It was early summer 2007. Craig Mundie, chief research and strategy officer at Microsoft Corporation, had just completed a transcontinental phone call with Orlando Ayala, Will Poole, Tim Chen, Ravi Venkatesan (HBS MBA 1992), and Ya-Qin Zhang, all members of the senior management team overseeing Microsoft’s growth in China and India. A decade ago, Mundie had begun to broaden Microsoft’s forays into both countries. Now, he continued to mentor the China and India teams. Mundie saw his role as one that mitigated ventures that others within Microsoft might find too risky to undertake and thus to try to fill “white spaces” in Microsoft’s offerings. Chen and Venkatesan headed Microsoft operations in China and India after successful careers with, respectively, Motorola in China and Cummins in India. Ayala and Poole were Microsoft veterans now focused on middle- and bottom-of-the-pyramid products and services, and Zhang headed Microsoft’s research activities in China.
Mundie had reason to be pleased. Over the past decade, Microsoft had established a successful footprint spanning research, development, and sales in both China and India, and just a few days back, on April 19, 2007, Microsoft Chairman Bill Gates had unveiled an ambitious plan for the future. Addressing the Microsoft Government Leaders Forum in Beijing in the presence of dignitaries like Nobel laureate Mohammed Yunus, Gates had outlined the Beijing Declaration, which stated Microsoft’s aim to increase the number of people with access to computers from 1 billion in 2007 to 2 billion by 2015. It had been 31 years since Gates’s founding dream for Microsoft, “a computer on every desk and in every home.”
Microsoft had grown its China and India revenues threefold in the past three years. China and India had won the “best large subsidiary” and “best emerging subsidiary” awards, respectively, at Microsoft’s annual global sales meeting in 2006. More importantly, government as well as local partners had become engaged in both countries. Mundie had leveraged his earlier experience at Microsoft and his background in designing technology policy to recognize the importance of the government and a range of partners in each country. He had joined the company in 1992 to grow Microsoft’s non-PC business. Mundie soon realized that most of the business opportunities in this area—television, gaming, and software for cell phones—were within regulated industries and government engagement would be critical for success. Prior to this, as Mundie would later mention, “Microsoft was a young and relatively naive company that didn’t care much about presence in Washington.”
Despite this, China and India together accounted for less than 5% of worldwide Microsoft revenues, and growth in sales of legal PC-based software in these two countries trailed sales of other technology products like cellphones. On what products and services could Microsoft place its bets profitably to fulfill the spirit of the Beijing Declaration? Equally important, how could Microsoft rally together its product, research and development (R&D), and sales organizations across Redmond, China, and India to achieve this goal?
Sailing into Stormy Waters (1993–1998)
Around 1993, there was a formal attempt by Microsoft to enter China; prior to this time, pirated Microsoft products had spread willy-nilly across the country. Richard Fade, then vice president of Microsoft’s Far East Operations with headquarters in Tokyo, had focused on product localization and on combating piracy. Localization—for example, varying the way text was presented and making it easier to enter information in local languages—had raised the penetration rate for Windows in Japan from 18% in 1993 to 41% in 1994. Meanwhile, annual losses due to piracy were estimated to be around $1.2 billion in Japan, and Microsoft initiated an aggressive and successful public relations program targeted at large Japanese...