Emerging Markets: Microsoft’s Evolving China Strategy
Strategy Tripod: Industry-based, resource-based, and institution-based views are the three leading perspectives guide our exploration of globalization.
Microsoft’s first decade in China was disastrous. It established a representative office in 1992 and then set up a wholly owned subsidiary, Microsoft (China), in 1995.The firm quickly realized that it didn’t have a market share problem—everybody was using Windows.
Problem: How to translate that market share into revenue, since everybody seemingly used pirated versions.
Microsoft’s solution? Sue violators in Chinese courts. But Microsoft lost such lawsuits regularly. Alarmed, the Chinese government openly promoted the free open-source Linux operating systems. Chinese government was afraid that Microsoft’s software might contain spy-ware for the US government.
Mid-2000s: Chinese government required all government agencies to use legal software and all PC manufacturers to load legal software before selling to consumers. Prior to these requirements, many foreign (and some US) PC makers in China sold numerous machines “naked,” implicitly inviting their customers to use cheap illegal software.
Changing the China strategy would inevitably lead to changing the globally “one-size-fits-all” set of pricing (such as $560 for the Windows and Office toolset as in the United States).
“Does Microsoft need China?” Nobody needed China less than Microsoft, which became a dynamo without significant China sales. However, in the long run, China’s support of Linux could pose dangers to Microsoft. This was because a public infrastructure for a software industry built around Linux could generate an alternative ecosystem with more low-cost rivals that break free from dependence on Windows.
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1. From an industry-based view, why does Microsoft feel threatened by Linux in China and globally?
2. 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?
3. From an institution-based view, what are the major lessons from Microsoft’s strategic changes?