Case #10. LinkedIn Survives in China LinkedIn is the world's largest professional network with 300 million members in over 200 countries and territories around the globe. Its stated mission is to “connect the world's professionals to make them more productive and successful.” LinkedIn, started in the living room of co-founder Reid Hoffman in 2002, officially launched on May 5, 2003. LinkedIn is publicly held and has a diversified business model with revenues coming from member subscriptions, advertising sales, and what it calls “talent solutions.” Until recently, LinkedIn, had found a way to operate in China — by being willing to compromise on the free expression that is a central tenet of the Western Internet. LinkedIn’s experience may provide a blueprint for finding an equilibrium between free speech and Chinese law that other companies can live with seeking to enter the China market. To date, LinkedIn’s global English-language site has four million Chinese members. Its goal is to reach more of China’s estimated 140 million professional workers, so in February 2014 it introduced a Chinese-language version. By the end of 2014, the Chinese-language site has attracted about a million new members. It is functioning without blockages by the Chinese government even though Chinese authorities have cracked down on other Internet services, including Instagram and Yahoo, in reaction to the pro-democracy protests in Hong Kong in which these firms’ members played a role. Since opening to the West, a relationship with local Chinese firms has been crucial for foreign companies seeking to operate in China, and this has also proven true for web-based firms. In addition to LinkedIn’s willingness to play by Chinese rules on free expression, the company has relinquished 7 percent of the equity in its China operation to two well-connected Chinese venture capital firms. China Broadband Capital and a Chinese affiliate of Sequoia Capital, an American venture capital firm — has helped it manage its relationship with government officials. C.B.C. was founded by Edward Tian, a well-connected investor and former entrepreneur who once ran a telecommunications company with the son of a former Chinese president, Jiang Zemin. “There have been a lot of problems with companies like Facebook and Twitter,” said Kevin Wang, a C.B.C. spokesman. “We think one of the key reasons is the lack of communication, even the absence of communication, between these companies and the Chinese government.” The local partners have a strong incentive to help LinkedIn succeed. Under the partnership agreement, they can buy an additional 21 percent of the joint venture for $20 million if certain conditions are met. A spokesman for LinkedIn, Hani Durzy, said the company opened a Chinese-language site because of its “belief that the creation of economic opportunity can have a profound impact on the lives of Chinese individuals, much as it has elsewhere in the world…While we strongly support freedom of expression, we recognized when we launched that we would need to adhere to the requirements of the Chinese government in order to operate in China. So the decision to proceed in China was one that we weighed heavily.” On the Chinese- and English-language sites in China, the company censors content that the authorities consider politically sensitive, using a combination of software algorithms and human reviewers. People whose posts are blocked get an emailed form letter advising them that a posted item contains “content prohibited in China” and “will not be seen by LinkedIn members located in China.” LinkedIn also does not provide Chinese-language users certain important tools — like the ability to create or join groups or to post long essays — that allow people elsewhere to have public discussions and form on-line communities. Although LinkedIn’s strategy has given it access to Chinese speakers, analysts say it poses risks for the company’s reputation and growth strategy. Like many American tech companies, LinkedIn has promoted itself as dedicated to free-market principles. Too much censorship could cause users to flee. In addition, there is the risk that as LinkedIn’s business grows larger in China, it could give the Chinese government leverage to make demands about what type of content is permissible on LinkedIn’s site globally. Some critics also say LinkedIn has not communicated clearly how and why it is censoring content. Other tech companies have weighed the risks of trying to satisfy the Chinese government and taken a different approach. Google, which once acceded to China’s demands to censor content in the country, reversed course in 2010, moving to deliver uncensored results to Chinese users from servers in Hong Kong and souring its relationship with Chinese authorities. Twitter has been blocked in China for years and says it will not censor posts because to do so would “sacrifice the principles of the platform,” according to Colin Crowell, the company’s vice president for global public policy. Although Facebook is blocked in China, it hasn’t given up on getting in the country. But it is trying to use commerce to pry open the door, selling ads to Chinese companies and government organizations that want to reach consumers outside China. Facebook is also studying the experience of Instagram, its separately operated photo-sharing app, which is growing quickly in China with only occasional blockages by the Chinese government. Analysts