Lenovo India: From PC only to PC Plus

Lenovo’s three success mantras in India

• Strong hold in Commercial business segment
• Tremendous success in Smartphone and Tablet business
• Effective utilization of Online and Offline channel strengths

Tagged as the world’s largest PC brand, Chinese PC Maker Lenovo- a US$34 billion personal technology company, is rapidly transforming from a pure PC vendor to PC Plus Solution Provider. As part of its PC Plus strategy, Lenovo forayed in the emerging business segments like Smartphone and Tablet and redefined its distribution and marketing philosophy. The Motorola and IBM x86 Server business acquisitions resulted in 20 percent growth with $46.30 billion revenue for the year ending March 31, 2015. Today, Lenovo is the number one PC company in China, Japan, Russia and Germany. It is at number 3 in the server space and number four in the Smartphone segment. Lenovo employs more than 33,000 people in more than 60 countries serving customers in more than 160 countries.

Growth journey in India

Lenovo entered India in 2005, by acquiring IBM’s PC business making it the largest PC brand. However, post IBM PC business deal, many of IBM employees, especially the leaders went back to IBM, resulting in a feeling of ambiguity among employees. To overcome the crisis and regain the confidence among the employees and the channel, Amar Babu, the chief operating officer of Asia Pacific and chairman of Lenovo India revamped the entire management and restructured the channel strategy. Leveraging on its “Protect and Attack” strategy, Babu, brought back the channel confidence and people started investing in the Lenovo brand.

Since then Lenovo has grown its market share exponentially in all segments of the PC market. As part of its PC Plus strategy, Lenovo stormed into the new business segments like Tablet, Smartphone and Server and soon obtained a leading position in the market. According to the DataQuest estimates, Lenovo India’s revenue stood at around Rs 6020 crore during 2014-15. The Commercial business was the largest contributor to the revenue with nearly 75 to 80 percent share and the rest from the other segments. Lenovo recorded 19.8% market share for Q4 FY2014-15 and continued to be one of the top 3 PC brands in India. The much talked about US$2.91 billion Motorola acquisition played a very crucial role in Lenovo’s Smartphone growth story by making it the fifth largest Smartphone maker with around 5 percent market share. In Tablets, Lenovo enjoys a leading position among top five tablet brands with around 10 percent market share.

Lenovo aspires to become the number 1 PC Plus brand in India and take a lead in the Server space. Secondly, the company is very aggressive to increase its market share in the SMB segment. As one of the fastest growing PC markets in the world, India continues to remain a significant contributor to the success of Lenovo in the global PC arena. Lenovo believes that the future will be dominated by the presence of four screens (PC, Tablets, Smartphones, and Servers). Lenovo is confident that it will continue to outperform and outgrow the market in India with its ‘Unstoppable Lenovo India’ plan where it wants to become the brand of choice for partners and customers.

Strong hold in commercial space

Lenovo’s ‘Protect and Attack’ strategy, which has been a long term success formula, has helped the company to establish a strong hold in the Enterprise business segment in India. According to IDC report, Lenovo recorded 19.6% market share for Q1 FY2014-15 and continued to be one of the top 3 PC brands in India. The reason behind achieving tremendous success in the Commercial space was that Lenovo focused heavily on the profitability and therefore, did not opt for the Government deals. The decision rightly hit the segment and increased the profitability significantly.

Lenovo has a very strong hold in the Enterprise business with nearly 80 percent revenue coming from the segment. The commercial business segment has been divided into two major categories namely: Large Enterprise accounts which comprise Government, Education and Enterprise accounts and Small and Medium Enterprise accounts. The Large Enterprise accounts dominate the segment with 35 to 40 percent market share.

Rahul Agarwal, Managing Director of Lenovo India, who also heads the Commercial business, says that the company is working on the new structure to improve its presence in the Small and Medium accounts. “We have a very good market share in large accounts and we are very aggressive in increasing our share in small and medium accounts”, he says.

