Lenovo, HP lead way into rural China PC market

Major PC makers are turning to rural China to boost sales

PC makers looking to boost sales in recent years have increasingly zoned in on rural China, a vast and largely untapped source of new PC users.

Lenovo and Hewlett-Packard are the major PC makers that have made the most progress in rural China, a term often used to describe everything from mountaintop villages to cities of a few hundred thousand people. But other Chinese and foreign PC makers are also building their distribution networks in those regions in a bid to boost sales.

"Most vendors have realized the importance of this market," said Simon Ye, a Gartner analyst.

But not all PC makers are ready to tackle rural China, said Ye. The HP and Lenovo cases suggest that catered marketing tactics and a major investment in expanding a company's retail outlets are required for a rural sales push to succeed. HP this year has partners running 7,000 retail stores for its PCs in China, and it aims to expand that network to cover 10,000 Chinese towns next year. The vendor further extends its reach by selling PCs out of vans that it sends around the country.

HP also has a van that visits universities, clients and IT expos to show off PCs and teach people how to use them. In June the bus visited a rural elementary school near Chongqing, an inland Chinese metropolis. HP staff gave talks and showed the animated movie "Kung Fu Panda" as they displayed the company's PCs to students.

Lenovo has also used movies to promote its PCs in rural areas. The company arranges screenings of current films that it precedes with Lenovo ads.

HP has grown to become the second-largest PC vendor in China, where it took 14.2 percent of the market in the second quarter, according to IDC. Lenovo, a Chinese brand, led the market with a share of 28.5 percent.

Many potential PC buyers remain untapped in rural China. Just over one in four PCs sold in China in the same quarter were sold in tier-one and tier-two cities, a category that includes cities such as Beijing, Shanghai and some provincial capitals, according to IDC.

"The remainder obviously shows you the big opportunity in the lower-tier cities," said Bryan Ma, an IDC analyst.

Chinese authorities launched a subsidy scheme for rural residents early this year that grants a 13 percent rebate on the purchase of PCs and other electronics. The scheme, an effort to drive domestic economic growth amid the global recession, sold nearly 580,000 computers by the end of September, according to China's commerce ministry.

But those sales have been dominated by Chinese companies like Lenovo and Founder, another PC maker that has targeted the rural market. More than 40 percent of the PCs sold in the scheme were from Lenovo in September. HP took just 3 percent of the sales, while Dell and Acer both had less than 1 percent.

Both HP and Lenovo tweak PCs for rural buyers. Both companies equip the PCs to function through the electric voltage fluctuations common in rural areas. They also load the machines with programs such as agricultural databases for farmers -- and the companies' own entertainment suites.

Lenovo has tailored its ads for the rural market, where the company is building nearly 8,000 new sales outlets. Lenovo is pitching its PCs as wedding gifts with slogans like, "Lenovo wedding computers, one step to a happy life." The marketing makes use of a traditional preference in China to give gifts that appear prestigious. Another slogan targeting businesspeople calls Lenovo PCs the "golden key to information wealth."

Dell is another PC maker that hopes to crack China's rural market, but the company has only recently begun seeking the distribution partners it will need to do so, said Ye of Gartner. HP's success has largely been driven by its use of different resellers in each region of China, he said.

"It will take two to three years to see if Dell can reproduce HP's success," said Ye.

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Owen Fletcher

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