Argentina's government is creating obstacles for imports, and due to this several IT firms have decided to start manufacturing locally in Tierra del Fuego province, which offers fiscal benefits for companies setting up operations there.
Chinese OEM Lenovo is one of these firms. Faced with increasing demand from the local market, the company decided to partner with a local company to start laptop production in Argentina.
BNamericas talked to Lenovo Argentina's sales manager, Alexander Raven, to find out more about the company's plans.
BNamericas: Why did Lenovo decide to start manufacturing laptops in Tierra del Fuego?
Raven: We're obtaining a strong position in the Argentine market right now. This market is our third largest in Latin America, behind Brazil and Mexico. Argentina is also experiencing significant growth in IT adoption and has very strong growth potential.
The strong growth we're experiencing in the local market, the solid growth potential we foresee and government resolutions regarding imports led us to decide to start manufacturing our products in Tierra del Fuego province. This decision will enable Lenovo to continue expanding its presence in the local market.
Three years ago, when we had a 1.4% share of the local market, this decision wouldn't have been possible. Now that we have a market share of 17.3%, it makes sense.
BNamericas: What type of investment did Lenovo make to start producing locally?
Raven: We invested approximately US$12mn in association with our local partner Newsan. This combined investment to launch our local operation will generate 120 new jobs.
BNamericas: Initially, Lenovo's laptops will be manufactured in an existing Newsan facility in Tierra del Fuego, but what can you say about future plans?
Raven: Yes, initially we will produce our laptops in a facility that Newsan owns. Newsan had only one line of production available. However, in the first months of 2012, Newsan will offer us additional production lines in a new factory it is currently building. This new facility is huge and will enable us to have more production lines available. The factory won't be for us exclusively, but we'll have our own production area.
BNamericas: What's the expected volume of production for the first year of operation?
Raven: I can't comment on that; Lenovo doesn't provide information regarding production volumes in each country. What we can say is that what we expect to produce in the short and medium term in Argentina is in line with what we need to produce to meet our growth levels in the local market. This local production, plus the equipment we will continue importing through the non-automatic licensing scheme [used to administer trade restrictions], will be more than enough to guarantee our growth levels in the Argentine market.
The idea is to gradually reduce our imports as our local production expands. However, we will still need to continue importing certain niche products for specific segments. What we produce locally is for volume markets. But there are many laptops for corporate use, which we don't expect to produce in Argentina due to insufficient volume for these products. We expect to have a healthy balance between our exports and our imports.
BNamericas: How much volume is Lenovo expecting to produce locally?
Raven: Our goal is to produce locally 70% of the products we sell in Argentina in three years. That's also what the government is demanding of us. The rest of the products required in the local market will be imported. We believe this is a reachable goal.
BNamericas: Which specific laptops is Lenovo currently producing in Tierra del Fuego?
Raven: We're currently producing products in the G470 family. This line enables us to enter retail chains such as Frávega, Garbarino and Rodó, as well as the SME segment, with some adjustments in the configuration of the laptops. We will initially focus on this line.
During the first half of next year we also expect to start producing other lines. I can't provide further details on this yet. We have a very aggressive timeline for local production in Argentina for the coming months.
BNamericas: Lenovo currently has a market share of approximately 17% in the country. What's the growth outlook for the coming years in terms of market share?
Raven: We can't provide information on our expected growth for the local market. What we're expecting is to achieve a healthy expansion.
BNamericas: What is Lenovo's vision regarding the local laptop market?
Raven: What we're seeing is that the local laptop market is experiencing very robust growth over the recent years. This boost in the consumer segment is mainly due to the explosion in the mobile broadband market. The decline in laptop prices over recent years also contributed to this growth.
We can say that the laptop market in Argentina has reached maturity level.
BNamericas: The government is creating obstacles for imports, and companies are facing difficulties regarding this issue. Prior to the decision to start producing laptops in Tierra del Fuego, did Lenovo face any such obstacles?
Raven: No. Once the government set new conditions for imports, we decided to start with all the procedures to set up our operation here.
About the company
Lenovo is a multinational computer technology corporation that develops, manufactures and markets desktops and notebook personal computers, workstations, servers, storage drives, IT management software, and related services.
Lenovo grew global sales 15% year-over-year to US$5.92bn during the first quarter of fiscal 2012, ended June 30. The company's consolidated sales in emerging markets - including Latin America - totaled US$1bn for the first fiscal quarter, or 17.5% of the company's worldwide sales.
Lenovo's laptop computers generated 59.8% of the total sales revenue in the quarter.
In 2005, Lenovo acquired IBM's PC division.