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This is How Lenovo Wins Japan

Everything started with one partnership. For almost three years, Lenovo (HKG: 0992) and NEC (TYO:6701) have been in cooperative agreement, as both companies attempt to reach the top of the PC market in Japan. While Lenovo is already the leading PC manufacturer in the world, one Japanese opinion lays out a few more points: three short but important reasons that might just complete Lenovo’s enclosure of the market in the Land of the Rising Sun.

Extension of Lenovo’s partnership with NEC

At the beginning of October this year, Lenovo extended its partnership with NEC by 10 years, pushing the two companies’ contract until 2026. NEC was once Japan’s primary PC distributor, until changes to the Japanese PC market eventually led the company to just hold about a fifth of the country’s PC market shares today. The partnership with Lenovo, which was established last January 2011, worked well to keep its ailing business alive.

But what does this contract extension have to do with Lenovo’s business plans in Japan? The NEC brand is still a well established name in Japan, having its roots way back during the 1970’s. Even with its falling PC business today, it still provides other IT services and products. The strong combination of Lenovo’s international PC dominance, and NEC’s traditional popularity as a PC brand, helped the two companies gain a firm grasp on the country’s PC market (especially within the business and enterprise sectors). In other words, the partnership provided more benefits than what was initially expected.

Decision to preserve the NEC brand

Connected with the extension of the two companies’ partnership is Lenovo’s decision to preserve the NEC brand. As mentioned earlier, the status of the brand was pivotal in securing a significant PC market share in Japan, thus forming the primary reason for this decision. However, more than just maintaining the name, preserving the NEC brand also means that a different marketing approach can be used using two separate brands.

Lenovo could have easily phased the NEC brand out by completely acquiring the company after the contract expires in 2016. However, the company instead chose to extend the contract, albeit at a condition that Lenovo’s shares would be increased by 66.6% (from 51%), and NEC’s shares reduced to 33.4% (from 49%). This opportunity allows NEC to still operate as a separate brand, with its own line of products and services.

Separate establishment of Lenovo Enterprise Solutions

Focusing on the other side of its business operations, Lenovo had also opened a deal with IBM to acquire its x86 server business. The establishment of Lenovo Enterprise Solutions recently was the first step to this, using the newly established business arm to open Japan’s PC server market.

The strange point in this is that NEC is also a player in Japan’s server market, and was in fact the highest share holder by 23.6% last year. Lenovo’s decision not to place the business under the partnership’s wing was a move to keep NEC as the highest share holder in the country’s PC server market. Separation of Lenovo Enterprise Solutions would allow continuation of its operations as another business entity, keeping the server product line up for Lenovo’s ThinkCentre brand (which was also acquired from IBM) still open to the Japanese tech market.

Lenovo’s determination to win over the Japanese PC market may not completely depend on its partnership with NEC, but in conclusion, NEC’s reputation as a brand seems to have been too good for the company to pass up. It could also be a matter of tradition however, making sure that the brand is still there for more years to come.