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

In terms of social development the U.S., in my opinion, is at least a hundred years ahead of China. The question U.S. firms face is whether they want to return to the past. Society evolves gradually. If U.S. firms choose to leave, they not only lose China's market, but also the chance to make an impact in China. In brief, they should comply.

I am Nigerian and have lived under a repressive regime. It is a horrible experience no human being should be subjected to, what with fear, lack of privacy, and so on.

I would be very happy if both Google and Yahoo resisted these constraints. The real bottom line is people, no matter where they reside. We are all connected. Please do not limit this discussion to China. Extend it to Africa and help us rid this continent of similarly repressive policies.

We solved this question during the Cold War. Economics control change. Economic exchange with a repressive society yields less than desired results (e.g., the consequence of sales of technology to Iraq and Iran) even if it is tempting in the short term. Enabling the repressive regime to function with these products will in the long term undermine these U.S. companies' viability. As soon as China can, it will switch to Chinese, easier-to-control companies. Our truest self-interest is in the end always the ethical choice of resisting or leaving, as we will inevitably be the next victims of the repressive policies we did not confront but ended up supporting by complying. Always apply pressure in the right direction.

The dilemma is primarily due to China. These corporations might not have bowed to the censorship pressure of the government of, say, Zimbabwe. The presence of 110 million Internet users (second only to the U.S.) makes the exploitation of the Chinese market indispensable for Yahoo et al. However, unlike the South African apartheid situation, it was possible to do business without becoming a party to censorship. Except Cisco, the other three companies could have provided services to Chinese customers without physically locating their servers in China. So, there was an option between total surrender and leaving the market.

In fact, Internet technology could have enabled Yahoo et al. to have presence in China without being actually present there. It was once suggested that the Internet is uniquely placed to nullify the power of repressive states to control and censor the free flow of ideas within their municipal boundaries. But the current controversy seems to indicate that powerful states can prevail over the might of even the Internet, at least for now.

The argument of staying in China to catalyze change is tempting but difficult to implement and measure. Once profit takes precedence over principles, it is not easy to reverse this order. In sum, instead of jointly putting more pressure on the Chinese government, Yahoo et al. opted for an easier and more profitable but less ethical option. I have dealt with some of these issues in "Yahoo! Free Speech in China," available at http://www.onlineopinion.com.au/view.asp?article=4178

It's not worthwhile for a company to fight with the government. They should strive for expanding business practices and gaining more profits from the market, aligned with a win-win mentality. Philanthropic activities addressing the issues facing peasants, environmental issues, education, etc. will lead to goodwill from both from the government and Chinese consumers. Gradually, business growth will influence local business partners as well. Foreign companies should take the advantage to bring business know-how to local companies and weave an interdependent business ecosystem.

These foreign companies could survive while remembering that no government will give up its right to govern.

The twenty-first century business landscape requires organizations to look beyond their shareholders. Shareholders are certainly important constituents of any business, but other stakeholders cannot and should not be ignored.

The dilemma can perhaps be addressed if one were to look at Peter Drucker's contention that the only relevant purpose of any business is "to create a satisfied customer." How can customers whose safety or privacy is compromised be satisfied customers?

The dilemma can also be addressed if one looks beyond Milton Freidman's prescription that the business of business is to make profits. Mahatma Gandhi repeatedly emphasized that in every walk of life the means are as important as the ends. This is particularly relevant in today's context when the relentless pursuit of wealth creation often blurs the division between right and wrong.

It would indeed be naive to even imagine that organizations—either individually or through collective action—could change the way a country is managed. This may be true of relatively free market economies but does not hold for closed societies like China.

Taken to its logical conclusion, how is the authorities' demand for sensitive information different from a state-controlled monitoring system that keeps track of every move citizens make?

It is time to say enough is enough. If a country wants to reap the benefits of a globalized economy, it must equally be willing to let go of dogmas that have no relevance. Organizations must be willing to stand up and be counted. Buckling under pressure for the sake of profits would inevitably mean that only the end matters, not the means. And organizations would have betrayed their most important stakeholders—customers.

Although it seems to be complicated to consider various issues, the central question is very basic: "What are business ethics?"

People and companies do not become corrupted overnight. They make compromises one at a time. The logic is always the same. "Well, it's OK this time since we have to focus on the current goal (whatever goal that might be). Maybe next time it will be different."

