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China Business Weekly

Banning American IT

"De-IOE" must be one of the world's ugliest acronyms, and for American IT firms it is also one of the least popular.

The term relates to the Chinese government's edict that state companies must wean themselves off American software and hardware providers - specifically (but not exclusively) IBM, Oracle and EMC (a data-storage maker). The anti-US IT campaign also extends to bans on use of Microsoft's Windows 8 software.

The campaign (and the acronym) had its origins as long ago as 2008, when a senior executive of Chinese e-commerce giant Alibaba proposed cutting back on foreign suppliers and replacing their wares with equipment and technology developed almost entirely in-house.

Alibaba has since "walked the walk", replacing its Unix-based servers with less expensive servers running on the open-source Linux operating system. In May 2013 the company pulled the plug on its last IBM server, and two months later its advertising department abandoned its Oracle database.

The rest of the company's databases are scheduled to switch from Oracle to a homegrown system by 2015.

The moves clearly haven't done Alibaba any harm - today the company is eyeing one of the largest IPOs in history on the New York Stock Exchange.

The campaign gained serious traction after Edward Snowden's leaks last year about the extent of US snooping on other countries, and the indictment in May of Chinese army officials by the US government for hacking into the computer systems of American corporations, which exacerbated security concerns on both sides.

While China is the world's fastest-growing IT market, the impact on the US companies targeted won't send them to the wall. China is thought to account for about 4% of sales at IBM and Cisco, and less at Oracle and ECM.

The biggest winners are Chinese IT firms, such as Huawei and Lenovo, who have increasingly been winning contracts from state company and bank IT departments, similar to the way in which social media platforms such as WeChat, Weibo and Youku have flourished since authorities blocked their American equivalents - Facebook, Twitter and YouTube.

In the server market, for example, domestic firms like Inspur and Sugon have caught up with and surpassed foreign giants. At the end of last year, the combined market share of domestic server producers exceeded 50percent for the first time, at the expense of the foreign companies that had traditionally been the market leaders, such as IBM, HP and Dell.

As a rule, restricting the purchasing options of companies - whether state or private - makes little sense. But in this instance, Chinese IT providers have been easily able to fill the gaps left by their US competitors, emphasising once again the quality of China's high-end suppliers.

For more columns in this series please see www.bangkokbank.com


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