Facebook's China Strategy Coming Into Focus As It Plans To Open Sales Office There

 @KukilBora
@SophieXSong

on May 13 2014 3:28 AM
Facebook-China
A man holds an iPad with a Facebook application in an office building at the Pudong financial district in Shanghai, Sept. 25, 2013. Reuters

Facebook (NASDAQ:FB) has been officially banned in China for five years, yet growing numbers of people inside the world's most populous country have managed to find their way beyond state controls and on to the world's most popular social network.

Now, in a sign that Facebook is keen to grow those numbers and expand its presence in China, the American company is considering opening a sales office there to court advertisers who use the social network to reach international customers.

“Today, our sales team in Hong Kong is supporting these Chinese businesses, but because of the rapid growth these businesses are achieving by using Facebook, we are of course exploring ways that we can provide even more support locally and may consider having a sales office in China in the future,” Vaughan Smith, