Microsoft Opens the Gates: Patent, Piracy, and Political Challenges in China Essay

Microsoft faced many macro risks when operating in China. Many of these risks included software piracy, Chinese government pressure to transfer technology, host government promotion of competitor products, discriminatory procurement practices by sub-national authorities in China, and the strong encouragement for Microsoft to enter joint ventures with local firms. One main micro risk that Microsoft faced was when the Beijing Municipal government avoided Microsoft by awarding operating system software contracts for 2,000 PCs to Red Flag Linux. I see these risk increasing due to the fact that the Chinese Central Bank has put new restrictions to foreign exchange transactions in attempt to control the flow of convertible currency out of the country. This restriction set in place by the Chinese Central Bank was described as a â€Å"crackdown† on illegal transactions. This change will effectively make it more difficult for both domestic and international companies to move capital in and out of China. In result, only increasing the risks for MNCs to do business in China. Another main reason why I see the risks increasing is that the Chinese government has not made an effort to control the piracy/counterfeiting issues. Counterfeiters are China’s largest state owned factories. These risk are also found in other developing countries such as India where piracy and counterfeiting is a big issue. After the U. S. – China accord on intellectual property rights in 1992, it encouraged Microsoft to explore further opportunities in China. In order to manage political risk in China, initially, Microsoft signed various agreements with Chinese PC producers to pre-load its software on their computers. Other approaches to manage political risk included opening Microsoft Research China (Microsoft’s second international research lab and the first one in Asia) and signed agreements with China’s top four computer makers to preinstall Windows XP on their machines. One of the most notable approaches was when Microsoft signed an accord with the Shanghai Municipal government whereby agreed to help develop Shanghai’s software sector, expand its Shanghai regional support center into a global support center, and train thousands of software architects. Ultimately, Microsoft continued to manage political risks throughout the years by continuing to build agreements with Chinese PC manufacturers, develop new partnerships and better its relations with the Chinese government. I favor the strong ties that Microsoft built over the past two decades with the Chinese government and feel that all the techniques they used to manage political risk were needed in order to conduct profitable business in such a scrutinized country and economy. Going forward, Microsoft should continue to try and enforce IPR and keep healthy relationships with the Chinese for obvious reasons. They should keep developing partnerships and build a Microsoft oriented software sector in China through training/certification to strengthen the company’s forecast. By having to deal with lower levels of government, it created an initial challenge to â€Å"win† over the lower level of government in order to strengthen Microsoft’s overall relationship with China. Specific challenges included when the they signed agreements with China’s State Development & Planning Commission to invest in education/training, signed a large investment and cooperation deal with the Beijing Commission on Science & Technology and struck partnership deals with various Chinese companies such as Petro China. Although Microsoft kept making strong efforts to strengthen the relationship with China, they still faced many challenges to overcome China’s discrimination towards the company by requiring all ministries to purchase Linux based software. These challenges created new opportunities for Microsoft to create new initiatives to benefit the Chinese economy which in result helped them build a strong footprint in China. Yes other firms do have the same risk management options as Microsoft did. Other firms did have the same risk management options because all MNCs faced the same macro/micro issues that Microsoft faced when entering the China markets which included pressure to transfer technology, host government promotion of competitor products, discriminatory procurement practices by sub-national authorities in China, and the strong encouragement to enter joint ventures with local firms. Microsoft is creating serious risks by supporting, financing, and transferring technology to local Chinese software firms but had to do so in rder to have success in China. By them giving back to the Chinese economy, in return a large percentage of software users are using Microsoft product legally and illegally. In result, the end user is most likely using a Microsoft product and creates brand awareness. Microsoft used the appropriabiltiy theory to manage their risks by only sharing information with their partners that is only appropriate in order to make the partnership work.