Microsoft, stirring to life in China after years of relative quiet, expects to chalk up sales growth of more than 30 percent in China this fiscal year and hopes to launch its Xbox 360 game console there.
Microsoft's recent advances in the market also come as the deals by the world's top software company come as its peers--from outsourcing specialists such as India's Infosys Technologies and Tata Consultancy to developers such as Sun Microsystems--launched their own Chinese initiatives.
Other multinationals such as Sun and BearingPoint have also announced ambitious build-up plans for the market. For instance, Sun is aiming to more than double its software engineer headcount to 1,000 within two years. BearingPoint is looking to eventually employ as many as 10,000 engineers in the country.
All are trying to stake out a spot in a software market that grew at an average annual rate of 39 percent from 1999 to 2003, when it was worth $19.7 billion, according to official data.
Microsoft saw its China revenue jump more than 30 percent in its last fiscal year ended June 30 and hoped to repeat the performance in fiscal 2006, Tim Chen, Greater China chief executive for the world's top software firm, told Reuters.
Sales-wise, we are improving, Chen said in an interview on the sidelines of a business forum in Shanghai. We had over 30 percent growth in our last fiscal year. This year, hopefully, we can maintain similar growth.
Foreign multinationals are looking also to diversify operations to take advantage of China's relatively skilled and lower-cost workforce, and its growing pool of software design shops that can serve as partners or acquisition targets.
International companies are past the flag-planting stage, said Chris Ip, a software specialist at consultancy McKinsey. Most of them now have a presence in China, some for many years. So they want to move to the next level of growth in China, and start seeing some of their China initiatives bears fruit, he said.
Microsoft has engineered a series of strategic acquisitions this year in the world's seventh-largest economy, hoping to carve out a bigger share of a US$20 billion software market that has grown at almost 40 percent annually in past years.
Now, Microsoft is fighting an uphill battle in China as Beijing promotes broader use of the open-source Linux operating system, a lower-cost alternative and a direct rival to the US giant's flagship Windows system came to light this month in testimony by Kai-Fu Lee, a former executive who set up Microsoft's research center in Beijing.
It seemed early on that Microsoft would have a head start. In 2002, the company pledged to invest 6.2 billion yuan ($766 million) in the country--one of the largest foreign investments in the domestic software sector at the time.
But it had made few announcements on its efforts in the two years since, while fending off challenges from up-and-coming homegrown Chinese rivals from UF Soft to Kingdee International.
It has invested US$50 million in China so far this year, and planned to invest another US$10 million before year-end, Chen said.
That all changed in 2005, in what became a string of investments in local partners aimed at advancing or cementing its software and Internet businesses.
In May, Microsoft announced the creation of two ventures for its MSN Internet service in China, saying the development would allow it to offer services running ‘the full gamut of a true Internet portal’ in the market--including services targeted at China's 370 million mobile phone users.
In June, the company unveiled plans to team with Indian software outsourcing leader Tata Consultancy and several Chinese partners to form an IT outsourcing firm, which the investors hoped would serve as a model for Chinese firms hoping to replicate India's outsourcing success.
And in July, Microsoft agreed to invest $25 million in Hong Kong-listed Lang Chao International, a unit of a larger Chinese software maker.
In the latest, Microsoft said that it and International Finance, the World Bank's private sector arm, would together invest $35 million in software maker Chinasoft International.
The company is also pinning big hopes on its much-anticipated Xbox 360 console, hoping to rule the US$25 billion global video game market by knocking rival offerings such as Sony's leading Playstation and Nintendo's Gamecube, now the third-biggest seller.
Chen said he hoped to start selling the console in 2006, but stressed that the timing of its launch was not set in stone. Globally, Microsoft has said it wanted the Xbox 360 on US store shelves on November 22.
Piracy has been a plague for software vendors. Experts and analysts have long dubbed China the world's de facto capital of piracy, and urged Beijing to step up enforcement of intellectual property rights.
With the improving intellectual property rights situation, we expect to invest in two more ventures by the end of the year, bringing our total investment for the year to US$60 million, Chen said on the sidelines of the forum.