Understanding Of Microsofts Strategy In China Commerce Essay


Although the Chinese Trademark Law is now largely in conformity with the TRIPs Agreement, the benefits of protection may not be realized for some time. At ground level there is a general culture of acceptance of counterfeit goods, partly because it makes previously unobtainable foreign goods affordable and partly because there is a lack of interest in enforcing IP rights that are largely owned by foreign companies. In this environment, counterfeiting will always seem attractive as it allows those involved to access an already existing market with low entry costs. In the meantime, however, foreign entities could take an active role in furthering the protection of their rights.

Licensing of IP rights to Chinese nationals and establishing joint ventures would be advantageous. The foreign party would have the benefit of local assistance in navigating legal red tape, and the Chinese party would be encouraged to protect its IP rights through economic incentive. Increased Chinese ownership of IP rights or licences would not only increase public awareness, but also compel enforcement agencies to be more vigilant in carrying out searches. The Microsoft Corporation has been investing in joint ventures involved in building manufacturing enterprises, research and development projects and training programmes at universities for this reason. The Corporation's strategy is that by building friendships with the Chinese ministries and local computer manufacturers, these entities will become more committed to working with Microsoft in the future and protecting its products.

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Similarly, courtesy calls on customs officials and IP enforcement agencies are also an effective way of ensuring greater protection. If officials are given descriptions of the trademarked goods, details of the particular counterfeiting problems and are informed of the 'broader implications such as the potential harm to human safety from fake goods' and damage to the international reputation of China from IP right violations, then the IP right-holders have a greater chance of preserving their rights.

An interdisciplinary network of experts to assist officials at the provincial level in developing concrete programmes to combat counterfeiting, or perhaps establishing a mobile working group of legal experts, would be extremely useful in protecting IP rights. Organization and support for regional and international symposia that bring together representatives of non-government organizations, policy-makers and others to discuss contemporary IP issues would increase awareness of IP problems. Even the TRIPs Agreement recognizes that effective enforcement cannot be achieved in isolation. Article 69 indicates that countries should 'be ready to exchange information on trade in infringing goods, and should promote the exchange of information with regard to trade in counterfeit trademark goods and pirated copyright'. 'Sharing "difficulties", "successes", general implementation strategies and practical steps that each jurisdiction has undergone will assist in improving the enforcement environment' and alert each state to practical issues that they must tackle. Nevertheless, it would appear that any of the above-mentioned measures require a backbone of enforceable legal rights to offer any real protection to IP rights.

In the past decade China has made great progress in reforming its economy and becoming a major player in the world economy. It has also made advances in adopting and enforcing intellectual property rights in a short period of time. The Chinese Trademark Law, in substance, is not far from meeting its obligations under the TRIPs Agreement, although certain provisions, including criminal and civil penalties, need to be expanded. At the same time, foreign trademark owners must accept the challenge of defending their rights in China. The difficulty is that in China statutes and regulations sit alongside social, cultural and economic norms specific to China, and do not clearly prove determinative in a given case.

Despite the growth in counterfeiting and deep-rooted cynicism about law in China, there is reason for optimism. The creation and ongoing development of the Chinese intellectual property system has seen the acquisition of IP rights by ordinary Chinese citizens. The assertion of these rights in court and in the world market will then pave the way for an effective intellectual property system. As the great Chinese scholar Ying Shaowu once said, 'Whatever is rushed to maturity will surely break down early. Whatever is accomplished in a hurry will surely be easily destroyed.'

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Cooperation or competition

The preceding discussion of new material practices in 'Greater China' helps to resolve the question of whether the strategy of siliconization will help to strengthen the competitiveness of the region. In respect of Taiwan, it can be argued that the relocation of industries to Mainland China and the upgrading of its own technological base enables the island to concentrate more on research and development, the global connections of its computer and IT companies and possibly on the supply of Internet content as well. In the case of Hong Kong, its role as a traditional entrepot city is declining with the emergence of other ports in the Pearl River Delta, and the Asian 'crisis' has also exposed an over-dependence on property and financial markets. The territory is thus repositioning itself as a 'logistic, financial and digital centre' with hard and soft infrastructure for Internet services (broadband networks, e-commerce, business consultancy, data centers, content distribution, marketing skills, venture capital, GEM) and project finance. Given that Taiwan is relaxing restrictions on investments in Mainland China, where the demand for investment and venture capital is only likely to increase with WTO accession, Hong Kong is strategically positioned to act as a gateway and fund-raising centre for the whole 'Greater China' region. Likewise, Shenzhen and the Pearl River Delta are well placed to continue their concentration on electronics and IT products, as well as offshore software sites for Chinese-language and multilingual products.

