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Case Study Analysis: "Microsoft's Troubles in China"

I need your HELP answering some questions for this case study "Microsoft's Troubles in China" for each question I need to summarize the strategic and operational challenges facing global managers. And I need to comment on recent global developments affecting the company in this case study

This are the questions:

1. How important is China to Microsoft long term future?

2. What are the legal impediments to Microsoft growing its sales in China? What are the political impediments?

3.Why do you think it is so difficult to reduce software piracy in China? What strategies might Microsoft adopt to try to limit piracy in China? Are there ways of selling software that might make it difficult for piracy to occur?

4. Given the high level of software piracy around the world, to what extent can the threat of trade sanctions be used to force the Chinese to enforce their own intellectual property rights regulations?

5. In the context of the Chinese market, what advantages does Limux operating system have over Microsoft's Window 2000? What advantages does Microsoft have over Limux?

Microsoft's Troubles in China

Microsoft, the world's biggest personal computer software company, developed MS-DOS and then Windows, the operating system and graphical user interface that now reside on more than 90 percent of the world's personal computers. In addition, Microsoft has a slew of best selling application software, including its wordprocessing program (Microsoft Word), spreadsheet program (Excel), and presentation program (Power Point). An integral part of Microsoft's international strategy has been expansion into mainland China, which was projected to become the third largest PC market in the world in 2001. With a population of 1,273 billion, China represents a potentially huge market for Microsoft. Microsoft's initial goal was to buid up Chinese sales from nothing in 1994 to $100 million by 2000, a goal that it appears to have met. However, sales could have been very much higher were it not for a number of problems that Microsoft encountered in China.

The most obvious and serious obstacle to Microsoft's success in China has been the rampant level of software piracy. some 90 to 95 percent of the software used in China is pirated, according to figures from the Business Software Alliance. Microsoft is a prime target of this activity. Most Microsoft products used in China are illegal copies. China's government is believed to be one of the worst offenders. Microsoft's lawyers complain that Beijing doesn't budget for software puchases, forcing its cash-strapped bureaucracy to find cheap software solutions. Ths, Microsoft claims, much of the government ends up using pirated software. To make matters worse, China is an exporter of counterfeit software. Microsoft executives don't have to go far to see the problem. Just a few blocks from the company's Hong Kong office is a tiny shop that offers CDROM's each crammed with dozens of computer programs that collectively are worth about $20,000. The asking price is about 500 Hong Kong dollars, mor $52.

Microsoft officials are quick to point out the problem arises because Chinese judicial authorities do not enforce their own law. Microsoft found this out when it first tried to use China's judicial system to sue software pirates. Microsoft pressed officials in China's southern province of Guangdong to raid a manufacturer that was producing counterfeit holograms that Microsoft used to authenticate its software manuals. The chinese authorities prosecuted the manufacturer, acknowledged that a copyright violation had occurred, but awarded Microsoft only $2,600 and fined the private company $3,000. Undeterred the limited victory, Microsoft continued in its attempts to use the legal system in China to limit copyright violations.

Solution Preview

1. How important is China to Microsoft long-term future?
China is very important to Microsoft's long-term future. China is projected to be the third largest PC market in the world in 2001. With a population of 1,273 billion, China is a huge potential market for Microsoft. Microsoft had a goal of building sales from nothing in 1994 to $100 million in 2000. This was a goal achieved, however, if the statistics are to be believed, and then 90 to 95 percent of the software is pirated. In other words, this means that if Microsoft were able to successfully counter piracy, then its sales in China could be as high as $900 million in no time! The clearly reflects the importance of long term future to Microsoft.

2. What are the legal impediments to Microsoft growing its sales in China? What are the political impediments?
The legal impediments to Microsoft's are that the judicial authorities in China do not enforce their own law. For example, when it first tried to use China's judicial system to sue software pirates. Microsoft compelled officials in China's southern province of Guangdong to raid a manufacturer of counterfeit Microsoft holograms. The illegal manufacturer was prosecuted found guilty of copyright violation and was fined $3,000. Microsoft was awarded $2,600.
The political impediments are that the Chinese government do not budget for software purchases, forcing its cash-strapped bureaucracy to find cheap software solutions. So, the government itself ends up using pirated software!

3.Why do you think it is so difficult to reduce software piracy in China? What strategies might Microsoft adopt to try to limit piracy in China? Are there ways of selling software that might make it difficult for piracy to occur?
It is so difficult to reduce software piracy in China because neither is there any political will to reduce piracy nor is there any legal will to reduce piracy. The government offices use pirated software. Piracy is so rampant that close to Microsoft's own office, there is a shop selling a pirated version of $20,000 software for only $52! This problem ...

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