China's largest personal computer maker, Legend, is going global after staying home for the past 19 years.
But will the company, which has a recognisable brand name in China (and an impressive 27 per cent market share), be able to repeat its domestic success in a culturally diverse global marketplace? Legend has already begun laying the groundwork for its global expansion (although the specifics of how it plans to conquer foreign markets where a handful of tech monoliths rule are being kept close to its chest).
To lead its overseas charge, the company has unveiled a new brand, Lenovo, after discovering that the 'Legend' name was already registered in major overseas markets.
The company, which uses a number of advertising agencies for its creative work, is also increasing its marketing budget from about two per cent of sales and revenue on promotional and advertising activities to up to 20 per cent this year, and it has made headway into the neighbouring Hong Kong market.
And, for Legend, the timing couldn't be better; the domestic market - on which it is dangerously dependent on to generate more than 90 per cent of its business - is proving increasingly tricky as local players such as Founder sharpen its attack. At the same time, price-cutting by international rivals such as Dell Computer and Toshiba is eroding Legend's share of what research company IDC describes as the world's fastest growing computer market.
Alice Li, head of corporate marketing of Legend Group, says expanding into international markets is inevitable with the globalisation of the IT industry and to assure Legend's future. "In the past financial year, about five per cent of our business turnover came from overseas markets, including Europe, Asia-Pacific and North America."
However, analysts are far from convinced by Legend's ability to make the leap from a China brand to an internationally-recognised name. "There has been concern for (Legend) going overseas. It has done well in China in understanding the market and local needs, distribution and so on. But when expanding overseas, the entire profile changes. Part of the groundwork is the company's entry into the Hong Kong market, but that is not relevant as it is still Asia and the brand is recognised here," says a Hong Kong-based senior technology analyst.
He added that, in China, Legend's name has come to mean good quality and good service - and this will be far more difficult to achieve in global markets with entrenched competitors.
In heading overseas, Legend would have come full cycle, having started out life out as a distributor of foreign PCs. The company only began marketing its own products in 1990, just before China reduced import tariffs in 1992 and abolished import quotas the following year. Since then, foreign rivals have been hacking away at Legend's share. Legend claims it hasn't received any preferential treatment from the Government, but credits a strong national sales network and a recognised brand for its dominance of the mainland market. Attractive price points aside, Legend's extensive distribution network - which makes after-sales service easier for customers to access - has been its trump card over international rivals. "The advantages of Chinese enterprises lie in their deep and unique understanding of the Chinese market and the customers' needs. The decision-makers are in China and therefore are closer to the customer and could react quickly to market changes," says Legend's Li.
What has also worked well for Legend is that it isn't simply churning out PCs. Its major businesses include consumer and corporate IT, handheld devices, IT services and contract manufacturing businesses. Under the Lenovo brand it has also extended its product line up to include mobile phones. To counter sluggish domestic sales - the majority of consumers in key cities already own a PC - the company is shifting its customer focus to companies (where it is likely to be able to charge a premium).
However, Li stresses that the thrust of Legend's marketing will continue to be deeply rooted in the consumer market.
According to the IDC, China, which now accounts for 42 per cent of PC shipments in the Asia-Pacific region excluding Japan, grew at 7.8 per cent in the fourth quarter of last year and it is expected to continue to drive regional expansion this year even with Sars to contend with.
IDC found that Legend posted double-digit percentage gains year-on-year despite a sequential contraction resulting from China's traditionally slower first quarter for the PC market. HP retained its second spot in the region with a relatively small growth rate, while third placed IBM reported positive year-on-year gains. Fourth-placed Dell similarly posted year-on-year gains in most countries.
Although Beijing-based Legend faces increased competition for now at least the multinational brands continue to lag behind. Indeed, Legend's 27 per cent market share overshadows both local and foreign competitors - Dell and IBM, the country's top two foreign PC sellers both have five per cent share each, and HP at three per cent. Even local rival Founder is an ocean away at 9.4 per cent.
"Legend is undoubtedly a well-known brand in China," says the analyst.
"If you look at the statistics, Dell is doing well in the corporate/enterprise market."
Foreign players are not growing much. Dell's gains have been at the expense of other foreign PC players. The real competition for Legend is coming from local challengers. Legend is targeting sales of about US$10 billion by 2010 for its new Levono brand. However, analysts warn that the computer maker is likely to find it difficult to expand overseas, and with the IDC forecasting 11 per cent growth for the China PC market, Legend could find better dividends at home.
"It will depend on whether it is looking at developed markets like the US and Europe or less developed markets like the Middle East. There are fears because so many other Asian brands, like Acer, have crashed and burnt, so history shows that there is a valid concern. In fact, there is room for growth in China," says the analyst. "Part of the reason (for international expansion) is that it has to toe the party line. The Government has said the top companies in each segment must become international brands.
"While publicly the company has been confident about its expansion, outside of the media it has been more hesitant, and we understand this is a long-term plan of 10 years."
ASIA ON A TECH ROLL: FIRST QUARTER ASIA-PACIFIC SALES, EXCLUDING JAPAN
1Q 2003 1Q 2003 1Q 2002 1Q 2002
RANK VENDOR Shipments Market Shipments Market Year-on-
Share Share Year
Growth
1 Legend 683.2 10.9% 614.1 10.7% 11.3%
2 HP 582.0 9.3% 562.9 9.8% 3.4%
3 IBM 427.5 6.8% 336.8 5.9% 26.9%
4 Dell 358.4 5.7% 264.3 4.6% 35.6%
5 Samsung 261.6 4.2% 370.3 6.5% -29.3%
6 Acer 227.0 3.6% 224.2 3.9% 1.3%
Others 3,723.3 59.5% 3,345.9 58.5% 11.3%
All Vendors 6,236.0 100.0% 5,718.5 100% 9.5%
SOURCE: IDC, April 2003
