Newsweek has an interesting piece on Microsoft's new strategy in China.
For Microsoft, the problem with doing business in China comes down mainly to one thing: piracy. Touts line the street outside a new $80 million Microsoft research center in Beijing, steering customers through alleys to run-down apartments where bootleg copies of Microsoft Office and Word are peddled for about $1, at least $199 less than the global retail price. Ninety percent of Microsoft products used in China are pirated, and for years the company battled back with its signature mix of bullying and intimidation. But in China the government has been sympathetic to the pirates, openly hostile to the Microsoft monopoly and officially embraced Linux, the free rival to Windows. Cheap software has been critical to China's economic boom, and Beijing saw no upside to forcing citizens with an average annual income of $1,000 to spend much of it on Windows.
The new Microsoft China strategy attempts to create a constituency for full-price software, starting with the political and business elite. This means improving customer support for big Chinese companies, helping Beijing develop a domestic software industry trained on and tied to Microsoft products, sharing more technology than it normally would and easing up on buyers of pirated software (but not on pirates). In September Microsoft made Timothy Chen its new China CEO and the face of its softer strategy. Chen, a 10-year veteran of Motorola China, says he was drawn by a mandate from the top—Gates and Ballmer—to revamp the Microsoft operation. "They all wanted to see an integrated China strategy, a road map," says Chen. He has dropped "the threatening-letter approach" and focused on recruiting large corporations as paying customers: "If we do that, I think then the legal users will come."
Western companies have had a notoriously difficult time in China. We'll see if Microsoft can do any better.