×

Microsoft’s Nadella is visiting China: Here’s 3 reasons why

Microsoft chief executive Satya Nadella speaks during a fireside chat at the Tsinghua Management School in China on June 1, 2016.
Microsoft
Microsoft chief executive Satya Nadella speaks during a fireside chat at the Tsinghua Management School in China on June 1, 2016.

Microsoft Chief Executive Satya Nadella has become the latest in a string of major U.S. technology bosses in recent months to visit China, following Apple's Tim Cook and Facebook's Mark Zuckerberg.

The world's second-largest economy is seen as a key growth driver for many technology firms, but the path is often rocky with regulatory issues and stiff competition from local firms.

Beijing was the last stop of Nadella's tour of Asia which included India and Singapore. A spokesperson told CNBC the Microsoft CEO did an opening speech at a developer event and also had a fireside chat with the dean of Tsinghua Management School.

But beyond the public engagements, here are three key reasons why Nadella is visiting China.



Getting developers on board

Microsoft has Windows 10 – its operating system that can run across a number of platforms from PCs to its HoloLens augmented reality headset.

The so-called Internet of Things (IoT) – devices connected to the internet – is a big focus for Microsoft and China could play a big role in this.

In a speech on Wednesday, Nadella said that not only is China the manufacturing hub of the world, but it will be the "intelligence behind all manufacturing". Essentially, not only will IoT products be manufactured in China, the software for them will be coded in China too.

Nadella announced the company would open an Azure IoT lab in China, but gave very few details about what this would entail. Azure is Microsoft's cloud platform that can be the backbone of IoT devices allowing them to collect data, connect to the cloud and analyze that information. Juniper Research predicts that the global number of IoT devices will rise 285 percent from 13.4 billion in 2015 to 38.5 billion by 2020.

Microsoft is not interested in making the devices. It is hoping developers will build applications on its cloud, thus helping it to boost revenue in what is already one of the fastest-growing businesses for Microsoft.

Apple and Facebook have both made similar moves in China in a bid to get developers in one of the hottest tech hubs in the world making apps for their platforms.


Dealing with regulators

In 2014, China's State Administration for Industry and Commerce (SAIC) opened an investigation into Microsoft regarding the country's anti-monopoly law relating to "compatibility, bundle sales, file verification issues related to Windows and Office software, and potentially other issues," according to the company. Inspections of Microsoft's offices were carried out.

The investigation is still ongoing. A Microsoft spokesperson could not comment on whether Nadella would be meeting regulators over this issue, but a Reuters report suggested that he would.

It would not be unusual for Nadella to meet the authorities. Last month, Apple's Tim Cook met with China's internet regulator while Facebook's Mark Zuckerberg met the nation's propaganda chief when he visited in March.

Resolving regulatory issues is key for technology companies because it could threaten revenue.

"Certain foreign governments, particularly in China and other countries in Asia, have advanced arguments under their competition laws that exert downward pressure on royalties for our intellectual property. Because these jurisdictions only recently implemented competition laws, their enforcement activities are unpredictable," Microsoft said in a U.S. Securities and Exchange Commission filing along with its fiscal third-quarter earnings in April.


Pushing products

Microsoft has become a largely insignificant player in the mobile space, with Windows Phone commanding just 2 percent of global market share. The Redmond, Washington-based firm announced it was cutting 1,850 jobs last week, with most coming from its mobile division in Finland. This is on top of thousands of other layoffs in the division.

Now Microsoft's focus is getting its software and services across mobile and millions of other devices. Windows 10 which was released last year is Microsoft's big focus. To that end, the company announced it has struck a deal with Chinese smartphone maker Xiaomito get Microsoft software, including Office and Skype, pre-installed on its devices.

Striking deals with local Chinese players is often the way U.S. technology companies are able to expand their products in the country. In December, Microsoft partnered with China Electronics Technology Group, forming a joint venture to deploy Windows 10 across computers in China's government agencies and state-owned enterprises.