New Microsoft Chief Sets Sail For China

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 |  About: Microsoft Corporation (MSFT)
by: Doug Young

It's become a sort of rite of passage for CEOs of major tech firms to visit China after moving into their job, which looks set to happen again with a September trip to Beijing set for Microsoft's (NASDAQ:MSFT) new top executive Satya Nadella. Tim Cook traveled to China just 6 months after taking the reins from Steve Jobs as Apple's (NASDAQ:AAPL) CEO in 2011, and has visited the country several times since then. Even Twitter's (NYSE:TWTR) CEO Dick Costolo visited Shanghai earlier this year, just months after the social networking giant's New York IPO, despite saying earlier that China wasn't a market where his company could do business.

It's not difficult to understand why these executives all come to China, which has emerged as the world's largest Internet market and also the biggest for smartphones and personal computers. As that happened, China has become one of the biggest markets for many of these companies. But its unusual and often difficult business environment, combined with the local emphasis on personal relationships, means personal visits by a company's top executives are often crucial for effectively doing business.

China is also a market that's very prone to controversy, in no small part due to the high degree of government interference in corporate affairs and state control of the media. Those factors are at play in a current Chinese conflict for Microsoft, which is being investigated for anti-competitive behavior involving several of its most popular products, including its Windows operating system, Office software suite and its Internet Explorer web browser.

That conflict, which could see Microsoft face large fines and forced to change its business practices, is almost certainly a factor behind Satya Nadella's decision to visit China late next month. (English article; Chinese article) The unnamed sources who disclosed the visit didn't give any more details, including whether Nadella will meet with government officials to discuss the antitrust probe being conducted by the State Administration for Industry and Commerce (SAIC).

Despite the lack of confirmation, I am nearly 100 percent confident that Nadella will pay visits on officials at SAIC to discuss the antitrust probe, and also on a wide range of other big state-run companies that are Microsoft's partners. Media previously reported that Microsoft's Deputy General Counsel Mary Snapp flew to Beijing to meet with SAIC investigators earlier this month.

From my perspective as a former reporter, I find it interesting that Microsoft has chosen to leak this visit to the media, which looks like a strategic move to influence public opinion. Visits by others like Apple's Cook, Twitter's Costolo, Google (NASDAQ:GOOG) executive chairman Eric Schmidt and Facebook (NASDAQ:FB) chief Mark Zuckerberg have all been much lower key affairs that weren't publicized at all, and were only reported after the executives were spotted by people in China.

In this case, the leak about Nadella's visit looks like a ploy to "give face" to central leaders in Beijing. Nadella was only named as Microsoft's new CEO in February, and thus his trip to China comes just half a year after he took over at helm of the world's biggest software company. At the same time, his personal visit will show he wants to find an amicable solution to the antitrust probe.

Such a move would be a nice gesture to Beijing, which has been criticized for unfairly targeting foreign firms with a recent wave of antitrust probes that some say are protectionist. We saw similar conciliatory gestures last week from leading smartphone chip maker Qualcomm (NASDAQ:QCOM), which is also facing an antitrust probe. On the whole, this visit does look like a shrewd move by Nadella, and could result in an agreement that could settle the antitrust investigation in a way that satisfies both Beijing and Microsoft.

Bottom line: A visit next month to China by new Microsoft CEO Satya Nadella could end with a settlement of Beijing's antitrust probe, providing positive publicity for both sides.

Disclosure: Author has holdings in QCOM.