Microsoft inks JV in latest China courtship

Tony Munroe

HONG KONG: Microsoft Corp, in further courtship of a market that has often

frustrated the software king, said this week it made its first joint venture

investment in a Chinese software firm.

Redmond, Washington, based Microsoft said the new venture, called

Zhongguancun Software Co, has a registered capitalization of 100 million yuan

(US$12 million) and will develop enterprise and government applications for the

China and overseas markets.

Microsoft's partners in the Beijing-based project are Beijing Centergate

Technologies (Holding) Co Ltd., also called CENTEK, and the Stone Group. CENTEK

holds a 51 per cent stake in the business, while Stone's share is 31 per cent

and Microsoft's is 19 per cent.

While the investment is small change for the world's dominant software

company, it marks a departure from Microsoft's usual practice of eschewing joint

ventures, and is further evidence of the company's willingness to tailor its

approach to China.

"Our aim is to become one of China's largest software enterprises and

software exporters within five years," said Zhongguancun Software president

Zhu Xiduo, in a statement released after a late Wednesday signing ceremony in

Beijing.

Some analysts estimate the mainland market for software to be used by the

government at US$1.2 billion.

Tempting, tough market



Microsoft is eager to develop the potentially vast mainland market, although it
has been frustrated by rampant piracy and occasional image problems in the

world's most populous nation.

In late December, the city of Beijing snubbed Microsoft in a major software

procurement, according to a recent report by research firm Gartner Group. The

city government instead awarded contracts to six local firms, including Red

Flag, which bases its offerings on the Linux operating system -- the arch-enemy

of Microsoft's Windows.

"Gartner believes Microsoft's failure to win bids in China stemmed

partly from its negotiating skill and its difficulty in maintaining a good

relationship with the Chinese government -- an area Gartner believes Microsoft

is working to improve," analyst Louisa Liu wrote in a January 3 research

note.

Last summer, to counter popular fears that the local version of its flagship

Windows product was not fully secure, Microsoft entered a partnership with a

state-owned software firm to add an extra encryption "lock" tailored

for Windows in China.

Microsoft's aggressive anti-piracy efforts, and its policy of charging the

same price for software no matter how rich or poor the market, have not always

endeared it to mainland software users.

The company itself argues that rampant software piracy in China has stifled

development of a home-grown industry. While China has become a force in hi-tech

hardware, its software sector is comparatively underdeveloped.

China offered an olive branch to Microsoft this week, however, with Zhang Qi,

director in general of the Ministry of Information Industry saying in a

statement: "We appreciate Microsoft's good will in supporting China's

software companies, and its efforts to help us develop software with its own

intellectual property rights."

The Business Software Alliance, an industry group, contends that 94 per cent

of the productivity software installed in China in 2000 was pirated.

(C) Reuters Limited.