U.S. technology companies that want a piece of the China pie need to take a long-term view — and that could mean developing some of their intellectual property in the world’s second largest economy, said the chairman and chief executive officer of Microsoft Greater China Region on Wednesday.
American companies should be prepared to invest in research and development over a period of time and be open to working with local partners to bring various technologies to market, Alain Crozier told CNBC’s Deirdre Bosa during a fireside chat at the East Tech West conference held in the Nansha district of Guangzhou, .
“You have to invest,” Crozier said. “Investing means, at some point, some of your (intellectual property) is going to be developed here. So, you need to not have this fear that everything is going to go the negative way. I think that’s a very important one.”
The United States has previously accused China of widespread intellectual property theft and said it costs the U.S. between $225 billion and $600 billion every year.
If you just come (to China) for business, I think your challenges are going to be way bigger.
China is home to Microsoft’s largest research and development center outside the U.S. It’s where researchers focus on technology areas that are crucial to the company’s long-term strategy, such as artificial intelligence.
Besides investing in research, companies need to contribute to the domestic technology environment and it extends beyond just doing business, and includes nurturing talent, and working with partners, Crozier said.
Many former Microsoft employees left the tech giant to start their own companies in China or play important roles in others — for example, ByteDance, which started a popular Chinese social media app, has a research arm that’s headed by a former Microsoft Research Asia executive.
Typically, U.S. tech companies work with local partners in order to sell in China. For its part, he explained, Microsoft works with thousands of partners in the country to bring some of its own, as well as competitive technologies, to market together.
“If you just come here for business, I think your challenges are going to be way bigger,” he said.
One thing that Microsoft competitors Facebook and Google need to understand is that some of the ways of doing business in China are slightly different, according to Crozier.
Recently, Google drew widespread criticism from its own employees when it was reported that the company was secretly working on a search app that restricts content banned by Beijing. The tech giant originally withdrew its search service from China in 2010 due to increased concerns about cyber attacks and censorship.
Microsoft is developing a specific version of Windows for the Chinese government and some state-owned enterprises, Crozier said. He explained that it was not possible for a tech company to sell the same products in various parts of the world because buyers, including governments, want to exert some sort of control over the technologies they use.
“Because some governments — and it’s not China, it’s China and many others — want to have some protection, they want to make sure that if they bet on a networking system, or on a cloud, which are the two largest components of any strategy, then there is a way to make sure that you can control what is being done in those spaces,” Crozier said.
“I would say that you have to make some compromise, you have to adjust, you have to work hand-in-hand with customers, no matter if they’re China, Germany, Croatia or Brazil,” he added.
China is a lucrative opportunity for global technology companies. Even though it is one of the most controlling states in the world, Beijing has allowed some sectors, such as local internet firms, to thrive relatively unrestricted.
It is part of the “Made in China 2025” plan where the country is investing heavily in high-end technologies such as artificial intelligence in a bid to catch up with rivals like the U.S. and Germany. Moreover, China’s massive population gives tech companies a large market to sell to.
When asked if that meant American tech companies might have to compromise on certain principles in order to operate in other parts of the world, he explained that firms are not always going to be working in a “contained environment.”
“You’re going to have to work with your neighbors and they may not behave, they may not react — policies are the same way. I think you have to just be able to navigate through that, and, again, be very patient and just focus on the long term,” Crozier said.