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» VIEW ALL POSTS May 27 2008   10:15AM GMT

How should tech companies do business in China?



Posted by: Beth Pariseau
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Around the water cooler
Strategic storage vendors

The Chinese technology market isn’t up-and-coming anymore, it’s already here. And with a billion-plus people looking to participate in a capitalist experiment, combined with cheap (though rising) labor costs and a less regulated manufacturing industry, it’s a force to be reckoned with.

American tech companies these days have few choices when it comes to contending with this market. They can be acquired by Chinese companies, as in the case of Huawei-3Com (or nearly the case with Iomega); they can look to get a slice of the Chinese market by selling products there; or they can have their lunch eaten by the rising superpower. If you’re strictly thinking in business terms, and you’re a sufficiently large company, my guess is option two would be the most appealing.

But the problem is that whenever big companies look to open their technology to the Chinese market, there’s political fallout here at home. Our queasy, at times hypocritical, relationship with China is a tangled web. On the one hand, we are dependent on China for manufactured goods as well as a large market for our own raw materials. On the other hand, some of China’s social and political policies make many Americans cringe.

Increasingly, technology is at the center of these tricky issues. Rolling Stone recently did an interesting story about China’s Golden Shield, an integrated network of physical-security and surveillance technologies being implemented chiefly in Shenzhen to keep an eye on citizens. What was creepy about this article was the part where I started to feel less like I was reading a political article and more like I was listening to a technology briefing:

[Surveilance] cameras…are only part of the massive experiment in population control that is under way here. “The big picture,” Zhang tells me in his office at the factory, “is integration.” That means linking cameras with other forms of surveillance: the Internet, phones, facial-recognition software and GPS monitoring.

Just last week I listened to EMC’s Mark Lewis expound on similar integration between content repositories in the American workplace. But while U.S. businesses clearly see a lucrative market for these technologies, I don’t believe technology vendors set out to let people use their technologies unethically. If anything, I believe they approach it from a decidedly amoral standpoint–neither condoning or condemning China’s policies, and focusing on the bottom line.

The problem, as companies beginning with Yahoo! and Google found out, is that some Americans — particularly politicians — are saying not so fast. Many a company with its eyes on this emerging-market prize has received negative press and even government inquest as a result.

Cisco is the most recent example. It was called in along with Yahoo and Google last week for a grilling before a Congressional committee on business practices in China, following the leak of some internal slides that suggest “it appeared to be willing to assist the Chinese Ministry of Public Security in its goal of “combating Falun Gong evil cult and other hostile elements,” according to a story in the San Jose Mercury News.

In an AP followup story, Cisco’s director of corporate communications insisted the documents were taken out of context. “Those statements were included in the presentation to reflect the Chinese government’s position,” [Terry] Alberstein said. “They do not represent Cisco’s views, principles or its sales and marketing strategy or approach. They were merely inserted in that presentation to capture the goals of the Chinese government in that specific project, which was one of many discussed in that 2002 presentation.” 

This position has its supporters, including Seeking Alpha columnist Kevin Maney:

 This was made worse for Cisco by an unfortunate PowerPoint slide that some employee — probably 123 levels down from CEO John Chambers — used in a pitch that implied that Cisco is cheering for Chinese censorship. Such is the danger of technology that anyone can use.This was made worse for Cisco by an unfortunate PowerPoint slide that some employee — probably 123 levels down from CEO John Chambers — used in a pitch that implied that Cisco is cheering for Chinese censorship. Such is the danger of technology that anyone can use…

The political grandstanding and berating executives helps nothing. If U.S. tech companies are going to sell their goods around the world, some of it is going to be used in ways many Americans don’t like. So do we want the business — and the jobs and income? Or do we want to make a point? Let’s decide.

Yes, let’s. We must. This will continue to be an unavoidable issue as time goes on. While it’s easy to point out that by the same standards of responsibility, gun manufacturers might be out of business, a colleague of mine also pointed out last week that gun manufacturers (ostensibly) don’t market their products with the express intention that they be used unethically. Some argue the Cisco PowerPoint shows such intentions.

Personally, I like to think there’s some middle ground here. There’s got to be some way to tap into this burgeoning market without participating actively in some of the more nefarious practices (such as voluntarily divulging information on political dissidents to government authorities or expressly designing technologies to be used to target a particular group, including the Falun Gong); there has to be a way we can draw a line between the pursuit of profit and breaches of our fundamental national principles. At least ostensibly, we do it all the time with the same technologies in U.S. hands, and the European Union is even further along in establishing privacy standards along with new data retention practices. There must also be ways to balance these competing interests when it comes to China.

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