Another compromise for another goal/benefit, and it goes on and on. As time goes by, business ethics is just another subject taught by school and written on a mission statement, and that is the problem of today's education and corporate environment.

Will people still make pirated software if they could come up with innovative products by themselves? Will people counterfeit products if they had their own design? Will people not use more environmentally friendly alternatives if they can afford them?

But if we could make compromises for our own profits, why can't people in the rest of world make their own compromises for their own profits? Google has demonstrated the worst case study of corporate greed overpowering everything else. And that is it, period.

Any publicly traded organization has a responsibility to shareholders and stakeowners such as employees, suppliers, and regions or countries where it does business. That includes respecting the laws and cultures of the country in which they do business. Should an organization determine that it does not agree with those laws, it may resist or leave. However, using a longer-term view, as a country such as China evolves and enters the world market it will slowly change as it realizes that free market economies involve the free exchange of ideas that are not a threat to their government. After being a closed society for so many years, it will take time for this concept to evolve.

By complying, a business allows behavior and policy to continue unabated. The message is that it's OK to be this way in our world, we'll go along with it.

By leaving, the business sort of protests, but who cares? There are other, less principled providers out there who will take the business whatever the conditions . . . after all, it's about power and money . . . and so the behavior and process continues. Resist? It's the most difficult route, especially with the differences in cultural interpretation of privacy and the role of government.

Should we impose our views and values because we think we're right? Hasn't that been the foundation of wars for centuries? Behavior changes when there is a reason to change. Penalties and exclusion haven't bothered Chinese governments before; are they likely to now? Collective resistance/withdrawal has strength, but it only takes one weak link.

Working with people directly may be the only route of long-term consequence available to business.

Companies, like people, generally do what interests them and can be rationalized along those lines. There is no easy answer here. But . . . companies should be held accountable for what they do. Too often they are not. I recall an incident in which Toshiba sold the Russians sophisticated milling machines that enabled the production of super-quiet submarine propellers, even though such machinery was on a well-known list of forbidden sales. A full-page ad later in the Wall Street Journal expressing an apology wasn't good enough as the incident cost the American taxpayers a lot of money. That's one reason I still will never buy a product with the Toshiba name on it. Consumers and investors would do well to judge the actions of companies, because the market is a wonderful means for the informed to advise companies of agreement with their policies and decisions.

Having worked in China for over ten years, I know the best course is to comply initially, to gain the trust of the authorities, and then to suggest changes and modifications. If one is unwilling to do that then the best course is to leave, at least temporarily.

Many Americans go to China with a view to make a killing. That is not going to happen overnight or in the long haul. The profit is there, for sure, but it will not be found at the expense of the Chinese themselves, that's also for sure. However, I have made some great friends who taught me how to understand and to try, try again, and in the end make progress.

Although entering China allows access to a large population to whom to sell products and services, the political risk may be too high a price to pay. With the threat of reverse engineering, lack of human rights, and political interference, the soft costs in dealing with these issues will definitely reduce the perceived profitability of entering the Chinese market. It is better to enter a country such as India where the risks are overall much smaller, and you still have a high population.

Unless compliance involves ethically wrong corporate behavior (like child labor, trade in narcotics, arms supply to a repressive regime, and the like), companies should be guided by the size of the opportunity and its benefit to investors. The response to such situations need not be binary fight or flight. Fighting a state no matter how small is beyond the power of the mightiest corporation because as the repressive state masquerades as the sole protector of national honor facing a defiant multinational. Flight merely concedes market space to competition that may have no such qualms.

Instead, silently work for change from within. This is for the long haul, involving collaboration with allies within the host nation and building up public opinion. However, a necessary condition is the relative attractiveness of the market so the company finds its struggle both ethically and financially rewarding.

The companies involved in this controversy are trying to frame the dilemma as "cooperate with the government or don't do business in China." The truth is a bit more complicated.

In a January 27, 2006 post on Google's official blog, senior policy counsel Andrew McLaughlin explained the company's decision:

Google users in China today struggle with a service that, to be blunt, isn't very good. Google.com appears to be down around 10 percent of the time. Even when users can reach it, the Web site is slow, and sometimes produces results that when clicked on, stall out the user's browser. Our Google News service is never available; Google Images is accessible only half the time. At Google we work hard to create a great experience for our users, and the level of service we've been able to provide in China is not something we're proud of.

This problem could only be resolved by creating a local presence, and this week we did so, by launching Google.cn, our Web site for the People's Republic of China. In order to do so, we have agreed to remove certain sensitive information from our search results.

