PRC's Tech Jihad Vs. 'IOE': IBM, Oracle, EMC

The Chinese government has stepped up efforts to get rid of computer systems from American manufacturers being purchased by domestic firms. You can't say the Yanks did themselves any favors with the Edward Snowden disclosures as accusations of industrial espionage by Chinese firms against US firms were turned around. For a long time, the US has applied racist-protectionist policies against Chinese telecoms equipment, raising barely-credible accusations that the likes of Huawei and ZTE were mere extensions of Chinese government policy.

The targets now are equipment used by financial services industries. Just as in the rest of the world, Chinese banks rely on the so-called "big three" of IBM servers running UNIX, Oracle database systems, and EMC data storage hardware. US spying has given Chinese authorities the excuse to encourage banks to move away from IOE systems:

The movement dates to 2008, when Alibaba’s computer-network department director Wang Jian proposed cutting back on foreign suppliers and replacing their wares with equipment and technology developed almost entirely in-house. 

What Wang wanted to get rid of most was the so-called IOE system, an acronym for an IT network based on the names of three suppliers: IBM, whose servers are packaged with the Unix operating system; Oracle, which supplies database-management systems; and EMC, the maker of data-storage hardware. Wang dubbed his campaign the “De-IOE Movement.” 

Wang decided to revamp Alibaba’s network by replacing its Unix-based servers with less expensive, X86-based PC servers running on the open-source Linux operating system. In such a system, several PCs with X86 microprocessors inside can be linked in a chain to function as a server, replacing a mainframe server. The e-commerce company also built a database management-system of its own with an open-source structure, and started storing data on an internal cloud-storage system. 

These events have been tied to security revelations that I think are dodgy, but anyway...

The switch to servers made at home has been a slow process for Chinese banks. Ultimately, the banks’ IT experts have been making these decisions, although they’re being encouraged by the government to choose Chinese suppliers, according to a source close to the China Banking Regulatory Commission. The now-famous 2013 revelations involving former U.S. computer-security expert Edward Snowden, who blew the whistle on government espionage, gave a boost to proponents of the De-IOE campaign. 

Unfortunately for the United States, the WTO Information Technology Agreement which China is a party to mandating that tariffs be cut to zero for electronics goods does not concern non-tariff barriers (NTBs) of the kind China appears to be encouraging in "buying Chinese." That said, switching costs will be high as it is not so easy to move from IOE to domestic hardware given the vast amount of data on transactions already stored using IOE equipment.

Additional changes will not happen overnight, partly because the IOE companies as well as America’s Microsoft Corp. MSFT +0.62%  and Hewlett-Packard Co. HPQ +1.09%   offer customers integrated solutions that make it difficult to replace individual pieces of equipment or software. An IT consultant who advises banks said IBM, for example, is so entrenched that China’s banks would likely need about 20 years to replace all IOE systems. 

“Getting rid of IOE means that all of the software must be moved and made compatible to domestic server systems, which seems to be a mission impossible,” said the consultant. Big banks are thus moving cautiously, said the BOC employee, because they want to protect their huge customer and transaction databases. They cannot afford to be hasty because replacing one part of a network can affect others. 

And replacement costs can be astronomical. “The basic technology networks for an IOE system and a ‘De-IOE’ system are totally different,” said another source a state bank. “De-IOE will lead to transforming personnel and management. It’s hard to estimate how high the costs will be.” Ultimately, said the IT consultant, Chinese banks will only manage to kill off IOE systems if products made by Chinese suppliers can provide comparable security and capacity levels, and if the new hardware and software are compatible.

To me it's an entirely avoidable outcome that the Americans brought onto themselves not only by discriminating against Chinese telecoms manufacturers and spying remorselessly on the world's citizens. In the end, you reap what you sow.