brand as an overarching brand that is one.
Secondly, in the high end space, corporate space, we have positioned the Think brand which is a highly respected brand, has a lot of brand value. In India also there is definitely the same situation. So we are driving that brand, we are going to bring up more premium products but we also see us bringing out products into retail, high-end ‘Think in retail’ because that brand has a lot of value. Then we have a Lenovo brand which is going to be mainstream product, entering mainstream which is predominantly focused on consumer but we also see it in SNB and at the low-end of enterprise. That has a different styling. A ThinkPad looks different than a consumer brand because consumers want a different colour, different styling, have different demands of requirements, callers, speakers etc so, there are two different products focused on two different customer sets.
Q: My colleague from the Forbes magazine spoke to your team about three-four years ago, they said that they were just trying to bring in their China distribution model which is lots of outlets which go right down to these smaller parts of the country, has that worked in India for you?
A: That has worked superbly well. That is why I said the Indian market is not much different from the China market in terms of its vastness, in terms of its tier-I, tier-II, tier-III, tier-IV, tier-V cities. We have India-I and India-II in terms of the series and more of the rural areas, same in China.
So what we have done in India for example- we have about a thousand dedicated Lenovo exclusive branded stores. We are now at 1,200 and we are now taking it up to 1,800-2,000 retail outlets. Then we have multibrand stores. So we are laying out – when you look at the map of India, a country map, in all the different cities, we are making sure about covering everything with a right distribution point, touch points. We have to touch on the different consumer groups and that is all we are doing.