Power to the People: China and the Internet

While social commentary in China, either via public demonstrations or offline media, is still heavily controlled by the Communist Party, there is one place where it is alive and well:  on the Chinese bulletin boards. And it is a force best given its due by those who are the target of its ire, as the power of the Chinese Internet community to shape offline public opinion is, well, quite significant. This is a phenomenon that was most recently chronicled by The Economist in a story concerning Starbucks and its presence inside the Forbidden City:

IF THE strength of Chinese nationalism were to be gauged by its expression on the internet, it would seem a powerful force indeed. A blog posting a couple of weeks back complaining about a Starbucks branch in the Forbidden City, an ancient imperial palace in the centre of Beijing, has triggered a torrent of online criticism against the American firm and those who allowed it to open there.

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Why should Starbucks, or the Forbidden City's management, pay attention to online chatter? The answer is that, in a country where the media are fettered by Communist Party censorship, and public protest of any kind is discouraged by the authorities, the internet plays an unusually prominent role as a barometer of public opinion.

Even senior officials say they pay attention to it. Online protests sometimes appear to influence party policy. Four years ago the government revised its vagrancy laws, after heated online debate about the fatal beating of a university graduate held in jail for lacking correct identification papers.

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Starbucks may yet weather this storm, as it did a smaller one soon after opening the Forbidden City outlet. At that time it removed some signage, to answer complaints that it was not blending in. Its small shop is now hard to spot. Better that than the fate of KFC, the seller of Kentucky Fried Chicken, which was obliged to close an outlet in a park north of the Forbidden City four years ago when the government feared for the garden’s “imperial style.”

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This is just a small example of the power of the BBS denizens who have shown their displeasure with both local and foreign companies. A stark example of this was in the case of Avon, which in mid-2005 was given the ability to engage in direct selling following a 1998 government ban. Avon responded to this news by immediately creating a massive 3,000-strong direct sales force, and sharply limiting support to the Chinese distributors that had helped it grow during its successful expansion in the late 1990s/early 2000s. Further, the financial markets expected Avon's metoric growth in the emerging markets to move forward unabated, a significant component of which was its continued success in China. Following its ham-handed transition from distributor-based to direct selling, the Chinese BBS was afire with complaints over Avon's handling of its distributors, 74% of which demanded inventory refunds. This fury was then picked up in local print media, and there was even a picture of an enraged distributor pointing his finger in the nose of the head of Avon China. Needless to say, this was not good news for Avon.

But believe it or not, this story was not picked up in Western media until after Avon released its earnings over two months later. And guess what - they whiffed. Terribly. And why did they whiff? Because sales in China had fallen 16% in the wake of channel conflict. All you needed to do was connect-the-dots. The "smoking gun" was out there to be seen. So I guess there are two key take-aways: (1) don't think that China is some repressed society without an outlet for expression. It has an outlet, and it's called the BBS; and (2) what happens in the East can effect the West, and for some reason it often takes a long time for relevant information to find its way over here. Unless you have the right tools. Remember the adage "Think Global/Act Local" - whoever said it was right.

Comments

[George S.]

Maybe slightly off-topic, but I wonder how due diligence is going to be affected as companies continue to globalize.

Currently most of the companies I follow have maybe a 5-15% share of their revenue stream coming from "other international". As this continues to grow from a revenue and, more importantly, profitability stand point, I wonder who will be the final research authority.

Just from reading this post, it makes it vividly clear that cultural issues and methods of information relay are being disgustingly missed by the markets. Although I can relate and make a strong educated guess as to American/European business, I often group other international categories under blanket assumptions which are a far cry from accurate. I pray that the sell-side is somewhat knowledgable as I pluck them from the first decent report I read.

So to make a summary point, who is going to be the expert when income streams are 50/50 or even harder 30/30/20/20 across a broad and complex range of cultural issues? Maybe the Chinese man can properly value half the business and me the other half...but what good does this do. I feel like there could be some incredible inefficiences if these two aren't understood in whole.

[Yaser Anwar]

Interesting topic.

Activists and human rights organizations have for years charged Cisco and other Western corporations with actively assisting China in developing censorship and surveillance systems.

One of the most recent ones I came across while perusing HBR was= Amnesty International & Human Rights Watch, both of which have consistently highlighted the issues of corporate responsibility and Internet freedom raised by China’s use of Western technologies.

These groups allege that Western corporations have facilitated the construction of China’s censorship and surveillance infrastructure, and that they may even be involved in the system’s ongoing maintenance and operations.

MSFT and CSCO respond to these charges by suggesting that they simply sell the technology to China. Hence its not their business as to how their customers, in this case China, use what they have bought.