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Software giant Microsoft Corp. (MSFT - Analyst Report) plans to hire more than 1,000 employees to boost its existing staff strength in China over the coming year. This expansion is an attempt by Microsoft to ramp up its research and development (R&D) efforts in the country, to better compete with Apple Inc. (AAPL - Analyst Report) and Google Inc. in China's fast-growing mobile Internet market.

Microsoft said that the new employees would be spread across its R&D and marketing segments and customer service. Currently, the company spends around $500 million annually on research and development work in China. It plans to boost its R&D spend by 15% over the same time period. Additionally, Microsoft is building a large cloud computing center in Shanghai that will employ around 600 more employees.

China, one of the world’s fastest growing economies, is replete with resources and is on course to becoming a central player in the global e-commerce industry. China’s e-commerce market is growing at a double-digit percentage rate and nearly 400 million people in the country surf the Web using mobile phones and other devices.

According to the China Internet Network Information Center, China had an estimated 538 million online shoppers at the end of July, up 11% from the year-ago period. The segment that uses wireless devices grew twice as fast, rising 22% to 388 million.

In a bid to benefit from the growing Chinese market, Microsoft is increasing its investment in the country with new recruits, increasing research for local requirements and offering cloud computing services to its enterprise customers. The investment is expected to help promote Microsoft’s Windows 8 mobile operating system, the upcoming release of Windows 8 (PC version) and Microsoft Office 2013.

Currently, Google’s mobile operating system, Android dominates the Chinese smartphone market, with Apple's iPhone dominating in the higher end of the market. Both the technology companies, Apple and Google have already launched new products in the Chinese market, increasing their market share. Hence, to achieve the desired success and fight increasing competition, Microsoft has to make efforts to promote its latest offerings in an internet-savvy market like China.

We believe that Microsoft’s current investments are supported by its strong balance sheet and expect these to drive the next growth phase, improving prospects of market share gains.

Microsoft Corp. has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).

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