Wednesday 28 January 2009
Financial crisis forces IT makers towards countryside
As the global financial crisis takes hold on China’s economy, eroding domestic and international demand, the government is hoping to boost consumption and help the crisis-hit IT industry by subsidizing computer purchases by rural households that have thus far been sidelined in the expansion of new technologies.
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Financial crisis forces IT makers towards countryside
27 January 2009
As the global financial crisis takes hold on China’s economy, eroding domestic and international demand, the government is hoping to boost consumption and help the crisis-hit IT industry by subsidizing computer purchases by rural households that have thus far been sidelined in the expansion of new technologies.
The government is rolling out a 13-percent subsidy for farmers who buy home appliances from Feb 1 in a nationwide expansion of a pilot policy in 12 provinces last year. It will also expand the range of eligible products from basic home appliances like TVs and refrigerators to air conditioners, motorcycles and computers.
“The subsidy policy is important to support domestic computer makers in particular in the midst of the financial crisis,” says Liu Jie, vice president of Lenovo, the world’s fourth largest PC maker.
Based on the present rural PC market, Lenovo estimates the policy will stimulate about 10 billion yuan ($1.46 billion) in sales, 5 percent up on the total market volume.
Liu Rengang, chief marketing officer of Chinese PC maker Founder, says the company has entered the prefecture and county-level market, and will extend its reach into townships and villages this year. Although the rural market accounts for a tiny share of its total sales, Liu believes the increase will be the largest.
International brands like Dell and Hewlett-Packard are also eyeing the rural market. Zhang Yongli, vice president of HP China, was quoted earlier last month in the National Business Daily, announcing her company’s entry to the county and township-level market.
In a bid to meet the lower-end customers who are the majority in rural areas, all of the big PC brands provide low-price models below 4,000 yuan.
The subsidy policy came as the government announced a series of economic stimulus policies to boost domestic consumption when its foreign trade volume decreased for two months in a row at the end of last year.
The package of projects is worth of 4 trillion yuan ($586 billion), and includes 10 methods to help industries and to encourage consumption and raise living standards in rural areas.
With more people and companies cutting spending, major IT products makers have suffered a great slump in sales.
The start of the year should be the big selling season, but Beijing’s Zhongguancun, the weathervane of the country’s IT market, is much quieter now, with fewer customers and lighter traffic. Many electronics dealers have lost up to 30 percent of sales since the previous month, driving some out of business.
Lenovo announced it was to cut 2,500 jobs, about 11 percent of its global workforce. The statement did not say which of its international operations would see job cuts, but a company spokesman said the China operations would be unaffected. As early as last fall, HP announced it would cut 24,600 jobs.
“Consumer electronics products, in particular personal computers, are not regarded as a necessity,” says Liu, “so IT products makers are vulnerable in times of crisis.”
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