Top 10 trends: China syndrome
Multinationals will have to be quick learners to stake a claim to the country’s high-tech bonanza.
December 17, 2003
China’s explosive economic growth is the envy of most global corporations. With its strong appetite (and determination) for technology leadership, China is becoming the second-largest high-tech market in the world. Not surprisingly, U.S. and European companies are fixated on grabbing a piece of that promising market. The only trouble is, China is not quite ready to give away the farm.
For the past few years, slow-learning multinational companies have blown initial leads in the Chinese market by failing to understand the rules that govern the country’s marketplace. Even marketing juggernaut Microsoft has quietly conceded losses in the first two rounds of the PC wars this year (along with the enormous costs).
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China has surprised much of the world in its rapid ascent to become the largest market in the world for cell phones this year. It is rapidly moving into second place for PCs, and is expected to become the second-largest chip manufacturer in the world even sooner. Conventional wisdom has been that China’s entry into the World Trade Organization would finally crack open its large market for U.S. companies. In doing so, it would also put an end to widespread software piracy.
With a booming IT industry, and state-mandated aversion to non-essential imports, China is determined to write its own rulebook. That could mean that only the companies that accept the country’s strategic move toward a national open source model will be viable players. In 2004, companies like of Dell, Hewlett-Packard, IBM, Intel, and Oracle, will attempt to adjust to China’s rules in order to make inroads. Both HP and Intel’s moves to invest in Linux support and research will begin to pay off in 2004.
Citing security and other factors, the state authority, which makes purchasing decisions for the Chinese government at the national level, mandated that all new computers purchased for government use come pre-installed with domestically produced system software and office applications. The Chinese Academy of Sciences developed a version of Linux for the Chinese language market, which it licensed to a new joint venture, Red Flag Software in 2000. The founders call it secure, efficient, reliable – and patriotic.
In 2002, before the latest government move, Red Flag Linux was packaged with 1.2 million PCs that shipped in China. With major investment by the Ministry of Information Industry, Red Flag Linux is officially the OS of choice for government purchases, which make up over 15 percent of China’s PC market. The Chinese Academy of Sciences has also developed and spun off a prototype OS for handheld devices.
While indigenous vendors may be China’s first choice, any inroad made by a foreign company can have a big payoff. Last month, Scott McNealy, CEO of Sun Microsystems, said to a Comdex audience that it had cut a software deal with China’s powerful China Standard Software Company (CSSC) to make Sun the preferred provider of services in the deployment of a Linux-based operating system for government and state-controlled PCs. Sun will ship several hundred thousand copies of its Java Desktop System in 2004. Additional purchases may begin to convince skeptical U.S. corporate IT executives that Linux is ready for prime time.
Companies doing business with China must first help China before they help themselves. Those that fail to understand this – no matter how powerful they may be in the rest of the world – are likely to hit a wall.
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PLAYERS
IBM: Investment in Linux initiatives and smart partnering will pay off grandly. An early 2003 deal to provide China’s postal system with 1,200 PCs triggered yawns, but IBM’s patient relationship building is resulting in a megadeal to build the largest and most sophisticated computer grid in the world, with implementation beginning in 2004.
Oracle: Watch for well-planned pushes into well-defined niches to pay off. A new Shanghai center targets Japanese businesses that are setting up operations in China. Fuji Xerox is building a huge production facility near Shanghai, and Oracle will provide support.
Sun Microsystems: A bold alliance building will pay off big for Sun, which badly needs a global win. Its newly rebranded Java Desktop, and cooperation with scores of independent developers to deliver radically low-cost desktop solutions, should blaze a new trail with both revenue and credibility for Sun.
ALSO IN MOTION
Decentralized headquarters: Multinationals decentralize their operations by shifting control away from central headquarter offices. Companies like IBM recently opened a regional head office in Singapore with 1,000 employees to monitor growing business in the area.
Europe: 3G wireless services will heat up as providers go head to head trying to win customers.
India: Poised to become an important player in the rapidly growing global clinical trials business, by helping cut costs and save time in new drug testing.
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