How to do business in China

Looking at the global economic market in recent months you could be forgiven for thinking that everything is slowly unraveling. The eurozone sovereign debt crisis has spread further and deeper than anyone had predicted, while the US economy received a major blow last week when its AAA credit rating was downgraded.

It's something of an understatement, then, to say that the economic sands have shifted somewhat in recent weeks, China finally emerging as many predicted it would from the shadow of the US. All this upheaval has only further underlined the need for companies to tap one of the biggest and fastest growing economies in the world.

The problem with this plan, though, is that, while the riches are plain for everyone to see, China remains one of the most idiosyncratic and frustratingly difficult markets for Western firms to crack. The received wisdom is that it's vital to first team up with a local partner. Well, we recently spoke to one such partner, web performance and acceleration firm CDNetworks, about the peculiarities of the Chinese market.

The company operates a content delivery network, and 60 per cent of its business so far comes from China, helping web firms to expand into the region. Some of the main problems it encounters revolve around China's antiquated internet infrastructure and the strict censorship of web content enforced by the government.

CDNetworks chief operating officer Jeff Kim explained to V3 that the country's infrastructure is around 10 years behind those of the US and Europe, and that 20-second web page response times are not uncommon. There is also a distinct north and south element to the internet in China, and poor interoperation between the country's major ISPs has led to several major choke points, he explained.

A side effect of the immaturity of the internet in China is that content providers could end up paying as much as 800 per cent more a month in hosting and network fees.

On the censorship side, Kim played down recent news reports that over one million sites in China may have been shut down after a crackdown by the authorities, pointing out that laws have relaxed a lot in recent times.

"The Great Firewall of China is a sophisticated firewall featuring blacklist and whitelist filtering, and relies on people manually searching through content," he said.

"Of course, there are rules against adult content and gambling, but China has been very keen to promote e-commerce sites and business apps."

The biggest areas of contention arise in the "middle ground" between illegal sites and strictly business-related content, especially on company blogs, he added.

Kim referred to one particular blog which CDNetworks pre-approved which was then updated with a post referring to Tiananmen Square. One day later the government contacted the blog and told them to take it down.

To succeed companies need to have a good relationship with the relevant agencies (the Ministry of Commerce and the Ministry of Industry and Information Technology), and they must know the rules, vet content ahead of time and take any content down if required by the authorities, he explained.

Although this may be distasteful to many organisations, the lure of a market of 450 million internet users may be too much to resist. Taking the Google route and leaving the country means not only losing out on this market but missing the chance to gradually soften attitudes from within.

Most Western businesses, I'm sure, would rather be on the inside than on the outside looking in.

12 Aug 2011