Tier 1 market is the biggest contributor to the Commercial business and almost 80 percent of enterprise business comes from top 6 cities and Delhi, Mumbai and Bangalore leads with 50 to 60 percent share.  To facilitate equivalent contribution from all the segments and regions, Lenovo is now focusing on the emerging IT markets in B, C, and D class cities.

Lenovo has a complete package of offerings to the enterprise customers. Its world class innovative and technologically advanced offerings include its flagship YOGA and Thinkpad series of products that majorly fetches the business. Notebooks are the primary offerings in the enterprise segment along with the wide range of tablets right from 7 inch Android to 12 inch Microsoft tablets. Its flagship enterprise brand – ThinkPad – remains the number 1 brand in India and globally. Post IBM x86 Servers acquisition, the company has strengthened its position in the server segment as well. It has partnered with the Telecom vendors to provide joint connected devices to the organizations. In short, Lenovo is rapidly transforming from a pure PC vendor to PC plus solution provider in the Commercial space. “In India, we are building new pillars for growth, positioning the company to become an even stronger and more diversified technology leader”, Agarwal says.

Poised to gain the number one position in the country in next 3 to 5 years, Lenovo is strategically increasing its focus on the SMB segment. At the same time the company is heavily engaged in improving its Notebook participation in the mainstream. Celebrity brand endorsements, heavy social media campaigning and exclusive stores are the part of company’s strategy to boost the Notebook business.

Lenovo recently revamped its commercial channel structure in an effort to expand the canvas and cater to a wider base of customers in the enterprise segment. At the same time, the company invests in R&D significantly to create a product portfolio, which boasts innovation and at the same time meets customers’ evolving needs.  As per the market reports, Lenovo invests approximately $625M in R&D globally, and has about 3,500 R&D engineers strategically placed around the world.

Determined to stay ahead of other competitors in the market, Lenovo India leadership is taking all efforts to make Lenovo the most preferred choice in the Commercial space. “We do not see any reason for not holding the number one position in India. India is a very strategic country from the growth perspective and we will work towards maintaining a healthy growth rate in all the segments”, Agarwal says.

Target 100 percent growth in SMB

Though Lenovo enjoys leadership position in the Commercial business, the company has not yet reflected the same growth story in the SMB segment. Acknowledging the business prospects in the SMB business, Lenovo has significantly changed its approach toward the SMB part. Aspires to enhance the channel base in the segment, Lenovo substantially restructured its channel and marketing strategy last year and enhanced focus on the SMB business.

Instead of the four verticals earlier, Lenovo has created two verticals i.e. HSB and Commercial. The transactional part of the SMB business has now been combined with the Home and Small business and back to back business has been combined with the large commercial business segment as part of commercial channel business. The restructuring yielded positive result for the company with around 10 percent increase in the SMB business in 2014.

“We changed the entire focus within the organization. We now have a dedicated executive who holds the responsibility of SMB. The restructuring enabled us to grow around 10 percent during the last year. However, we do believe that there is greater opportunity for us to grow more”, says Ashok Nair, Director – Home and Small Business (HSB), Lenovo India.

In order to achieve 100 percent growth in the SMB space, Lenovo has focused on a comprehensive channel strategy that would drive equivalent growth across the regions. South and West are the two significant regions that has fetched higher share of business in the SMB. The ThinkClient series has taken the brand forward in the SMB segment and the company has focused on increasing the product portfolio and it has integrated other properties as well. “For us to grow, it is important to crack the SMB segment. We are fine tuning our approach to the changing market conditions”, says Nair.

Lenovo has the core channel philosophy worldwide. The company recently announced the restructuring of its national distribution system (Tier 1 distributor) across India. The new structure aligns each of the T1 distributors with Lenovo’s four distinct verticals: Lenovo Exclusive Stores (LES), Multi-brand stores, Regional Distributors and Large Format Retail. This new structure ensures to take this aligned model to its next level for more focus on each vertical.

