By now, everyone knows about the cyberattack on Google originating from China, and has heard the opinion that Google would leave the Chinese market because they had "only" a 30% market share for their search engine. To me, though, Google is wrestling with moral, ethical, and political issues that override the financial ones. I'd like to see other companies address the same issues, and for consumers (you and me) to do the same.
For the past 25 years, we've seen companies rush to set up operations in China, seeking the opportunity to sell their products to 1.3 billion Chinese and taking advantage of the low cost of manufacturing products there. As just one example, we know that it is cheaper to print books in China and ship them back to the United States than it is to print them here.
American companies, led by WalMart, have continually pressed their suppliers to lower prices, with the result that a huge percentage of items available for sale here in the US are "Made in China". We're not just talking about cheap toys and jewelry, either, but also electronics and designer fashions. Just try to find an Italian wool sweater that was made in Italy!
The upside of this situation is that we've had almost no price inflation on manufactured goods in many years. It's truly amazing that one can buy a DVD player for $30.
But there's a big downside, too. First, the US (and many other developed countries) have lost a huge share of their manufacturing base. I certainly remember when manufacturing jobs provided steady and dependable income, fringe benefits, and a path to the middle class, even for people without a lot of education. These jobs are now mostly gone forever, replaced by lower paying services jobs, many of which are temporary or contract-based with no benefits. Those workers account for a sizeable share of the current 10% unemployed and 17% underemployed and discouraged workers.
Second, most US companies haven't spent much time thinking about the problems of doing business in China, where the government has its hand in every aspect of business. Media and software companies are quite aware that a significant percentage of their products are pirated. Some companies have either set an extremely low price for their products or ignored the piracy, based on the [perhaps mistaken] assumption that they need to build up their brand awareness, and that they will eventually be able to obtain a market price for their products.
Closely related to this issue is the extent to which US companies help the Chinese government and Chinese companies compete in the world. GM, for example, brought its auto manufacturing capabilities to the Chinese market. Now, some years later, we see Chinese brands of automobiles. For now, their cars will be aimed at their domestic market, but the lessons from Japan and Korea should be clear. Down the road, does anyone think that there's going to be a large market for US automobiles in China?
So that brings us to the dilemma that Google now has, and to the question of what the rest of us should be doing in light of the Chinese actions. But those are topics for Part II - maybe tomorrow.