How (Not) to do a Yahoo in China

So yet another company goes forth to China to carve its fortune.

A Wall Street Journal article reported today that internet company IAC/InterActiveCorp plans to spend $100 million on a new Internet business in China. On likely restrictions that could be imposed by the country's regulators, company's chairman and CEO Barry Diller said:

"Every place has got its constraints. It doesn't bother me...When you operate in a country you play by the country's rules."

In the wake of the Yahoo! blow-up where the company was blasted for releasing information to Chinese authorities, allowing them to use it to jail a pro-democracy journalist for 10 years, Mr Diller's sentiments seems blithely sanguine.

Did he not hear about how Yahoo's boss Jerry Yang was branded by Congress as a "moral pygmy" and his company "a disgrace" during the trial hearing of a lawsuit brought against Yahoo! by the journalist?

No matter.

Between profits and patriotism, the toss-up between the two often falls toward the former. After all, why shoud companies really care, other than the reputational damage they will suffer back home should their acts in foreign lands run afoul of popular opinion? Why should they bang heads against a stone wall for a cause that really is much bigger than they are?

Some part of me resist that notion. When human lives are involved, I feel you can't really make such cold-headed judgement. But maybe companies have a particular way of compartmentalising these feelings. It's nothing personal, it's just business.

Cisco of the US, for instance, has been criticised for supplying Beijing with powerful network control tools. But when asked about whether he was concerned about the way Cisco's products were used in China, its chairman and CEO John Chambers said: "One thing technology companies cannot do, in my opinion, is involve themselves in politics within a country."

Fair enough, but the US hopes to change this somewhat. Under the proposed Global Online Freedom Act, companies will be banned from disclosing to governments information identifying individual Internet users.

Whether the bill will be passed is still a long way away. But meanwhile, the US should address the hypocrisy that some are seeing in its own policies.

When telecoms giant AT&T was accused of turning over the online records of American citizens, it was ruled that since no email is protected by any privacy laws, all the public's email can be handed to the authorities - this, in the name of post 9/11 national security.

In both the Yahoo! and AT&T case, information was sought to prevent the government from being undermined. Of course one can argue till the cows come home about how the US' methods are more beneficial to society at large, but the underlying similarity remain. In his MarketWatch commentary, columnist John Dvorak writes:

"Yahoo is doing business in China; it is subject to that government's laws there. The United States has been demanding similar kinds of information about its citizens all along from companies like Yahoo. How is this any different?"

Maybe the Yahoo! episode will change the way foreign companies go about their business in countries like China. But I doubt it. Companies operate the best they can under the circumstances. It is the market that concerns them, not politics - until sh*t hits the fence.

With that in mind, I wish Mr Diller all the best in conquering his new market.