INFORMATION TECHNOLOGY

Oracle chief says US software giant’s China expansion on track despite Beijing protectionism, market slump

PUBLISHED : Monday, 24 August, 2015, 11:04am
UPDATED : Monday, 24 August, 2015, 11:04am

Oracle, the world’s second-biggest software company, is betting on increased investment in manpower, research and development to fuel its growth in mainland China, despite Beijing’s drive to promote indigenous information technology suppliers.

“It’s very important to get our technology China-ready, and make sure we have the ability to sell and support our products in the country. Those are our primary investments,” Oracle co-chief executive Mark Hurd told the South China Morning Post.

“You hear quite a bit of rhetoric about de-investing in China for whatever reasons.  So as others do something else, the opportunity to invest becomes more interesting for us.”

READ MORE: Global business associations urge China to drop foreign tech 'black-list' for bank IT procurement

Hurd’s optimistic perspective, however, may not be fully shared by other foreign information technology suppliers in mainland China, following the government’s recent adoption of a new National Security Law that calls for official review of “any foreign investment, key technologies, internet and information technology products and services and other important matters and activities that impact or are likely to impact national security”. 

United States-based think tank the Information Technology and Innovation Foundation last month described the law as “part of a strategic effort to reduce the market share of foreign IT companies in China in order to build up the capacities of Chinese-owned IT companies”.

Stephen Ezell, a senior analyst at the foundation, previously said that mainland China “has been trying to find ways to replace foreign-produced information and communications technology products with domestically produced ones going back to the country's indigenous innovation government policies, which began as early as 2009”.

While details about the national security law’s practical implementation remain unclear, it represents a big obstacle for foreign technology suppliers to stay relevant in the world’s third-biggest information technology market after the United States and Japan.

Research firm Gartner has forecast information technology spending in mainland China to reach 2.17 trillion yuan (US$339 billion) this year, up from 2.08 trillion yuan last year.

The estimated rise in the country’s information technology spending compared favourably against the global market, which Gartner predicted to decline 5.5 per cent year on year to US$3.5 trillion.

Based in California’s Silicon Valley, Oracle primarily competes in the software and data centre systems market segments. Gartner has projected expenditure of 56.53 billion yuan in software and 110.31 billion yuan in data centre systems this year in mainland China.

“Certain sectors have different results,” Hurd said. “In our case, we have more opportunities for growth in China.”

Oracle, the long-time global market leader in database technology, has been aggressive in rolling out its high-performance servers used in data centre and arguably its industry’s most extensive range of “cloud-computing” applications. 

Technology research firm IDC estimated that mainland China’s public cloud service market reached US$902.8 million last year, up 61.9 per cent from 2013. IDC, however, said that made up less than 3 per cent of the comparably larger US public cloud market last year.

Hurd pointed out that Oracle has long been invested in the country. The company established operations there in 1989 and now has more than 25,000 enterprise customers, 1,500 partners in distribution, systems integration and consultancy, four research and development centres, and more than 5,000 employees spread across about 18 branch offices.

“Do I think we have been as effective as we could be in China? The answer is no,” Hurd said. 

“Do I think our customers in China have a complete, up-to-date view of Oracle’s product portfolio? The answer is no.”

With up to US$5.3 billion in annual research and development spending, Oracle is challenged to keep its sales team immersed in its broad product portfolio — especially in its cloud business — and communicate that effectively to customers, Hurd said.

In March, the company announced an initiative to recruit 1,000 new cloud computing sales staff across the Asia-Pacific region, including 260 in mainland China this year. More than 800 have been hired since last month