say LinkedIn is well positioned to be acceptable to Beijing because it can argue that it makes the employment market more efficient, ultimately spurring the economy. China’s Internet regulators often argue that the main goal of development of the Internet should be to bolster economic growth. China’s closed markets have given a huge head start to four homegrown companies, which dominate the Internet there: Alibaba in e-commerce, Baidu in search, Tencent in video gaming and instant messaging and Sina in social networking. LinkedIn itself faces competition from local rivals like Zhaopin and 51Jobs.com, which both have more users than it does in China. LinkedIn does retain control of the venture, securing the bulk of the profit as well as the risk. Doing so would make it much easier for the government to demand information on, say, dissidents who use the service — a conundrum that tripped up Yahoo nearly a decade ago and prompted that company to essentially pull out of the country. Despite the challenges, LinkedIn is optimistic about its efforts in China. “In the end, the most important consideration for us was providing an opportunity for millions of Chinese professionals to significantly expand their economic opportunities,” said Mr. Durzy, the LinkedIn spokesman. “We want to get it right in China, so we will continue to listen and learn." Paul Mozur reported from Hong Kong and Vindu Goel from San Francisco. LinkedIn Faces Setback in China as It Runs Afoul of New Rules By PAUL MOZUR and CAROLYN ZHANG, New York Times, NOV. 10, 2017 SHANGHAI — LinkedIn is often held up as a model of how a foreign internet company can do business in China. Increasingly, it also serves as an example of how difficult that task can be. This week, the jobs-and-professional-networking service blocked individuals from advertising jobs on its site in China, after it ran afoul of new government regulations requiring it to verify the individuals’ identities, according to a person familiar with the situation. LinkedIn said in a statement that companies could still post job listings but that it did not know when it would again allow individuals to do the same. In August, China’s government increased scrutiny on internet job postings in response to a rash of online hiring scams, mostly for pyramid schemes. New regulations call for companies to have verification of the identities of those posting job listings. Beijing has been following up its new regulation with audits, according to the person, who asked not to be named because the person was not authorized to speak publicly. LinkedIn is a rare foreign internet company in a country that blocks Facebook, YouTube, Google and other online mainstays in the rest of the world. It persists in China by closely adhering to local rules. It censors content that the Chinese authorities consider sensitive or objectionable, limits the ability of members to create or join online groups and has given partial ownership of its Chinese operation to local investors. But in recent months, Beijing has ratcheted up its already strict internet controls, and such an approach to managing the web takes its toll on companies. In this case, the new restrictions are the response to an incident in July in which a young college graduate killed himself after being deceived by a pyramid scheme. The 23-year-old, Li Wenxing, got a job as a software developer through an employment website, only to end up forced into becoming part of a pyramid scheme, according to the local news media. After being forced to borrow hundreds of dollars from family and friends, Mr. Li drowned himself in a small pond along a highway on the outskirts of Tianjin, a port city near Beijing. His death was one of several since the summer, which has spurred an uproar across the country and prompted a government-led crackdown on pyramid schemes. The disabling of a revenue-generating tool for LinkedIn is a setback for one of the few major foreign internet companies giving the China market a go. It is not clear how much money LinkedIn, which is owned by Microsoft, makes in China. The amount it charges for an ad depends on its reach and success based on a budget for job postings that clients set up. The company has struggled to become a major player there. In part, that is because of China’s unique internet culture. While hiring sites are popular, many people opt to manage their professional contacts in the country’s most popular social network, WeChat. Questions 1. Prepare most likely (4) and worst (3) scenarios (not “best”) for LinkedIn’s future in China in the diagrammatic format prescribed in Module 9. (7) 2. Using the power analysis framework of Module 8 (do not draw a diagram), in 100 words or less, explain how LinkedIn was able to enter and sustain its position in China for a time, but now is threatened. (3) 3. How would you characterize the most recent Chinese government decision in terms of the significance of it as an environmental signal, using the three dimensional format of Module 9. (2) 4. Based on this most recent development and the experience of other US-based internet companies, do you recommend LinkedIn remain in the Chinese market? (3) NOTE: You are to incorporate your answers for Q1, Q2 and Q3 into your answer to Q4!!! In effect, you are to argue as follows; Based on my assessment of (1) my forecast scenarios, (2) the power situation it faces, and (3) recent environmental signal, LinkedIn should….