IBM code access to China could set trend

Updated: 2015-10-19 06:03

By Amy He and Gao Yuan(China Daily USA)

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IBM's announcement that it will give the Chinese government access to software code can set a precedent for other US tech companies interested in gaining market access in China, experts said.

IBM Corp will allow the government access to its software codes in a bid to get an entry into the billion-dollar government procurement market, a senior executive said. The company is the first overseas tech major to publicly announce such a move.

IBM agreed to let the Ministry of Industry and Information Technology and its certified institutes examine IBM products in a "clean room" to make sure they conform to national information security policies, said Steve Mills, senior vice-president of IBM software and systems unit.

Government officials will be able to check the codes in the clean room but cannot take the codes outside.

Calling the plan "the ability to address 'secure and controllable' China initiative", Mills said the company's growth in China needs government sponsorship, when he addressed local partners and media in Beijing on Thursday. He did not specify if all of the products the company sells in China will be subject to the examination.

"They're setting a precedent that other companies are going to study very carefully," said Ray Wang, founder and chairman of Constellation Research, a Silicon Valley-based research firm.

"I think what IBM did is they showed their code, but they didn't give them their code," he said, which means that Chinese officials can review the code without removing it from an IBM space. Under those conditions, other US tech firms are probably going to "to feel like they have to do that in order to compete," he added.

Since the news broke, Wang said his firm already has received more than a dozen calls from tech companies wondering what the implications of IBM’s actions are, and whether they should follow suit.

"We're trying to understand what the government is looking for, and if that's the right balance between helping allay their concerns about cybersecurity and protecting a company's IP," he said.

Charlie Dai, principal analyst at Forrester Research Inc, said the move demonstrates the keenness of IBM to work with the Chinese government and help in the digital transformation of Chinese companies.

"It also shows that IBM is under pressure to sustain its business growth in China. Addressing the security concerns of the Chinese government and ecosystem expansion are two critical steps," Dai said.

China is on full alert for information security threats after former US National Security Agency contractor Edward Snowden released details of massive surveillance carried out by the US government. It is pushing the "secure and controllable" initiative, replacing potentially unsafe IT products in key sectors, including finance, energy and public services.

Information technology products purchased by government bodies and state-owned enterprises all come under the category of government procurement sector. Industry regulators are vetting all the items for possible security vulnerabilities.

Although China dismissed complaints that the initiative is targeted at overseas multinationals such as IBM and Oracle Corp, in reality the latter are losing ground to Huawei Technologies Co Ltd and other local players.

Industry consultancy International Data Corp said market shares of local IT players have been growing steadily over the past year, indicating overseas companies will find it hard to maintain their presence on their own.

Peter Wahlstrom, director of technology and media at Morningstar Inc, said that it would make sense in many cases for US tech companies to act similarly to what IBM has done if they want exposure in China because "the potential is huge". But Wahlstrom said that companies need to evaluate what they could potentially give up by entering the market.

He said that the decision is in line with IBM's approach to become more open over the last few years. IBM initiated a program in 2013 called the Open Power program, which provides base technologies that can be enhanced by licensees all over the world to encourage partnerships and business opportunities. The program includes China-based institutions like ZTE, Inspur and Chuanghe Century Telecom.

"With the mandate of sharing and creating an open platform, this should help IBM become [or stay] entrenched in both hardware and software. I don't see this news as being a key driver to bottom-line growth, but it might help to stabilize a potential decline in mature products," he said.