After years of making slow but steady inroads in the U.S., the operating-system software called Linux suddenly is showing signs of catching on in China. On Mar. 23, Hewlett-Packard (HPQ) announced plans to sell Linux desktop PCs in Asia, in partnership with Tokyo-based Turbolinux. A few days earlier, Open Source Development Labs, a U.S.-based Linux booster, revealed that it had accepted a second Chinese software group as a member. The same day, stories in Taiwanese newspapers reported that several of the nation's second-tier notebook makers plan to sell Linux machines in the world's largest country.
China is a tiny market for Linux at the moment. But Beijing plans to change that. It may soon issue a requirement that a certain percentage of all software sold in China be developed locally. If that rule goes through, it almost certainly will encourage domestic developers to turn to Linux. In addition, several other long-term trends bode well for the adoption of Linux in the Middle Kingdom.
Distrust of Microsoft:
For years, Microsoft co-founder Bill Gates and CEO Steve Ballmer have courted the Chinese, frequently visiting Beijing to meet with top government officials. Microsoft has opened a service center in Shanghai and a major research lab in the capital. The Beijing facility is now a key part of Microsoft's global R&D operation.
Such moves are part of a strategy to win friends in high places who will help Microsoft secure a share of what someday could be the world's largest software market -- one where most software in use today has been pirated. The problem for Microsoft: It's American -- and your typical Chinese leader isn't sure that it's a good idea to let in a foreign company with the power to dominate the local software market.
In such an environment, developing Linux is a way for the Chinese to hedge their bets by going with an anti-Microsoft alternative -- one that can easily be provided by non-U.S. companies.
Dislike of royalties:
This applies to all foreign companies, not just Microsoft. The Chinese simply don't like to pay royalties to outsiders, even ones who have invented valuable technology. For years, Chinese manufacturers of DVD players enjoyed terrific growth, thanks in no small part to the fact that they refused to pay for the foreign-developed DVD technology they were using. Eventually, the patent holders -- companies such as Sony (SNE), Matsushita (MC), and Philips -- decided they could no longer look the other way and demanded to be paid.
The Chinese reluctantly agreed -- then pushed ahead with plans to develop an alternative standard, called EVD, that would let them pay less to the foreigners. Since Linux is open source -- in its most elementary form, free -- it appeals to Chinese leaders who resent having to send money offshore.
The counterfeiting crackdown:
China is notorious as an international scofflaw when it comes to violating intellectual-property rights (see BW Asian Cover Story, 3/15/04, "China.Net"). Historically, that has been a big problem not just for Microsoft but also for local software companies that want to become big and need to make money on their software to do it. That explains why Shenzhen-based software developer Kingsoft has shifted its focus from software and to online games, which are much harder to copy.
Since joining the World Trade Organization in late 2001, however, China has moved to curb counterfeiting. Today, it has the legal framework in place to crack down on illegal copiers, and government offices around the country have mandated that civil servants use only software that they've purchased legtimately. While that's good for the worldwide software industry, it's a problem for China because legitimate software is so much more expensive than the pirated variety. That creates a huge incentive to find software that's reasonably priced -- an edge for low-cost, open-source Linux.
China's global ambitions:
Linux is also a key component of Beijing's strategy to make the country a tech powerhouse. China can't be beat as a manufacturing hub. But its leaders realize that in order to build a 21st century economy to rival that of the U.S., they have to develop the nation's brainpower as well.
That's one reason the Chinese have mandated a controversial new Wi-Fi standard known as WAPI and are requiring any foreign company that wants to sell wireless local-area-network equipment to work with one of two dozen local companies with access to the Chinese-developed encryption software that's at the heart of WAPI (see BW Online, 3/15/04, "China's Wi-Fi Wrangle"). The goal is to boost the Chinese software industry. And by leaning to Linux, Chinese leaders hope that they can nurture local companies into worldwide technology players.
It isn't a sure thing that Linux will become the dominant software in China. The market is in its infancy, and plenty can still change. Indeed, it would be a mistake to underestimate Microsoft's resourcefulness. But China sees Linux as a way to help it reach many of its technology goals. And that may give the penguin brigade a big opening in what could turn out to be the world's largest technology market. By Bruce Einhorn in Hong Kong