PC Makers Cultivate Buyers in Rural China

By LORETTA CHAO BEIJING -- As demand for personal computers remains weak across the globe, top manufacturers like Lenovo Group Ltd. and Hewlett-Packard Co. are zeroing in on one largely untapped but growing market: rural China. The companies are aggressively expanding their sales networks in China's countryside, where over half of China's population resides and broadband access is increasing, but where the average per capita annual income is only $700, according to government statistics. They're aided in part by a $586 billion government subsidy program designed to stimulate the nation's economy by encouraging spending in rural areas. According to the Ministry of Commerce, 414,000 PCs were sold by August under the program, which gives rural residents a 13% rebate when they purchase select products. View Full Image Hewlett-Packard Hewlett-Packard sends buses equipped with TVs to countryside schools and towns to advertise its products. Though difficult to penetrate, China's countryside is "probably still the world's most promising market" in terms of the number of people "who've never owned a PC before, who would like to own a PC and who have that capability," says David Wolf, CEO of Wolf Group Asia, a Beijing-based marketing strategy firm. Gong Xiangnan, a 24-year-old migrant worker from Mengyin county in Shandong province, says she used the rural subsidy to recently buy her first PC, a Lenovo desktop for 3,000 yuan ($439). Ms. Gong says many residents in her town took advantage of the subsidy, buying motorcycles, televisions, and other home appliances. "In our home, we already have refrigerator, TV, a washing machine," she says. Smaller cities and rural areas in China are tricky because incomes are still very low, towns and villages are spread far and wide in places where big electronics retailers rarely go, and users aren't as knowledgeable about PCs or brands. As a result, PC vendors are adopting some new marketing tactics. Lenovo, which is targeting rural customers with lower-cost computers and 700 new retail stores, has begun marketing computers as high-status betrothal gifts, which by tradition should appear as generous as possible. Beijing-based Lenovo, which sold 28% of PCs in China in the first half according to IDC, is also using slogans such as, "Buy a Lenovo PC, Be a Happy Bride." "They like to give desktop PCs because the boxes are large," says Li Zhong, director of Lenovo's consumer business in the Beijing and Hebei region. "They deliver the computers to brides' families on trucks, which everyone can see. In these cases the bigger the box, the better." The efforts appear to paying off. According to the Ministry of Commerce, about 40% of PCs sold under the rural subsidy program were from Lenovo. H-P represented about 1% of such sales. Globally, PC shipments have dropped in recent quarters as spending by companies and consumers has decreased. But in China -- where about 40 million PCs are sold annually, making it the world's second largest PC market after the U.S. -- sales have continued to grow, albeit at slower rates. In Dongguang county in China's northern Hebei province, Ma Zengyan, the owner of two local computer stores, says sales are rising as customers hear about the subsidies through ads by Lenovo and the government. One of his stores, a full-service Lenovo showroom with a conspicuous orange exterior, has a corner dedicated to some of the 30 products tailored for rural users for 2,500 yuan to 3,500 yuan apiece. The PCs are built to accommodate any unpredictable variations in power supply voltage, which are a frequent problem in the countryside, and are packaged with software such as inventory management for farmers. H-P, too, has been aggressively expanding its sales network outside China's largest cities over the past several years, says Weekee Yeo, director of the company's consumer-PC business in China. The company promotes its products by sponsoring variety shows and film screenings in small cities to entertain residents where they also display and hold demonstrations with H-P computers. In addition, the company has dispatched flashy buses to small-city and rural elementary schools to teach children and residents about their products, and vans to rural-area markets, where villagers gather a few times per month to buy goods. H-P's market share in China increased to 14% in the first half of this year from just 5% in 2005, according to IDC. The company now has 7,000 stores and 10,000 resale partners in China. In the long term, analysts say the most important edge a PC vendor can have in China's smaller cities and rural areas will depend heavily on their physical proximity to customers. "In the U.S., the infrastructure is there. Even consumers who live in small towns can take highways and drive an hour or two to the closest city to shop," says Simon Ye, analyst for research firm Gartner in Shanghai. "In China's [smaller] cities, it's rare to find a person who'd drive someplace so far to buy a computer." —Sue Feng and Gao Sen contributed to this article Write to Loretta Chao at loretta.chao@wsj.com