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Computer or web illiteracy is the biggest barrier denying the access to the web in China. But progress has been made. In big cities even children begin to learn to use computers and the gray population shows increasing interest in Internet.
At the end of 2004, netizens, those who surf on the Internet, reached 90 million and this number is growing at an annual rate of 27 percent. The spread of computers will bring more people onto the cyberspace. The market represents enormous potential.
But the competition is intensive. The Internet sector is so complicated and heading forward so fast here that its trend is hardly predictable.
Take the Internet access as an example. In China 57.7 percent of Internet users have to get online through dial-up while broadband is available to 95.6 percent of net surfers in South Korea. This shows the great potential for broadband service and high quality information service.
Although China Telecom has had some of its assets listed after a split-up, monopoly still exists in China's telecom industry. Changes of the telecom industry are a catalyst to development of the country's Internet industry.
The government is very eager and active in the spread of the Internet. It has launched a project called e-government to digitalize its process of dealing with procedures. And the central government promotes the vision of "informationalization boosting industry and vice versa". Most government departments have their own websites kicked off. And 70 percent municipal governments offer online services.
However, this also means there is much government involvement in this sector. The Ministry of Information Industry, Ministry of Public Security, Information Office of the State Council, Ministry of Culture, General Administration of Press and Publication, Ministry of Education, State Administration for Industry and Commerce all have their responsibilities and policies for the industry.
There are also various other significant factors which deserve our special attention, including the ground-breaking progress on the computing and communication technologies, changes in the Chinese society and the intellectual property rights protection in the age of globalization.
An effective IPR regime and the development of relevant technologies will regulate and reshape the Internet sector. The Chinese government has issued many laws, administrative ordinances, departmental regulations and local rules regarding market access supervision, network operation security, news release and administration of audiovisual products. Although there still problem in enforcement, it is sure that the control will get more and more stringent.
It is the hi-tech that has made the Internet possible. Innovations have been made and will continue in parallel computing, distributed computing, wireless communication, data communication, voice recognition, automatic translation, smart technologies, semiconductors, new materials, intelligent terminals and robots.
China's Internet industry was born and has boomed against the backdrop of the country's reform and opening-up endeavor in a hi-tech intensive world on its way to globalization and informationalization. The social, political, economic and cultural development of China will exert huge impact on its web industry.
China's opening-up began when the world started globalization process. As the Internet brings China and the rest of the world closer to a unprecedented extent, China is playing an increasingly important role in the globalization process. This is especially true since China joined WTO.
Different commitments have been made by the Chinese government on the four sectors in connection with Internet, i.e., media, publishing, telecommunication and information, during its WTO negotiation. China has promised to remove or reduce both its tariff and non-tariff barriers for IT products trade. And what makes the most significant sense is its commitment to the opening of its market of advertising, distribution, consultancy and nearly all the value-added telecom services to foreign investors.
The consultancy and the value-added telecom business focusing on ICP and ISP are playing a leading role in the world's Internet platform nowadays. What's more, the advertising and distribution industries have great impact on the traditional media. In the light of all of this, I see even the prospect of a reshuffling of China's Internet or even the whole media industry as a result of the above-mentioned commitments of the Chinese government.
As all of the four sectors are technology and capital intensive, Chinese players have no comparative advantages in capital and technology comparing with their foreign peers.
All the leading Chinese commercial portals, Sina, Sohu and Netease, all are started by foreign venture capital and listed in Nasdaq now. The recent combat around Sina's stakes triggered an earthquake in the whole Internet industry in China. The story is far from end now. This evidenced the weight that the capital carries.
For Chinese players, much has to be done for research and development due to their low technical content in their Internet application. The technical problems make the business innovation difficult. Cutthroat competition breaks out between players with identical business models which are generally borrowed from foreign players. This situation will be improved with the development of local hardware manufacturing for communication and IT industries, as well as the growth of the country's software enterprises.
Last year the Beijing municipal government's order on Microsoft aroused controversy. An online survey by People's Daily Online and Sina showed that the majority of people agreed home-made software should be the choice of government procurement. In an online interview with readers of People's Daily Online, Kingsoft, Chinese leading software maker, assured of the quality of home-made software products.
Meanwhile, Chinese businesses do enjoy competitive edges on the market access and operation costs. But these will disappear as the market is further liberated. They have to be able to offer more customized services other than just copy foreign models.
For foreign investors considering investing into China's web industry, they must take the situation in China into account before they can make any decision.
For example, as there is uniqueness in operation of mobiles, BBS, VCD/DVD in China, it is just foreseeable that other Internet applications will also bear China hallmark.
The Chinese culture embedded in the Chinese characters goes side by side on the Internet with English culture which dominates the Internet now. The interaction of the two cultures does and will influence the future trend of the Internet culture.
Right local partners are absolutely necessary for new comers who will face difficult access to local resources. And a good cooperation with local partners puts the business on a fast track.
The complexity of the Chinese market also calls for local partners. We find such examples like eBay's buy-out of EachNet and Yahoo's acquisition of 3721.
On one hand, the recent years has seen many cases in which attempts of replicating foreign experience ended up with failure. However, there are also examples that companies whose prospect had looked slim have made it finally. A study into the money-making web sites will lead the conclusion that their success is based on rational business models which are tailored for China market.
On the other hand, it takes time for foreign web companies as late comers of the market to take off here in China. Experience of MSN, Yahoo, and AOL which failed to make concrete foothold in China has demonstrated that adaptation to the local market here is a real challenge.
This gives chances to Chinese players such as Tencent, Netease and Sina to be in a pre-emptive position. Their foreign peers generally begin their venture in China through mergers and acquisitions.
The Internet, though experienced rapid growth in China, still has a long way to go. The business has not taken shape while the competition is extremely sharp. All of this underpins the importance of a strong management team with close familiarity with the local market.
Enterprises have to adjust their structure as China's market economy is still developing. A healthy business cannot be possible without a perfect corporate culture which is in tune with a well-designed distribution system. Only in this way will a company grow up steadily.
Besides that, a basic understanding about China's general business rules and the Chinese culture is also necessary. It is also worth efforts and time to think about issues that should be given special attention before any business can be launched in China.
The Internet industry is growing in China with the country's economy. Possibilities seem limitless. But only right strategies make the potential the reality. And one of the most exciting things in Internet is that the Internet itself helps to make all of this possible.
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