Emerging Markets: Microsoft’s Evolving China Strategy

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Strategy Tripod: Industry-based, resource-based, and institution-based views are the three leading perspectives guide our exploration of globalization.
Microsoft’s first decade in China was disastrous. It established a representative office in 1992 and then set up a wholly owned subsidiary, Microsoft (China), in 1995.The firm quickly realized that it didn’t have a market share problem—everybody was using Windows.
Problem: How to translate that market share into revenue, since everybody seemingly used pirated versions.
Microsoft’s solution? Sue violators in Chinese courts. But Microsoft lost such lawsuits regularly. Alarmed, the Chinese government openly promoted the free open-source Linux operating systems. Chinese government was afraid that Microsoft’s software might contain spy-ware for the US government.
Mid-2000s: Chinese government required all government agencies to use legal software and all PC manufacturers to load legal software before selling to consumers. Prior to these requirements, many foreign (and some US) PC makers in China sold numerous machines “naked,” implicitly inviting their customers to use cheap illegal software.
Changing the China strategy would inevitably lead to changing the globally “one-size-fits-all” set of pricing (such as $560 for the Windows and Office toolset as in the United States).
“Does Microsoft need China?” Nobody needed China less than Microsoft, which became a dynamo without significant China sales. However, in the long run, China’s support of Linux could pose dangers to Microsoft. This was because a public infrastructure for a software industry built around Linux could generate an alternative ecosystem with more low-cost rivals that break free from dependence on Windows.
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Questions:

1. From an industry-based view, why does Microsoft feel threatened by Linux in China and globally?

2. From a resource-based view, what valuable and unique resources and capabilities does Microsoft have in the eyes of the Chinese users and the government?

3. From an institution-based view, what are the major lessons from Microsoft’s strategic changes?

Sample Solution

tariffs. The main purpose of his trade policy is “America first” through the promotion of trade protectionism to protect the US labour market, reduce the trade deficit and revive the manufacturing industry. This will protect the development of local businesses and increase jobs. However, there are consequences for withdrawing from the TPP. Trade protectionism is contrary to the globalisation of free trade. If the US implements trade protectionism for a long time, its international influence will be weakened, especially its economic and political influence in the Asia Pacific region.

Trump’s immigration policy also showed an intransigent attitude. The United States is the largest immigrant country and its immigration policy has always been an important topic. Trump’s immigration policy maintains protectionism. The biggest concern is Trump’s establishment of a wall at the US-Mexico border to prevent the inflow of drugs and illegal immigrants. In addition, the requirements for immigration applications have been raised, and immigration quotas will be given to high skill and high salary people. These measures can reduce government spending on relief and reduce drugs and crime. However, it has seriously affected the relationship between the United States and Mexico.

The US’s $1.5 trillion tax reform policy has also received widespread attention. Corporate income tax fell from 35% to 15%, lower than the average level of OECD, and personal income tax also declined. The new tax reform policy will reduce the U.S. government’s income by 1.5 trillion US dollars. However, when companies return to the United States, the manufacturing industry will improve and create more jobs, which will increase domestic consumption. Capital began to flow back to the United States. The credibility of the government will be enhanced, the exchange rate of US dollar will increase, and the economy has improved. It is likely that the GDP growth rate will exceed 2.5%. The impact on other economies will be extensive, and many countries are starting to consider tax reductions. It has had a negativ

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