Lenovo India recently launched three tablets for the fledgling Indian tablet market. While the mature markets are buying more of multitasking mobile devices such as tablets and smartphones on shrinking budgets, Lenovo continues to bet on the PC market worldwide. It recently became the number two PC maker globally. Its India Managing Director Amar Babu explains to Sayantani Kar the rationale behind an enterprise version of a consumer gadget and insists that his company is not missing the woods for the trees. Excerpts.
The tablet market in India is still small. Some put it at around 1.6 lakh units ...
The worldwide tablet market is a few million units and is growing fast. The Indian market projection for this year-end is around 250,000 units. We see immense potential in the form factor and we are not in this for the short term. The projection in India a few years down the line is for a couple of million units, which will be up to 15 per cent of the total PC market. At 1.5-2 million units, the market will become interesting.
But for now, it is a small market. What made you launch three models of tablets at the same time?
It is part of the worldwide strategy. We have created a vertical called Mobile Internet and Digital Home to build devices like these.
We realised that a one-size-fits-all is not what the customers are looking at. We are strong in enterprise. So, we asked those customers if they needed a tablet since the tablet started off as a consumer phenomenon. All of them said yes, there would be applications they could use it for. But the common concern that came across was security and connectivity.
Will the enterprise tablet find a niche in India when the market is yet to take off?
The needs of enterprise clients are reasonably uniform and they are as automated in India as the rest of the world. You also have to step back and see if there is a latent need. If we can show people what they are missing in a consumer tablet — the security, the reliability, the connectivity — we can sell it.
There is a trend of employees being allowed to choose their own gadgets. Would that pose a threat to separate enterprise mobile devices such as your Thinkpad tablet?
Consumerisation of PCs is on the rise. Some people are saying that is where the future lies. But still many corporates would like to have a certain amount of control. Data security is always an issue. Connectivity is another. The Thinkpad combines these into the convenience of a tablet. It has full-sized ports for easy hooking up with a projector or any other device, not found in other tablets. It also has 3G connectivity. It is tougher than the usual tablets. But I can’t make a watered-down tablet and just add a few enterprise features. It needs to have its set of consumer features.
What are the consumer features that you have incorporated?
Games, for example. People still like to play games. The Android marketplace has a lot of them. So I have to ensure that people can play games on enterprise tablets. Also, a screen with HD and reasonable sound because movies would still be watched.
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Tablets are seen as being meant for content consumption and not creation. But in the enterprise segment, content creation is a major task. How will you address that need?
True. There will always be multiple screens in the course of the day. You will still have a smartphone, a desktop, a tablet and even a smart TV going forward. Depending on the type of usage, there will be different screens. Today, I used my smarphone for my alarm, phone and messenger, did my initial email on the tablet, and came to office and found that there were presentations to be handled out of the desktop.
How different is the Indian tablet market from other global markets?
Tablets have taken off more rapidly in mature markets such as the US. The rate of growth is higher than PCs. It is yet to fly off the shelves in India. In India, most of the demand still comes from first-time buyers. They need the optical drivers, certain applications etc. The initial demand for tablets here is from the tech enthusiasts. Second, we also have the culture of community devices, mostly used by more than one person. But tablets are never the first device. It is always the second or the third one. It is also a personal device.
You had mentioned seeding the Thinkpad tablets with your enterprise solutions. How will you market your tablet range?
Enterprises will have to see whether they will give it (the Thinkpad) to their salespeople or to the top management. There is a lot of interest among the top management but that is not a big enough market. Some companies are considering it for their front-end sales solutions, which is encouraging. But it has to be cost-effective for them.
What about cross-promoting the consumer tablet — the Ideapad?
There is a debate as to which channel a converged product like the tablet will sell in. There are telecom players and traditional IT players who have launched tablets. We will definitely leverage our IT channel. There will be an automatic cross-selling, say, to a customer who has come in to buy an all-in-one or even peripherals. We will also build relationships with telecom service providers for the tablets.
The Lenovo top brass has devised the ‘protect and attack’ strategy for all businesses. How is it helping you make up for lost time in the consumer and small enterprise businesses in India?
Lenovo India is six years old. It got formed when it bought over the IBM PC business. Earlier IBM was primarily an enterprise business with very little consumer focus. Enterprise has always been our strength and we want to protect that. We are number two with a 19.6 per cent market share, up from 14.3 per cent last year. What we want to attack is the transaction space —consumer and SMBs (small and medium businesses). In the consumer segment we are at 8.4 per cent, up from 7.3 per cent, and 3.1 per cent in the SMB segment, up from 2.7 per cent.
But the growth has been on a small base...
