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How MNCs can win in China jy (public)

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How MNCs can win in China jy (public)

  1. 1. How Multinationals can still be successful China This article provides update on some of the recent political and business development in China, including trend, impact to multinationals, and recommendations. – Jason Yuan, Beijing How Can Multinationals Win in China There has been a lot of media coverage on a recent prediction by premier Li Keqiang that the Chinese economy would slow from 7.5% GDP growth to 7.0%, that 7.0% is still very respectable in comparison to any country. China is one of the largest consumers of US based IT exports, ranging from semiconductors to sophisticated software. In 2015, Worldwide IT and telecom spending will grow moderately at 3.8%, exceeding $3.8Trillion; and China would account for a “skyrocketing influence” of 43% of all ICT spending growth, despite its GDP growth slows down to 7 percent (IDC Prediction 2015, Dec 2014) Today, the three big players in China are IBM, Oracle, and Microsoft. However, that level of monopoly is been questioned and challenged by Chinese enterprises and the Chinese government. The playing field is beginning to open up and now is the time for us to act. For multinationals, my recommendation that you should adopt the following three key polices.  Forge strategic partnerships with domestic partners: Consider multiple GTM strategies that include OEMing MNC’s technology with a Chinese domestic brand. Leverage partner sales, distribution and support channels, and create a full solution packages rather than selling point products. Successful business transactions in China still require “guanxi” (relationship). These strategic partners typically have far better reach, relationship, and sometimes political influence than a multi-national enterprise.  Made in China: Ensure hardware is manufactured or assembled in China, and that software is partially developed in China.  Embrace openization: Invest and show influence in the open-source software community. Create an open software environment for the targeted offerings for China while sowing the seeds for monetization. Be prepared to support domestic flavors of operating systems. A Shift in Culture to “Domestic Purchase” As stated earlier, the idea of foreign monopolies within China continuing “business as usual” is changing. People, government and Chinese enterprises are looking to promote their own technology and innovation to provide their own solutions – or “domestic purchase.” Over the years, the government has provided significant financial and political support to promote domestic technology in the forms of reduction of tax, free usage of land, and budget investments in “core, high-tech and fundamental” projects. Much of the software development is based on open source platforms and customers are also willing to experiment with alternatives to commercial software such as Linux, Hadoop and OpenStack.
  2. 2. Out with the Old – In with the New…. Thinking While there is no government mandate on IT purchases of foreign hardware and software, the Chinese government has expressed an ambition to replace all of its deployment of Microsoft’s operating system into domestic OS by 2020 – and the private sector is taking notice. There has been a very popular word in the media, “De-IOE”, which stands for “eliminating IBM, Oracle and EMC”. This movement was started as an ambitious experiment by the CTO of Alibaba in 2008 with the eventual goal of not using IBM minicomputers, Oracle Databases and EMC storage. Alibaba experimented with computer clusters of low cost x86 servers instead of supercomputers, which was the first Chinese internet enterprise to fulfill “De-IOE”. The result was an inexpensive cloud platform which was faster than Yahoo at the time. Alibaba’s “De-IOE” movement milestones were reached in May 2013 when they pulled the plug on their last IBM server, and two months later when their advertising department abandoned its Oracle database. The rest of the company’s databases are scheduled to switch to a homegrown system replacing Oracle’s by 2015. Much of hype around “De-IOE” comes from the media, however, there has been a significant shift for brand preferences following Alibaba’s success. Just in the past few months, China Mobile (the largest mobile operator in the world), has decided not to purchase any foreign branded IT security hardware. Other notable industries are government agencies, healthcare, education, telecommunications, large financials, energy, transportation and other state owned enterprises, representing over 50% of the enterprise buying power in China. Among the corporate victims, IBM’s server business suffered the most, dropping from 40% market share to 30%, and Oracle’s market share has remained flat. IBM & EMC – Standouts in the Crowd due to Localization and Partnerships One would expect EMC to suffer as well in China, as its hardware is relatively replaceable by other storage and backup alternatives. It turned out EMC managed to keep up both market leadership as well as revenue. Its high-end storage revenue has grown from $70M to $130M in the past two years (2013, IDC). The success of EMC’s China strategy is its localization strategy. It has formed strategic partnerships with many domestic partners including Lenovo and Digital China, letting local OEM sell or resell EMC technologies under domestic brand. IBM on the other hand, is even more aggressive with its China strategy than many other foreign vendors. IBM sold aits x86 server business to Lenovo and licensed Power8 processing intellectual property to a Chinese start up, allowing processors to be built for the Chinese server and storage market. In terms of software, IBM now shares Informix code with a Chinese software house who modifies it to conform to Chinese government standards. In turn China will be building all future database projects using Informix. These development deals have allowed IBM to book tens of millions of dollars of new business from Bank of China and also successfully sold a set of mainframes to ICBC, the leading bank in China, all in the past quarter.
  3. 3. Re-Innovate Succeed in China! If EMC and IBM can do it in China, so can other MNCs. One of the key success factors is to forge partnerships with domestic companies, ensure that we have solid plans to build hardware and software in China, and embrace the open environment that the Chinese culture has embraced. Adopting a new mindset and behaviors may not be easy, or quick – but it is something that we can do in order to take advantage of the Chinese mindset of “domestic purchase” and not be categorized in the “De-IOE” movement.

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