The tradeoff faced by Google was not whether to do business in China or not, but whether to sacrifice the quality of its Chinese users' experience or be an active participant in the censorship act. (The reality is that even on Google.com, many search results are still inaccessible in China due to the filtering employed by the Chinese government.) Sacrifice the user experience, or sacrifice the truth? You know what they chose.

Yahoo has done a similar job masking the question. Yahoo chose to provide blogging services through servers located inside China, thereby exposing itself and its users to the demands of the Chinese government that led to the arrests of at least two dissidents. Yahoo could have provided the blogging service using servers located outside the country, but chose to locate the servers inside the country. To further mask the situation and wash its hands of responsibility for its actions, Yahoo has transferred 60 percent of the ownership of its Chinese business to Alibaba.com, its Chinese-owned partner.

The most alarming issue in my mind is the lack of full disclosure on the part of the companies involved. What we really don't know is what kind of calculations they have been conducting behind the scenes to figure out how much money they'll be making by helping the Chinese government suppress the freedom of its people. We also don't know how the Chinese people will react when the truth eventually comes out. But if I were an advisor to these companies I would say: Do right by the Chinese people or risk losing this market.

Comply, resist, or leave are strong, close-ended options for an organization if we consider them in isolation and presume they are stand-alone options. But once we realize that interactions and interdependences exist within these elements we can formulate and execute a strategy that can help.

Leaving is definitely not an option. Organizations should not ignore the "dragon's might" and its economic prowess. Resisting completely is also not an advisable stand, because you should never take the dragon head-on especially when you know it breathes fire. Complying completely is also not a recommended option because it may lead to strangling the very ethics and values on which the organization survives.

What I suggest is a combination of resist and comply. This gives you ample room to bargain and negotiate.

I do not see any threat or moral hazard when the service provider makes clear to its customer the potential threat [that it may share information with] the [government] or other authorities. Forewarned is forearmed. So the organization can start with a basic product/service offering. Clearly study the politics and potential of the market and then slowly spread your wings by negotiating, bargaining, and making the authorities and customers understand the benefits of the offering.

As they say, when in Rome do as the Romans do. I would say in the East play it cool because aggressiveness can send the wrong signals to the authorities and also to people at large. As in Buddhist philosophy, follow the middle path and take baby steps in spreading business in the "Land of the Dragon." I agree with the critics of this strategy that profits will be limited and controlled, but so will losses in case the strategy or game plan fails. And it's better to fight than to attack or run and hide.

I have been in China since June 2001, working on the lower rung of possible business development. My Web site is blocked from outside view and this e-mail is being monitored as I send it. If a company wants to make a decision about working here, management should first read Orwell's 1984. For at least the last fifty-six years, this appears to have been the guide here for doing business and, in my opinion, the government is improving on it. My personal recommendation is: If a foreign company has enough funds to last for another fifty years before profits, and is willing to accept this path of everyday change, then settle in for a lot of fun—if you can change frustration into fun. Just remember, the kaleidoscope is rotated daily.

I am Hong Kong Chinese and have lived through the colonial era under the British Administration as well as the current China Special Administration. What I can say is that business should never be involved in politics.

The business landscape is too complicated for companies to get involved in country-to-country confrontation. Change should be implemented through proper policy rather than as a result of criticism from mass media.

If an organization is serious about doing business in China, it must ride out all government restrictions. Things evolve fast in China. What is forbidden at the outset may soon become permissible or required. Flexibility in building a position is necessary. True, it may be one that compromises U.S. standards (not laws), but compare that to the alternative of leaving a key market where returning may not be possible. Staying is usually best in China.

None of these companies can ethically sustain continued support of the People's Republic of China, any more than IBM could support its equipment being used in Germany in the lead up to World War II. IBM's fig leaf was that maybe they knew or maybe they didn't. The utilitarian nature of their products is quite beside the point.

In the case of Google and Yahoo, they are in the business of aiding and abetting a ruthless regime that is at least as oppressive as the Union of South Africa. It really isn't complex. Their products make a police state more efficient.

The problem in dealing with repressive societies, specifically China or other manufacturing countries, is not "Should I or shouldn't I do business with them?" The dilemma is, "If I don't do business with them, how long before they have an exact replica of my product?"

If Google ended its service to China, China would respond by creating its own version of Google, which would take money away from American society and recycle it back into its own repressive society. So then do we take China's money and conform to their standards or do we let them copy our product and keep their money?

