If Google Goes, So Do Many Digital Marketing Opportunities in China

Viewpoint: Online Immersion and a Culture of Recommendation Explain the Extreme Power of Social Media There

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Thomas Crampton
Thomas Crampton
Google's confrontation with China and the Great Firewall have been a hot topic lately for those looking at censorship, but the fate of Google.cn has implications for marketing and perhaps even trade relations.

If the search site does disappear from the mainland, more is at stake than just paid search opportunities. Google is a key player in drawing advertisers to online media. The web -- and particularly the growing number of social networks -- have found the U.S. company to be a key catalyst for online marketing efforts.

But some trade experts now believe the economic impact is such that Google or another company could appeal against blockage of their sites to the World Trade Organization. This viewpoint reflects how the internet is now an economic force of such importance that stopping an online service impedes international trade.

China's internet has already grown into a powerhouse for marketing, advertising and e-commerce. China's netizens now number more than the population of the U.S. and roughly RMB 17 billion ($2.4 billion) is spent each year for online advertising.

E-commerce in China will likely surpass RMB 204 billion ($30 billion) this year.

This is with little more than a quarter of the nation's population online and does not reflect the level at which Chinese netizens engage online with each other.

Social media and the internet have become so central to public and private life in China that offline and online have merged in many ways. A recent survey by MTV found that Chinese youth have more friends online than offline.

China's high level of engagement online is due to a number of factors: massive internal migration that separates parents from children; the one-child policy generation now eager to overcome loneliness; a gender imbalance that has men desperately seeking wives online and, of course, the state-controlled media is dull.

In addition to their heavy involvement in social media, Chinese consumers value personal recommendations far more than other cultures. A study by McKinsey & Co. found that 66% of Chinese consumers are influenced in the purchase of a moisturizer by recommendations of friends and family, while only 38% would be in the U.S. and U.K. A study by TNS found that 94% of China's internet users have contributed to online forums, many on a daily basis.

Online immersion and a culture of recommendation explain the extreme power of social media in China. Take Chinese soft drink manufacturer Wang Laoji, which donated substantially more than other companies at a charity telethon immediately following the Sichuan earthquake in May 2008. The action inspired 19,000 blog postings and a self-sustaining word-of-mouth campaign encouraging a switch to drinking Wang Laoji.

Bloggers developed and spread the slogan: "If you're going to donate, donate 100 million. If you're going to drink, drink Wang Laoji."

In the month following the earthquake, this consumer-led movement helped drive sales volume up by 25% at one supermarket chain and 35% at one restaurant chain, according to McKinsey.

There is a lot marketing firepower at stake, but how does this relate to the World Trade Organization? Through blocking websites, China effectively prevents market access to foreign companies trying to enter this flourishing market. By some estimates, Beijing has blocked access to nearly 1,000 websites in recent weeks, on top of the tens of thousands of foreign sites and services that Chinese citizens were already unable to reach.

Technology companies in China have faced a number of other barriers related to the government sensitivities. Mobile devices using wiretap-resistant WiFi, such as iPhones, are prohibited from being imported.

This robs Apple's signature product of a key feature.

Last year the government tried to force all computer manufacturers to pre-install spyware called Green Dam Youth Escort on every computer sold. Nominally intended to block pornography, the software could also be used to track surfing habits. In the case of web services, however, the blockage of websites creates a clear advantage to near-identical domestic competitors.

The problem is that with China's accession to the World Trade Organization in 2001, Beijing agreed to give unlimited access and equal treatment to foreign-based or foreign-owned businesses of many categories, including online services.

This contradiction may leave China -- or any other nation that blocks foreign websites -- open to challenge for violating free trade agreements, according to a study published last month by the European Center for International Political Economy.

"Censorship is the most important non-tariff barrier to the provision of online services," write the study's authors, Brian Hindley and Hosuk Lee-Makyama.

As an aggrieved party in a trade dispute, Google or other blocked sites could apply for compensation based on their estimated losses. How much might that mean for Google?

Japan, which faces a similar linguistic barrier to entry, may offer a guide to the losses, the study said. While the market share of foreign-owned search engines is less than one-third in China, their market share in Japan is more than 90%. In financial terms, the study estimates the gap is worth RMB 2.8 billion ($410 million).

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ABOUT THE AUTHOR
Thomas Crampton is a Hong Kong-based blogger at ThomasCrampton.com.
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