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IBM Succumbed to China’s Pressure in 2015

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Jan. 15 2016, Updated 10:06 a.m. ET

China remained a key market for IBM in 2015

Previously in the series, we discussed how rising air pollution in China (FXI) and its impending 2022 Winter Olympics have provided an excellent growth opportunity for IBM (IBM) and Microsoft (MSFT) to showcase their expertise in cognitive computing by forecasting air quality indexes.

We also discussed how the strong dollar in 2015 played havoc with the company’s top line growth. As IBM derives more than half of its revenue from outside the United States, and a strong US dollar is worsening demand in China and emerging markets (EEM), it’s become imperative for IBM to take extreme steps to boost its operations in China.

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Tech players relented to China’s pressure

In October 2015, IBM finally allowed China to see and review an unspecified product’s source code. Of late, China has made it difficult for global technology companies to operate on its soil. Global tech players are forced to agree to rigorous security checks before their products can be purchased by China’s state-run financial institutions.

Technology companies are under pressure from China to provide access to their program codes. Program codes are confidential and carefully guarded secrets. Apart from IBM, Microsoft and Apple (AAPL) too have allowed China to peek into their software. China is considered one of Apple’s most important markets, which is why Apple struck a deal to allow China’s State Council Information Office to check its software.

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