AOL's China Adventures Revisited
"Once More, AOL Retreats From China" went the headline in the Wall Street Journal, "AOL Still Can't Crack China" scoffed media industry rag Variety International, even the China's official Xinhua News Service was at it with "AOL Leaves Beijing Again with 56 Staff Laid Off".
The headlines last week riffed on a meme so potent it has almost become a cliché in recent years, the myth of the weighty Western multinational rejected from impenetrable China time and time again, despite its best efforts and cold hard cash. A cautionary tale for these globalized times, warning executives of the many pitfalls China presents for the unprepared, unwitting and unwary.
It's a well-trod path. Everyone from Rupert Murdoch to Bill Gates has a list of China-related faux pas as long as their arm. Yet the lure of 1.3 billion customers keeps companies coming back.
What a shame it is not quite true for AOL this time around. The company has announced plans to close their research and development base in Beijing, an office tasked with developing products and technology for the Asia-Pacific region. AOL will continue to operate its Chinese language mainland China website from Hong Kong, as it always has.
The global economic crisis may have had more to do with the office closing than on the ground problems in China. That's the official line from AOL, which says the closure is due to the poor economic outlook for this year and international restructuring. The company earlier announced a plan to lay off 700 employees - or 10% of its staff - worldwide, due to falling revenues.
Not quite a retreat from the mainland market then. In fact, anonymous industry sources told CMM-I that half a million Chinese had signed up for AOL's instant messenger services and email accounts by the end of last year, not bad in a market still dominated by heavy-weight local players such as QQ, Sina and Sohu. Despite speculative media reports that AOL had not updated its website for two days when the story broke last week, the site was up-to-date and operating when CMM-I checked it today.
One thing the media has right is that the closure does mark the second time AOL has closed office doors in China. And the first time it left the country in 2004 has all the markings of a classic cautionary tale for western companies trying to crack the China market.
AOL set up a joint venture with mainland computer maker Lenovo with ostensible plans to offer Internet access services and a Chinese language web portal in 2001. The plans were scrapped in 2004 when it became apparent that telecom access services would remain firmly in State hands, a point many would find unsurprising. And while the JV could lease capacity from China Telecom to offer ISP services, China Telecom would never allow the JV's price point to compete with its own offerings.
During its first foray into China, AOL made the same classic errors as so many other aspiring China entrants. The first mistake was starting from a standpoint that network access, or ownership of the means of transmission, would be an integral part of the offering. Time and time again, China's government has demonstrated that it will not relinquish control of transmission to foreign-owned companies.
The second mistake was forming a joint venture with a large state-owned company in the mistaken belief the company would take care of all the regulatory issues. Lenovo may be China's leading computer manufacturer but it is not a telecommunications company and China Telecom would never allow it to compete as an equal on its own turf.
That's the past. CMM-I looks forward to seeing how AOL's current mainland China website will fare in the fierce competition for the hearts and minds of China's netizens. In the meantime, the media reportage shows just how potent the myth of the western corporate giant falling flat on its face in China really is.