Microsoft and China

June 15, 2005 11:05 AM EDT

As the world's most powerful software company, Microsoft has a tough job trying to develop overseas markets. Besides the obvious difficulties with internationalizing their products and setting up overseas marketing and distribution channels, they often have to tread carefully with regard to local regulations and "sensibilities."

China is a crucial market for Microsoft, and many other consumer and business-oriented IT companies. It has 1.3 billion people, a smoking economy, and one of the fastest growth rates for computer and Internet use in the world. If you're not in the China market now, goes the refrain, you'll be left out in the cold when the huge profits from this giant market start rolling in.

Microsoft has to play nice with Beijing, not only to access this market and develop new lines of business there, but also to get cooperation in fighting software piracy and dealing with Chinese bureaucracy. So when the Chinese government asked Microsoft to alter its blogging software so Chinese bloggers couldn't use post words like "democracy," "freedom," and "Taiwan independence," Microsoft complied.

And the reaction was furious, at least on this side of the Pacific. Microsoft is censoring free speech. Microsoft is colluding with a totalitarian regime. A cowardly act. Check out the summary and debate on Burningbird.

A handful of Microsoft supporters, including Robert Scoble, defended Microsoft. Scoble claims that Chinese are against free speech, and was prompty crucified by more experienced China hands, including Rebecca MacKinnon.

Interestingly, most of the reaction I've seen is from Western observers. We don't know what Chinese bloggers think about this. Besides the language barrier, there are not as many Chinese bloggers out there, and those who are operating in China can't say what they think, for reasons that should by now be quite obvious. Chinese bloggers even have to register with the government.

I lived in Asia for about seven years, and as a journalist reported many times on issues or events relating to China. I can offer the following observations about this issue, observations which other companies doing business in China may want to take note of:

  1. A Western company that resists local or central government directives will find it impossible to effectively conduct business in China, as long as the current regime is in place and there is no transparent legal system in China.
  2. A Western company which has a business philosophy based on active and vocal support of freedom or democracy will not succeed in China, as long as the current government remains in place.
  3. The current government in Beijing, which is officially based on a Marxist-Leninist system, will undergo political and bureaucratic change over the next ten years -- Marxist-Leninist thought is dead in China, and incompatible with the new capitalist system. How the government and the legal system will change remains to be seen.
  4. Once it takes off, the Chinese government will not be able to control blogging. The Beijing/Microsoft strategy of restricting blog posts based on keywords will fail, as Chinese bloggers adopt different terms for these ideas, or post via sites based in other countries.
  5. The unregulated exchange of ideas over the Internet is viewed as a significant threat to the current Chinese government. Beijing has tried to rein in the Internet, but they cannot control it, short of shutting it down.
  6. Other foreign companies involved in consumer-oriented Internet ventures in China will encounter similar government restrictions, if they haven't already. They can either resist and lose; quietly accomodate with the Chinese government and potentially deal with the fallout here (if it's publicized); attempt to negotiate a satisfactory arrangement with the Chinese government that gives face to all sides and minimizes bad press and blog reaction in the West; stall and hope the government withdraws these restrictions; or forget about doing business in China for the next few years.

Stay tuned ...