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Operating in China

The Chinese created a phrase when Hong Kong was returned from the British, to allow for the fact that the former colony would have levels of freedom not allowed in the rest of China – one country, two systems. It seems that the IT industry is using a variant – one world, two standards.

From a business point of view, no company can ignore the world’s fastest-growing economy and the opportunities presented by a country that is producing more graduates each year than the whole of western Europe. Players such as IBM, CA and Sybase have been running low-profile but influential operations in China for a number of years. Oracle has a joint venture with a Japanese company in southern China, and Microsoft (partly in an effort to gain traction with the Chinese government) has established the fifth of its research centers in Beijing.

In this context it is hardly surprising that ‘new’ entrants, such as Yahoo! and Google, will ‘compromise’ the standards they apply elsewhere. Yes, image is important, but this needs to be put in the context of the potential revenues to be achieved by being in the market – or, more importantly, the opportunity cost of revenues being lost when others, with a less ethical stance, take market share.

For many years there has been an international campaign against the Swiss food giant Nestle, because of its policy of advertising formula baby milk in third-world countries where incomes do not allow people to buy sufficient quantities and there is no clean water supply. Despite the campaign, Nestle continues to grow, and in many places is now the de facto monopoly supplier for confectionery and bottled water, through associations with companies such as McDonalds and Disney. We have seen many campaigns, from personal to government level, against Microsoft’s dominance of the desktop, but these campaigns have also arguably had a negligible effect on either market dominance or share values.

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Reputation is undoubtedly important: Google and Yahoo! as brands are too big to be ignored by consumers and businesses, and China is too big for those companies to ignore for potential future revenues.

Being more charitable to Google in particular, despite the fact that it has applied filters for China, it is making much more information accessible within the country. Users are aware that not all content is being displayed, and history tells us that as people become more educated and informed, society changes. Google is still currently resisting US justice officials who want details of searches undertaken through the site, but under the Patriot Act in the US, or Regulation of Investigatory Powers Act (RIPA) in the UK, Google and ISPs can be forced to disclose details of individuals using its service. So, in reality, it is little different from China.

The purpose of a business, to paraphrase the slogan written over the doors at Harvard, is to maximize the return for investors in the medium term. Unfortunately, as an executive, if your remuneration is directly linked to your share values, revenues, not human rights, are a higher priority, whatever country you are operating in.

Source: OpinionWire by Butler Group (

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CBR Staff Writer

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