IBM Succumbs to China, Reveals Source Code

(Continued from Prior Part)

By providing source code, IBM is aiding its rivals and undermining its growth

In previous parts of this series, we saw that IBM (IBM) has finally relented to the Chinese government’s wishes by allowing it to see the company’s source code. Defending its decision, IBM went on to say that it’s not the first tech company to do this and cited other tech players such as Microsoft (MSFT) and Apple (AAPL), who have allowed Chinese government officials to have a look at their service codes.

But if we delve more deeply into IBM’s decision to provide source code to China, we can see the company’s desperation. IBM’s source code is vital to the company’s growth, as it contains the secrets to its software and consequently the key to its success and growth. By divulging the vital know-how to the Chinese government, IBM is potentially helping its rivals and competitors and undermining its own competitiveness.

China’s Made in China 2025 program

In May 2015, China unveiled its Made in China 2025 program. It’s designed to promote a breakthrough in the country’s ten key sectors: new information technology, numerical control tools, aerospace equipment, high-tech ships, railway equipment, energy saving, new materials, medical devices, agricultural machinery, and power equipment.

China’s (MCHI) importance to global companies can be gauged from the fact that almost all the companies in varied sectors, from smartphones to automobiles, are eager to appease the Chinese government in order to keep their sales and profits growing. Since China is the largest consumer of a majority of commodities, all global companies target China for their growth.

The chief aim of the Made in China 2025 program is to boost Chinese manufacturing in IT, cars, and other high-tech products. Global companies such as IBM that are providing their source codes aren’t dissuading China from pursuing these goals. In fact, this might be facilitating these companies’ demise.

In late May 2015, Hewlett-Packard (HPQ) sold its 51% stake in H3C Technologies to Unisplendour, a China-based Tsinghua Holdings subsidiary. It did this to improve its growth prospects in China and get a politically connected partner as well.

Browse this series on Market Realist:

• Part 1 - IBM Succumbs to China’s Pressure to Probe Source Code

• Part 2 - Tech Players Need China, but China Also Needs the Tech Players

• Part 3 - China Is Taking a Variety of Steps to Boost Its Economy