google, china and single markets

So google is getting out of China, and most publications in the English speaking world are hailing GOOG’s ethical and principled stance against cyber attacks, censorship and even human rights.

While I think a certain amount of (admittedly western) moralistic approach was behind the decision, I do not for one moment believe it’s the main reason. If any, I’m willing to bet it ranks may be within the top 10 reasons, and that’s it. Who is google to think that they can influence an entire government? If they want to operate in a country, they need to obey the laws of that country.

The main reason has to be business driven. That google is losing market share to baidu is very significant. First, baidu is associated with the mainland government, so there is validation in the eyes of the population. Second, if I get blank screens or crap results every time I search, I’d eventually stop using that search engine — much like how microsoft and yahoo bled search market share to google.

Lots of commentators say that it’s China’s loss, that it’s the start of the road to oblivion. How wrong, arrogant, and presumptious they are. Sarah Lacy at techcrunch said it best:

We tend to have the view that China is some copycat Internet backwater, and that’s just not true. China has formidable engineering talent, plenty of venture capital, the world’s largest Internet audience, and in many cases better methods of monetization

There is perception that China is still some backwards third world country where people use ricksaws to move around and eat rice with their hands. I shake my head at that ignorance. Google (heh, ironic) any image of Shanghai, or Beijing, or any of the Pearl River delta cities and you’ll see luxury cars, brand name products and a general prosperity that surpasses any city in the world.

Compare China with America and what is the most striking commonality? Sheer size. In terms of geography and population. Dominated by large cities situated at coastal regions (something that Russia can’t compare). Which means…single market. Why is it that American products are so different from the rest of the world? It’s because it’s enough for them to develop in their home market and make good profits. This is why the American mobile and internet market lags behind, American cars are poorly designed and American domestic flights are no better than torture. American consumers don’t know better, and there are enough of them who utilise mobile and internet, drive cars and fly on planes to pad the bottom lines of American businesses.

I’m not trying to slag off American business. My point is that in a similar way, China’s single market is in the same position. There is such a vast pool of people wanting to move up to middle class through consumption that Chinese businesses don’t have to worry about the rest of the world if they don’t want to.

And that is one of the scary things keeping CEOs of non-Chinese companies up at night.