Microsoft in the People Republic of China

Topics: Marketing, Internationalization and localization, System software Pages: 10 (1005 words) Published: October 14, 2004
Situation:

Microsoft (MS) is losing money in PRC, partly because of the lack of intellectual

property protection in that market and partly because its product (Windows 3.1) can not meet

local customers" needs due to low level of localization.

Since localization of Window 3.1 seems indispensable for MS to succeed in the

promising PRC market, the question for MS is choosing the best localization solution from

the available three choices. These choices are either leaving the market open for Software

Vendors (SV) to localize the product, doing all of the localization by MS itself in Taiwan

(headquarter of Greater China), or adopting an intermediate solution such as localizing in

PRC.

Suggestion:

In addressing this question, I used several criteria as listed in Exhibit 1 to evaluate

these alternatives (Exhibit 1 also listed detailed analyses of each criterion used). My

conclusion, therefore, is that localizing in PRC will be the best choice for MS among all

alternatives as it helps build good government relationships that in turn benefit sales and

competitiveness. Meanwhile, Microsoft can acquire the best product quality by localization in

PRC due to familiarity with the market and convenient technical support. (Exhibit 2)

Among all the criteria used, the political issue, i.e. relationship with the Chinese

government plays the most crucial role, as it has the biggest impact on other factors.

Specifically, a good relationship with the government could: 1) Get the power from PRC

government to build a better legal environment, as piracy software is rampant in PRC market

and it seriously affects MS"s profit. 2) Increase sales, as SOEs and government organizations

account for a big percentage in MS"s total sales. 3) Help MS standardize the software

industry to guarantee its long-term profits. 4) Be decisive in securing Microsoft a competitive

2

advantage, as PRC is still not a totally free market in terms of degrees of government

intervention.

Implementation:

Why will localizing in PRC bring government support? As Exhibit 3 shows, Chinese

government needs technology in PC industry badly, it also needs employment opportunities,

foreign capital, management and industry expertise, and other intangible assets such as

company image, all of which can be met by MS"s local investment. Therefore, MS can

acquire bigger bargaining power in dealing with the government and then utilize this power

to receive government supports in combating piracy software in PRC and setting up a

standard in the industry.

Following its decision to localize in PRC, Microsoft still has two choices available,

namely, localizing by itself or by allying with one local SV. I think that Microsoft should

have partnered with one of the key software vendors, preferably Great Wall, that is closely

connected to the government and also the local market leader for localization process. By

partnering with local SV Great Wall, Microsoft can have gained some other advantages

besides a good government relationship that include: 1)Smooth the distribution channel to

deal with poor logistic infrastructures in PRC. 2) Further increase sales by bundling the

operation system and future application software with SV"s hardware sales. 3) Save training

cost in developing software and technical supports by sharing the partner"s IT experts.

However, MS also takes the risk of losing control of timing and localization quality

and leakage of its advanced technology. To reduce the risk to the least, MS should have

participated actively in the localization process to reduce the risk of "hold-up" effects by its

partner. By keeping control on the technical part, Microsoft can also learn from its partner to

contribute to its learning curve and thus pave the way for future software development for

PRC market.

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Exhibit 1 Criteria used for localization...
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