Opinion

Building effective channels in emerging markets

Djillali Lahiani, regional channel manager, Lenovo Middle East and Africa

Lenovo has made successful inroads across various regions within emerging markets, to emerge as the No. 1 brand in these markets.

Its secret lies in a clear knowledge of its markets and the strong relationships it has with its partners.

As an extension of the organisation, Lenovo’s channel relationships are defined with shared strategies, joint planning, mutual trust, accountability, and above all, clear definition of the culture between brands and channels.

Emerging markets: A hard nut to crack but well worth the effort

The demand for personal and business computing devices required to participate in today’s networked world of business information, electronic communication, social media and online entertainment have increased tremendously in the region, in line with economic growth. Research firm Gartner has predicted that the emerging markets will account for some 70% of the next billion computers sold.

The current market movement bears out this prediction, as emerging market citizens harness the power of technology to drive advancement and create wealth. China, which houses the world’s largest Internet population, has recently overtaken the United States in terms of PC shipments; while Brazilian households will have more than one PC on average by 2014, according to Intel.

On the business computing front, local firms and Small-and-Medium Businesses (SMBs) in emerging markets are taking the opportunity to leapfrog their mature market counterparts, in terms of technologies acquired. Thus the addressable market is large, provided the route to market is correct and the sales operations executed with pinpoint accuracy.

Rule #1 – Drill down to specific buying behaviour and appoint a channel for every segment

According to IDC’s State Level Research, the trend observed in the fast moving consumer goods (FMCG) and consumer durables industries are being mirrored in the PC industry, and Lenovo is one of the first brands to pioneer this approach.

The sheer diversity of emerging markets within the region in terms of population demographics, density, income levels, level of PC experience and preferred methods of promotion overwhelms and hampers corporate decision making and rapid strategy execution upon entry to the market. Given the diversity in each market, it follows that a ‘one size’ channel approach cannot fit all.

Lenovo chose to operate on the principle of “the locals know best”. The company leverages on its channel partners to advise on the specific buying characteristics for each market or segment, and acts upon their advice. This way, both the breadth and depth of the market can be addressed.

Across various markets in the region such as UAE, Saudi Arabia and Egypt where markets are dominated by large format retailers and Hypermarts, the company created branded corners called Lenovo Shop-in-Shop (LSS) were created to ensure brand differentiation and that customers can explore and experience the ideal product that fits their needs. SMBs need lots of help to source and pull a company’s IT infrastructure together, so Lenovo invited value-added resellers (VARs) to carry its SMB products, as well as conduct some co-marketing efforts to the resellers’ customer base. Such activities benefit both the Vendor and the channel.

Rule #2 – Share information and plan the business together

In marketing, it takes about seven times more investment to get a new customer than to keep an existing one happy. The same might be said of channels. It’s far more effective to grow along with the current channels than constantly search for new ones. So how do businesses keep the relationship exciting, prevent complacency from setting in and yet remain profitable for everyone involved?

Partnership is a two-way street and demands commitment from both vendor and channel. At Lenovo, the company’s core values demand that marketing priorities and product roadmaps are freely shared and discussed with its channel partners. At the same time, the company asks for commitment of the channels’ manpower and capacity towards selling Lenovo’s products. Regular business performance is measured against pre-agreed targets. This regular, joint business planning process helps both parties to achieve a higher degree of predictability and stability in the order cycle, as well as more accurate revenue and inventory projections.

What if the existing channels are not large or sophisticated enough? Sharpen the saw by training and developing them until they have achieved the desired level of proficiency. Lenovo invests a significant amount of effort on an ongoing basis to upgrade its channel partners’ capabilities, product knowledge and business processes. Partners who have attained a high level of proficiency can sell higher volumes more effectively.

When Lenovo first started entering international markets, the brand was not well-known outside of China. It would have been an easy decision to go with the biggest distributors in each emerging market. However, going with the flow is not in the DNA of the company. The management deliberately chose less-established distributors for their specific skill-sets, such as extensive knowledge in a particular market segment or good relationships within a particular region.

As Lenovo grew, it lifted most of the channel partners along on an organic growth path, and also gradually increased the portfolio of products each of them carried; this meant a value-added reseller which only used to carry SMB products could eventually also carry mobile devices such as tablets, enabling it to offer a more comprehensive package to its end-customers.

Conclusion

Distribution is the ‘last mile’ of the selling process and ensuring good and steady sell-through is crucial in sustaining any business. For Lenovo, distribution is a highly complex affair due to the sheer environmental, ethnic, cultural and economic diversity of emerging markets. By careful observation and segmentation of the numerous target markets within any emerging economy, Lenovo has managed to adhere to its fundamental principle of aligning core values and behaviours with the channels, in order to succeed together. The evidence of its success?

Lenovo has grown faster than the industry for 11 consecutive quarters while continuing to improve profitability. The combined effort of Lenovo’s channel partners has enabled the brand to accelerate past two competitors in the span of two quarters to become the second-largest PC vendor worldwide.

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