Some Thoughts on Google vs China

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Google has released an interesting statement today that in light of cyber security, they have decided not to censor search results on Google.CN and accept the possibility of shutting down the entire business operations if the Chinese government will not allow them to operate an unfiltered search engine. With a multi-national company of such magnitude having the possibility in moving out of China, what are the implications that one can explore in the realm of business? I will draw a couple of thoughts from history to examine this event.

In the light of Google’s action to take on the Chinese government, we see that the shares of Baidu have gone up and also a lot of chatter in the Chinese blogosphere that Google’s retreat is motivated by the loss of her former CEO, Lee Kai-Fu and dwindling market share in the Chinese search market share. While it is easy to chastise Google who have given up some of her principles to set up in China four years ago, we should also applaud that Google has the audacity to try to work within the system and for the first time, standing on their principles. Yet, business is still business. What does Google’s retreat from China really tell us?

The first is the difficulty of foreign internet companies making a headway in China. As one of the well-known Chinese web entrepreneurs once commented to me in a confident manner, there is no chance that any of the US Internet based services from Facebook to Twitter to dominate the Chinese market. There are two supporting reasons to his claim. The first is that the multi-national companies do not want to localize their operations and prefer to replicate their model in China than adapting to it. The second is that the Chinese local Internet companies will put more than 100% to take on the giants from US. Looking at Microsoft, Google, Yahoo!, eBay and MySpace, it does not look favorable for them to enter the Chinese market at all, but to let the Chinese market replicate their stuff. While the era of cloning is over, the real competition is now between US and China in making innovations for the web-tech space. Is it a question of culture and context that made it difficult for these Western companies to enter the market? Is it nationlism that emerged victorious in seeing how Google being battered by Baidu in the Chinese market?

That comes to my second point. It concerns the whole optimism about the rise of China as a superpower and many including myself sees Zhong Guan Cun as the only viable alternative to Silicon Valley. While the Chinese government maintains a very heavy handed approach against activists and making it tough for foreign companies to enter into this emerging market, we also see that the culture of openness and freedom of speech are challenging China once again.

Can the Great Firewall of China stands the test of time? I have a friend of mine living in China once touted China as a rising dragon and see the financial crisis happening in US as the signs of decline for the western power. I countered with a historical argument that the optimism with China may not turn out what we hope to be. I will give one comparison. In the early 1970s and 1980s, we see Japan as a counter rising superpower that seek to end the dominance of US with their success starting from cloning the US companies in the automobile industry and then moving into innovation and creativity that might allow them to leapfrog the Americans. But what do we see in the end? Japan failed to catch up with US for different reasons. Japan failed because the traits of creativity and innovation clashed with a hierarchical business culture. What these rising powers failed to see, is the way how the US bounced back from failures, starting from a recession in the 80s and headed into the roaring 90s with the creation of the Internet. While creative destruction happens so often in US, their democratic culture works hand in hand with the innovation and creativity culture, while the values of the Chinese culture counter that. Probably a disruptive technology in the US is in the making and before we know it, the Chinese move backwards again like the way how Japan did in the 1980s.

My opinion is that Google has lost on the business aspect in China but won a moral victory albeit the type of hand that they are given. So, the Google vs China creates a clash of values between two civilizations. Who will dominate in the end and come out swinging? We should leave this discussion to a decade later and see where we are then.

Related Links:
[1] George Codula, Google likely to retreat from China.
[2] China YouRen, What is going in with Google (2): consequences.

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Bernard Leong

A Pragmatic Idealist

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8 thoughts on “Some Thoughts on Google vs China”

  1. No wants to play in a censored board where the house always wins, censorship, DDos attacks,cyber attacks, just means players will go elsewhere, govt should be aware of this.If they arent, then they should not be in govt. Google drew a line on the sand. Even if you care to take a look at some of our local characters, they have done the same, by relocating their servers up North.

    Good on them, I say.

  2. Great post, Bernard.
    Do Chinese internet companies have clout outside of China? Unline Toyota, Honda, etc. which dominated the US market in the 80's (still do now), I can't think of any Chinese companies that has significant mindshare in the global internet world. China may be the biggest market in the world, but I think before the US laments the inability of their companies to penetrate China, we should question Chinese companies' ability to dominate outside of China. The Great Firewall of China blocks in both directions.

  3. Hi Andre,

    Most Chinese internet companies do not have clout outside China. If we include the IT hardware makers that include Lenovo and Haier, the story is a bit different. In Singapore, Baidu and Tudou are on the top 100 of the Alexa sites, and my sense is that it will be similar for countries with a predominant high Chinese population. Most of the Chinese Internet web 2.0 services do not think about expanding outside China, because they have not exhausted the market potential of the entire country. Probably we will need another few years before these Chinese Internet companies get saturated and then perhaps, things may be different then.

  4. It's interesting that Chinese internet companies can plan for success just by focusing on their internal market (which is larger than US and Europe combined). Going on a slightly different topic — is focusing on local a valid business strategy for internet companies of other countries? Thailand for example, also has language barrier like China and has a good size (although tiny compared to China). As opposed to Singapore companies, for example, which definitely need to look outside. On the other hand, country barriers are crashing down because of the internet, and there is economy of scale for a global company like Facebook. Can companies that focus on local/regional continue to survive?

    Just my thoughts :-)

  5. Google's public “war” against so-called China's cyber-spying is nothing more than just a smoke screen for its dismay performance in China having fail to de-throne baidu.com.

    Let's get this straight: Google is a business enterprise which is only answerable to its shareholders, not some “moral” guardian. By going out in such public manner, Google has only stab itself in the foot and be seen as another conduit for foreign power in the eyes of Beijing.

    Btw, Japan's failure to become “superpower” is more to do with its constant pressure from Washington to toe its policies in form of economy and politics. E.g is the Yen which was raised dramatically in the 80s under US pressure for its huge trade deficit. This resulted in decade long economy stagnation. And in the political front, much of Asia still holds suspicions on post-WWII Japan.

    China is another animal altogether.

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