Shefaly Yogendra — Strategy at the cusp of technology, investment and regulation

What would China do?

by Shefaly on January 14, 2010

After yesterday’s post, Google’s China Game, several lively discussions ensued. On Twitter, on emails with friends around the world, and on the telephone. The topic?

What would China do? And what will it mean?

While there was no consensus, three distinct possibilities were identified.

Nothing/ business as usual

This one is the simplest. In financial muscle comparison, Google, a business with a market capitalisation of approximately US$ 186 Billion and US$ 14.5 Billion in cash is a flea compared to the mammoth, the juggernaut called China, with a GDP of approximately US$ 4.33 Trillion with about US$ 1.6 Trillion cash reserve.

China does not really have to react to Google’s announcement from yesterday.

Denial/ business as usual

Even so, Google’s announcement and allegation of hacking is a public humiliation for China. The US State Department expressed its concern and asked for ‘an explanation’ from China. The White House too is waiting to hear from China. Ooh, remember the cultural cross-wires I mentioned yesterday?

So China responded. With a denial. Worded as follows:

“China’s Internet is open… China has tried creating a favorable environment for Internet. China welcomes international Internet companies to conduct business within the country according to law. China’s law prohibits cyber crimes including hacker attacks.”

There we have it. The denial which may provide a way for Google to salvage its quest for profits in China. And for the US to save face and carry on trading with China. Or which may not. Either way much will be discussed on radio, television and of course, the web.

Trade and technical retaliation/ business as unusual

This is the one to watch. Because this is the long-term game. Not only is the current world order in flux, but the western countries, hitherto world leaders in economic terms, are also in financial dire straits with large deficits.

China meanwhile is the largest exporter, mainly of manufactured goods to the USA, Hong Kong, Japan, Germany and South Korea amongst others. Its cash reserves aside, even the partial list of holdings of its sovereign wealth fund is impressive. China’s main buyers are faced with ailing domestic manufacturing sectors, rising unemployment at home, and aging populations.

Even so, as importing nations feel the pressure to keep standards of living at a level pegging, it seems China really has the importers by the short and curlies. Or does it (read the link in entirety)? If demand for its goods drops, can China keep exporting at the same prices? If it drops prices, the buyer nations can take it to WTO for dumping, the same forum where China has recently complained about the USA. And so on.

The possibilities are endless. It is no longer a one-time game, it is an ongoing game of chess.

Copyright: ๑۩۞۩๑~OTH~๑۩۞۩๑/ http://www.flickr.com/photos/oth313/814906385/

It is plain to see that this game goes beyond what individual companies may or may not experience as non-technical or technical (pun intended) trade barriers.

It is about governments, it is about political hegemonies, it is a war of values and freedom (May be! I am not so sure), it is the tug-of-war between the imperatives of the domestic industrial recovery and the obligations to world trade, it is (as my friend Alan wrote yesterday) about the RealEkonomik. It is about the new world order as the financial crisis, the new policy imperatives, the recovery plans and the electorates of democratic countries may drive.

I will go a step further and say: the realpolitik is the realekonomik.

Let battle commence.

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Google’s China Game

by Shefaly on January 13, 2010

This morning, my Twitter stream was full of two things: Google’s planned exit from China and the Haitian earthquake.

The BBC reported the Google development with a headline with quotation marks around ‘may pull out of China after Gmail cyber-attack‘, which parses the Google Official blog content regarding the matter conservatively but in my view, accurately.

Industry commentators have varied opinions: Robert Scoble says Google stopped ‘playing footsie’ with the Chinese government long ago, while TechCrunch says the decision is about business and not thwarting evil.

When after PirateBay, I wrote a post titled “I’m just a dumb pipe”, there was disagreement both online and offline with my contentions about strategic intent and societal contract. Google’s China entry strategy had had to contend with both.

