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An in-depth and compelling analysis of the Chinese Internet explosion by Sherman So and J Christopher Westland

The defining conflict of the latter half of the 20th Century was the Cold War, a 50-year period of political tension that shaped the history of the world without ever breaking out into direct confrontation between the two factions.

In future, it may be that the relations between the US and China are seen in a similar light. Ostensibly, relations are civil, but at heart the two nations represent very different political models vying for world dominance. The picture is further complicated by the considerable economic reliance between the two countries. Confrontation between the two countries’ values did break out in January 2010, albeit with search engine giant Google acting as a proxy for the United States, a metaphor for the freedom of expression it supposedly represents, when it announced that it would no longer censor its search results to suit the Chinese government’s wishes.

Clearly, the Internet is a key battleground in this almost-conflict. That makes Sherman So and J Christopher Westland’s Red Wired, an examination of China’s phenomenal Internet explosion from a business perspective, remarkably timely. The book’s pages are filled with numerous case studies of how online giants such as Yahoo! and eBay have fallen by the wayside due to their inability to recognise the cultural implications essential to successfully operating a business in the Chinese market.

The best example, perhaps, is eBay China’s inability to outmanoeuvre regional auction site Taobao. Among eBay’s mistakes was employing its PayPal payment system, which did not take into account the fact that most Chinese people do not own credit cards. In addition, the country’s consumers typically do not trust one another enough to make direct transactions across the Internet. Taobao recognised this and introduced its own Alipay system, which alleviates the trust issue by using an escrow account that only releases funds once a transaction is completed.

Finally, eBay’s decision to host Chinese servers in California added technical limitations that all but killed off its already modest popularity in the country.

Other insights from South China Morning Post journalist So and University of Illinois professor Westland into effectively harnessing China’s 338 million strong web population are offered via dissections of local players, including trading portal Alibaba and instant messaging platform Tencent – China’s most profitable online company. One of them is taking advantage of affordable labour in the form of sales agents in place of traditional offline and online marketing techniques – a strategy that helped propel online travel agency Ctrip to the pole position in its sector.

Not only does Red Wired advise on the cultural pitfalls of operating in the world’s most populous country, but it also warns of the governmental and bureaucratic headaches. Specifically, the fickleness of the Ministry of Industry and Information Technology, which rigidly enforces regulation on some occasions, but also turns a blind eye on others – perhaps most strikingly, search engine Baidu’s flouting of piracy laws via its MP3 search function.

For an online company to succeed in China, the authors write, it may be necessary to forget everything learned from successes in one’s home market. It is essential to engage with the cultural nuances of the Chinese while avoiding the corruption and dark arts commonly practised by local players. This is perhaps best illustrated in Red Wired’s closing chapter: “China’s...scale will boggle the mind with a population that is at once bigger, cleverer, more competitive, but also possibly more capricious, treacherous and shadowy.”

A comprehensive evaluation of the planet’s most vital emerging market, this book is essential reading for any business thinking of making the step into the Far East.