Thursday June 27, 8:33 am Eastern Time Reuters Company News Microsoft to spend $750 million in China courtship
(Adds comments by software executive, analyst, Oracle reference)
By Jonah Greenberg and Tony Munroe
BEIJING, June 27 (Reuters) - Software giant Microsoft Corp (NasdaqNM:MSFT - News), in an unprecedented commitment to a market that has often confounded it, said on Thursday it would invest $750 million in China over the next three years. ADVERTISEMENT
Microsoft signed a memorandum of understanding with China's powerful State Development Planning Commission (SDPC) during a two-day visit by chief executive Steve Ballmer.
The Redmond, Washington-based behemoth was vague on details of its outlay, the biggest Sino-foreign software tie-up.
Ballmer told reporters the deal with China covers a "wide variety of fronts: outsourcing, exports, local training, development, just to name a few."
He said China had not made any specific pledges in return.
"There's no real commitment that I would say is part of the agreement that we signed," Ballmer said during a news conference.
"We want the Chinese industry to grow. The success of Microsoft in every market, including China's, is highly dependent upon the growth of local industry. What's good for the local industry in every country is good for Microsoft."
Microsoft also announced a 200 million yuan ($24 million) three-year investment in Chinese educational and research institutions, plus a $480,000 investment to set up a software college in Shanghai.
"It could be a wise move or it could be smoke and mirrors. It's hard to tell from the surface of it," said James Ding, chief executive of AsiaInfo Holdings Inc (NasdaqNM:ASIA - News), a leading telecommunications software supplier in China.
"I've seen too many of these companies make similar commitments over the last years, where they don't end up spending the money because it doesn't fit into their market strategy later on," Ding said.
RAMPANT PIRACY, TOUGH MARKET
The sight of a beaming Ballmer and 18 Chinese officials and Microsoft executives sharing a stage on Thursday underscored a thaw in the sometimes frosty relations between the world's biggest software firm and the most populous nation.
Software piracy is rampant in China and Microsoft has long complained that a lack of enforcement of intellectual property rights has stunted development of a homegrown software industry.
"Certainly software piracy rates in China are high, but there is nothing in the agreement specifically around that," Ballmer said. He said China's desire to develop its software industry was an incentive to improving intellectual property protection.
"As the Chinese government focuses in on the development of the local IT industry and its ability to export, having a good domestic market for those local Chinese companies to do intellectual property development is even more important," he said. "I think that is as clearly understood by Premier Zhu (Rongji) and the senior people I've met with as anything is."
China, with a wealth of engineering talent, wants to elevate its local software sector from its current backwater status.
The country, which has built itself into a hardware and electronics powerhouse, had a packaged software market last year of just $1.5 billion, or about 15th largest in the world, according to one estimate.
BURNISHING IMAGE
Microsoft has irritated some Chinese with its aggressive anti-piracy efforts, as well as its policy of charging the same price for software no matter how rich or poor the market.
"Given the problems Microsoft has had in this market, anything that aligns them with government interests more closely is of some value," said Patrick Horgan, head telecoms and Internet consultant at Apco in Beijing.
Last December the Beijing municipal government snubbed the company in a software procurement. Some in China have encouraged development of a local version of the Linux operating system -- arch rival to Microsoft's dominant Windows platform.
Microsoft has said its image in China has improved since hitting a low in the 1990s.
Last year, the company sought to assuage popular local fears that its Windows system was not fully secure by joining with a state-owned software firm to add an extra encryption "lock".
Earlier this year it announced its first two joint venture with Chinese software firms, and recently signed a deal with fast-growing cellphone maker TCL Mobile to base future models on Microsoft's nascent mobile platform.
The world's number two software firm Oracle Corp (NasdaqNM:ORCL - News) is opening its first two development centres in China this year.