Newsweek writes how China is changing Microsoft:
Most Western companies still lose money in China owing to bureaucratic meddling, mistrust of foreigners, weak courts and other symptoms of the incomplete transition to capitalism. Even Microsoft, a famously efficient cash machine, admits it has struggled mightily in the country. The company sees its future in international sales and desperately needs to make it in the mother of all markets. To a large degree, Ballmer’s legacy depends on it. For now executives say only that the software giant is not making the profit it should in China.
But there are signs of change: from cars to couture, more Western companies are starting to crack the Chinese code. The outlook is improving for Microsoft as well, owing in part to a 180-degree shift in strategy. On several recent occasions, Ballmer has conceded that China is perhaps the one nation “absolutely big enough” to seriously challenge global computer standards like Windows. Between the lines, it’s now clear that Microsoft is no longer trying to change China; China is changing Microsoft.
For the software giant, the problem with doing business in China comes down mainly to one thing: piracy…Ninety percent of Microsoft products used in China are pirated, and for years the company battled back with its signature mix of bullying and intimidation. But in China, the government has been sympathetic to the pirates and openly hostile to the Microsoft monopoly, and has officially embraced Linux, the free rival to Windows. Cheap software has been critical to China’s economic boom, and Beijing saw no upside to forcing citizens with an average annual income of $1,000 to spend much of it on Windows.
Microsoft’s new China strategy attempts to create a constituency for full-price software, starting with the political and business elite. This means improving customer support for big Chinese companies, helping Beijing develop a domestic software industry trained on and tied to Microsoft products, sharing more technology than it normally would and easing up on buyers of pirated software (but not on pirates). In September, Microsoft made Timothy Chen its new China CEO and the face of its softer strategy. Chen, a 10-year veteran of Motorola China, says he was drawn by a mandate from the topGates and Ballmerto revamp the Microsoft operation. “They all wanted to see an integrated China strategy, a road map,” says Chen. He has dropped “the threatening-letter approach” and focused on recruiting large corporations as paying customers: “If we do that, I think then the legal users will come.”