Wednesday, January 13, 2010

Waving the White Flag

The news that Google is threatening to leave China has resulted in many people here in shock, wondering what will happen next.

Some young people went by the Google headquarters today and left bouquets of flowers and even lit candles and gave rice wine offerings as a sign of respect but also mourning the possible loss of the Internet search giant on the Chinese mainland.

On Tuesday the Internet company said it would stop cooperating with Chinese Internet censorship and was considering shutting down its China operations. It explained that it has been the victim of many hacker attacks, particularly last week which threatened to compromise the emails of human rights activists in the country. The attack also targeted at least 20 other large companies in technology, finance, media and chemical industries.

In a blog posted on the company website, David Drummond, the corporate development and chief legal officer wrote that Google had found a "highly sophisticated and targeted attack on our corporate infrastructure originating from China... These attacks and the surveillance they have uncovered -- combined with the attempts over the past year to further limit free speech on the web -- have led us to conclude that we should review the feasibility of our business operations in China."

Is it about cyber attacks or is it about being frustrated with its market share in China?

Google had a rough start in China as it was practically made inaccessible so that the Chinese version called Baidu could grab more market share first. And most recently YouTube and Blogspot have been blocked since last March, and Twitter since July. A few months ago the government blamed Google for having too many pornographic search results on its site. But that's what a search engine does...

Last October Google China head Lee Kaifu resigned from the company. He said one of the reasons he left Google to head a venture capital fund for start-ups was because Google was not going to gain a greater market share and beat Baidu, which has a close relationship with the Chinese government.

Also, while Google was eager to get into the China market in 2002, it soon regretted its willingness to compromise and perhaps now it can't face up to its own motto of "Do No Evil!" and wants out.

Nevertheless, the implications are huge.

If Google does leave, this means walking away from years of hard work trying to build the brand in China, laying off 700 employees, and millions of dollars wasted in a very expensive lesson on how to (or how not to) do business in the Middle Kingdom.

Not only does this show Google's stubbornness in making this threat public in a country that prefers backroom deals, but also reveals the lengths to which the Chinese government will do anything to emasculate a foreign company, particularly if it doesn't have a stake in it.

And how is that a level playing field, or for that matter, how is that a true market economy?

If China wants to compete with the world, it needs to stop the rhetoric and innovate. So far it has only demonstrated it can copy the best but without special advantages it would lose miserably.

Sounds like a sore loser.

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