In the latest quarter, we have 10.8 per cent of the 2.44 million PC market in India, which puts us at number four. Year on year we have clocked 55 per cent growth which is the fastest among the top five and 18 times the Indian market. We had a 5 per cent share two years ago when our competitors were at 9-12 per cent of the market.
What helped you gain that kind of share?
Two or three years ago, we re-organised ourselves. First, we had challenges within the organisation. We had a lot of people leaving Lenovo, who went back to IBM. We settled that and we have a stable organisation now. If you don’t have people, then any strategy will fall flat on its face.
We had the right products because they were innovative but what we were not able to do was communicate the message to our partners and the end consumer. So we had to rebuild confidence in our channel — our business partners. We simplified our policies, made them transparent and consistent, became more predictable and hence, easier to do business with.
Please elaborate...
We segmented the channel into subsets. So, there was consumer, SMBs, and so on. Within consumer, there were Lenovo exclusive stores (LES), multi-brand stores and regional distributors. We tailored our policies for each and stuck to them.
We also helped them with issues that mattered to their profitability — inventory, claims etc. We consistently ensured that inventory levels were always under control. If we saw the inventory levels of the partners going up, we stopped selling to them even if they were unaware. We have some types of claims where the partners don’t even have to claim what they have sold; we see the distributor report and settle the claim. That builds confidence. We also ensured an exclusive structure for regional distributors with dedicated product lines, for example. It minimised competition and ensured that they concentrated on building the brand instead.
How did you mend your consumer marketing?
We needed to expand our base. Also, the best way to showcase the customer experience is through exclusive stores because they allow us more control over what is displayed. From 150 stores a year ago, we are at about 700 stores and will be 1,000 by the year-end. These are all franchises, some of them managed by us and some by our regional distributors. Others are only at 300-400 stores on an average.
Next came the brand-building. We decided to target the youth and ensured our messaging was in line with that. Our worldwide ‘Do’ campaign is a case in point. We have almost doubled our brand investment over last year. But brands take years to build and we started only in May.
What is the rationale behind the LES Lite stores?
These are lower cost stores with lower break-even points than the bigger metro stores. They enabled us to go into smaller towns. But the retail experience would still be similar to that in larger cities. They ensure that we make available our SMB products to small town entrepreneurs.
Have you imported any strategies from China (Lenovo’s home market and headquarters) for the Indian market?
We have learnt a lot from China, especially while sprucing up the back-end. We saw how they planned the supply chain for a product campaign. Traditionally, for a Diwali campaign, I would have started a month and a half earlier — run promos, see the product and go into the market. Now we plan earlier and we start with the product first. We then work with the supply chain to transport the product more efficiently. So we would have the time to get the product by sea instead of by air and save on costs. The configurations would let me tailor the promos around it. Most importantly, we have a better sense of how much inventory is enough so that when new technology comes in, we can quickly roll it out instead of worrying about old inventory. Total time for the supply chain (a product moving from the plant, in transit, to my warehouse and then distributor’s and partner’s warehouse) has been reduced by almost four weeks in two years. There was a time when we used to lag technology transitions. Today we lead by three to six weeks.
Do you have strict mandates from Lenovo headquarters?
There is a lot of constructive debate on strategy but the decision rests with the country. Once a strategy is agreed upon, it gets localised. For example, the LES Lite store. China does not have two different exclusive store formats because there is enough traction for the bigger stores. LES Lite is customised for the Indian market.
Lenovo recently displaced Dell to become the number two player in the world PC market. But some people argue that Lenovo got lucky with HP and Acer being in a management flux...
Lenovo has been the fastest growing in the world for the last nine quarters. That is a long time to depend on mere luck. We, of course, have very strong competitors and many of them are even in the investing mode. At some point of time you make your own luck. Clearly we are doing something right. Fundamentally, we believe in the PC business. There is growth in this business.
..that would mostly be in the emerging markets? Because markets such as the US are moving on to mobile devices such as smartphones and tablets...
We are growing even in the US. In the latest data from IDC, in the US, we grew almost 22 per cent year on year, when the market was flat. In the 2010 calendar year, our US shipments grew 38.9 per cent over 2009, while the market shipments grew only 5.6 per cent. In the last quarter, we shipped 1.252 million units, which account for 6.8 per cent of the US PC market.
So it is not a case of missing the woods for the trees, is it?
Not at all. When you look at our business, we have balanced growth. We have been growing in mature markets like North America, Japan, Australia and also in the emerging markets. In emerging markets, it is not just in China where, of course, we have done extremely well. We went from 31 per cent to 33 per cent share, the next player there is in single digits. We have grown in Russia, West Asia, India and Africa.
While focussing on PCs, we have grown in enterprise and consumer in these countries. When you look at the shipments, for the previous quarter they stood at 92 million units, which is a big number.