Google's Chinese foray depends on local know-how

SHANGHAI (Reuters) - Google Inc’s inroads into China relies on it linking up with local partners, navigating draconian regulations and understanding Chinese tastes to make it in one of the world’s fastest-growing and lucrative Internet markets.

A Chinese Internet user is seen browsing for information on the popular search engine Google in Beijing in this January 25, 2006 file photo. REUTERS/Stringer/Files

Rival forays by Yahoo! and eBay have misfired because those companies failed to get to grips with Chinese consumers’ habits -- the result of them not hiring the right staff and not getting together with domestic dot coms.

To succeed, Google must avoid those pitfalls.

All this while stepping gingerly over an uncharted regulatory minefield. Yahoo is still smarting from criticism that it helped Beijing track down an Internet dissident.

“The media is not an open marketplace in China yet -- the state has its own agenda and has a lot of policies to regulate the market,” said Edward Yu, president at research firm Analysys International.

“Google definitely has made very good strategic decisions, because they selected partners instead of going in by themselves,” Beijing-based Yu added.

Added to censorship are difficulties hiring the right talent to build strong local teams with the leeway to make decisions independently of U.S. headquarters in a fast-growing market where speed makes all the difference.

Chinese rival Inc got its operations off the ground quickly and established its infrastructure, stealing a march on all rivals. And because it is a Chinese company, Baidu has a better understanding of how the Chinese use the Internet. Baidu has since dominated its home Web market.

“Google is bound to be more restricted by regulations than a local firm. It probably won’t be able to directly import its more sensitive products, such as Google News, and will have to develop domestic services,” said Liu Bin, analyst at research firm BDA.

While Google has won initial approval from Beijing to provide online content in China, its censored news page only provides third-party information. Baidu, meanwhile, has got the green light to produce its own news.

In addition, international copyright rules prevent Google from offering a search function for free music files -- one of the most popular functions on Chinese search engines, Shaun Rein, managing director of China Market Research Group, wrote in a note.


Google tentatively entered the Chinese market in mid-2005, and has since agreed a range of local ventures, including taking a stake in social networking site and downloading service Xunlei Network Technology Co, and a partnership with major portal SINA Corp to build up traffic.

But the U.S. company has a long way to catch up on Baidu.

As it builds a local team, lack of management independence in China has slowed Google’s recruitment drive, said Rein, noting that the company’s co-founder Larry Page has to sign off every job offer.

Google will also have to avoid blunders like the one made in April when it apologised to Inc for using third-party technology in its Chinese input method which Sohu said copied one of its own products.

Baidu dominated the country’s Web search market in the third quarter with a 61.5 percent share of the 811.7 million yuan market, compared to Google’s 22.5 percent share, analysts said.

“It’s not where we would like it to be. We are working very hard to make the number look better,” Emmanuel Sauquet, Google’s Asia business development director, told a conference this month.


In China, Google is latching onto the masses of Web surfers who go online for the first time using mobile devices.

“Most Chinese users who touch mobile Internet will have no PC at all. That requires thinking from ground zero on how to design products that fit their needs,” Lee Kai-fu, Google’s president for greater China, told Reuters recently.

But the world’s biggest mobile market is tightly controlled by the parents of listed China Mobile Ltd and China Unicom Ltd. These two companies have the ultimate say over mobile content.

Their subscription and fee policy changes have previously hurt earnings at firms who counted on mobile content as one of their main revenue sources, such as Sina and Linktone Ltd.

China -- with a Web population of over 162 million -- has a sophisticated system regulating Internet content and routinely censors foreign Web sites. Popular photo-sharing site Flickr, for example, has been unable to show images since mid-2007.

Google will have to continue making friends in the right places if it is to avoid potential restrictions, said Yu.

One example to look to is Microsoft, where its MSN China site is a joint venture with Shanghai Alliance Investment, a major city investment firm run by Jiang Mianheng, son of former Chinese President Jiang Zemin.

Microsoft’s China business mainly took off after that particular partnership was forged, Yu noted.