Internet & Tech

Operating code

Dell’s strategy in China: work with Beijing

Michael Dell

Dell: investing $125 billion in China

In Chinese mythology, the qilin, a chimerical beast, is seen as a fortuitous omen. The animal is rumoured to appear only during the reign of good emperors. During the Ming Dynasty (1368-1644), the admiral Zheng He returned from an expedition to Bengal with a creature no one had seen before: a giraffe. Seeing an opportunity, Emperor Zhu Yongle immediately proclaimed it was a qilin, in hope of validating his rule.

In modern day China, hopes are again resting on a qilin that has been brought from overseas. According to a report in the Wall Street Journal, rather than being preloaded with Microsoft Windows, 42% of the PCs sold by Dell in China run a locally-developed operating system called NeoKylin. (NeoKylin is the latest OS from Kylin, whose Chinese name, not uncoincidentally, references the qilin.)

Dell began incorporating NeoKylin operating systems into its China-bound computers last year, and since then Hewlett-Packard has followed suit. For Beijing, this seems like a solid step towards its goal of domesticating China’s information technology market. However, according to China Daily, Dell sales only account for 11% of the PC market.

A previous attempt to implement a domestic operating system, the China Operating System (COS), failed to take hold. It was released for smartphones in January 2014 but less than 2% of the smartphone market in China runs on an OS other than Android or Apple iOS, according to the South China Morning Post. (Prior to that, a locally developed operating system for PCs also failed to gain traction, see WiC227).

Tech blog notes that the majority of the Dell PCs operating the NeoKylin OS are sold to government institutions, which are required to run it due to “security concerns”. NeoKylin’s usage outside the government market is a lot less prevalent.

It also points out that NeoKylin isn’t wholly homegrown – apparently an earlier version was developed for the Chinese by the British technology company Canonical.

Last Thursday, Dell’s eponymous CEO Michael Dell announced that the firm would be investing $125 billion in China over the next five years as part of its recent “In China, For China” initiative.

There are plans to create an artificial intelligence laboratory in partnership with the Chinese Academy of Sciences and a deal has been struck with Kingsoft to develop big data and cloud computing products, Bloomberg has reported.

Dell is also promising closer integration between its China strategy and “national policies”. But some of these policies have caused concern among other American tech firms that likewise hope to increase their reach in the Chinese markets. Last week the New York Times revealed that the Chinese government had asked several US tech companies to sign agreements promising to adhere to the principles of “not harming national security and not harming consumer rights”.

Within the six-point agreement is a clause requesting cooperation with “third party” investigations to ensure that products are “secure and controllable”. One point of speculation: could the clause allow Chinese companies to get ‘back door’ access to data or gain confidential source code from the US firms?

It wasn’t clear whether the tech bosses that met with President Xi in Seattle earlier this week had received this document or whether any of them had signed it.

However, the prospect of submitting to China’s increasingly stringent requirements hasn’t dissuaded some from investing in the world’s largest market. According to the Wall Street Journal, Intel, IBM, Hewlett-Packard and Qualcomm have all signed agreements with Chinese firms over the last year in which they’ve offered to develop new technology locally in exchange for a greater share of the market.

Industry insiders believe, however, that a long-term trend of localisation is underway. CBI News, a computer industry publication, reports that China’s server maker Inspur has been usurping IBM’s dominance in the corporate market, helped by Beijing’s concerns over security-related issues and other policies designed to promote domestic IT production. Bucking the trend of single digit growth, Inspur’s revenues rose 44.24% in the first half of the year (we first flagged its prospects in WiC241).

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