Legend looks to Dell marketing model
Legend Group is expected to announce an overhaul this week that may include a direct-sales channel modelled after Dell Computer Corp of the United States.
The move comes as the mainland computer giant grows frustrated with losses at several divisions and intensified competition from foreign players.
According to UBS analyst Joe Zhang, Legend could announce a direct-sales channel tomorrow, whereby orders could be placed by telephone or online. But he cautioned the direct-sales channel was likely to be limited so as not to upset third-party suppliers - a crucial element to the firm's success.
It remains unclear whether Legend will use online and telephone sales to streamline its supply chain and boost margins. A direct-selling model allows Dell to employ 'just-in-time' manufacturing and keep inventories to a minimum.
'We feel that Legend is becoming frustrated by three loss-making divisions: handsets, IT services and motherboards,' Mr Zhang said. 'The new strategy is also a response to rising competition from Dell.'
He said Legend was likely to play down the significance of a direct-selling strategy to avoid upsetting third-party distributors. 'Legend should do all it can to ensure that its distributors stay happy and motivated,' he said.
Mr Zhang said stores would remain important to driving mainland sales as many computer shoppers were first-time buyers and it was difficult to reach this type of customer online.
Legend, which sells computers under its Lenovo brand, is also expected to expand its business districts to 18 from seven, according to Mr Zhang. The revamp was aimed at making profit and loss accountability clearer, he said. It will also be more active in serving corporate customers.
Legend's new strategy comes as Dell hopes to grow at triple the rate of the overall market in China. Last year, the US computer giant commanded about 7 per cent of the mainland market, compared with 27 per cent for Legend.
Last year, Legend sold 3.59 million computers, up 16.4 per cent from 2002, according to International Data Corp. It sold 1.06 million units in the fourth quarter, up 5.3 per cent, and managed to hold on to its market lead.
A Legend spokeswoman declined to comment on Mr Zhang's observations but said management would provide more information tomorrow when it announces quarterly results. Legend is expected to announce 14 per cent growth in third-quarter net profit to $362 million.
Continuing losses in non-core businesses have dragged on earnings over the past two years.
Chief executive Yang Yuanqing has told mainland media the company was fighting battles on too many fronts. This has led to speculation the company will concentrate primarily on computer and notebook sales, which account for 86 per cent of revenue.
