LinkedIn plays by local rules to operate in China

Stan Ward

Stan Ward

October 8, 2014

A couple of billion people live in China. For years tech giants from Microsoft to Google to Facebook have been unsuccessful in navigating the choppy sea of Chinese government censorship to reach them. The Great Firewall of China has indeed been daunting.

One company, however, LinkedIn, appears to be making inroads there by being willing to compromise on free expression-long the foundation of the Internet in most of the world. And in so doing, they may be charting the course through the murky waters that is Chinese censorship today.

How is LinkedIn accomplishing this feat? It is finding the balance between free speech and existing statutes inhibiting Internet freedoms. As a result, they have attracted four million members without interference from the Chinese government. The bigger prize is the 140 million professional people which comprise an important part of China’s economy. LinkedIn has attempted to snag them with their Chinese-language program.

A spokesman for the company, Hani Durzy, opined that the company opened a Chinese-language site because of its “belief that the creation of economic opportunity can have a profound impact on the lives of Chinese individuals, much as it has elsewhere in the world.” While other companies such as Instagram and Yahoo are withering under repressive tactics by the government in reaction to the pro-democracy protests in Hong Kong, LinkedIn is thriving. How is it doing this?

More than just straddling the fence between freedoms and the law, the company has relinquished 7 percent of its local operations to two government connected venture capital firms. It seems that such liaisons are critical to the success of any strategy to penetrate the Chinese market unimpeded by government curbs. Such corporate connections are pivotal for web companies striving to operate in China, according to experts.

The government needs to know who they can call, and as a foreign company you need to know before your site gets shut down so you have a chance to do something about it,” said Duncan Clark, founder of BDA China, a consulting firm that advises foreign companies on China’s tech industry, “That’s worth a lot, to have that channel”. Others might look askance at such relationships as another form of corruption-tantamount to bribery. For LinkedIn, the end seemingly justifies the means.

LinkedIn has made concessions to the Chinese government. Chinese language users, for example, don’t have the ability to create or join groups or to post long essays. The government eschews public discussions and the formation of communities. Then, too, some people argue that LinkedIn has not communicated clearly how and why it is censoring content. They cite that listing one’s work site as being in China will trigger censorship and block content even if the information is posted from, say, the U.S. Other U.S. companies such as Facebook, Twitter and Google have been reluctant to make such concessions and find themselves on the outside looking in.

But all is not a bed of roses. LinkedIn faces competition from local rivals like Zhaopin and, both which have more users in China than does LinkedIn. However, the company’s partnership with two local players, China Broadband Capital and Sequoia Capital (an affiliate of an American venture capital firm), has helped it traverse the government censorship maze. This also is the kind of bribery and palm-greasing which is necessary to thrive in China.

LinkedIn has had to bow to other pressures and realities of doing business in China. They have had to form local partnerships which can share in owning equity in LinkedIn China if they meet certain criteria. In doing so, though, the company makes it much easier from the government to get information on dissidents and malcontents who use the service. To its detriment in doing business in China, Yahoo refused such information sharing and thus is precluded from operating in China.

Despite the challenges, LinkedIn is optimistic about its inroads into China. “Over the next five years, things will continue to progress in a positive fashion over there, so it’s important to be there today,” said Kerry Rice, an Internet analyst at Needham, a brokerage firm.

If LinkedIn figures out how to navigate the operating environment in China, clearly other companies will try to imitate that.” The question is how much autonomy are companies willing to cede to the government, and whether the risks of doing business there outweigh the rewards. It should be an interesting development to watch as China’s economy matures.

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