Microsoft: history, business model, and market impact

MSFT went to China, a big market

MSFT used local alliances to defray risk

There were significant IP protection issues

Chinese govt wants to develop technology sector

Signed agreements with major Chinese tech companies

Set up local R&D facilities

Some favorable actions by Chinese government

Good prospects in China

How should Microsoft address the problems of IP laws in China?

How should Microsoft approach business development in China?

What is the role of government in Microsoft's strategy in China?

Political risk

Market entry strategy

IP protection

Political risk is all the risk of operating in a foreign country that comes from government and politics, so reflects all sorts of government policy. Market entry strategies often help minimize cultural and political risks, and several such strategies are discussed in the case with regard to political risk. IP protection is an issue in many emerging markets and is an important part of this case.

Questions from Case

#1 There are several risks that Microsoft faces in China. There is the legal risk that comes from the laws that the government sets, some of which could be highly restrictive. The government wants to promote local business, so it could change terms of competition that make it hard for Microsoft. There are other risks, too, like expropriation risk. These risks, however, are decreasing with Microsoft's involvement in China. These risks are similar to those in many emerging markets. However, the specific details of these risks from a practical perspective are Chinese. But Microsoft must deal with the same risks in India, Russia, etc.

#2. Microsoft's strategy began by allowing China to pirate its software as a means to build market share. Eventually, the company hoped to collect earnings from this market share. The company then began to work with Chinese firms and to set up joint ventures and local subsidiaries. These tactics aided with the missions of the Chinese government, so Microsoft eventually found that the government's actions were becoming more favorable to Microsoft's interests over time as the result of its strategies.

I feel that the joint ventures and local partnerships worked best, because these created opportunities for technology transfer in particular. Chinese firms benefitted significantly, and because of that Microsoft's actions were viewed favorably. Going forward, these tactics remain strong, but Microsoft needs to stand more on its own in China, having now gained the trust of the Chinese government.