Despite these possibilities for stronger cooperation and the rebuilding of cross-border governance mechanisms along the Silicon and informational supply chain in 'Greater China', however, competition also exists among the various incubators that are being developed. As shown above, the number of software parks in the region is growing, and their similarity may well lead to mutual competition. This can be seen in a number of areas, such as the provision of facilities to house software companies specializing in, for example, Chinese-language applications, or the incubation of local small start-up firms for joint ventures and market listings. The same can be said of the shared aim of attracting global players such as Microsoft, IBM and Oracle to relocate, 45 in the hope that other overseas and local technology firms will be drawn along in their wake. There will also be intense competition to lure talented personnel from other provinces within China and from among the overseas Chinese student community to work in the parks or elsewhere in the economy. As Shenzhen mayor Li Zibin put it in a May 2000 interview in Asian Affairs, '[Hong Kong] needs to attract talents from overseas and it is targeting the same sort of people as Shenzhen'.

Strategies for the Private Sector

In lieu of government-to government action, the private sector has a number of options open to it. 18 Unfortunately, there is considerable disagreement over the strategies involved, depending on both type of industry and size of individual firm within an industry. Each firm has to evaluate its strategy according to its own often unique circumstances. One general rule on which consensus exists is that a physical presence in the PRC is crucial, usually in the form of a representative office or a joint venture with a PRC firm (it is still quite difficult and quite rare to set up independent operations in the PRC). For example, a number of companies - Microsoft, Compaq, IBM, and Hewlett Packard - all have branches and representative offices in Beijing's Haidian district. Sometimes that is necessary because the law requires it. For example, even to file for a patent in the PRC, a commercial enterprise must have a habitual residence or business office, according to Rule 34 of the Patent Law. Moreover, a foreign patent owner is not allowed to prosecute a patent without a local attorney or patent agent.

In the second place, and more important, having a strong physical presence in the PRC is crucial to the effective monitoring of infringement and the development of a strong brand name or loyal customer base. Economists in the PRC remark, for example, that by having a substantial presence, a company can develop a "marketing network in hopes of defeating cheap and poor-quality smuggled or counterfeit laser discs with good-quality and low-priced copyrighted ones, complete with excellent post-sale services" (Yang Xinbin 2008). Some savvy companies are also fighting IPR infringement in more creative ways. Microsoft, for example, recently teamed up with a Hong Kong-based company, Go East Entertainment, and held a promotion to create a popular song "to educate people about the evils of pirated products" (Wei Ke 1998, 6).

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Joint ventures or close relations with manufacturers or licensees can also help to create an indigenous base in favor of strong IPR protection, and to lower the transaction costs of gathering information. Microsoft, for example, has signed six Chinese independent software vendors to adapt and sell its products (Associated Press 2007). Such ventures can also help in conducting market research, which some companies fail to do, and thus find themselves poorly positioned. In the trademark realm, for example, Quaker Oats is now known as "Old Man Brand (lao ren pai)," and the clothing maker Polo has become known as "Three-Legged Horse (san jiao ma)." Coca-Cola fared better, in that its name in Chinese roughly corresponded phonetically to "Thirsty Mouth, Happy Mouth (ke kou ke la)."

To be sure, establishing joint ventures is no panacea. All too often it is the authorized manufacturer who is involved in the infringing activities (Scholefield 2004, 118). Even PRC companies face this problem. It was with some degree of surprise that Fei Jun of the China Film Producers Association (CFPA) found that the agency in charge of protecting film copyrights, the Beijing Tiandu Film Copyright Agency, started its own venture with publishing houses in the name of CFPA and the film studios (Zhu 2007, 9).

Of considerable controversy now are the actions of some firms to establish joint ventures or to buy out the very companies that are committing the IPR infringements. Very large companies such as Microsoft, for example, have employed that strategy, presumably with the philosophy "if you can't beat 'em, join 'em." Others suggest that such a tactic would only encourage companies to engage in similar activity and might backfire, as partnering with IPR infringers could legitimize their activities and would insult Chinese authorities (Birden 2006, 494).


Competitive Move Strategies

Many competitors consider India an integral part of their global competitive strategy. For example, Microsoft introduced Windows 95 in India simultaneously with its launch elsewhere, and Bill Gates wants to see India a major center for its software development. Those competitors who want to exploit the huge market potential of the country will have to bring their latest technologies and products into India.

Global competitors in India prefer to associate themselves with local companies to build business, in some cases, through brand acquisition or facility buy out. Local acquisitions allow companies to reduce the number of competing brands and to compete against other heavy hitters in the fight for market share. An aggressive acquisition strategy, as shown by Unilever's history in India leads to energetic growth. India's liberalization policy enabled Unilever to execute an assertive growth strategy by acquiring a series of medium to large firms in the recent past. The list includes the takeover of Tata Oil Mills ( TOMCO) for soaps and detergents, Kissan for processed foods, Kothari General Foods for coffee, and Dollaps, Quality, and Milkfood for ice cream. Unilever's activities follow a clear strategy of the acquisition of established brands in all these cases. On a global scale, Unilever has formed joint alliances to fight head-on with other MNCs, namely P&G. HLL's exclusive alliance with U.S.-based KimberlyClark in India raises the stakes in competition. Established brand equity and presence in many product categories makes it easier for MNCs with a historical presence in India to erect barriers to entry.

