Will Google Walk the Walk in China?

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Ridiculous amounts of ink have already been spilled discussing Google's (Nasdaq: GOOG  ) threat to leave China. It's the business equivalent of a fight between Brad Pitt and Angelina Jolie, and it'll be covered accordingly. But there's far more at stake here than the market-share wars of Google and local rival Baidu (Nasdaq: BIDU  ) .

Analysts have already weighed the value of Google's reputation and security against that of China's potential. But few have looked at the big picture. Whether Google stays or goes, its actions will mold the business culture in China for years to come.

I've just finished reading Paul Midler's Poorly Made in China, one of The Economist's best books of 2009. The author is a business consultant in China, and for years, he tried to smooth out the relationship between Chinese manufacturers and the Western companies that import their goods to home markets. The book describes the shocking tactics that Chinese factory managers use to steal profits from their Western "partners." In short, the factories – which make everything from cosmetics to metal goods – repeatedly sacrifice long-term relationships for the sake of a quick gain. Western firms enable this sort of behavior by their refusal to walk away from China. The lure of the Chinese market outshines the pain and frustration of dealing with underhanded factory managers.

While they operate in a different sphere than the manufacturing world described in Midler's book, American technology companies have run into the same problems while doing business in China. As noted here, Yahoo! (Nasdaq: YHOO  ) , eBay (Nasdaq: EBAY  ) , and (Nasdaq: AMZN  ) have quietly scaled down in China because of their difficulties with bureaucracy. But none of these companies carry the same weight that Google does, and none have made their troubles as public. As a result, Google has the chance to set a precedent.

China has repeatedly called Western business's bluff. If Google walks from China, it would be taking a principled stance – something that its peers and counterparts in manufacturing did not attempt. Doing so would hurt Google's future profits, but it might embolden others to take a similar stance, threatening Chinese growth and providing Western firms with leverage in negotiations. If leaving China would help bring transparency and accountability to that country's business culture, it may be the best move for all of us.

Can Google change China? Leave your thoughts below.

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Fool contributor Tom Winner does not own shares of any company mentioned in this article. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (19)

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  • Report this Comment On January 19, 2010, at 4:02 PM, militauro wrote:

    Seeing as how many companies are reluctant to even speak up when Google asked, I doubt they'd leave the profits behind. I applaud Google for standing up to China, but I doubt it's enough.

    I was once enthusiastic with China and did what I could to research a handful of companies I was feeling good about. However, the Chinese government, lack of transparency, and what seems like a corrupt business culture steered me away for good. I will invest elsewhere, regardless of how good valuation on Chinese companies are or the prospects of growth.

    I'm not expecting to invest there in my lifetime, which speaks to my faith in China to change. Prove me wrong China.

  • Report this Comment On January 19, 2010, at 4:06 PM, catoismymotor wrote:

    Since I have no money in GOOG I will say that I hope they pull out. I think they should focus their efforts on Brazil and India, if they have not done so already.

  • Report this Comment On January 20, 2010, at 5:05 AM, Friendlysurfer wrote:


    The Chinese government is a party dictatorship - let us not forget. So you have to take into account dealing with people of the mindset as Marcos, Stalin and Hitler. I am not saying they are as bad, I am just mean they have the same mindset, the same values .... which means they do not care one single bit about you, their country or anybody else but themseves. Keeping this in mind, I actually made my best earnings in China, but I keep a stop loss on each single position I hold. Just an idea, no clue if this is smart or not, it worked for me just fine

  • Report this Comment On January 20, 2010, at 5:08 AM, Friendlysurfer wrote:

    Forgot to mention: I actually lived once in Beijing, and I was going to marry a local girl. Luckily I did some background research on her first - Never the less, everybody was extremely friendly to me - I payed with hard currency :-)

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