http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/16/BU151BIO84.DTLFew expect Google Inc.'s stare-down with China to usher in a new era of openness across the Asian nation, but some believe - or hope - it could pressure the government to improve relations with foreign technology companies.
The Mountain View Web giant called out the country in a surprisingly forthright manner last week, publicly venting frustrations common among many U.S. businesses operating there. The company said it would stop censoring search results in China even if that means it's forced to leave, after disclosing a sophisticated cyberattack on the e-mail accounts of advocates of human rights in the nation.
Few see China, whose leadership has grown more conservative and nationalistic in recent years, backing down in the face of the ultimatum. But such a declaration by a company of Google's stature could raise the ethical bar for businesses that choose to remain, and grant permission for firms without a presence there to second-guess the perceived wisdom that they should be there, observers say.
The Google-China flap has already reignited the debate over global censorship, reinvigorating human rights groups drawing attention to abuses in the country and prompting U.S. politicians to take a hard look at trade relations. The Obama administration issued statements of support for Google, and members of Congress are pushing to revive a bill banning U.S. tech companies from working with governments that digitally spy on their citizens.
"If Google leaves China, I think the impact of that is China gets a black eye," said Haim Mendelson, a professor of electronic business at the Stanford Graduate School of Business. "People will remember what happened to Google."
What happened wasn't just that the company was widely criticized for its decision to censor search results in China in the first place, or that it and its customers may have been the victims of cyber-spying by agents of the government. For businesses with Chinese interests, perhaps a bigger concern is that Google, the leading search engine around the world, ranks a distant second in the country and reportedly described its revenue there as "immaterial" four years after launching.
There's a widespread perception that Chinese bureaucrats, in ways subtle and otherwise, stack the deck in favor of domestic companies like leading search engine Baidu. It's one thing for companies to compromise on values when there's a huge money-making opportunity at stake, but it's entirely another when, after making uncomfortable concessions, the government actively works against their business interests.
Baidu itself has said it's the market leader because it better understands the needs of Chinese consumers and advertisers. It controls 58.4 percent of the search market, compared with 35.6 percent for Google, according to Analysys International. The next biggest company, Sogou, has only a 1 percent share. Reports have put the combined search share of Yahoo Inc. and Microsoft Corp.'s Bing at just over 1 percent. If Google does leave China, Baidu will have a monopoly over the Internet market in the near term, the Chinese research firm said.
Not the first timeWhile Google's exit threat is notable for its decisiveness, it's not the first time a tech business embroiled in similar issues has pulled back in China.
EBay Inc. said in late 2006 it would replace its Chinese auction site with a joint venture operated by Tom Online of Beijing, after it lost considerable market share to the Taobao auction site, operated by Chinese company Alibaba.com.
Yahoo Inc., subject to widespread condemnation for filtering search results in China, struck a deal in the summer of 2005 to turn over its business to Alibaba - and with it all questions of self-censorship. It maintains a 39 percent financial stake in the partnership.
Later that year, it came to light that the Sunnyvale company handed over e-mail content from journalist Shi Tao to Chinese authorities, providing information that would lead to his 10-year prison sentence. Reporters Without Borders, human rights groups and members of Congress denounced the act.
Cisco Systems Inc. also faced opposition at home in 2005. A shareholder resolution pushed the company to adopt a human rights policy for its China dealings, after reports said the company's routers formed the underpinning of the so called "Great Firewall of China."
Rare victoryIn one rare victory last year, complaints from U.S. businesses and Washington forced the Chinese government to back down from its initial demands that PC makers, including Hewlett-Packard and Apple, install Internet-filtering software on computers sold in that country.
Even if the human rights and censorship issues don't much matter to company executives, being hauled before Congress, called to account by shareholders and castigated in the media certainly do, said Alan Tonelson, a research fellow focused on China at the U.S. Business and Industry Council, which represents U.S. manufacturing companies.
Tonelson doesn't expect Google's decision to upend the status quo in China, but said companies may step up efforts behind the scenes to ensure they are "not obviously vulnerable to the same kinds of bad publicity that Google and Cisco and Yahoo ran into."
He added that U.S. tech companies retain an important source of leverage that could nudge these matters forward: technology still unrivaled in sophistication.
"The last thing China wants is to be a second-rate technology power," Tonelson said.
On the other hand, many businesses could simply see Google's departure as an opportunity to tighten relationships in China and boost their market share in the world's most populous nation. Most businesses have declined to comment on how Google's move will alter their China plans, and some have said emphatically that nothing about their dealings there will change.
"We've been quite clear that we are going to operate in China, (and) we're going to abide by the law," Microsoft CEO Steve Ballmer told CNBC.
China Foreign Ministry spokesperson Jiang Yu said in prepared remarks last week: "I want to stress that China's Internet is open. The Chinese Government encourages the development of (the) Internet and endeavors to create a sound environment for the healthy development of (the) Internet. Hacking in whatever form is prohibited by law in China."