I feel Google made the right move by censoring its product for the Chinese market; they obviously do not want it copied. Through good business practices and honest work I hope this risky business venture will result in more leverage for Google China down the road.

The issue of complying with the Chinese government in giving the government access to information gathered over the Internet is more one of U.S. government policy than company policy. It is a tough question to answer, but companies will all need to agree on a response to this situation, or the government will.

It is very difficult to take a principled stand on this issue that would mean anything to the Chinese government after the mess we have made in Iraq. I would call for coordinated action on behalf of all companies that have had to alter what they do to accommodate pressure from the Chinese government, although I doubt such action would accomplish anything. Local or pan-Asian service providers will simply fill in the gaps. (This is my personal view, not that of my company.)

It makes me nervous that China owns much of the U.S. debt. But as to the problem of the Internet and information: Whether a corporation stays in China, disengages, or leaves has to be the corporation's own decision.

On the other hand, the U.S. could exercise the option of reneging on its debt, or at least threatening to, if China doesn't concede more sensitively to this issue.

Argentina, for example, did renege on U.S. loans not long ago. During the '80s, banks and corporations failed all over the U.S., including Chicago's Continental Illinois National Bank and Trust Company [the largest bank in the history of the United States to require a bailout from the Federal Deposit Insurance Corporation]. The domino effect was that banks and businesses closed all over the Midwest when their lines of credit were pulled. Perhaps these precedents of tough tactics would interest China and raise its awareness.

To answer your question, I would choose resist if possible and leave otherwise. The point of responsibility to shareholders is an interesting one. Managers certainly have a responsibility to abide by the wishes of the owners of their company, and usually this means maximizing profit.

In this case, however, I would hope that the wishes of shareholders of Google or Yahoo would be that their company does its part in supporting the values that make a free society and free enterprise function. It could be argued that if these companies took a stand on principle, their potential profits and stock value would fall somewhat, inducing owners who value profit over freedom to sell their shares. Management could then feel confident that it is supporting the values of its current owners.

It's a little tough to ignore China at this point, considering that it is one of the largest trading partners of the U.S. and will likely become the largest in the not-too-distant future. And considering China does a far better job of selling into the U.S. market than U.S. companies do selling into China, it's patently naive to think the Chinese can't find pretty much whatever technology they're seeking from someone else if they can't get it from the U.S.

Picture Eric Schmidt at Google pulling his hand out of a bucket of water. That's the impression that Google will make by refusing to do business with China. 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 needs. It is possible to do that (even if the process of doing so might be more than a little frustrating).

Expecting to do business in China or any other emerging economy the same way one does business in North America is just a tad unrealistic. Companies (including Google and Yahoo) have a responsibility to identify what the differences are and how to best accommodate them.

Then with a significant presence in-country, they 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. That would be like, oh, say France or Germany expecting the U.S. government to change an entrenched policy without making a solid case for that change in a way that makes sense in the U.S.

Resist. I believe influencing change is more effective from within. I also believe that in the initial stage of a business relationship it is easier to influence another when you have a distinct advantage. Yahoo, Google, and other companies have technology that China is very interested in but does not have the capability to create (today). Therefore, there is an opportunity to influence the direction or severity of China's policies by resisting in such a way that no one loses face but instead creates a cross-cultural dialogue on what is fair for all parties involved.

There is another option: influence. Looking back in twenty years' time, we may feel much more comfortable about positive changes in the business situation in China.

I would ask some questions before making a recommendation.

1) Staying in China may be the best for short-term profits. However, what is our expected long-term outcome? American values have driven the largest wealth creation wave in history. Would we not be defying the proof of history to assume that we can do business contrary to those values and continue to be as profitable?

2) At what point do we cross the line between complying with the Chinese government and supporting it? For example, if the Chinese government obtains information on dissidents from U.S. companies that it could not obtain any other way and uses that information to persecute these individuals, would the U.S. companies not be complicit in that persecution? Aside from the morality problem, the publicity of being linked to human rights abuses would erode shareholder value in the West. We would be gambling our existing value and organic growth rate in an attempt for a short-term growth spurt in a new market.

Based on my own response to the above questions, I recommend not complying with China's demands and, if necessary, pulling out. However, these are questions that companies and individuals must answer for themselves.

