Facebook Looking to Gain Entry into China

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Oct 30, 2014

Mark Zuckerberg is trying vehemently to open the closed doors of the Great Wall of China which has long been the forbidden kingdom for Facebook (FB, Financial). Following in the recent move by Tim Cook the CEO of Apple (AAPL, Financial) who is also visiting China frequently to promote his company in China, Facebook is also setting sail for its quest of China, though on a low tone. Facebook has been for long missing out on Chinese revenue due to its lack of official presence in the country where its website is formally blocked. But Zuckerberg wants to find a way to enter the market, which explains his latest low-key appearance at an event in Beijing at Tsinghua University, China's equivalent of MIT. Let us take a look at Facebook's plan for China.Â

Facebook’s roadmap for China

Each time a Facebook top official visits China, the world starts speculating its entry into the largest country by population. Just a few months ago, Facebook was about to open a sales office in Beijing and were likely to launch some kind of social networking venture in China within the next two years.

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Zuckerberg seems to be determined to achieve the goal of getting a foothold in China with his recent visits to the country. At this time, the ambience is also quite conducive for an inroad in China since Alibaba (BABA, Financial) the Chinese ecommerce conglomerate made it big at the U.S. stock exchange with its global launch. Even on the part of China, it would be the right move to open the door for global economy and shed the tag of ‘hostile to foreign companies,’ by letting in Facebook. If Facebook is allowed in, this will write a new history in the world of global economics. The move would also silence criticism about China's strict censorship policies. The strict censorship policies of China are believed to be the main reason why Facebook's global website has been blocked in China for the last five years.

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According to recent reports, Zuckerberg has been nominated as an advisory member of Tsinghua's School of Economics and Management. The list also includes Virginia Rometty the CEO of the IT honcho International Business Machines (IBM, Financial) and CEO Carlos Brito of Anheuser-Busch InBev (BUD, Financial). During this visit, Zuckerberg said he would pursue Tsinghua for more cooperation and liaison activity with his company.

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Tsinghua for Facebook

Bold market speculators might put forth the idea of an upcoming liaison between Facebook and Tsinghua in China, but that seems to be some blocks away and not clearly in sight. Tsinghua's history as one of China’s early tech manufacturing giants under the umbrella of Tongfang Group has recently emerged as a consolidator for China's high-tech microchip industry through its purchase of US smartphone chip makers RDA Microelectronics and Spreadtrum. It later merged the two companies into a single microchip maker, and sold 20 percent of the company to Intel (INTC, Financial) last month. The university has also expressed its interest of doing business with international corporate companies.

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Since 2009, when China closed its door on Facebook, Zuckerberg has been making rounds of the country on a more private note to explore opportunities of a re-entry. Facebook has also tried entering into a joint venture with Baidu (BIDU), the largest Chinese search engine, but it seems that all options are falling flat. As of now, it seems no one, including Zuckerberg, has an answer to when and how Facebook is going to enter China.Â

Our Understanding

If any agreement works out between Facebook and Tsinghua, it will be a win-win for both sides. Tsinghua can capitalize its strong government connections to forge an entry for Facebook in China and break the notion of the world about China being averse towards multinational business, and Facebook can take this opportunity to add much higher revenue and profit numbers. Let us keep a close watch on whether Facebook finally manages to enter China or not and accordingly take investment positions based on its business matrix in China.