Chinese IT giant Lenovo began sales of its smartphones in Russia, as it looks to build its position internationally. According to Reuters, this marks the fifth overseas market for the company’s smartphone portfolio, following India, Indonesia, Vietnam and Philippines.
A study published in late November 2012 by market watcher TrendForce with Chinese consumer research company Avanti said that Lenovo’s high-end device sales in its home country were “second only to Samsung” in the third quarter of 2012 – and that “Samsung may very well be knocked off the sales throne next year”.
TrendForce said that this success was achieved to “cooperation with China’s three major telecoms [operators] as well as Lenovo’s numerous sales channels” – including internet and retail stores.
Indeed, Gartner has echoed this, stating that it believes Lenovo will top the Chinese smartphone charts in 2013. “It is the only local smartphone player that can compete with global top brands in China, thanks to its household brand recognition, nationwide distribution, strong portfolio and reasonable pricing,” the company said.
In its discussion of Lenovo’s international play, Reuters cites Stephen Yang, an analyst with Sun Hung Kai Financial, who said: “Lenovo’s smartphone strategy aims at large markets where they can achieve scale as buyers switch from feature phones.”
While this makes sense, due to its heritage in the cost-sensitive Chinese market, it means the company is up against tough competition from Chinese rivals including Huawei and ZTE, from full-portfolio global vendors such as Samsung and Nokia, and from other local rivals such as Micromax and Lava Mobile in India.
According to India’s Economic Times, Lenovo is targeting a 10 percent market share in India within two years, noting that it has so far launched only five handsets – compared with a portfolio of 47 in China. This means it can launch new devices rapidly, “depending on the choice of the customers”, a Lenovo executive said.
As with other Android smartphone vendors, the company is faced with the challenge of differentiating its products. With a wide range of devices from a range of vendors offering a similar set of features, there is a real danger that the focus of differentiation will be price – sparking a dangerous “race to the bottom”.
While Lenovo could look to low prices to increase its market share in the short term, this will impact its profitability – meaning it will need to leverage economy of scale advantages to bolster its performance.
Perhaps the biggest challenge it will face in expanding globally will be in expanding its sales channels. While markets such as India and Russia will provide it with access to massive cost-conscious user bases, where it can leverage the experience it has gained in China, it will need to work with new operator and retail partners to ensure it can get products into the hands of customers.
Indeed, the mobile device market provides a completely different operating environment to its core PC business, where products are generally sold directly to customers via retailers or through large enterprise accounts. The addition of operators into the value chain will bring a whole new range of issues related to product approval, marketing support, subsidies and after-sales service (among others).
Acknowledging this, the Economic Times said that Lenovo is focusing its efforts on specific regions of India, rather than the country as a whole.
And Lenovo will also face challenges in terms of its brand. Even in its home market of China, the company only ranks seventh for smartphone brand recognition, behind international players including Apple (iPhone), Samsung, Nokia and HTC, as well as local players Huawei and Xiaomi. While its PCs products are well-known, this does not directly translate to brand preference in a mobile space dominated by established, household-name brands.
While Lenovo has a significant heritage in the mobile space, it has been something of a bumpy road. Lenovo Mobile Communications was founded in 2002, and has previously offered Symbian OS and Windows Mobile smartphones as well as mass-market terminals, but has also been sold and bought back as the parent’s priorities changed. It has also been China-focused.
According to recent reports, Lenovo is now investing heavily in its mobile activities, including taking on a number of staff who were laid-off by Motorola in China to bolster its research and development activities.
In its most recent results (second quarter fiscal 2013, to 30 September 2012), Lenovo’s Mobile Internet Digital Home unit – which includes its smartphones and tablets – was said to be “forging ahead in leaps and bounds”, with consolidated sales up 155 percent year-on-year to US$718 million, representing 8 percent of group sales.
The mobile unit is believed to be loss making at the moment, due to the investments being made in ramping-up its activities.
Lenovo already has some momentum on its side, with its PC business recently displacing HP to become the world’s largest, according to some analyst figures, and the solidity of this business means it is not facing the same issues as some of its competitors while growing its smartphone unit.
The strong growth of its Chinese device business will also help support its overseas operations – according to the Wall Street Journal, Lenovo has acknowledged it is taking a “long term view” of this business.
As a group, Lenovo has a “protect and attack” strategy, where it is looking to strengthen its existing businesses, as well as “reaching outwards” to new markets, “where tablets, smartphones and smart TVs continue to gain traction and capture record customer acceptance”.