Microsoft targets China

23 February 2011

BEIJING: Microsoft, the IT giant, is planning a major innovation push in China, covering areas including smartphones, online search and cloud computing.

As it seeks to strengthen its status in the world's most populous nation, Microsoft will boost its R&D headcount by 10%.

This would equate to the company adding between 300 and 400 people, alongside 3,000 existing staff in China, and another 600 across countries like Australia, Hong Kong and South Korea.

"We will continue to work to improve Windows, our next generation of office products which is more cloud based, and search and advertising," Ya-Qing Zhang, chairman, Microsoft's Asia-Pacific R&D Group, told the Wall Street Journal.

"We will also invest heavily on consumer products such as our Windows Phone, TV and gaming platforms."

Microsoft expects to allocate around $500m (€366m; £310m) to Asia-focused innovation in 2011, and spends roughly $9bn on this area each year globally.

Mobile constitutes a key priority, as competition intensifies from firms like Apple and Google.

In a bid to enhance its position, Microsoft recently announced a tie-up with Nokia, which boasts a particularly strong presence in Asian markets such as China and India.

Apple's iPhone and devices powered by Google's Android have gained an early lead, meaning Microsoft and Nokia are both aiming to catch up.

"We've made some mistakes and we really needed a distribution channel," said Zhang.

"We need their multimedia capability, and Nokia is also really good at reaching all different segments of the phone market. This is a perfect partnership."

Stephen Elop, chief executive of Nokia, predicted the two companies should be able to roll out low cost smartphones "very quickly", although Zhang did not reveal any further details.

"We have a team working on the phones, but I can't comment on the specifics of the partner collaboration," he said.

Other main issues in China relate to piracy, censorship and the large number of rules and regulations currently demanding attention.

"The internet environment in China is changing very quickly," Zhang said.

"For multinational corporations, it takes more time to adapt to the policies in the country and decision making tends to be delayed."

Google has directly experienced the problems presented by China, and pared back its local operations due to concerns over the authorities blocking search results.

Data sourced from Wall Street Journal; additional content by Warc staff