Why International Business Machines Corp. (NYSE:IBM), Oracle, EMC Are Struggling To Find Opportunities In China’s $20 Billion Cloud Market

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China’s cloud market is not conducive for foreign technology vendors such as International Business Machines Corp. (NYSE:IBM) and Oracle Corporation (NYSE:ORCL). Initially, it was seen that unfavorable regulatory measures were slowing down the growth of international technology providers in China. However, as it turns out, there are far more challenges to penetrating China’s cloud market than tight regulations. As such, IBM, Oracle, EMC Corporation (NYSE:EMC) and other Western peers may have to overcome far more hurdles to tap into China’s promising cloud economy. China’s cloud market is expected to grow at a rate of up to 45% annually in the next few years to reach $20 billion by 2020.

Unfavorable regulatory measures

China prefers domestic companies, especially state-owned corporations, to buy technology from local providers because of national security issues. Such restrictions are particularly heightened in sensitive industries such as telecommunications and finance, thus limited opportunities for foreign vendors like International Business Machines Corp. (NYSE:IBM).

However, unfavorable regulations are just part of the problem for IBM and its peers eying China’s $20 billion cloud industry by 2020.

Wanting Internet quality

China’s Internet infrastructure is wanting in the sense that Internet speeds are comparatively low. While the average Internet speed in the U.S. is 11.1Mbps, it is 4Mbps in China.

Because delivery of and access to cloud service require robust Internet connection, slow Internet may limit opportunities for cloud vendors in China. Low penetration of high-speed Internet in remote regions of China also comes as a challenge to the growth of cloud industry.

Owning over renting

Chinese businesses are still stuck with the culture of owning technology rather than renting it. That is partly because of the need to maintain close control of data and workloads and partly because of security fears. However, the culture doesn’t favor adoption of cloud.

Nevertheless, International Business Machines Corp. (NYSE:IBM), Oracle, EMC and their foreign peers can bet that China’s cloud industry will become conducive over time. An increasing number of large Chinese companies are moving to the cloud and that may create favorable ripple effect in the market. Chinese telcos, for instance, intend to invest about $180 billion in cloud infrastructure between 2015 and 2017.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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