Thursday, March 25, 2010

Dell may leave China too, reports

After Google's shutting down its Chinese search engine within China on Tuesday, the Internet has been alive with discussion and comment. Reams have been written about the search giant's decision. There have been vitriolic and nationalistic pieces emanating from the state media machine while western media has been debating the next move by the Chinese government or indeed other companies that have vested interests in China. Latest reports have even suggested leading PC maker Dell might quit the country for "safer environments".

China was getting too hot for Google, and for co-founder Sergey Brin who in his early years lived in communist Russia, the censorship and increasing controls were a stark reminder of the totalitarian regime he once experienced [AFP]. Google's decision to move its search engine to Hong Kong has been applauded by human rights groups. Bob Fu, a former leader of the Tiananmen Square pro-democracy movement and founder of the US-based rights body, ChinaAid, applauded Google's decision to defy Beijing's censors. "They are on the right path. Freedom of information is a basic human right defined by international conventions. I encourage other companies like Microsoft and Yahoo to stand up and not sell their consciences for more renminbi in their pockets," Fu said Wednesday [Guardian]. 

Google's move to China in 2006 had been a difficult one. It had been seen at the time as negating its much lauded 'do no evil' motto. Its shift of position has helped its image, at least in the West, and put the spotlight on other companies which continue to do business with the totalitarian regime. Of course Google has not entirely shifted its enterprise from China. Its offices are still in place, and it has said it wants to continue its R & D within the country. But the lines have been drawn.

China may force Google out altogether, retaliation for standing up to the might of Beijing. It may see other services blocked, on top of YouTube, Picasa web, Blogger and so on. But such moves by Chinese censors will only reinforce the view that doing business in China is too difficult.

The Financial Times has published a number of articles recently highlighting the difficulties tech companies, in particular, face in China. And a study published by AmCham [American Chamber of Commerce] suggests that this feeling is growing. There will be other considerations too for companies remaining in China. While Google may have soured relations with the Chinese government, and many so-called netizens, it has undoubtedly improved its image abroad. Those that continue to prop up a regime that abuses its citizens, denies them human rights and free access to information, will be seen as 'more evil'. 

In 2006 Cisco Systems, Microsoft, Yahoo and Google were hauled before a House subcommittee investigating their role in helping the Chinese government suppress free speech on the Internet, censor political content and even turn over data about suspected dissidents. Congressman, Tom Lantos, the ranking Democrat on the House International Relations Committee at the time and the only Holocaust survivor in Congress, had earlier been comparing the companies' activities in China to the odious work certain companies once did to aid the Nazis [NYT].

''Are you ashamed?'' he thundered. Was Cisco ashamed of selling networking equipment to the Chinese police? Was Microsoft ashamed of taking down a blog because the government disapproved of its content? Was Yahoo ashamed of turning over data that led to the arrest and imprisonment of Shi Tao, a journalist who had used an anonymous Yahoo e-mail account to leak a government memo to the foreign media? Was Google ashamed of setting up a Chinese search engine that filtered out Web sites that the government wanted blocked, sites that used such forbidden words as ''democracy?'' All the companies attempted to deliver the party line; that the Chinese people were better off by their presence than they not being there at all. Many also said that under the terms of their license, they had no choice but to comply with Chinese law. James A. Leach, Republican of Iowa, accused Google of serving as ''a functionary of the Chinese government.'' He added, ''If we want to learn how to censor, we'll go to you.''

Google has had enough of being "a functionary of the Chinese government." But will the likes of Juniper and Cisco, who helped build the so-called Great Firewall. Will Microsoft realize that many might see it as "doing evil" by complying to Chinese state censorship. Yahoo has already given up most of its stake in the Chinese portal after selling much of the company to Alibaba. There are others too. The well known 3 mobile network in Britain is owned by TOM online's Li Ka-shing, a Hong Kong tycoon. Soon after Google moved its search engine to the former British colony TOM announced it was to stop use of Google's search services after "the expiry of agreement." In a statement it said, "TOM reiterated that as a Chinese company, we adhere to rules and regulations in China where we operate our businesses." China Mobile and others may feel compelled to drop links with Google, in an attempt to appease Beijing or in an effort to avoid angering authorities.

Such moves may wall China off from the rest of the world. Microsoft may believe it has a future in China with its Bing search engine. But whether through restrictions and the favouring of homegrown companies, or otherwise, few western enterprises have managed to gain ground in China. Although Google's attempt to penetrate the Chinese market has been seen as a failure, to some extent it made more success than many others. There are few companies that can claim it to more than 30% of the Chinese market. 

However, the future does not look good for western companies trying to make profits in China's tech and Internet industry. But it may also be difficult for the likes of Baidu to expand beyond Chinese borders. "If the Chinese government continues to favour domestic companies, those companies that reach critical mass could become phenomenally profitable," said Gary Rieschel, founder of Qiming Ventures, an American venture capitalfirm with investments in China. "But it may be hard for those companies to become world class without outside competition."

"The biggest loser is Netizens," says Fang Xingdong, chief executive of, a research firm. "Google is a multilinguistic search engine, but Baidu is a Chinese-language one. Chinese information only occupies a small fraction of the Internet."

China may find foreign tech firms will leave for less hostile shores. And there are plenty of open doors. India has a growing tech Industry and may appear far more welcoming. William Pesek, a Bloomberg columnist writing in The Age, an Australian daily, says India may well gain advantage from the recent débarqué between China and the West. "India has a track record of innovation and a stable of internationally competitive companies that China doesn't," he says, "India also has far superior laws on intellectual property and corporate governance. And China's willingness to blow off Google plays to India's relative advantage in these areas."

And it appears that some may already thinking of shifting their operations to India. A small article in the Hindustan Times on Wednesday suggested that Dell might relocate to India and pull out from China. Indian Prime Minister Manmohan Singh is quoted as saying that Dell is considering taking its $25 billion's worth of business elsewhere. "This morning I met the chairman of Dell Corporation. He informed me that they are buying equipment and parts worth $25 billion from China. They would like to shift to safer environment with climate conducive to enterprise with security of legal system." [engadget]

While many companies may not come out as boldly as Google in condemning China's business practices, perhaps many are beginning to rethink their strategy. 

tvnewswatch, Beijing, China

No comments: