• 06 Mar 2006
  • What Do You Think?

The China Dilemma for U.S. Firms: Comply, Resist, or Leave?

If you were an advisor to the senior managements of these companies doing business in China, what would you propose that they do?
by James Heskett

Summing Up

The jury is in. Nearly all respondents to this month's column would advise U.S. firms such as Yahoo, Google, Cisco, and Microsoft to continue to operate in China despite the government's possible use of their content or technology to invade the privacy of its citizens. But about half would advocate a discontinuation of operations after attempting unsuccessfully to resist meeting government demands for private information. Some suggested more complex strategies.

Among those in favor of staying and trying to reach some kind of accommodation were Sandi Edgar, who commented, "If Google ended its service to China, China would respond by creating its own version of Google." Jack Carpenter advised, "If an organization is serious about doing business in China, it must 'ride out' all government restrictions. Things evolve fast in China. . . . Flexibility in building a position is necessary." Michael Peng concurred: "If U.S. firms choose to leave, they not only lose China's market, but also the chance to make an impact in China." Linda Sun added, "Having worked in China . . . , I know the best course is to comply initially to gain the trust of the authorities, and then to suggest changes and modifications."

Others advocated more vigorous actions and, if necessary, departure from China. Matt Deter commented, "If Yahoo and Google want to change China, they need to work against the system, not within it." Suraj Babalola wrote, "I would be very happy if both Google and Yahoo resisted these constraints. The real bottom line is people, no matter where they reside. . . . Please do not limit this discussion to China." Nicole Herbots put it this way: "Our truest self-interest is in the end always the ethical choice of resisting or leaving, as we will be inevitably be the next victims of the repressive policies we did not confront but ended up supporting by complying."

Some offered more highly-textured advice. Saurabh Gautam said, "Comply, resist or leave are strong, close-ended options. . . . I do not see any threat or moral hazard when the service provider makes clear to its customer the potential threat of use or sharing of the information by the intelligence or other authorities. Forewarned is forearmed. . . . As in Buddhist philosophy, follow the middle path and take baby steps." Gaurav Goel agreed: " . . . the solution is to make sure customers are aware that they are being watched or are being stopped from accessing particular information. Who knows? This may lead to a change in local policies toward a better world." Surya Deva commented, "Except Cisco, the other three companies could have provided services to Chinese customers without physically locating their servers in China."

After reading the March column, one of my Chinese students asked me if enough consideration is being given to legitimate reasons for actions of the Chinese government. David McKnight's comments reflected a similar need to take into account Chinese officials' views: "A far smarter approach is to evaluate the ethical impacts of Chinese law on a company's business model, and determine how to meet both ends. . . . They (the companies) can start lobbying for reforms that make sense to all parties—because frankly until it makes sense to China, it's not going to happen." What do you think?

Original Article

A dozen years after the end of apartheid in South Africa, U.S.-based firms are confronting a dilemma that may be even more complex than that faced by General Motors and others during apartheid. For General Motors, the issues had to do with employment policies and whether or not to sell autos in a repressive society. For companies like Cisco Systems and Microsoft, the question has greater political implications-whether or not to continue selling hardware or software that filters communications or facilitates their monitoring to a government that is likely to use it for both purposes. For Yahoo and Google, among others, it gets even more complex. It is whether to: (1) comply with Chinese requirements that they make available information regarding individuals using their Internet sites that could endanger users' welfare, (2) resist such license requirements, or (3) cease doing business in China.

The increased complexity arises from the fact that Yahoo, Google, and others are not simply manufacturing and selling autos in South Africa. They are utilities that handle sometimes sensitive information on a worldwide basis.

Arguments for shutting down service in China include the importance of taking a stand against an oppressive government and its policies, refusing to compromise an organization's values by acceding to objectionable policies in the name of profits, and forcing a society in need of one's services to alter its views regarding privacy. To this list one might also add the reduced cost of dealing with protests and bad press resulting from a decision to stay.

Those defending a decision to stay say that change requires involvement and participation from the inside. Even though the process may be slow and, yes, profitable, they argue that abdication negates an organization's power to foster change. Further, if all U.S. information utilities operating in China were to take organized action, according to this argument, they would have significant leverage in forcing change.

Others may conclude that staying is the only course of action, whether or not efforts are made to influence government policies. This line of thought holds that a management's first obligation is to its shareholders, not others with political agendas. Further, they add that it is more appropriate that the U.S. government take whatever action is appropriate, including passing legislation requiring compliance.

Questions posed by this dilemma go far beyond the basic arguments stated above. For example, what does it mean to "leave" a market in an interconnected world served by network-based service providers? Have the services provided by these firms become so valuable to their customers that they could defy the Chinese government and somehow get away with it? Is coordinated action by the managements of these competing U.S. companies warranted in such a situation? Should what is often the business of governments be shifted to a group of business managers? If you were an advisor to the senior managements of these U.S. companies, what would you propose that they do? What do you think?