PC titans' joint venture shakes up global market

On Jan. 27, the biggest personal computer maker in Japan joined hands with the world’s fourth-biggest in planning to launch a new company in June.

The tag team of NEC Corp. and China-based Lenovo Group Ltd. will create a very powerful computer firm. Their combined share of the domestic market accounts for about 26 percent of total shipments.

In a recent interview, Lenovo Japan President Roderick Lappin, who will also be executive chairman of the new company, Lenovo NEC Holdings B.V., said he is excited about the shared future in Japan with NEC and synergies that will benefit Lenovo’s strategies in Japan and elsewhere.

“NEC is the No. 1 brand in Japan, No. 1 for customer service, No. 1 for product quality, so they are the No. 1 player here, there is no doubt, so that’s the first reason why you want to try to partner with someone like that,” Lappin told The Japan Times on Feb. 23.

The joint venture, 51 percent of which will be owned by Lenovo and 49 percent by NEC, will help NEC’s PC unit survive in the ever-shrinking domestic market, while NEC has little competitive edge in overseas PC markets.

According to Tokyo-based MM Research Institute, NEC had the biggest share in 2010 with 19.5 percent in Japan, but its presence in the global market was almost invisible. Lappin said NEC’s PC unit stands to benefit a lot by partnering with a globally competitive company like Lenovo.

Lenovo will “bring a lot of supply chain efficiency because we are a global vendor,” Lappin, an Australian who has headed Lenovo Japan since October 2008, said, adding that Lenovo has been the fastest-growing PC firm for the last five quarters.

China’s largest PC maker posted $5.8 billion in sales for the third quarter, up by 22 percent from the same period the previous year, and net profit increased 25 percent.

Lenovo entered Japan when it acquired IBM Corp.’s computer business in 2005, but it was distracted for the next couple of years by the integration process, Lappin said, adding it has tried to redefine its strategies by listening to customers and business partners.

With the renowned Yamato laboratory in Yokohama, where the famous ThinkPad series was invented, as a research and development base in Japan, Lenovo tailors models for the Japanese market based on its global products.

Lenovo increased its market share in Japan from 4.3 percent in 2008 to 6.1 percent in 2010, according to MM Research Institute.

Attention is on how the new company will handle future product lineups, and Lappin said the two brands will be kept separate.

“The No. 1 focus right now is to protect the NEC brand and revenue and protect the Lenovo brand and revenue. So we’ll be running the front end of the machine quite separately,” Lappin said.

That appears to make sense as the two brands’ current products don’t really overlap. NEC products generally cover the high-specification and pricier zone, while Lenovo’s cover relatively low-price market segments.

“We will continue to run both brands separately, hitting those different parts of the market so that” consumers in Japan have choices based on their preferences and budgets, Lappin said.

At the same time, he said the two brands will promote back-end synergies as much as possible.

For instance, taking advantage of Lenovo’s scale merit and supply chain as a global vendor, NEC could get parts more reasonably and possibly become more price competitive while maintaining quality, he said.

Lenovo can meanwhile leverage NEC’s technologies into its global strategy as well, Lappin said.

“We want to nurture what NEC has right now. They’ve got very high technology that they bring to market quickly, generally quicker than anybody else in the marketplace,” he said.

For instance, all NEC computers use LED screen technology now, which is rare, as other Japanese makers have applied the same technology to just a few of their models and almost none for overseas markets, Lappin said.

Meanwhile, when it comes to any mergers and acquisitions or partnerships, the companies involved always face the daunting task of smoothly integrating their different corporate cultures.

Lappin appears to understand well the importance of smooth integration from the IBM Japan experience, in which the focus for the first 2 1/2 years was on integrating the two companies in the Japanese market.

“As a result, we probably got a little bit distracted at that point in Japan on the customer base, and our strategy confused people a little bit. . . . We weren’t set up optimally for the Japanese market,” he said.

However, this project will be different in that it is a joint venture rather than an acquisition, Lappin said, adding that while the two companies will have a slightly different approach, it will be crucial to learn from each other.

“As long as we prioritize listening to our customers and our business partners first, we’ll be successful,” he said.

This is an occasional series of interviews with up-and-coming Asian companies in the Japanese market.