Name: Muhammad Isa Jaya Bin Abdullah

Matrix No: M18701028

Individual Assignment (Case 1)

Case - Emerging Markets: Microsoft ‘s Evolving China Strategy

Microsoft, the problem with doing business in China comes down mainly to one thing

piracy. Touts line the street outside a new $80 million Microsoft research centre in

Beijing, steering customers through alleys to run-down apartments where bootleg

copies of Microsoft Office and Word are peddled for about $1, at least $199 less than

the global retail price. 90% of Microsoft products used in China are pirated, and for

years the company battled back with its signature mix of bullying and intimidation.

But in China the government has been sympathetic to the pirates, openly hostile to

the Microsoft monopoly and officially embraced Linux, the free rival to Windows.

Cheap software has been critical to China's economic boom, and Beijing saw no

upside to forcing citizens with an average annual income of $1,000 to spend much of

it on Windows.

The new Microsoft China strategy attempts to create a constituency for full-price

software, starting with the political and business elite. This means improving

customer support for big Chinese companies, helping Beijing develop a domestic

software industry trained on and tied to Microsoft products, sharing more technology

than it normally would and easing up on buyers of pirated software.

 1. From an industry-based view, why does Microsoft feel threatened by

Linux in China and globally?

Threat of Substitution

Linux operates as a free operating system, which indicates that consumers

are able to develop their own private software and application. This

indicates that Microsoft’s consumers will slowly switch to Linux due to

flexibility and more variety of private software and applications to be used.

Threat of New Entrants

If a public infrastructure for a software industry built around Linux, it can

generate an alternative ecosystem with lower cost rivals. Furthermore, in

order to expand the IT business, Linux might introduce new operating

system companies as subsidiaries to compete in China market. New entrants

might be serving different types of market need. In a way, Linux would be able to gain

higher market share and profitability.

Bargaining Power of Suppliers

If Linux establish a relationship between China government and global software

related companies, considering the total population in China – 1.3

billion, Microsoft will definitely lost their stand in China and international market.

Bargaining Power of Buyers

Microsoft’s pricing in China was similar to US market pricing. This might be difficult

for China consumers to purchase for it as with the resources in China,

consumers can easily get a pirated version of Microsoft at a much lower price, or
even opt for Linux. To sum up, above are the direct negative impact towards

Microsoft’s market stability and profitability in China. From a resource-based

view, what valuable and unique resources and capabilities does Microsoft have

in the eyes of the Chinese users and the government.

Intensity of competitive rivalry

The illegal software in China has jumped to $7.6 billion in 2009. The

competition within IT and software industry is high. There are many IT and

software companies which offer the Chinese with low price products or the

download of illegal software. Chinese prefer to use cheap pirated version rather

than expensive legal software. Linux offers a free open-source operating system and

leverage on low cost production in order to win a price battle. In mid 2000s, one of

the low cost PC producers, Lenovo maintain shipping its naked machines to

Ch in a to p rom o te it s u se of ille ga l sof t wa re a lth o u gh Chin a

go ve rn m e n t ha s incre a se d t h e consumption of legal software within the

government agencies and locals.

2. From an institution-based view, what are the major lessons from

Microsoft’s strategic changes?

The institution based view, in addition to industry-level and firm-level

conditions, focuses on the impact of government policies and economic reforms on

the performance of firms. Microsoft realized that the only way to succeed in China

was to collaborate with the government. A strategy which was confrontational

proved futile and costly. The Chinese government paranoid about security

openly promoted Linux. In the mid-2000s, Microsoft changed its strategy

completely. It abandoned its confrontational, litigious approach in defence

of its intellectual property rights. In response to the Chinese government

concerns about the alleged U.S. government spyware in Microsoft’s software in 2003,

the firm offered China the fundamental source code for Windows and the

rights to substitute certain portions with local adaptation, an unprecedented offer in

Microsoft’s history. In the context of China, Microsoft’s confrontational, litigious

approach did not work. It was forced to change its strategy in order to make its

presence visible in China. Collaborating with government agencies and offering to

share its source code were some of the ways used by Microsoft to win over the

Chinese government.
REFERENCE

http://www.businesspundit.com/microsofts-china-strategy/

https://www.coursehero.com