A Smaller World After All

Recent research shows that we are increasingly inter-connected with one another – but does this make China’s commercial and social position in the world more or less central?

Long before it became a high school drinking game staple featuring Kevin Bacon, the notion of “six degrees of separation” was an important indicator of social connectivity. Put forward by Stanley Milgram in a controversial 1967 Psychology Today piece entitled “The Small World Problem” the theory stated that any two people could be connected by five intervening network links. New research indicates that the space between us is shrinking, and that we can now make contact with anyone anywhere in the world via only 4.7 (or 4.3 for US citizens ). Even as the global population tops 7 billion, the world is in some ways getting smaller. Online platforms like Facebook and Twitter are contributing to the phenomenon – and that raises some interesting questions for economies like China’s that have effectively walled off their own piece of the global internet. International managers need a strategy for managing their brands and marketing in an environment of firewalls, censorship and government internet controls.

Walled Garden, Island Fortress or Virtual Forbidden City?

Even while Facebook, YouTube, G+ and other platforms are making the world smaller and more tightly integrated, China is moving in the opposite direction. While it is easier to network within China using sanctioned tools like Weibo and QQ, it’s getting increasingly difficult for ordinary Chinese citizens to connect to the world. The technology of filtering and censoring has improved to the point where VPNs (virtual private networks) no longer guarantee an effective tunnel below the Great Firewall. Beijing has not only blocked western sites and platforms, but also coopted homegrown communication networks. Experts like Bill Bishop expect Beijing’s control of Chinese internet and micro blogging to increase. (For more on Chinese internet & micro blogging trends, read Sam Flemming of CIC regularly – here’s a good start.)

China has effectively walled off its internet from the rest of the world. The average Chinese citizen is growing further away and less connected from his counterpart on the other side of the firewall that separates us. What are the business implications for international managers in China?

Scenario 1 – China as walled garden

The “digital divide” will favor China in the 21st century, just as the geographic divide favored America in the latter half of the 20th century. China will take on the role of the USA in the post WWII era. Yes, of course we Americans are brilliant, hardworking and innovative. Sure. But a leading contributor of Americas post-war rise to global dominance was the two oceans that buffered us from the worst of the conflict – and created a secure, isolated space in which we could develop industries and standards. Likewise, China may be poised to benefit from its ability to isolate itself from the western internet. Beijing’s digital cloister allows Chinese companies space and safety to develop their own brands, companies and products. In post WWII America, we had resources like land, minerals, and manpower. In the post Financial Crisis world, China has resources like educated digital workforce and a language that lends itself to isolationism. Once the Chinese entrepreneurial class has had a chance to build and fine-tune products and services, they will be in a position to defend their market and export home-grown brands.

Takeaway: This seems to be Beijing’s official view – that interaction with the west is an unnecessary pollutant to Chinese society, and anything that can be done to weaken or eliminate the connection between Chinese citizens is positive. Companies like Baidu and Youku owe much of their success to firewall and censorship restrictions. International managers should jump on the bandwagon and join the MNCs in developing a China-only internet presence.

Scenario 2: Fortress China falls behind

An isolated China becomes a digital North Korea. China cuts itself off from its own markets, and faces a slippery slope of segregation and hostility towards a world that seems increasingly unified in opposition to the values and goals of Beijing. Unable to build global brands and finding it too expensive and difficult to work with foreign brands, China rolls back post-Deng era “opening” policies and reverts to protectionism and seclusion. Citizens who have the money and power to connect with overseas networks will flee – the rest will stagnate in a China that can’t communicate with the rest of the world in a meaningful way.

This scenario puts a serious crimp in the popular narrative about Chinese companies climbing the technology ladder and going global. The Chinese firm’s biggest resource is an almost endless supply of educated, bilingual, digiratti kids – young grads with the skills and savvy to help Chinese enterprises crack global markets. Firewalled companies can still get plenty of contract manufacturing jobs – Foxconn doesn’t need connections to the rest of the world to make razor-thin margins producing Apple gadgets. But Chinese companies that want to sell their own products or develop a global market base are going to need more facility with Facebook and Twitter – not just Kaixin or Weibo.

The takeaway for international managers is that while the firewall may cramp their personal style, it does give them a little competitive breathing room. Not only does it inhibit China’s global competitiveness, but it helps make western managers relevant again to local partners and clients who have outgrown them in the mainland market. Their unemployed friends and contacts back in the US and Europe may end up becoming an important resource for Chinese entrepreneurs who can’t find the talent they need to bring their message to western markets.

Scenario 3: Internet become the new Forbidden City.

Same elites, new privileges. China’s 1% gets all access passes, while the peasants languish in the digital weeds. Connectivity becomes the new class divide – and badge of privilege. The children of the rich and powerful get easy access via private VPNs (virtual private networks) while the masses are restricted to the heavily monitored and propagandized domestic China wide web. Restive or politically doubtful regions will be shut down completely (as has already happened).

The status quo is that Shanghai party girls flock to Facebook with status updates about what they’re wearing to MINT while the official line is that western culture is corruptive and must be resisted. Princeling kids get Klout , but the government has clout. Commercial VPNs, which occupy a legal gray-area in China and are routinely shut down, are the only lifeline for young Chinese and businesses wishing to access the global community. If they are completely banned, the Chinese internet will be effectively isolated.

Instead of a wide-ranging network of cross border contacts we will see a handful of carefully monitored toll-bridges to the international internet. Access to the outside will be considered a privilege and a reward – but one with a keystroke record and digital footprint. The promise of mobile digital comes with a chilling dark side – as phrases like “always connected” and “superfast response time” get applied to the public security bureaus.

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