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Caught in the Chinese Web

Stocks in this article: YHOO GOOG BIDU RENN

Know-how is not really an advantage either for U.S. firms. Quite often, they know nothing about how to win in China. They assume their model, which made them successful in the U.S., can be simply grafted on to China. But it can't. Ask eBay (EBAY) that turned tail and ran after getting beaten badly by Alibaba Group's Taobao. Ask MySpace China. Ask Groupon how their joint venture is going in China.

In fact, what seems to hurt the American companies the most in China is their over-confidence and laziness.

Is there a coolness advantage for American firms? Maybe. In the Facebook example, there might be some validity to that. Many Chinese have lots of friends outside of China they want to connect with and who are likely already on Facebook. It is unlikely that many of them are going to set up accounts on Sina Weibo or RenRen (RENN). Therefore, if Facebook was to strike a JV with Baidu, I'm sure there would be many Chinese who would be interested because of the coolness factor.

Facebook's Chances

But keep in mind that the Facebook JV in China might be a very different experience than what you and I think of as Facebook today. Facebook and Baidu would have to jump through many hoops to convince the Chinese government that this JV would meet the standards set by the government. That would mean much stricter controls over expression than what exist today on Facebook.

It appears that Mark Zuckerberg has no problem accepting such limitations. But how would the Chinese users react? They might be so disappointed with the watered-down version of Facebook compared to what they expected that they might decide that the RenRen homegrown version is acceptable enough to keep using.

And don't forget the difficult aspects of making a JV work between two high-powered corporate partners even when there's not cultural differences. Baidu -- who has been very successful in the Chinese market -- would likely have strong views for Facebook on how to succeed in China. Facebook might chafe at being told how to be social by a company that's never been all that successful in social itself.

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