Microsoft Fails by Trying to Coast on Past Successes in China

Relationship Building Not a One-Off Activity in China

10 China Negotiating Mistakes - Buy the eBook on Kindle
Learn from the expensive mistakes of expats who have come before you.

In ChinaSolved’s latest book, “10 Common China Negotiating Mistakes”, 3 on the least wanted is “coasting on good starts and early successes”.  While this is one of the biggest dangers that deep-pocketed MNCs (and their representatives” face in a long-term China business, it can be very hard to anticipate.  Fortunately for us (but unfortunately for them), Microsoft provides a telling case study of how the best efforts don’t always yield successful outcomes.

At the end of May, 2014, the Chinese government’s procurement office announced a ban on MS Windows 8 – the latest generation of the Redmond giant’s operating system and greatest hope of making the leap to touch-screen tablets and mobile devices.

Beijing officially attributed the decision to security concerns, but industry speculation includes anger at the sudden termination of the popular XP system, the high cost of non-pirated versions of Windows 8, and the need for China to develop its own operating system.  While none of these reasons are wrong (ultimately, it was probably a combination of all of the above – though security concerns seem to be least consistent), Microsoft management still should have seen this coming.   China has been talking about the need to develop a home-grown operating system for 20 years, and the runaway success of XP was largely attributable to rampant piracy that made the software available for the equivalent of roughly $1.00 (one US dollar).   When he was still running day-to-day operations at the company, Bill Gates spent huge amounts of time, money, and prestige to develop close ties with senior policy-makers in the Chinese government.  Microsoft was one of the most active Western practitioners of “good guanxi” – spending money on R&D efforts, working with officials to solve the piracy problem and taking a very conciliatory approach with its Bing search engine in China.  Gate’s successor, Steve Ballmer took a much harsher (and more vocal) approach towards Chinese piracy.

Microsoft will doubtlessly make efforts to minimize damage and find ways to maintain a presence in China, but Western negotiators in China can learn from its troubles.

    • The relationship-building work that Gate’s did in China probably ended up doing more harm than good.  Like many “advance team” efforts in China, Microsoft’s senior managers set expectations artificially high in China.  Once the visionaries and strategists turn the reigns over to hard-headed bottom line managers, Chinese counterparts can feel betrayed and conned.  Relationship building in China never ends – if you take your connections for granted, you are making an expensive mistake.
    • Microsoft and other IT companies are in the business of collecting rent on past achievements.  You buy MS because of the installed base of users, the ability to integrate with other systems and users, and to reap the benefit of years of R&D and QC.  China, with its incomplete and still shaky system of IPR is notoriously loathe to pay for last year’s development efforts.  Western managers say, “What have you done for me lately.”  Chinese managers say, “What can you do for me tomorrow?”  If you don’t have a good answer to that question, then your Chinese counterparty is going to consider you dead weight – or worse, parasitic.
    • Microsoft built the market – but trained its own competition.  MS systems dominate the Chinese IT landscape, but without a regulatory and bureaucratic system designed to safeguard their intellectual property, this is more vulnerability than strength.  Just as Cisco paved the way for Huawei, Google was the template for Baidu and YouTube taught Youku, Microsoft has unwittingly been sowing the seeds of its own competition.

The real threat to Microsoft isn’t what happens to its market share in China, but rather what a new Chinese competitor might do on the international market.

“10 Common China Negotiating Mistakes” discusses this and other dangers for Western negotiators in China, and talks about the steps you can take now to learn from the expensive mistakes of those who have come before you.

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