“We have done innovative things to protect the profitability of the RD business and make them grow more faster and aligned better. We were the first company to actually provide RDs exclusive territories. To strengthen the RD model, we have introduced about 1000 LES exclusive stores in nearly 500 towns which are tied up with RDs. Importantly, we have brought exclusive alignment between T1 and T2 partners to help maintain MOP”, says Nair.

While leveraging on its new policies for the Offline channel, Lenovo has strategically strengthened its online presence. “We were one of the first companies to say that we are not aligned with the E Commerce portal. Soon we realized that this business will grow expeditiously. We have built up strong engagement with the online players. We have also created a Lenovo online program that identifies a set of partners to do the online business. We believe that by differentiating the offering through the different channel, we will be ensuring that to have better engagement with the partners”, says Nair.

Aspires to become No 1 in Server business

Continuing its IBM legacy, Lenovo acquired IBM’s x86-based Server business for worth $2.1 billion in October 2014. It was the locks, stock and barrel acquisition and everything related to business i.e R & D lab, development cell and patent associated with the business has moved as a part of the acquisition. As per the deal, IBM's Intel based server lines, including IBM System x and IBM BladeCenter have now come under the Lenovo brand. The IBM’s x86-based server acquisition has made the company world’s third largest maker of servers with around 20 percent market share.

From India perspective, again the IBM India team moved in lock stock and barrel. There is a large contingent of the India lab team which is erstwhile the SDG lab team that has moved in and the sizable contingent that works out of the Bangalore office which deals in solutions like SAP Hana, virtualizations and consolidations those team members have moved in as part of the transition.

“From a product perspective as IBM we were very strong. What we lacked is the efficiency of scale and economies of scale. This transition brought Lenovo efficiency on the table. So technology leadership of IBM has now coupled with the Lenovo efficiency bringing the best of technology and solutions in the server space”, says Siddhesh Naik, Director, Enterprise Business Group, India and South Asia at Lenovo.

Lenovo has also announced plans to start integrating IBM's workforce. The acquisition added about 6500 new employees to Lenovo. In India, the company has already started the integration process and backend integration is expected to complete in the next few quarters. It has integrated the sales team which will now carry the PC as well as the Server portfolio.

“We have integrated the sales team in April. These account owners from a sales perspective will carry PC as well as the Server portfolio. However, it is not easy for a PC seller to immediately grasp the capabilities around Servers. Therefore, we have constituted a BDM team and solution architect team within the enterprise business group to support this front end sales team on the technology and solution part of it so that we are able to deliver the entire server story to the end customers”, Naik says.

Since acquisition, the Server business has witnessed a significant amount of investment and it is very evident with some of the new launched that have happened in the server business in last 9 months. The major benefit of the acquisition that will play a major role in escalating the server growth is that after this transition, Lenovo has come closer to its alliance partners and they are no longer competition for the company.“The good part is that after this transition, we have come closer to our alliance partners we are no longer competition for them. We work closely with software defined networking vendors like VMware and IBM. We also work very closely with partners here to build that intelligence into the networking” says Naik.

Lenovo has the lion’s share in SAP Hana in the country. Some of the largest enterprises have moved on the SAP Hana that runs on the Lenovo System x servers and it runs the complete ERP on a real time basis. Bringing some of the advanced technology innovations Lenovo has also introduced self encryption drive in its server offerings.

Lenovo intends to gain the number one position in the Server space. “We intend to retain that strength and built all the Lenovo strength around the enterprise business. Customers are responding really well to the whole transition and we are embracing this transition very well”, says Naik.

Betting big on the Tablet Business

Lenovo entered into the Tablet business at times when the segment was at its lows and future of the segment was unpredictable. As a step towards its consumer centric brand strategy, Lenovo set up the standalone business unit for the tablet segment and redefined its marketing approach. Today, Lenovo is the third largest tablet player globally after Apple and Samsung with around 4.8 percent market share. The same success story reflects in India, where, it enjoys a leading position among top five tablet brands with around 10 percent market share.

