About Dongxu Li

Dongxu Li is now a Research Assistant at University of Massachusetts, Lowell. She worked at Microsoft (China) in Beijing as a marketing specialist for four years (2007-2011). Dongxu Li received her Master’s degree in Marketing Management from Peking University in China, and two Bachelor’s degrees in Economics and Computer Science from Peking University and Beijing Language University respectively.

Competition and Collaboration: Impacts of MNCs on China’s Cloud Computing Industry

Since IBM announced in February of 2008 that it would construct China’s first cloud computing center in Wuxi Taihu New City Science and Education Industrial Park (K-PARK), multinational companies (MNCs) have been influencing and shaping China’s cloud computing industry in a number of different ways.

With their strong technological capabilities and first-mover advantages, MNCs have already seized a considerable market share in China. Chinese indigenous cloud firms are under great pressure at their nascent stages. Though Chinese domestic cloud companies have accomplished a great deal in innovating cloud computing application software and datacenter hardware, MNCs are still dominating the markets for high-end cloud computing operation systems, platform software, and large-scale databases.

Today, Chinese domestic firms are facing growing competition from MNCs which are accelerating their strategic rollouts in China. Multinational cloud firms offer highly competitive products for each cloud computing niche market. In the IaaS (Infrastructure as a Service) market, products offered by MNCs include Hyper-V by Microsoft, SmartCloud Enterprise by IBM, vCloud by VMware, CloudSystem by HP, XenServer by Citrix, Unified Computing System by Cisco, etc. In the PaaS (Platform as a Service) market, various platform products offered by MNCs include WebSphere by IBM, Windows Azure by Microsoft, Cloud Foundry by VMware, Force.com and Heroku by Salesforce, etc. In the SaaS (Software as a Service) market, MNCs offer diversified cloud computing applications, including Lotus Live and Tivoli Live by IBM, Dynamics Online and Microsoft Online Services by Microsoft, Salesforce CRM by Salesforce, etc. Furthermore, in the cloud datacenter hardware market, some multinational companies like Intel, AMD, EMC, Citrix, NetApp, Cisco, HP and IBM are also posing fierce competition to Chinese domestic hardware providers.

While MNCs are posing great challenges to China’s cloud computing industry, they have also facilitated the development of this emerging industry through different forms of collaboration with Chinese indigenous cloud firms. According to the forecast by CCID (China Center for Information Industry Development), the Chinese cloud computing market size will increase from 16.7 billion RBM in 2010 to 117.4 billion RMB in 2013, with a compound annual growth rate of about 92% (CCID Consulting, 2011 April). To access the huge potential market, an increasing number of MNCs are actively seeking partnerships with local Chinese governments and domestic cloud computing firms.

The partnership between America’s EMC and China Electronics Corporation (CEC) is a prime example. According to Xinhua News’ report on May 22, 2011, Chenghui Ye, the Senior Vice President of EMC & President of Greater EMC China, stated that “In China, neither government customers nor enterprise customers are willing to completely outsource their cloud computing projects to an American company. Therefore, we have to partner with Chinese domestic firms or establish joint ventures”. On May 19th 2011, EMC and CEC signed a strategic cooperation memorandum under which the two companies will collaborate in the development of next-generation information management and storage systems, information security solutions, and server technology. In the initial stage of the collaboration, CEC will launch its own brand storage product and build a technical support system. As the collaboration deepens, the two parties will establish a joint venture and discuss other forms of collaboration such as ODM (Original Design Manufacturer), technology licensing, joint R&D, etc.

Many such examples of market and technology collaborations between multinational and domestic firms have been seen in China’s cloud computing industry over the past several years. Through these interactions and partnerships, Chinese indigenous cloud computing firms have not only gained valuable technology know-how but also learned advanced management experiences from MNCs.

The impacts of MNCs on China’s cloud computing industry are complicated and the dynamics of competition and collaboration between multinational and domestic firms will continue to influence and shape the industry’s evolution. Through the strengthening of international technology collaborations and the growing innovative capability of indigenous firms, the outlook for the competitiveness of China’s cloud computing industry is very optimistic.

