China Rising

China Rising is one of the most compelling stories on the global IT scene today.

As China reaches out and engages the larger world and as foreign investors plough resources back in, China will begin to adapt to many new ways of doing things. Unquestionably, the sheer weight of China will also change the world in the direction of the Chinese.

The move toward Chinese predilections bears distinct implications for the twin IT worlds of hardware and software. Two recent industry consolidations illustrate the trends.

PalmSource, a US developer of software for mobile devices, will acquire China MobileSoft in order to expand into China. At the same time, PalmSource will gain significant expertise to develop Linux mobile software products. Generally, helped by the Chinese government’s promotion of Linux and open source, collaborating on products or technology with Chinese partners invariably leads to using Linux as the common platform. As similar acquisitions are completed and joint ventures occur, OSS will become increasingly important to global companies doing business in China. OSS will penetrate into all the roles software plays, from driving PCs to building industry and government automation solutions.

The story of Lenovo’s acquisition of IBM’s PC business further demonstrates the new pressures that are dismantling the global status quo of both hardware and software. In December 2004, the China-based Lenovo Group, with close ties to the government, purchased the entire PC division of IBM for $1.25B USD. IBM in turn invested in 18% of Lenovo. This arrangement is intended to produce a company which will bring down costs of commodity hardware and at the same time benefit both sides. IBM will gain access to the booming infrastructure and server market inside China by its investment in a powerfully connected local IT player. Lenovo, for its part, had been scarcely known internationally, but now will gain instant recognition in the global market. Most observers predict this will put price pressures on all manufacturers of standard PC hardware and that consolidation of the commodity hardware vendor pool will continue as shrinking margins demand the most cost-effective manufacturing and delivery possible. These same price pressures will all but wipe out non-commodity hardware. For example, specialty vendors like SGI already recognize that, to be cost effective, their high performance hardware must start with and be built up from commodity parts only.

For economies of scale, any successful hardware platform must support OSS and proprietary regimes equally well. In the long run, this will put pressure on all suppliers to make drivers and applications that support OSS at the same level as proprietary products. By moving the hardware beyond the direct influence of traditional software vendors, many see a leveling of the playing field for OSS and proprietary software.

The lesson of Lenovo is that hardware commoditizing and global industry consolidation are inevitable. But equally powerful dynamics are working to produce software commoditizing and software industry consolidation. OSS expresses this trend by using standardization and globalization of project and technology collaboration. This helps to spread cost-effective automation and infrastructure and promises to broaden and deepen the multi-billion dollar services business that surrounds the commoditizing of hardware and software.

By adding weight to these trends, China Rising signals the emergence of an economic powerhouse which is likely to increase the commitment of the global community to OSS.