Microsoft Closes Physical Stores in China Amid Restructuring Efforts
Microsoft recently announced the closure of its authorized physical stores in mainland China as part of its strategic restructuring plan for retail channels in the country. The decision comes as Microsoft continually reassesses its retail strategy to meet the evolving needs of its customers. However, despite the closures, Microsoft’s products will still be available in mainland China through its retail partners and the company website.
This move is in line with Microsoft’s broader global strategy, which was first announced in June 2020. The company made the strategic shift in its retail operations, including the closure of some physical locations, and instead focused on investing in online stores for Windows and Xbox. These changes cost the company approximately $450 million at the time, covering the loss of assets and related expenses.
During a recent hearing before the House Homeland Security Committee, Microsoft President Brad Smith confirmed that mainland China is not a major source of the company’s revenue, representing only about 1.5 percent of its global revenue. He also revealed that Microsoft had asked around 700-800 employees to move out of China and reduced its engineering presence in the country.
This confirmation aligns with a Wall Street Journal report from May, which stated that Microsoft offered hundreds of employees in its cloud-computing and artificial-intelligence operations in China the opportunity to relocate outside the country amid U.S.-China tensions. The employees, primarily Chinese engineers, were given options to move to the United States, Ireland, Australia, and New Zealand.
It’s worth noting that Microsoft has had a significant presence in China since entering the market in 1992. The company operates a large research and development center in the country and is among the U.S. companies with the largest presence in China.
However, Microsoft’s ties with the Chinese regime have come under scrutiny, particularly regarding security “shortfalls.” Lawmakers grilled Brad Smith over a Chinese cyberattack that breached the company’s systems last year. A report by the U.S. Cyber Safety Review Board blamed Microsoft’s corporate culture for the hack, citing a “cascade” of avoidable errors.
The Chinese hacking group Storm-0558 was identified as the perpetrator of the breach, described by Microsoft as a China-based threat actor with espionage objectives. The cyberattack compromised tens of thousands of emails, including those of top U.S. officials. Notably, the hackers accessed a list of State Department emails and officials’ travel itineraries before Secretary of State Antony Blinken’s visit to Beijing in June 2023.
Microsoft initially believed the breach was made using stolen encryption keys, either from a stolen device or compromised account. Brad Smith accepted responsibility for the findings in the CSRB report during his testimony before the Homeland Security panel.
Regarding doing business in China despite the risks, Smith emphasized two valuable reasons for Microsoft’s presence in the country. First, to protect American information and trade secrets of American companies operating in China, and second, to ensure continuous learning from global events.
In addition to these challenges, Microsoft recently faced antitrust violations in the European Union. The European Commission found that Microsoft gave an unfair distribution advantage to its cloud-based communication and collaboration tool, Teams. This practice has harmed both consumers and competitors. If Microsoft fails to address the concerns raised by the commission, it could potentially face significant fines.
In conclusion, Microsoft’s decision to close physical stores in China is part of its broader global strategy. The company aims to adapt to evolving customer needs while focusing on online retail channels. Although facing challenges such as cyberattacks and antitrust violations, Microsoft remains committed to protecting American information and trade secrets while continuously learning from global developments.