Lenovo has a dedicated tablet business unit with a PNL ownership. The tablet business contributes nearly 3 percent in Lenovo’s total business in India. Lenovo offers some of the marky products in Yoga series Yoga Pro 3, Yoga 2, Yoga AnyPen etc. that target both commercial as well as consumer segments.“We are probably the only brand that has a dedicated tablet business unit with a PNL ownership so it is just not a sales arm, but an end to end response across commercial and consumer lives”, says Rohit Midha, Director, Tablet Business Unit, Lenovo India.

Lenovo is also betting on the verticals like Banking & Finance and Education, where the company eye on the tremendous growth prospects coming with digitization. “From an Indian perspective, the KYC is pretty strongly used and advocated element. In BFSI segment, the entire KYC tab banking is becoming an obvious choice for mobility. We are seeing that while the overall pie has remained the same, one fifth that overall pie is now becoming the commercial application of the product”, Midha says.

Similarly, Education is the vertical where Lenovo intends to take a lead. “As the digital revolution happen in the country, we will see more and more user cases coming up of remote education and aided education. We will continue to be preferred partners when it comes to applications and that is our journey to be number one”, Midha says.

The significant portion of tablet consumption comes from tier 1 cities and some spill over to tier 2. Around 70 percent of tablet revenue comes from the top cities. However, Tier 3 and tier 4 are still is a dilemma of large size Smartphones verses tablets. “We are not seeing high attraction in tier 3 and tier 4 markets but we believe that as the cable network and infrastructure rolls out this market will start picking up”, Midha says.

Lenovo’s tablet strategy predominantly focused on the young generation and therefore, it has brought the technology innovations in its offerings like Pocket size TAB A7-30 considering the evolving needs of the target consumer segment.

“From being a very commercial ways of working ten years back we have actually worked on the way around which is very consumer centric. We have innovated at every stage, keeping in mind what is the consumer segment we are looking at. We have worked on essential things like battery, display and audio. Today, all Lenovo products are recognized for its long lasting battery life and our display and audio is unbeatable”, says Midha.

In fact, Lenovo has not just innovated on products also innovated on its go to market strategy for the tablet segment. Lenovo’s new offerings in the Yoga series are available in its Smart Connected Devices stores, LFRs and partnered E Commerce portals. “We do both offline and online and the combination of both has helped us to gain the top position in the country. The Channel has a ROI expectation also they look at the quality and brand. The combination of this has made the channel to work with Lenovo”, says Midha.

Motorola acquisition pays off nicely

The much talked about US$2.91 billion Motorola acquisition played a very crucial role in Lenovo’s growth story in the Smartphone business. Entered in the Smartphone segment in 2012, Lenovo along with Motorola has now become the third largest Smartphone vendor globally. According to IDC Worldwide Quarterly Mobile Phone Tracker, Q1 2015 report, Lenovo’s global market share stands at 5.6 percent. According to the estimate Counterpoint Research report, in India Lenovo’s Smartphone shipment market share was 5.2 percent in the January-March quarter of 2015, making it the fifth largest Smartphone maker in the country.

“Motorola is a worldwide recognized brand and the acquisition has helped Lenovo a greater stand. There was hardly any base before two years, but now the Smartphone business contributes a significant part not only in India but worldwide”, says Sudhin Mathur, Director, Smartphone division, Lenovo India.

Lenovo has strategically positioned brands and the coinciding models in the proper markets to maximize brand awareness and global reach. At the same time it has maintained the different identity of Motorola. It has also unveiled new premium-built handsets in the White series proving that it is not just focused on the low-end. Off late since last 6-8 months the company has focused on bringing innovative latest technology in terms of 4G. Lenovo claimed to have sold more than 1.4 million 4G enabled devices so far.

“We have always been at the forefront in terms of technology innovations. We have worked on both hardware and software innovations to get larger acceptance to our products”, Mathur says.

