The World: Why Google is being beaten by the local talent

Overseas brands are finding it very hard to get a foothold in China because they are seen as too 'foreign'.

For most of the world, "Google" has entered the lexicon in place of "internet search" as a result of its huge popularity. But for China's 132 million internet users, it hardly registers. For them, the word is "Baidu".

Founded seven years ago by its chairman and chief executive, Robin Li, a former engineer at the Walt Disney-owned Infoseek, the home-grown search engine has stormed its way to market dominance in China.

With a lead of almost 70 per cent of internet searches, a Nasdaq listing in 2005 and an 84 per cent share of music searches, is blazing a trail into other online services in China, leaving the likes of Google, Yahoo! and Microsoft MSN in its wake.

The difference in fortunes in China between the local search engine and its multinational rivals has come to highlight how complex the market that contains one-fifth of the world's population really is. It also raises the question: How can multinational brands build upon global success inside China given such wide differences?

The name Baidu, which comes from an 800-year-old poem and means "hundreds of times", is also fast becoming associated with other online services.

Last year, launched a Chinese-language video channel and has become a leading supplier of online news, MP3 files and pictures. It has also formed an alliance with Viacom's MTV Networks and Motorola to produce and distribute programming and content across all media platforms.

Emboldened by its success at the end of last year, the company announced plans to expand into Japan based upon similarities between the Chinese and Japanese languages and internet behaviour patterns in both countries.

Commentators have identified how Baidu's understanding of Chinese consumers and the complex nature of the Chinese language have allowed it to steal a march on multinational rivals.

One thing foreign companies are just starting to realise, points out the AKQA co-founder and chairman, Ajaz Ahmed, whose company has Chinese operations, is the role national pride plays in drawing Chinese consumers to brands.

"The multinationals have not yet done a great job of building their brand equity, since their positioning and benefits are largely misunderstood in Asia," Ahmed says.

"Chinese consumers value global brand innovators, but importantly, they also display a strong sense of traditional values and feelings that set them apart from their counterparts in developed markets. Because consumers in China also have such a strong sense of pride, multinational companies could lose important segments by seeming too foreign and out of touch," he adds.

Foreign companies also face huge pressure from shareholders, whose views on censorship and human rights in China pose problems; an issue of less concern to local companies, which face the same regulation.

Yahoo! was accused of helping the Beijing security forces to imprison a journalist two years ago. And Google was criticised in February last year when it censored its search services in China to gain access to the huge China market.

Google's vice-president, global communications and public affairs, Elliot Schrage, admitted the decision to censor content on its services was an uncomfortable one in his testimony to the United States House of Representatives Committee on International Relations in February last year.

The service had been shut down and then censored by the Chinese government, leaving the company the option of excluding China from its services or going ahead with a service that Google admitted was slow and sporadic for Chinese users due to external censorship.

After reassessing its China strategy, Schrage said in his testimony: "We decided to try a different path (one that included self-censorship)." Hence the launch of a censored service for China:

This has only added to the problems foreign brands such as Google face. Writing on Google's official blog on 27 January this year, the company's senior policy counsel, Andrew McLaughlin, pointed out that due to the imperfect service available in China, certain offerings that have proved popular in other markets are to be excluded.

McLaughlin wrote: "We're not going to offer some Google products, such as Gmail or Blogger, on until we're comfortable we can do so in a way that respects our users' interests in the privacy of their personal communications."

"Google's experience offers a salutary lesson for multinational hi-tech companies eyeing the Chinese market as local hi-tech firms gain strength," Ahmed says.

Rather than ploughing into the market with proven formulas, new approaches, based on local market realities, need to be tried.

"There's a different set of dynamics at work in China, which requires foreign hi-tech companies to rethink how they compete, so they can be more relevant to Chinese consumers, rather than trying to create 'one-size-fits-all' global products and services," Ahmed says. "The message from China and other Asian markets is clear: they are no longer a source of advantage based on low-cost labour, but are fast becoming a source of competitive advantage based on innovation."

In that sense, Google may well be in the vanguard of companies making a go of it in China; reacting to market realities, albeit by compromising important principles in order to do so.

Despite facing a somewhat rocky road, locally based internet analysts have predicted a strong future for Google. They point out the user base of is largely student-oriented, while Google has a core business following.

McLaughlin points out Google will certainly continue to invest in in future. This is hardly surprising, given that only about 8 per cent of the Chinese population currently has access to the web, but 250 million are expected to gain access by 2010, according to figures from the China Network Information Center.