Report group n°8
Microsoft in China and India, 1993-2007
Ferreira Sonia : Sonia.Feirrera@unil.ch Hussain Fahad : firstname.lastname@example.org Risi Erika : Erika.Risi@unil.ch Tran Caroline : email@example.com Vachey Bastien : firstname.lastname@example.org
a) In the early nineties, the economic environment of China was not an easy one for Microsoft to do business. Indeed, piracy problems leveled 98%. It was the highest in the world. In countries as such, the major part of the population survives with only limited means. The products of companies like Microsoft and IBM are often costly which the population cannot afford. Legal and regulatory systems weren’t going to help Microsoft since they were themselves very weak: “lack of transparency, lack of preparedness in dealing with business problem…”. Planned raids or legal incentives were measures to counter piracy problem but the case suggests that even such measures were of limited help. The legislation was not efficient and it seemed like the government wasn't going to improve it. The government on its own didn't show much enthusiasm to Microsoft's projects and investments in China. There was so much reluctance in the Chinese government's behavior that the President advised Bill Gates to discover China before showing signs of collaboration. Chinese economy has been characterized by a high level of state intervention in market matters. Firms were therefore dependant on the government and their decisions had to pass through them.
b) One difficulty that Microsoft faced in China was the lack of information and knowledge about the Chinese market. As the Chinese President told Bill Gates when they first met: "You should spend more time in China and learn something from 5000 years of Chinese history". Despite the limited knowledge about the market and the business environment, Microsoft still wanted to enter the Chinese market. Customers’ needs are essential. Precisely speaking, if you want to launch a localized product, you should first understand that there are two types of ideographic scripts used by Chinese people: the simplified one is used everywhere in China and the traditional one is only used in Hong-Kong, Taiwan and Macau. Moreover, language is also an important entry barrier to the Chinese market: a foreign person would find it extremely difficult to communicate properly in English with a Chinese person leading to some misunderstandings because of cultural difference. That’s the reason why Microsoft was trying to form Chinese students to its knowledge. Then, the Chinese market is characterized by a different political ideology compared to the US. China is governed by the communist party of China so it greatly controlled the resources of the economy. These also meant that if you want to make business or take any important decision in market matters, then you have to create some sort of a consensus with the government. So, it was a primary issue to sustain good relations with the government however this was going to take time and it strongly depended
on the Sino-American relations. Reminding that there was some sort of bitterness between them. Looking for skilled software developers, building long-term relationship and the difficult negotiation process increases transaction costs. Finally, Chinese piracy was also a huge problem Microsoft needed to seriously consider. They tried several agreements with the government and the China Great Wall company setting regulatory, legal and market based initiatives but none of them met material success. High piracy rate in China might come from the ethical behavior, the anti-Americanism inculcated by the government, or the poverty of a large part of the population. Piracy has a different meaning to an Asian person than an American one, Chinese people consider it as something not illegal because it is more commonly practiced due to a fast growing development that couldn’t be controlled.