Lenovo’s target audience for Smartphone business is predominantly the youth. There are three categories: below Rs 6000, Rs 6000-12000 and rest. Almost 80 percent of its business comes from the first two categories. The company has both offline and online approach. However, lion share of business comes from the offline channel which contributes to nearly 70 percent and rest comes from the online model. Majorly the growth is driven from tier one markets and the next growth comes from the tier 2 and tier 3 markets.

Lenovo reaches out through four NDs and more than 200 cities distributors reaching out to more than 7000 retail outlets in the country. The company has closed to 200 Lenovo Exclusive Stores and there is a smaller version close to 1000 along with more than 350 service centers. As a part of its channel strategy Lenovo has different products exclusive to both the market places. It recently launched new offering K3 note on Flipkart where more than half a million people registered to buy the products on the first flash sale. “We have seen great success in the online market where we are reaching to nearly 1000 towns and we will capitalize on the strengths of each channel”, Mathur says.

Mathur says the transition from feature phones to Smartphones will enable Smartphone vendors to prosper further. He predicts that 4G is the next big shift that will drive the growth of Smartphone business in India. “The adoption of technology in India is much higher compare to any other country. Therefore, we are bringing cutting edge technology at value for money price, he says.

Internet of Things (IoT) is the next goal and Lenovo is building its capabilities to play a major role in the IoT segment. Similarly, Digital India program is one of the key corporate initiatives where the company intends to come in a big way.  At the same time, Lenovo eyes on more than 30 percent growth in Smartphone business in next three to five years.

Cloud and Ecosystem strategy

Lenovo is developing a software ecosystem and investing a lot of resources in the new Ecosystem and Cloud Services group, which will develop strategies to monetise company services. Our whole Cloud and Ecosystem strategy is evolving and we are clear that we want to play a part in this space. So far, our Cloud strategy is limited to creating apps for Smartphone users. From the server point of view, as organisation go to the cloud and do more infrastructure on cloud, our servers are absolutely ready to give support the organisation to deliver”, says Agarwal.

Vibrant Marketing Approach

Since the inception of the company, Lenovo always had very strong play in the relationship of the commercial part of the business. Its vibrant marketing initiatives that focus on the aspirations of the young generation have driven the brand much deeper into the smaller towns and inter lands of India. The core of Lenovo’s marketing policies lies in picking up right product for the right segment.

 “A vibrant transformation is happening within the organization and we are moving to the consumer entity. Our logo is changed and now it is more colourful. That has also reflected in our go to market strategy and we are pitching right product for the right segment”, says Bhaskar Choudhuri, Director, Marketing , Lenovo India.

Lenovo looks at India in two glances, one is the Mature or Urban India and the Rural India and it has shaped its marketing programs according to the needs of both the segments. “Choosing the right product is a beginning of any marketing strategy. Our product strategy depends on which is the market we are addressing. In top 8 metros, we lead the products with products which are standout for design. We are running very impactful campaign of Yoga series of Notebooks and K3 Note. These flagship innovations have already created a lot of buzz in the market”, Choudhuri says.

Lenovo is a pioneer in making effective use of digital and social media platforms in branding. The company has brought a tremendous amount of expertise in the E Commerce marketing. Its success in Smartphone is primarily led by extremely successful E Commerce marketing on all the three or four models that have been launched so far.

“We have taken a serious step to build a very strong brand among the consumers. We made very judicious use of our marketing resources and managed to be reach to the position of leadership. We borrowed the right equity elements from our PC legacy like credibility, quality, robust products and successfully transformed in the new categories”, Choudhuri says.

Lenovo has very specific programs predominantly for PCs where the company actually picks up concentrated geographies where it wants to disproportionally resource and increase PC penetration and gain share. Choudhuri says that the two significant acquisitions: Motorola and IBM Server x86 have helped Lenovo to increase its footprints in the Commercial and Consumer business segment.