IBM and virtually every other significant tech company on the planet are targeting China as a means for growth because the nation has a phenomenal appetite for technology. One statistic suggests China will account for 43% of the world’s information and communication technology sales growth with Chinese consumers expected to make one-third of all smartphone purchases and to conduct one-third of all online shopping.
However, the Chinese government has also recognized the limitless opportunities its consumers represent, and it has seemed to have gone out of its way to make it difficult for foreign companies to make it in China. Instead, China is focused on growing its own tech industry rather than simply becoming a significant sales destination for foreign companies.
Also, Edward Snowden’s revelations regarding U.S. National Security Agency activities added fuel to the anti-foreign fire. Non-Chinese tech companies, thanks to Snowden’s insights, brought with them security concerns that raised yet another roadblock for outsiders. In fact, a report from Gartner suggests that over 80% of Southeast Asian CIOs don’t believe their companies are adequately protected from digital security breaches. Billionaire Internet video site founder Jia Yueting summed up the challenge facing any one seeking to crack the Chinese market when he declared “Apple is Hitler”. Sure, Jia is rumored to be entering the smartphone market, so taking a stab at Apple was self-serving, and the manner in which he did so was ridiculous, but the message was clear: buy “in-house.” That’s not so different from the “Made in America” mantra so many U.S. companies market.
IBM Has a Plan
As the world’s most populous country, not to mention an economy that has consistently grown at a staggering rate relative to the rest of the world, it’s no wonder tech companies are chomping at the bit to gain a foothold with businesses and consumers in China. The opportunities for the tech industry — across multiple areas including cloud services, devices, and the Internet of Things, to name but a few — are huge.
IBM’s plan is simple but brilliant – rather than fight China’s heightened governmental regulations and growing consumer angst regarding foreign products and services, IBM seeks to work with Chinese companies as they build everything from servers to chips, all utilizing IBM architecture. IBM CEO Ginni Rometty said:
“I think some firms find that perhaps frightening. We, though, at IBM … find that to be a great opportunity.”
That strategy appears spot on – Chinese banking regulators have mandated that the nation’s financial institutions use more “made in China” technologies: that’s how focused its government is on weaning itself off foreign technology. IBM’s approach, along with the development of strategic partnerships with several Chinese tech companies, is a way to participate in the world’s largest market even as others are being squeezed out. Going forward, investors would be wise to monitor revenue from IBM’s China efforts. Big Blue is finally beginning to stem its losses in China.