Lenovo chairman makes PC pledge at IBM’s PartnerWorld

LAS VEGAS – Yang Yuanqing is tired of being on the brink of success.

Yang, the chairman of Lenovo Inc., has attained almost a 40 per cent PC market share in his native China, but acknowledges that the company, which took over IBM’s PC division almost a year ago, is still an unknown quantity overseas.

“We are weak in SMBs outside China and have almost no consumer business,” he told an audience of IBM PartnerWorld 2006 attendees on Wednesday morning. For this reason, Yang rededicated Lenovo’s efforts to growing its PC business over the next two years.

The company has developed a dual business model to address that goal. The “transactional” group, which focuses on SMBs and consumers, will be driven almost exclusively though channel partners. Enterprise and public sector customers – what Yang refers to as “relationship” customers – are an even split between channel and direct sales.

Lenovo is experiencing its own level of duality with the recent departure of its chief executive Stephen Ward, formerly an IBM PC exec, and the arrival of new CEO William Amelio, who once worked in Dell’s Asia market.

Amelio, who took the stage at PartnerWorld after Yang, referred to his direct sales alma mater as the “industry benchmark in efficiency” but said he’s now committed to serving “middleman” channel partners. “Let’s face it; it’s nice to be in the middle. We have an opportunity to improve.”

Earlier in the week, Lenovo announced a channel program that covers recruitment, training, sales and marketing tools. There will be two tiers – Partner and Premium – both of which will be focused on driving Lenovo PCs into the SMB space. 

Chairman Yang spoke to ITBusiness.ca before his keynote address about his position on the channel, Lenovo’s take on innovation, and why he doesn’t call the PC a commodity product.

ITBusiness.ca: How many partners that were reselling IBM PCs are carrying Lenovo PCs?

Yang Yuanqing: Almost 100 per cent. I think this new company will give our partners more opportunity, because previously they could only take products to sell to large enterprise customers. But in the future, our product coverage will be wider. We will strengthen our coverage in the SMB and consumer segments.

ITB: Are the Lenovo 3000 notebooks you introduced recently more of a consumer play?

YY: It’s for small businesses. It’s a very good start, but it’s just a start. I think we still need to adopt other actions to improve our products’ competitiveness.

ITB: Do you foresee a time when you might be able to undercut Dell or your other competitors on pricepoint?

YY: Certainly. I think China’s market is very competitive. Everybody’s there. The strongest competitors are there. Dell is there (for example), but in China, we still have 37 per cent market share. I think that’s the highest level in a single market. Our competitiveness has been proved in that market. Right now, we should consider how to leverage this trust to improve our market outside China.

ITB: Do you still benefit from IBM’s R&D?

YY: We have no direct benefit from IBM on that aspect. But Lenovo will continue to do innovation, continue to do technology research. We have very good R&D in (development centres in) Yamato, Japan, Raleigh, N.C., and in China.

ITB: Is the 3000 line of laptops based on Thinkpad technology, or is that pure Lenovo?

YY: It’s combined. 

ITB: What’s the ultimate breakdown of your “relationship” customers in terms of channel versus direct?

YY: Worldwide we have 20,000 relationship customers. We divide our sales process into several steps: keeping relationships, signing agreements, delivery, installation and upsell services. We have several alternative approaches to do this. If a customer wants to do business directly with us, Lenovo will do every step with them. If other customers have a good relationship with our channel partners, then partners can sign agreements with those customers, but Lenovo will directly deliver our goods to them. That will ensure our efficiency. With some customers, Lenovo can do the first three steps – we keep the relationship, we sign the agreement, we deliver the goods – but third-party partners can help us do upsell service. Even for relationship customers, we divide those responsibilities between us and our partners. In China it’s about half and half. I think it’s the same globally. 

ITB: How does that all help you differentiate Lenovo from your competition?

YY: For this new company, we will have a very unique competition position with PCs. In this industry Lenovo will be the only company to do the whole value chain by ourselves. Some of our competitors don’t do development work or innovation work very much. Some don’t do the manufacturing by themselves. Only Lenovo. We do development by ourselves, we do innovation by ourselves, we do manufacturing by ourselves. Not only do we want to do that by ourselves, but we can do that, we can afford to do that. With our manufacturing in China, our efficiency is even better than OEM manufacturers that build for brand companies. We have very strong capabilities there.

We don’t view PCs as a commodity industry. We will further do innovation work, especially in security technology and connectivity technology. We still have a lot of room to innovate. Also, we think we can afford to do that. We can do innovation with efficiency. We spend two per cent (of our budget) on our development work. Our competitors also spend two per cent, but I believe we can do more innovation work. We can do more projects than our competitors.

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