US software giant Microsoft (NASDAQ:MSFT) is the subject of 2 major news stories today, casting a spotlight on a pair of very different trends involving e-commerce and foreign companies in China. The first news bit has the world's largest software company formally launching sales of its Xbox gaming console in China through a tie-up with JD.com (NASDAQ:JD), spotlighting the rapid rise of China's second largest e-commerce company following its own tie-up with Internet giant Tencent [(HKEx: 700), (OTCPK:TCEHY)] earlier this year. The second news bit looks more ominous, with word that Microsoft is being probed by one of China's anti-trust regulators.
Let's start with the anti-trust news, as that's perhaps the most worrisome because it reflects an increasingly hostile atmosphere in Beijing towards foreign firms in China. A number of factors are probably behind this recent wave of actions against foreign firms, including growing trade tensions between China and the west and also a recent anti-graft campaign that has ensnared both Chinese and western companies. But the bottom line is that foreign firms are suddenly becoming increasingly vulnerable to both criminal and anti-trust actions in China, often causing severe business disruptions.
According to the latest reports, Microsoft offices in Beijing, Shanghai, Guangzhou and Chengdu have recently been visited by Ministry of Commerce officials conducting an unspecified investigation. (Chinese article) Microsoft confirmed the visits and said it is cooperating, though it's unclear what exactly the Commerce Ministry officials were investigating.
Speculation is rife that the US software giant is being probed for monopolistic behavior, since the Commerce Ministry is one of China's handful of regulators that conducts such probes. Other major foreign firms that have come under recent anti-trust investigations include US smartphone chip giant Qualcomm (NASDAQ:QCOM) (Chinese article) and several Germany luxury car makers. (Chinese article)
We'll have to wait for more news before we can say definitively if this is an anti-trust investigation. Microsoft for years wielded a very real monopoly in the personal computing space through its Windows operating system, which at one time was used by more than 80 percent of the world's PCs. But the recent rise of a new generation of mobile devices and alternate operating systems, most notably Google's (GOOG, GOOGL) Android and Chrome, mean that Microsoft is finally facing some real competition in the market.
Thus it would be somewhat ironic if China was really conducting an anti-trust investigation, since Microsoft is actually quite vulnerable right now in an area it once dominated. That fact would make this new investigation look more politically than commercially motivated, especially following the recent probes of Qualcomm and the luxury automakers. That means Microsoft's software division could be looking at some difficult times ahead in China, as could many other top multinationals.
Meantime, let's look at the more upbeat news that has Microsoft formally launching China sales of its Xbox gaming console in a new tie-up with JD.com. (English article) Under the deal, JD.com will exclusively take pre-orders for the Xbox in China through July 30, with actual sales set to begin in September. Xbox fanatics will only be able to place such pre-orders by clicking on links from the popular QQ and WeChat social networking services offered by Tencent, which earlier this year became one of JD's top partners through a major equity tie-up.
Microsoft and others like Sony (NYSE:SNE) were recently allowed to start selling their gaming consoles in China earlier this year after Beijing lifted a ban that was imposed more than a decade ago. Thus this particular product launch was highly anticipated. Instead, what's noteworthy is the choice of JD and Tencent as Microsoft's partners for the launch. That choice highlights the growing attraction of this JD-Tencent partnership as a key sales channel for top brands, which should help the pair to chip away at Alibaba's current dominance in China's lucrative e-commerce space.
Bottom line: A new probe against Microsoft reflects a growing tide of anti-foreign sentiment in Beijing, while the company's China Xbox launch plans reflect the growing retailing clout of JD.com.
Disclosure: Author has holdings in QCOM.
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