Strategy is a game, where every move has a counter-move and outcomes, both foreseen and unforeseeable. More precisely, it is a repeated game, where it is absolutely essential to know what game one is in and not to misestimate or underestimate one’s opponent, as Chinese military strategist Sun Tzu wrote:

So it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss.
If you only know yourself, but not your opponent, you may win or may lose.
If you know neither yourself nor your enemy, you will always endanger yourself.

I must admit I was a little sceptical about Google’s justification about entering China. Google said it believed that the “benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to censor some results”.

So what went wrong? Three things in my view:

Cultural cross-wires: While writing this post, I searched to find any statements that the Chinese government might have issued when Google entered China. I didn’t find anything. What I find were interesting references to China having blocked Google, despite Google agreeing to censor results etc, and to a Chinese representative denying there is any censorship of the internet in China. Both references are from 2006. Did Google misread the signals or the intent of the Chinese government? Were the signs always there? Enough has been said about cultural miscommunication, straight-talking versus hint-dropping styles of communication but I think the Chinese government was always non-committal. Which means both parties were playing different ‘games’. Not a good sign.

Corporate hubris on the part of Google: It led to an underestimation, on Google’s part, of the Chinese government’s desire to control China’s public, China’s public image and China’s growing economic might. By any means. Legal or illegal in Google’s view. Moral or immoral in the view of any one else.

Confusing vision (“creating a more open Internet”) with strategic choice (“agreeing to censor some results”): Agreeing to censor does not create a more open internet. We all know friends who live and work in China and play a game of cat-and-mouse with the government, using a proxy server till the government catches it and shuts it down, then finding another. And on and on it goes. Am I advocating disengagement? Not at all. It is important to engage with even the most intransigent of adversaries, but it is not the job of a public company whose shareholders may benefit some but lose more, should Plan A fail. On a related note, VentureBeat has an interesting assessment of how good or bad Google’s censorship in China was.

My friends, who work in human rights, are naturally pleased with Google’s consideration of withdrawal from China. For Google, it is a mixed basket – it is not a PR triumph (because sceptics are not easily pleased), nor is it a strategic win (China is a big and growing market and Google could be vacating the space for a competitor).

And the tragedy in all this?

Because Google agreed to censorship, most of the Chinese people probably won’t know it is quitting now. For them, it is business-as-usual! So much for open internet.

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Whose data are they anyway?

by Shefaly on November 18, 2009

What a difference two days make!

First, T-Mobile in the UK informed the Information Commissioner’s Office that some of its own rogue employees had sold on the firm’s contract customer data to third parties. These third parties then ring the contract customers just before their contract expiry to offer deals that may or may not be kosher, or the best deals on the market.

So exactly what data might a mobile network operator hold on a contract customer? These data include the customer’s name, address, date of birth, and bank account details or credit card details for collecting bills. A credit check is also run before contracts can be agreed. While the identity of the said “third party” is unclear, there is of course no compensation for any mishaps. So much for our famed data protection code that prevents more things from happening than it enables!

A day later, Iceland’s deCODE Genetics filed for asset protection under Chapter 11. The firm’s customer testimonials include one from Dorrit Mousaieff, Iceland’s first lady. The firm offered personalized DNA testing through its deCODEme website too.

Under Chapter 11, deCODE is now looking to sell its assets. These “assets” include the genetic data of 140,000 Icelanders. And DNA samples of an undisclosed number of customers, their identification details, possibly the reports of the analyses conducted on the DNA samples. All held under contracts which prevent the sharing of the data or the information with third parties such as insurers etc. But will that hold when one contracting party goes bust? Who is the custodian of that contract? Who will uphold it and what recourse exists for customers whose DNA and data are hanging in the balance?

Meanwhile, it was reported that a credit card processor in Spain was being investigated for enabling a major credit card scam. The scam has affected over 100,000 cards in Germany. While their credit card contracts protect them against fraud, someone will end up paying for it. Depending on where the PCI-DSS compromise is found and how the liability is established, any or more of the players in the payment value chain – the issuer, the acquirer, the processor, the retailer or the customer – may end up suffering the real monetary loss.

