International brand debut for mainland computer maker walks fine line between 'value for money' and 'cheap and nasty' The first thing you notice about the Lenovo 3000 line of computers - the mainland company's first foray into the international market and a major milestone as it attempts to build global brand recognition - is the price: just US$350 for a desktop and US$600 for a laptop. It is a curious move. China is not known for its brands. In places such as Europe and the United States, the mainland's reputation is mainly as the world's low-cost producer, an economy where companies compete not on technology or innovation but on price. Why then would Lenovo price the 3000 line so cheaply? For a Chinese company trying to build an identity separate from IBM, whose PC business it bought for US$1.75 billion last year, debuting with a low-priced offering would seem risky. 'They really do need to be careful if they are trying to use price as an angle, especially if it is the first thing out of the barn and the first thing people hear is, 'Hey, cheap products',' IDC analyst Bryan Ma said. 'One of the perceptions of China - which may or may not be true - and one of the perceptions of Chinese vendors is that they tend to participate in low cost, and low cost tends to be associated with low quality, and that is not the image that they would want to be projecting.' But while many PC buyers might see US$600 as cheap, chief marketing officer Deepak Advani prefers to think of it as value for money. The 3000 line, aimed at smaller companies that would rather worry about running their businesses than security threats, comes with features that allow for 'worry-free computing', such as a one-button recovery system in the event of a virus attack. Also, in the case of the silver-encased notebooks, the products should be attractive to buyers looking for stylish design. 'The message that we have conveyed around the world is that these are not generic, vanilla PC products. There is a lot of innovation that we have included in these PCs that differentiates them from other PCs in the market,' Mr Advani said. Besides, everyone competes on price, including brand majors such as Dell, No1 in the world, and Hewlett-Packard, which is No2. 'It is absolutely not the cheapest product in the market, because you have white-box vendors that will sell you PCs [for even less] than that,' Mr Advani said. 'If you look at all of our competitors - if you look at Dell, Acer and HP - the starting prices of the 3000s are very competitive ... we are priced in the same ball park.' Mr Ma noted there would always be competition based partly on price, and this applied to Dell, HP, Acer and Lenovo. 'In order for a vendor to be successful, it does need to be able to participate in a price war,' he said. Explaining this to computer buyers, however, will be the challenge as Lenovo seeks to become China's first globally recognised brand. Buy a cheap computer from Dell and you are getting a good deal. Buy a cheap computer from a Chinese vendor and you are getting a cheap computer. That is the perception Lenovo is up against. At present, all of the company's international sales come from the IBM business, a portfolio that includes the ThinkPad line of notebooks and the ThinkCentre line of desktops, and enjoys great brand equity. Computer buyers are just starting to learn of the Lenovo name through advertising and the launch of the 3000 line. Miles Young, Asia-Pacific chairman of Ogilvy & Mather, whose clients include Lenovo in addition to other upcoming Chinese brands such as TCL, Haier, Bright Dairy & Foods and Zhujiang Beer, said Lenovo must quickly establish itself as a brand in its own right. 'ThinkPad is a sub-brand, but there needs to be something about Lenovo that adds value to the products themselves,' he said. 'There is no need for Chinese brands to be stigmatised as cheap and cheerful and occupying the high-volume, low-cost segment of the market - that is the power of brand China. Believe it or not, there is tremendous goodwill towards brand China.' When it comes to building a name, Lenovo is starting in a market segment where IBM's reputation had been the weakest - small and medium-sized businesses (SMBs). Forrester Research analyst Simon Yates noted IBM had essentially ceded the sector to Dell and HP but the new Lenovo was well- positioned to challenge these rivals on the SMB front. 'IBM could not compete on price, could not provide SMBs with the variety of PC configurations that the market demanded and had the reputation of spending most of its time supporting large enterprise customers,' Mr Yates said. '[Lenovo] also needs a way to introduce the Lenovo brand, but in a way that does not say 'cheap, low-end PCs from a largely unknown Chinese manufacturer'. SMB is a good place to do this.' Lenovo holds just 6 per cent of the market for small businesses, but expects this segment to grow 10 per cent annually through 2009. It holds 11 per cent of the market for medium-sized businesses, a segment expected to grow 7 per cent annually over the same period. Entering the SMB space will not be without its challenges. Gartner research analyst Lillian Tay said Lenovo would need to build channels into the market. 'This a very cut-throat market segment, where there are no brand loyalties. There is constant competition among the mainstream PC market suppliers to enlist and maintain the right partners, as they are courting the same pool of players,' she said. But the relaunch of Lenovo's low-cost desktop and notebook PCs in Hong Kong is not expected to suffer from a lack of distribution. Lenovo's Hong Kong general manager Stephen Chan Wah-on pointed out the company's numerous value-added distributors, speciality retailers and major electronics chain stores such as Fortress. 'We have more than a thousand channel partners in Hong Kong and Macau,' Mr Chan said, adding that the desktop computers would start at $3,388 and the notebooks at $6,988, and would be available from next month. He said the 3000 series in Hong Kong would only be available with Intel processors, which in part explained the higher pricing compared with the US market. It is not just in the SMB space that Dell, HP, Acer and others must stay on guard. Mr Ma called attention to the design and multimedia features of the Lenovo 3000 notebook, saying individual buyers would find it attractive. 'It is clear that this is eventually pointing in the direction of the consumer space,' Mr Ma said. 'As a result, if you are an HP or Dell, or even better - an Acer - these guys have to watch out, because a big company like Lenovo is coming in here with some great technologies that consumers could latch on to.' Lenovo has long been available at Fortress or Broadway in Hong Kong, so it is not difficult to imagine consumers gravitating toward the computers at a Best Buy in the US. But Mr Advani refused to be drawn out on what the company had planned for its global consumer product line. 'We are absolutely looking at [consumer products] and what you are likely to see is a phased roll-out of that strategy. We are focusing on bringing out a broader product line in other markets that have very promising growth potential, like India,' he said. 'But for the time being, around the world, we are being very pragmatic in our execution, because strategy is all about having clarity in where you want to go followed by disciplined execution. We have seen too many players in the industry who lack focus.' While Lenovo's PCs might come cheap, rushing into new product segments for the sake of building a brand is not a strategy any computer manufacturer can afford.