The CCE deal, which was first announced in September but finalised on January 4, gives Lenovo 100 per cent of one of Brazil's leading manufacturers, and will, Lenovo says, double its market share in what is the world's third largest PC market.
As well as the ability to offer a full suite of consumer electonic products, from PCs, to tablets and smartphones, as well as TVs, the acquisition will, Lenovo says, allow it to build upon "CCE's knowledge of Brazilian consumer needs" and supplement their manufacturing base in the country. It is what Lenovo call's a "global-local" strategy, which is another way of saying that it attempts to adapt itself to its markets.
Commonsense that may be, but it is not an insignificant issue for Asian companies as they begin to globalise their operations. As reported in the FT recently, the Taiwanese electronics manufacturer, Foxconn, has struggled to adapt its management techniques to the cultural differences faced in Brazil.
Lenovo's most interesting attempt to adapt to the specificities of its emerging market product destinations will be reflected in its smartphones, which Yang has signalled as a priority.
Smartphones have boomed over the past two years, with Apple and Samsung in particular seeing a dramatic growth in handset sales, in emerging as well as developed markets. But while competition intensifies at the top end of the market, Lenovo sees untapped potential at the lower end.
Mass use of the internet is coming to many parts of the developing world through the mobile phone network rather than the PC, but with an iPhone or Galaxy costing upwards of $300, smartphone technology is beyond the reach of many would-be smartphone customers in emerging markets.
That's where Lenovo steps in with its cheaper touch-screen smartphone devices. First launched in China in 2010, they became the second-biggest selling brand in the Chinese smartphone market in Q3 2012, overtaking Apple, due to their affordability. Lenovo also began selling in Russia, Indonesia, India, the Philippines and Vietnam last year. Its smartphone business in China is, according to an interview with Chief Executive Officer Yang Yuanqing carried out by Bloomberg last week, about to turn a profit for the first time.
Thomson Wu, an analyst from Credit Suisse, thinks there is more to it than simply selling cheaper phones. Around 50 per cent of smartphones in China, he says, are sold through open channels (without a contract with an operator). This is far more than in most developed markets – in the US, over 90 per cent of smartphones are sold on contract.
Lenovo, however, is choosing to sell their phones predominantly through carriers, Wu says. "Margins are three times lower than through open channels and they have strong distribution capabilities and a strong brand which would enable them to succeed in the open channels market, so they are purposely not using their advantage in China. My view is that they are doing this to build a relationship with operators, and they will eventually move to selling higher-value handsets."
As for the push into other emerging markets, Wu sees it as more cautious than some of the company's rhetoric might make out.
"The success in China is in their sales volumes, but they are still losing money on the smartphone business. Elsewhere it won't be as easy as in China where they have a strong brand and distribution channels."
Pushing the smartphone business outside of the home market and the heavy start-up costs involved will, analysts surveyed by Bloomberg say, lower the growth rate of the company's net income from 73 per cent in the year ending March 31 2012 to 24 per cent in the year ending March 31 2013.
"I don't think they have a global strategy", Wu says, "they only plan to move into another five countries by the end of next year. I believe they are taking a very measured approach and picking countries where they have a very strong PC division, which gives them a local supply chain", Wu says.
It is in this context, he says, that the CCE acquisition makes sense. "It has several benefits:Brazil taxes imports heavily so shipping products in is expensive, and local brands have a high market share so this will give them a footprint."
Brazil, he expects, will be one of the select few countries targeted for Lenovo smartphones this year.
Related reading
Lenovo goes mobile in central China, beyondbrics
Mobile handset market awaits a challenger, FT
Tech groups invest in conquest of Brazil, FT
Chinese smartphones upset the Apple cart, FT
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