Note the commonalities? All three industries are highly regulated but so different from one another that one may be tempted to ignore any possibilities of transposed learnings. Two major themes emerge:

These incidents point to some of the many complex challenges that unite otherwise disparate, highly regulated businesses: customer data ownership, data security, privacy breaches, liability, recourse and compensation.

They also illustrate while human beings – employees, third parties, contractors, service providers – remain the weakest link in data protection, the more fundamental questions are often missed. These could be related to the business’s survival and how regulatory complexity may mean that resolving data breaches is not really straightforward.

As a large number of consumers sit in limbo in fear of their data falling into the wrong hands, it has to be asked: When the custodians fail, who protects the consumer?

These test cases will all provide fascinating insight and may well set the precedent. Not least set the stage for the essential reform to remove all the unnecessary information that businesses insist on collecting from customers, when they have no way to guarantee the security of the data.

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Four For Friday (11)

by Shefaly on November 13, 2009

This occasional series of good readings from around the web covers the themes of strategy, technology, investment and regulation. This week’s picks include: the broader business environment, enterprise collaboration and social media, how to pick a co-founder and some humour.

Jeff Jarvis argues that the future of business is in ecosystems (link via @Syamant) Rupert Murdoch does not think so, of course. But I don’t think Google is worried much. Although I really think this element of selective curation to comply with people’s wish to be excluded from Google’s indexing could be a slippery slope for Google whose line always has been “It’s the algorithm, stupid”. What do you think?

Enterprise usage of Twitter is apparently up 250% in 6 months, reports Mashable. My recent conversations suggest the trend is on the up in the most conservative of sectors and companies. What about your firm and your sector? Of course, another perspective is about growing security concerns. The full report can be found here.

VentureHacks’s Naval’s spot-on note on How To Pick A Co-founder. Some basic but essential advice.

And for a chuckle, via @MarcusduSautoy, on Newton, Leibniz, Calculus and derivatives:

Newton and Leibniz (Copyright: XKCD)

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On walls and winning

by Shefaly on November 9, 2009

Walls fascinate me. They signify territoriality – such as firewalls keeping desirable people or data in and keeping undesirables out, or even the Great Wall of China. They signify power and imbalance of power – such as Hadrian’s Wall of yore or the Israeli West Bank barrier of today. They are about creating political and ideological enclosures – such as the Berlin wall, that fell 20 years ago today.

But walls are not all evil. Walls support roofs that make ordinary houses as well as world-famous monuments. Walls can be the expression of a known graffiti artist (see below) as well as an enigmatic one’s; walls can start debates although debates can be stone”walled”.

From the Graffiti Exhibition, Tate Modern, London: August 2008

In inspiring poetry, songs and popular culture expressions, walls have always been about resistance and anger, whether Pink Floyd’s widely-known The Wall or the 1970s Hindi film Deewar (the wall) that established the ‘angry young man’ persona that made the brand Amitabh Bachchan.

For businesses, firewalls may be used to protect competitive advantage and trade secrets, to an extent. Walls may also be a means of extracting rents – such as paywalls trialled by mainstream media, albeit with limited success.

Businesses however now face the borderless (as far as censorship by some country governments will allow) world of the web. The walls separating companies from customers are coming down as companies and customers engage in conversations on blogs, microblogs and social networking sites. Old walled gardens, such as the AOL’s are going away while new ones are being erected, such as the Apple’s walled garden on which opinion is divided.

Apple’s walled garden is flourishing while the Berlin wall came crashing down hurting communism irreparably in the process. So what gives? I think the answer lies in one word: Change. Apple brought about, drove and is continuing to drive “change” while the GDR was resisting it.

So, as a business leader, walls are worth a ponder. Which walls will you erect and which ones will you raze? Your ability to cope with the fast-paced change around you may well depend on these decisions. What will you choose?

And on the 20th anniversary of the Berlin Wall’s fall, here is a Scorpions song that encapsulates the message so well it is worth a nostalgic (not ostalgic) listen here.

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