Microsoft and Oracle commit to China

Date: Thursday, June 27, 2002 11:32 AM

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Microsoft to spend $750 million in China

BEIJING, China (Reuters) --Software giant Microsoft, 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.

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 Chinese software partnership with another country.

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., 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. is opening its first two
development centers in China this year.

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