Assignment No.
2 , Cross Cultural Management
CASESTUDY
Facebook’s Continued Negotiations in China
We continue to evaluate entering China. . . . However, this market has substantial legal and regulatory
complexities that have prevented our entry into China to date.
As Facebook filed for its IPO (initial public offering—symbol FB) on the stock market in February 2012
(from which the above quote was taken), investors questioned the company’s ability to negotiate
further expansion overseas to justify its goal of $100 billion market value. As of that time, Facebook had
845 million users—making it the largest institution of all time; if it were a country it would be the
world’s third most populous country.
Of Facebook’s users, 80 percent are overseas; however, since six out of ten Internet users in the U.S. and
Canada are Facebook’s “friends,” most of the company’s growth must come from other countries. To
date, the company’s progress over-seas has been impressive, although those markets are far less
profitable than the home market.
Facebook had 37 million monthly active users in Brazil, a nearly 300 percent increase from the year
earlier. In India, the company had 46 million active users, 132 percent more than in 2010. By
comparison, Facebook had 161 million active users in the United States, a 16 percent increase from the
previous year.
(The New York Times, February 1, 2012.)
However, negotiations have been thwarted in accessing some important large markets such as China.
This has led observers to comment that, as indicated in the company’s IPO filing, Face-book’s Asia
strategy is India, Japan, and South Korea, because Internet censorship in China has left the company
with near zero penetration. The Chinese government bars its citizens from direct access to Facebook;
instead people are steered toward censored, home-grown social net-works like Renren and Sina.
Government agencies in China would probably want not only to censor postings but to have access to
personal data posted by Chinese citizens. Much of the population can’t afford the products and services
needed for Facebook, including broadband Internet access, a per-sonal computer, or a smartphone,
Agrawal said.
(The Boston Globe, February 6, 2012.)
It’s clear that Facebook’s founder, Mark Zuckerberg, who is learning Mandarin and has made trips to
China, is going to continue negotiations to pursue the Chinese market, saying that “We continue to
evaluate entering China … However, this market has substantial legal and regulatory complexities that
have prevented our entry into China to date. If we fail to deploy or manage our operations in
international markets successfully, our business may suffer.”
Local competitors in China are Renren Inc. and Sina Corp., which runs a popular Twitter-like micro-
blogging service called Weibo.
While other Internet companies such as Google have tried to negotiate a compromise with the Chinese
government, Facebook executives are clearly concerned about the prospect of citizens giving up their
personal details to the government authorities, not knowing how that information might be used.
Some progress has been made. In April 2011, after several meetings between Facebook Chief Executive
Officer Mark Zuckerberg and Baidu CEO Robin Li, Facebook signed an agreement with Baidu; however,
the China website won’t be integrated with Facebook’s international service, and the start date was not
confirmed. Facebook executives have had a number of meetings to negotiate agreements with various
partners in China to enter the market, stating that “We are currently studying and learning about China,
as part of evaluating any possible approaches that could benefit our users, developers and advertisers.”
In 2010 Google withdrew its search engine from China amid protests in the West about allowing content
censoring. Websites such as Facebook, Twitter Inc., and Google’s YouTube are blocked in China because
they don’t follow the government’s self-censorship rules. China bans anything critical of the government
and any pornography or gambling.
Clearly, Zuckerberg is planning to continue negotiations in China, but, as acknowledged in the IPO filing,
“We do not know if we will be able to find an approach to managing content and information that will
be acceptable to us and to the Chinese government.”
Meanwhile, Facebook has opened a sales office in Hong Kong to give the company ready access to the 1
billion person–strong market if that ever changes.
Case Questions
1. Highlight in points what was Facebook’s strategy to enter the Chinese Market?
2. What are the possible reasons for Facebook’s failure in not being able to enter the Chinese market ?
