Last month, Microsoft said it asked 700–800 employees to move out of China and reduced its engineering presence in the country.
Microsoft is closing authorized physical stores in mainland China as part of its strategic change to restructure its retail channels in the world’s second-largest economy.
“Microsoft continually assesses its retail strategy to meet the evolving needs of our valued customers, and we’ve made the decision to focus our channel approach in mainland China,” the company said in a statement.
Despite the changes, Microsoft’s products would still be available in the mainland via its certain retail partners and the company website. The company did not specify the number of authorized stores impacted by the consolidation.
Closing physical stores in China is part of Microsoft’s broader global strategy in that direction. In June 2020, months into pandemic lockdowns, for example, the company
announced its strategic shift in its retail operations, which included shutting down some Microsoft Store physical locations. Microsoft continued investing in its online stores for Windows and Xbox.
The company maintained Microsoft Experience Centers in London, New York City, Sydney, and at its Redmond, Washington, headquarters campus. The physical store closures cost the company around $450 million at the time. This cost mainly covered the loss of assets and other related expenses.
Last month, during the
hearing before the House Homeland Security Committee, Microsoft President Brad Smith said mainland China is not a major source of the company’s revenue as the market represented about 1.5 percent of Microsoft’s global revenue.
He also said Microsoft has asked about 700–800 employees to move out of China and reduced its engineering presence in the country.
Mr. Smith’s response confirmed a Wall Street Journal report from May, which stated that the tech giant 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. These employees, mostly engineers of Chinese nationality, were offered options to move to the United States, Ireland, Australia, and New Zealand.
The Windows maker is among U.S. companies that have the largest presence in China. It entered the market in 1992 and operates a large research and development center in the country.
Chinese Cyber Attack
At last month’s testimony in Congress, lawmakers grilled Mr. Smith over Microsoft’s ties with the Chinese regime and its security “shortfalls” that allowed Chinese hackers to breach the company’s systems last year.Lawmakers cited the findings of a March report by the U.S. Cyber Safety Review Board (CSRB), blaming Microsoft’s corporate culture for the hack. The report
stated that a “cascade” of “avoidable errors” had made the breach possible.
Microsoft said the China-based hacking group Storm-0558 was behind the breach, which the company described as “a China-based threat actor with activities and methods consistent with espionage objectives.”
The Chinese cyberattack compromised tens of thousands of emails, including those of top U.S. officials.
The report found the Chinese hacking group stole some
60,000 emails from the State Department. The hackers also accessed a list of all State Department emails and officials’ travel itineraries before the Secretary of State Antony Blinken’s June 2023 Beijing visit.
The report highlights how Microsoft initially believed the hack to have been made with stolen encryption keys, either taken from a stolen device or compromised account.
Mr. Smith did not refute that conclusion as he testified before the Homeland Security panel. “We accept responsibility for each and every finding in the CSRB report,” he said.
Mr. Smith also noted that Microsoft would not comply with Beijing’s law requiring entities operating in China to cooperate with the regime’s intelligence agencies.
When asked if it was worth doing business in China given the risks of this law and the fact that the country accounts for only over 1 percent of the company’s revenue, Mr. Smith replied that it was worth it:
“I do think that there are two valuable reasons for us to be in China, and I think that they both serve the interests of the United States. The first is to protect American information and trade secrets of American companies doing business in China. And the second is to ensure that we’re always learning from what’s going on in the rest of the world.”
Last week, the European Commission found that Microsoft
violated the European Union’s antitrust regulations. As a global market leader in productivity applications, Microsoft gave an unfair distribution advantage to its cloud-based communication and collaboration tool, Teams. This practice has harmed both consumers and competitors, the judgment said.
If the company fails to address concerns raised by the commission, it will potentially face billions of dollars in fines.
Andrew Thornebrooke, Samantha Flom, and Reuters contributed to this report.
