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Issue 46, May 2012
Welcome

This newsletter is a monthly supplement to ChinaAnalysis.Com, providing up-to-date analysis about China-related issues.

ChinaCompass Featured Article


Competition and Collaboration:
Impacts of MNCs on China's Cloud Computing Industry

Dongxu Li

Since IBM announced in February of 2008 that it would construct China’s first cloud computing center in Wuxi Taihu New City Science and Education Industrial Park (K-PARK), multinational companies (MNCs) have been influencing and shaping China’s cloud computing industry in a number of different ways.

With their strong technological capabilities and first-mover advantages, MNCs have already seized a considerable market share in China. Chinese indigenous cloud firms are under great pressure at their nascent stages. Though Chinese domestic cloud companies have accomplished a great deal in innovating cloud computing application software and datacenter hardware, MNCs are still dominating the markets for high-end cloud computing operation systems, platform software, and large-scale databases.

Chinese domestic firms are facing growing competition from MNCs which are accelerating their strategic rollouts in China. Multinational cloud firms offer highly competitive products for each cloud computing niche market. In the IaaS (Infrastructure as a Service) market, products offered by MNCs include Hyper-V by Microsoft, SmartCloud Enterprise by IBM, vCloud by VMware, CloudSystem by HP, XenServer by Citrix, Unified Computing System by Cisco, etc. In the PaaS (Platform as a Service) market, various platform products offered by MNCs include WebSphere by IBM, Windows Azure by Microsoft, Cloud Foundry by VMware, Force.com and Heroku by Salesforce, etc. In the SaaS (Software as a Service) market, MNCs offer diversified cloud computing applications, including Lotus Live and Tivoli Live by IBM, Dynamics Online and Microsoft Online Services by Microsoft, Salesforce CRM by Salesforce, etc. Furthermore, in the cloud datacenter hardware market, some multinational companies like Intel, AMD, EMC, Citrix, NetApp, Cisco, HP and IBM are also posing fierce competition to Chinese domestic hardware providers.

While MNCs are posing great challenges to China’s cloud computing industry, they have also facilitated the development of this emerging industry through different forms of collaboration with Chinese indigenous cloud firms. According to the forecast by CCID (China Center for Information Industry Development), the Chinese cloud computing market size will increase from 16.7 billion RBM in 2010 to 117.4 billion RMB in 2013, with a compound annual growth rate of about 92% (CCID Consulting, 2011 April). To access the huge potential market, an increasing number of MNCs are actively seeking partnerships with local Chinese governments and domestic cloud computing firms.

The partnership between America’s EMC and China Electronics Corporation (CEC) is a prime example. According to Xinhua News’ report on May 22, 2011, Chenghui Ye, the Senior Vice President of EMC & President of Greater EMC China, stated that “In China, neither government customers nor enterprise customers are willing to completely outsource their cloud computing projects to an American company. Therefore, we have to partner with Chinese domestic firms or establish joint ventures”. On May 19th 2011, EMC and CEC signed a strategic cooperation memorandum under which the two companies will collaborate in the development of next-generation information management and storage systems, information security solutions, and server technology. In the initial stage of the collaboration, CEC will launch its own brand storage product and build a technical support system. As the collaboration deepens, the two parties will establish a joint venture and discuss other forms of collaboration such as ODM (Original Design Manufacturer), technology licensing, joint R&D, etc.

Many such examples of market and technology collaborations between multinational and domestic firms have been seen in China’s cloud computing industry over the past several years. Through these interactions and partnerships, Chinese indigenous cloud computing firms have not only gained valuable technology know-how but also learned advanced management experiences from MNCs.

The impacts of MNCs on China’s cloud computing industry are complicated and the dynamics of competition and collaboration between multinational and domestic firms will continue to influence and shape the industry’s evolution. Through the strengthening of international technology collaborations and the growing innovative capability of indigenous firms, the outlook for the growing competitiveness of China’s cloud computing industry is very optimistic.

 

Dongxu Li is a MA candidate in Regional Economic and Social Development at the University of Massachusetts. Inspired by her previous work experince at Microsoft, Dongxu has been studying China's emerging Cloud computing industry since 2011.


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