Any large corporation has multiple constituencies that it is obliged to consider before making such a substantive decision. At the same time it ought never to put aside the most fundamental value of all, that of the protection of liberty and freedom from the shackles of fear. In the face of these, business interests pale if only because capitalism itself, if it is to be sustained, must be founded on trust.

My advice would be to present firm and consistent resistance to any demands for compliance, maintaining that the ethical relationship with the using public must be scrupulously upheld. Where this proves unacceptable to prevailing authorities in the host nation, I truly believe it is in the firm's best interest to seek markets in places more amenable to liberty.

In the case of U.S. global corporations, I would like to believe the most compelling argument would come from the conscience of top managers who themselves enjoyed the benefits of having been raised in a free society and should know full well what its loss means.

Especially in a network-based service model, it becomes increasingly relevant to proactively support and strengthen any actions that may even remotely resemble responsible business or corporate citizenship, because corporate social responsibility is the corporate governance of the twenty-first century. Compromises for the short or medium term, especially when profit is the only motive, lead to long-term damage. The global community is increasingly accepting this fact.

Normally there is validity in the argument that change requires involvement and participation from the inside. Though sheer staying power may provide impetus for fostering change, one must take into consideration the fact that the reasons for entry and participation were economic to begin with, not to foster social and/or political change. To that extent, how deeply entrenched is the resistance to change and how committed is the government to change is all moot for doing business in China; the argument would be valid in this case only if the government or agencies have made or make assurances of considering the options.

In such a situation, within a larger global framework coordinated actions by managements of the competing U.S. companies may be relevant in some parts and in some cases.

Now—and increasingly in the future—there will be no clear lines demarcating governments, private enterprises, and nongovernmental organizations. The pressure to be socially responsible is so great that increasingly these lines will blur and merge, such that responsible action and behavior is everyone's business: that of citizens, students, CEOs, bureaucrats, policy makers, or entrepreneurs.

If I were an advisor, I'd strongly urge the senior management of these companies to take this holistic and long-term view and, if required, do whatever it takes to comply with their vision, including leaving. Whatever they decide to do, it should be in line with an articulated, clear commitment. They should not blow as the wind blows or take a wait-and-watch attitude or, worse, rationalize that the problem does not exist or affect their business, because it does and will.

The world is a complex marketplace. There are different cultures and different forms of government with their own regulations and values for their people.

Accept their culture or leave.

As the saying goes, when in Rome do as the Romans do.

There is always a middle ground to any situation, so let the executives concerned keep trying to find the middle ground that will satisfy the authorities concerned.

If Yahoo and Google want to change China, they need to work against the system, not within it. China is not the U.S., where people have recourse within a (mostly) fair system.

This is Communist China, where the government owns a piece of everything there is, they have nukes pointed at our cities, and their citizens are oppressed over such silly things as Falun Gong and nudity on the Internet.

Yang and his cohorts may "feel awful" about their complicity to imprison freedom lovers in China, but I am sure this useless guilt does nothing to help the prisoners, nor does it help prevent more individual rights being sacrificed.

Google once declared they would "do no evil," but frankly, I'd be more inclined to trust George Bush on weapons of mass destruction in Iraq (in 2006!), than believe that Yahoo or Google are increasing freedom in China by toeing the party line and getting people thrown into dark holes in rundown Chinese prisons.

Shame on these people; they ought to know better.

Any U.S. citizen who continues to work at a company that has been shown to be assisting the state police of China is a traitor. Doing business with the Chinese government, doing business that is known to profit the Chinese government, or collaborating with the Chinese government makes one an enforcer of totalitarianism and withholder of basic human liberties. It is a betrayal of the letter and spirit of our Constitution, and a declaration of war against humanity and liberty. There are no legitimate excuses, only the substance-less spin of parasites whose every cent of pay is, quite literally, blood money.

Global organizations are comprised of people of varied ideologies, faiths, and beliefs. These organizations may not be the best bodies to classify local policies as right or wrong.

To quit a market on the basis of local government policies (requiring filtering and monitoring of information) may not be the best option for two reasons. The first reason is that the customers in such market should have the option to choose whether they want to access information even if they are being watched. They need to be aware they are being deprived of information by their government, not because they do not have the means to access the information.

The second reason is that government policies in the West may also change and may require monitoring information in the name of homeland security. In that scenario, would organizations quit western markets?

Having said that, I think companies must comply with their own value system and should be honest with their customers. At the same time they also need to follow the law of the land where they operate.

I think that 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.