Overall Organization and Management Approaches for India

Partnership is the most common and favorable model for organizational structure in India, from both a business and regulatory outlook. By partnering, many MNCs overcome restrictions placed on foreign companies that limit ownership. Those MNCs that formed joint alliances with the best Indian companies now enjoy considerable advantage over those that waited. GE partnered with Godrej in appliances and kept its partner's name for refrigerators, rather than using GE's name, due to consumer familiarity with the existing brand name. The Godrej name has 40% of the market. Only in the last few years have MNCs entered the Indian market as wholly owned subsidiaries, unassisted by local partnerships.

The government's active role in key sectors, though significant, is gradually shrinking. Still, MNCs usually do not prefer government partnerships, as these may lead to conflicts of interest. The Maruti-Suzuki alliance, 50% owned by Suzuki and about 48% owned by the Government, clearly demonstrates this reality. The alliance jointly holds 70% of India's domestic car market. The government alliance poses some degree of conflict in terms of capacity expansion and globalization goals. For example, the government's globalization strategy may want Maruti to export its different models, including to countries where Suzuki may have its own operation, or at least to neighboring countries. A cash-strapped government partner may not wish to approve expansion plans that reduce its equity stake.

Indians overseas total ten million and their aggregate annual income approximately equals the GDP of all of India, around U.S.$300 billion. Overseas Indians (often referred to as NRIs, or Nonresident Indians) provide a powerful source of contacts, business acumen, and insight. Aligning with Indians living abroad often facilitates MNCs' investment in India as the government encourages foreign investment from Indians.

India's software industry

India's software industry is an oasis of high-tech development in a large developing country. Arora et al. (2008), Evans (1995) and Heeks (2006), among others, have pointed to its largely service nature, which has moved from a 'body shopping' phase of temporarily locating personnel directly in overseas client sites, to offshore development, where the software work is done in India for the overseas client. Most major software enterprises in India provide offshore development services to Fortune 1000 and other MNCs, either as contractors or as offshore in-house development centers. However, recent work (Tschang 2001) has suggested that some companies are trying to move to higher value-added ground in the form of higher value-added services, and products. Many Indian start-up companies have tried to develop products but most have failed to penetrate the product market. I-flex is one of a few such companies to have survived in providing an own-brand product. Other companies have tried to provide higher value-added services. Some firms provide consulting services; others, such as many of the established offshore development firms, provide full end-to-end contract services to multinational clients, ranging from requirements analysis to design and implementation. However, products have a higher degree of value added and potential profits, because of potentially increasing returns to scale (in other words, lower unit costs for each subsequent additional product sold). The barriers to entry in product markets are relatively high for local Indian firms, because product development requires quite large resources and takes a relatively long time. Nevertheless, the barriers to entry appear relatively low to established global firms. For example, a huge commitment of resources by firms like Microsoft provides them with a rapid inroad into a potentially lucrative new domain. Both types of higher-value-added activities-services and products-require relatively great domain knowledge: that is, software development firms need particular knowledge of the customer industry's business.

Software professionals' wages are rising rapidly in India, but the critical mass of talent continues to pull MNCs seeking software talent into India. Furthermore, firms like Infosys, Wipro and TCS that have commandeered the market are continually developing software engineering processes and domain expertise, which allows them to develop increasingly complex projects and take on more independent tasks. For example, they handle an increasing amount of overall information technology (IT) work for MNCs. This requires effective management of the organization's knowledge, including how to disseminate the knowledge from each project that has been acquired by the software developers.

This whole effect can serve to lock up their advantages. Given their continued advantage in providing services, these offshore development firms are loath to take on product development, and have had trouble making money from products. Ultimately, this raises the issue of why product development should be carried out. As mentioned above, products offer a greater potential for increasing returns than do services, which have fairly constant returns to scale (that is, constant costs with increasing projects) and therefore a physical limit to profit growth. On the other hand, success in making products requires some control over the marketplace, and incumbents tend to have this locked up in a market for an established technology. This makes it very difficult, if not impossible, for smaller newcomers to compete with established MNCs such as Microsoft in their product space. New entrants have to devise a strategy that combines a market strategy and a product development strategy. A likely market for a new entrant to pursue is one where the incumbents are relatively uncompetitive-for example, a new market, a developing market or a market where incumbents are locked into older technologies. This is the case for i-flex's entry into the financial sector, where the incumbents tended to be specialized firms dealing with legacy systems. I-flex also chose to aim at more easily penetrable markets such as emerging markets or markets in developing countries. As a product development strategy, it chose initial accumulation of returns, followed by the use of those returns to fund a radical overhaul of its product platform in order to leapfrog its international competitors.