Red Hat opens office in China

The company said it will work with industry partners such as Hewlett-Packard, IBM, Intel and Oracle, as well as with Chinese business partners, to serve the rapidly growing Chinese software market. Red Hat's office will be located in the nation's capital, Beijing.

The Chinese business partners are likely to include Red Flag, a government-backed Linux provider, although a Red Hat representative was unable to immediately confirm that information.

The move is not a major surprise, as the company had previously announced its intention to move into China.

James Governor, an analyst with RedMonk, said that it will be essential for the company to collaborate with local businesses as it works on this project because the government has a strict policy on who can sell software in China. In addition, software companies wishing to do business with government ministries are restricted to buying software that has been produced in China.

Red Hat said its two main goals are training and delivering a Linux solution tailored for the needs of the Chinese market. The company is working with two Chinese universities to establish the Red Hat Academy program in China.

Governor said it's likely the company will have to adjust its offering to take into account the needs of the Chinese software market. "I don't think Red Hat will be able to make the margins it does in the West. It will need a completely different business model," Governor said.

Governor added that the market could become huge, as evidenced by the rapid expansion of China's telecommunications industry.

"The sky's the limit--it's an enormous market," he said. "Vodafone took more than 20 years and more than 20 acquisitions to get to 200 million subscribers, while China's biggest mobile network went from zero to 200 million subscribers in three years through organic growth alone."

The Chinese government has made its preference for open-source software clear. It announced plans to invest in Linux-based systems at the end of last year, and it started an open-source project in collaboration with Japan and South Korea in April.

Ingrid Marson of ZDNet UK reported from London.