Microsoft Corp will set up a US$20 million MSN research and development center in Shanghai, the first of its kind in the group's overseas market, Shanghai Daily learned Friday.

The software giant aims to strengthen instant message business in China as it is still lagging behind domestic rival Tencent (QQ), industry insiders said.

"Microsoft has purchased a 90,000-square-meter site in the industry zone, and it should be a big project," said a source at the Shanghai Zizhu Science-based Industrial Park, who declined be identified.

The industrial park is in the southwest of the city, and Intel and Shanghai Wicresoft, a joint venture between Microsoft and the Shanghai government, have set up facilities there.

An opening date for the center hasn't been decided as some details are still being worked out between Microsoft and the park, the source said.

The MSN R&D center will be used to develop software, and offer technical support for MSN Messenger, according to earlier media reports. Feng Guangshun, MSN China's spokesperson, declined comment on the issue.

More than 15 million people already have registered MSN Messenger accounts in China, and Microsoft has launched paid wireless services, such as MSN on mobile phones with a monthly rate of 10 yuan (US$1.25), according to Feng.

"All foreign players have to think local if they want to succeed in China," said Lu Bowang, an independent Internet observer.

Foreign companies, including Yahoo!, eBay and Google, have partnered with local players or moved servers to the mainland to tap into the dotcom market. This is hardly surprising as China has an Internet population of more than 140 million.

MSN services were not available for almost a week in China after the Boxing Day earthquakes off Taiwan severed undersea cables, causing many users to switch to QQ.

By the end of 2006, China's instant message market was led by Tencent with 84.4 percent compared with MSN Messenger's 13.9 percent, according to the China Internet Network Information Center, a state researcher.

(For more biz stories, please visit Industry Updates)