Google incident illustrates dilemma for foreign companies in China

Activists in Hong Kong hold a banner supporting Google's stand on China. It reads: "Say no to Internet censorship. Well done, Google."
Activists in Hong Kong hold a banner supporting Google's stand on China. It reads: "Say no to Internet censorship. Well done, Google." (Jerome Favre/bloomberg News)
By Steven Mufson and Peter Whoriskey
Washington Post Staff Writer
Friday, January 15, 2010

BEIJING -- Ever since the 1930s, when a Missouri-born man opened an ad agency in Shanghai and wrote a book called "400 Million Customers," the Chinese market has beckoned to American companies. And never more so than now, when the number of customers has grown to 1.3 billion and China is poised to surpass Japan to become the world's second-largest economy.

But Google's struggles here -- wrestling both with political compromises and with threats to its intellectual property -- raise the question: How much hassle are China's consumers worth?

While hundreds of U.S. companies have decided to seek a piece of the world's fastest-growing market, to do so they must weigh the allure of potential profits against human rights concerns, the threat of intellectual-property infringement and unpredictable treatment of their financial interests.

It hasn't always been an easy calculation. Levi Strauss & Co. stopped making clothes here in 1993, citing "the pervasive violation of human rights," but then returned in 1998, saying that the company could do more good for human rights by working from within the country. Time Warner opened about a dozen movie theaters here but decided to sell them in 2007, after new laws required Chinese control and because of limits on the number of foreign films allowed. EBay pulled out in 2006, largely because of stiff local competition.

James McGregor, senior counselor for Apco Worldwide in China and author of "One Billion Customers," believes that more and more U.S. companies doing business in China are rethinking their presence.

"Many companies came here because they believed they couldn't not be here given China's booming growth," he said. But, he added, "if trends don't change, we may see companies considering that maybe they can afford to not be here."

For now, that's not usually the case.

General Motors, for example, expects China's car market to be twice the size of the United States' by the end of the decade, Fritz Henderson said before he stepped down as chief executive. For now, foreign car companies hold 85 percent of the crowded Chinese market.

"If you don't go in with the best technology, you're going to be at a competitive disadvantage," said Kevin Smith, head of GM in China. "We have protections for all our IPR [intellectual-property rights], and we've had no issues." But he added that "it's a factor that everyone is aware of in emerging markets" and that "there are different rules in China."

Technology companies, in particular, have had to grapple with privacy and surveillance issues.

In 2005, Yahoo folded its China business into Alibaba Group, making a $1 billion investment in exchange for a 40 percent stake in the Chinese company. Earlier that year, Yahoo had provided information from the account of a Chinese journalist that led to his conviction on charges of divulging state secrets.

By agreeing to Chinese regulations, Google has had to delete or block references in search results to the Falun Gong sect, the democracy movement, the Tiananmen Square demonstrations of 1989 and the exiled Tibetan leader the Dalai Lama. Doing business in China has thus cast doubt on Google's devotion to its motto to "do no evil."

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