Q What is Microsoft’s international growth strategy, in particular with regard to emerging markets?
A As we look to build upon our momentum in the coming year and beyond, our continued growth will really be fuelled by the strategic alignment between Microsoft’s key business priorities and two of the most critical trends that are shaping our industry today: the increasing importance of emerging markets, and the shift towards software as a service and advertising- funded software.
Microsoft has been present in most emerging markets for more than a decade – we’re now seeing our long-term investments and vision pay off in high-growth regions such as Asia, central and eastern Europe and Latin America.
We expect 2008 to be a watershed year for Microsoft in emerging markets, which have become critical in terms of revenue mix and future growth.
We see particular opportunity for growth in the BRIC countries, Brazil, Russia, India and China. These are countries where software innovation is driving rapid economic expansion and providing significant growth opportunities for Microsoft.
Of course, our emerging market opportunity extends far beyond those four countries. Large emerging countries, such as Indonesia, sometimes get less attention but will be important as well.
Q What is the market entry strategy, what are the key markets for expansion in the future, and how do you make those decisions?
A During the next five years, the shape of the company will continue to become more global, with talent, innovation and new businesses in different countries driving growth. Each decision to invest in a country signals the company’s long-term commitment to international growth.
We see growth opportunities in new countries where we can open operations, within countries where we can expand our operations, and with the wealth of product innovation coming from our multi-core business today: desktop software, enterprise software, consumer electronics such as Xbox and online services such as search and advertising; we see growth opportunities in the 105 subsidiaries that we operate and the 200-plus countries that we sell to.
Q How is the growth going to happen — where is it coming from?
A Microsoft’s international experience shows that increasing the competitiveness of local software ecosystems is good for local economies, brings opportunity and prosperity to many millions of people and will support new demand for Microsoft products and continued growth.
Information and communication technology (ICT) is clearly a driver for economic opportunity and growth, and the company is working to bring these benefits to emerging economies. Microsoft is establishing partnerships to stimulate innovation; sharing best practices in using technology to create innovative products; investing in software industries and skills so that ecosystems can grow; and developing programmes that support organisational and commercial innovation.
Business is global and so is talent, so Microsoft is investing in people around the world for long-term growth. From India to Latin America; from China to Africa; from Asia to central and eastern Europe – innovators and entrepreneurs are coming forward as the next generation of talent. Microsoft is working on a host of projects that will help foster this talent, build business across borders and encourage worldwide partnerships and best practice sharing.
Q How confident are you of continuing future growth – what is your outlook?
A Microsoft’s growth history is impressive but this will be surpassed by its growth future: the company took 23 years to reach $20bn in annual revenue but only a further seven to reach $50bn. As we look to fiscal year 2009, our outlook is strong. With strong and diverse leadership, software and services adapting to and anticipating customer needs, business models focused on building economic competitiveness, and strategies designed to share the benefits of ICT across the globe, Microsoft, its shareholders, its partners and its customers will reap the benefits of sustained and substantial global growth.
One way to look at the opportunity is that we estimate about one billion people have access to computers today, but with more than six-and-a-half billion people in the world, there are more than five-and-a-half billion people who have yet to experience our products. Another way to look at it is at the range of devices that have a software experience – this extends from mobile phones and handheld devices to the data centre where people can experience software as a service across all their computing devices.
Q How do returns in overseas markets compare with domestic returns? What are the main factors for this?
A In the third quarter of our fiscal year 2008, we have seen strong performance across the board in all of our businesses and, in particular, helped by our geographic spread. We now have more than 60% (as of fiscal year 2008, Q3) of our sales outside the US – allowing us to continue to grow very well from a revenue point of view and in a very dispersed fashion across all of our businesses. This breaks down to 48% from mature markets and 14% from emerging markets.
There are a number of factors, several of which are specific to the individual markets where Microsoft is seeing major impact. However, there are some common threads that are collectively pushing the company’s non-US growth upwards. One is personal computer (PC) market growth – PC growth rates in emerging markets continue to outpace that of the mature market, driven by robust growth in the BRIC countries.
The second is investing in the long term. The company has several initiatives under way that are focused on expanding its role in driving innovation globally, as well as helping to deliver technology to the next five billion people around the world. For example, in 60 countries worldwide, Microsoft has developed more than 110 innovation centres to offer students, developers and information technology professionals access to world-class collaboration facilities, consultants and resources. Microsoft is extending commitment to innovation centres during the next two years and anticipates opening and supporting 90 more centres in an additional 25 countries worldwide by 2009.
Q What are the challenges and barriers that you need to overcome, to extend your international growth?
A This comes down to execution. We believe that our multi-core strategy differentiates us from the competition. Whereas IBM remains essentially a mainframe business, Apple focuses on consumers, and Google is a search company. With products and services that extend from the back office to the living room and from the data centre to the media centre, we are the only company in this industry that has successfully developed multiple businesses based on different technologies, business models and customer value propositions. As the leader of Microsoft’s international business, it is my role to build the people, organisational capability and operations that enable us to have long-term sustainable growth around the world.
Q How can a company of Microsoft’s size operate in and be successful in multiple small markets?
A When we make a decision to enter a country, we make a long-term commitment. The key is to build operations and leadership capability that scale with the business as it grows. To keep from only focusing on the largest and most established countries, we segment our countries and bring them together a few times a year where they can share best practices and ideas. This complements the regional structure that we use – in Microsoft International it is 11 areas that manage the operations. I keep my organisation quite flat so that there are not many layers between myself and my senior leadership team and the places in the world where we are growing. This flat structure and transparent leadership helps us to stay nimble, regardless of the size of the markets we are operating in.
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