Indigenous Innovation Drives China’s Cloud Computing Industry

Since the concept of “Cloud Computing” was introduced in 2007, the cloud computing industry has become a new source of economic growth in China. With a growing number of cloud computing service providers, solution providers, system integrators, infrastructure and devices providers, a dynamic cloud computing ecosystem is gradually forming. Chinese indigenous innovators have played a critical role in leading this technological transformation. In the process they have built up a participatory cloud computing industry chain in China.

The Chinese government has placed great emphasis on the development of indigenous cloud computing. In 2010, cloud computing was listed as one of the new strategic industries in China’s 12th Five-Year Plan. The Chinese government has initiated several cloud computing bases in Beijing, Shanghai, Shenzhen, Dongguan, Suzhou, Hangzhou, Wuxi, Chengdu, Chongqing, Ningbo, Qingdao, Jinan, Tianjin, Langfang and Foshan. To provide financial support, China’s National Development and Reform Commission established a Cloud Computing Special Fund which, as of October 2011, had made an initial investment of 660 million RMB in 15 pilot projects in Beijing, Shanghai, Shenzhen, Hangzhou and Wuxi. Local governments are also providing active financial support to indigenous companies. Shanghai city government, for example, has established Yunhai Venture Capital which will invest 70% of the fund in cloud companies.

With the favorable political and financing environment, the growth of indigenous startups looks unstoppable. INTPLE, founded in 2008 by Sudong Yang, is one of the outstanding examples. Within three years, INTPLE has already applied several patents for technological innovations and has developed three core cloud platform products – AppOne, EngineOne and MasterOne . In August 2010, the National Innovation Fund gave INTPLE an award for its achievements in cloud computing technology innovation.

Skycloud Technology is another example of a fast growing start-up. The company was established in 2009 by Dr. Suning Tian, a PhD from Texas Tech University and also the founder and chairman of China Broadband Capital (CBC). Today, Skycloud has branches across 16 provinces all over China. Through active participation in the open-source community and prompt market response, Skycloud has developed its core competence in the open and cross-platform cloud technology.

Meanwhile, lured by the huge potential market, established indigenous technology companies with stronger capabilities are also entering the cloud computing field. Domestic firms are even outcompeting multinational companies in some niche markets with their competitive prices and localized products. UFIDA, for example, has been consistently recognized as the TOP1 management software enterprise in China and the largest ERP provider in Asia since it was founded in 1988. One of the early movers in the cloud computing business, UFIDA won the award of “China’s Representative Cloud Innovation Company” in 2011. Independent innovation has always been regarded as a key principle of UFIDA’s R&D strategy. After the launch of its SaaS (Software as a Service) product Wecoo.com, UFIDA has introduced its new PaaS (Platform as a Service) product Weiku platform, which serves as an online development platform for ISVs and developers.

Indigenous companies have contributed to the growth of Chinese innovative capabilities in each layer of cloud computing. The largest number of cloud companies are in the SaaS layer, providing diversified cloud applications. Some commercialized SaaS products include: Wecoo.com by UFIDA, youshang.com by Kingdee, Alisoft.com by Alibaba, 800APP CRM by 800APP, Xtools by Beijing Volitation, Leadong.com by Focus Technology, Qitongbao by Infobird, iFLY Voice Cloud by iFLYTEK, etc.

In the PaaS layer, leading Internet firms have started the transformation to the platform provider business model. But most of the efforts are still in the testing phase and not yet commercialized. Some published PaaS products include: BC-MapReduce by China Mobile, Sina App Engine by Sina, Baidu App Engine by Baidu, Weiku by UFIDA, cBOS by Kingdee, Aliyun Cloud Engine by Alibaba, QQ Cloud Platform by Tencent, 800APP PaaS platform by 800APP.
In the IaaS (Infrastructure as a Service) layer, Chinese companies are just in the exploration phase and very few of them have capabilities in conducting IaaS research and providing relevant public services. China Mobile, a state-owned company, has moved one step forward in this research field. The BC-EC product – which is part of the Big Cloud System launched by China Mobile in 2010 – is an IaaS product with independent IPR.

Cloud computing has aroused a technology and business revolution in China. While a national strategy of indigenous innovation is charting the direction of industrial development, it is indigenous Chinese companies that are bringing new products to the market. Cloud computing represents one of the latest cases of progress along “China’s path to indigenous innovation”.