a) In the early nineties, the economic environment of China was not an easy one for Microsoft to do business. Indeed, piracy problems leveled 98%. It was the highest in the world. In countries as such, the major part of the population survives with only limited means. The products of companies like Microsoft and IBM are often costly which the population cannot afford. Legal and regulatory systems weren’t going to help Microsoft since they were On the side of Microsoft, the government's support was vital because it would place a trustful ambiance and a less risky
investment. Dealing with any government increases the potential hold-up problem because they are always the ones to decide about their country's laws and regulations. Chinese government can force Microsoft out from its market or obliged it undertaken unfavourable future conditions by creating laws or taxation for instance.
Then the human factor was important, because employment and development of specific Chinese market products are strategic. Both Microsoft and Chinese employees became transaction specific assets as time passes by, which led each other to be hold-up threats: “key software engineers recruited from leading government-owned universities often left to start their own companies”. That means that Microsoft had reasons to be worried about a weaker bargaining position in the future vis-a-vis the Chinese government. This is also partially due to the Chinese devotion and loyalty. Because the major population is poor, Chinese might not be willing to pay for Microsoft's software. This creates a serious hold-up situation for Microsoft because they aren't even sure that they can sell their authentic software.
