Potential Downside of Google “Exit” for China Internet Giants

While the Google / Chinese government drama is far from played out,

one aspect of the situation that hasn’t received much attention are the potential implications for China’s own Internet giants.

Obviously, access to China’s huge domestic market is a key prize in the global media sweepstakes, [br]

While the Google / Chinese government drama is far from played out,

one aspect of the situation that hasn’t received much attention are the potential implications for China’s own Internet giants.

Obviously, access to China’s huge domestic market is a key prize in the global media sweepstakes, [br]

While the Google / Chinese government drama is far from played out,

one aspect of the situation that hasn’t received much attention are the potential implications for China’s own Internet giants.

Obviously, access to China’s huge domestic market is a key prize in the global media sweepstakes, [br]

which is why Google’s maneuver is so dramatic, especially given the fact that China has its own big players in the field.

At the same time, Google’s potential exit from the China market – while obviously a plus for its domestic Chinese competitors in the short-run – may not be so positive for them in the long run.

The reason, as this article from the New York Times points out, is that their likely isolation from the global currents in the fast-paced world of Internet search –

whether for information, as in the US, or entertainment / fun & games, as in China –

could well leave them behind their foreign competitors in the medium- to long-term.

[quote]

Post-Google, China’s Internet market could increasingly resemble a lucrative, walled-off bazaar, experts say.

Those homegrown successes, however, could have trouble becoming global brands.

“If the Chinese government continues to favor domestic companies, those companies that reach critical mass could become phenomenally profitable,” said Gary Rieschel, founder of Qiming Ventures, an American venture capital firm with investments in China.

“But it may be hard for those companies to become world class without outside competition.”…

Experts say American companies have largely failed here because they don’t have local expertise, are too slow to adapt and don’t know how to deal with the Chinese government.

“Internet companies in China have to work so closely with the government,” said Xiao Qiang, of the China Internet project at the University of California, Berkeley.

“And that means the government’s political agenda can become the company’s business agenda.”

The need to censor Web sites, for example, can overwhelm smaller companies, Mr. Xiao said.

“This becomes a growing business cost. So often, small companies don’t develop.”

At this stage, analysts say the Web in China is less about innovation than about quickly delivering on the latest online trend.

“People here are quick to see trends, and to clone and innovate,” said William Bao Bean, a former Internet analyst who is now a partner at Softbank China & India Holdings.

“If one company is doing well, other companies will quickly clone it and roll it out.”…

One question, though, is whether Google’s departure will prevent Chinese companies from developing alongside the world’s technology powerhouses.

“When the Chinese companies go outside of China, they will find that they fail to understand their competitors as well as they did when they were competing in China,” said Mr. Rieschel, founder of Qiming Ventures.

Of course, Chinese companies may just be happy staying home.

With 400 million Internet users and growing, their own market is a substantial prize.

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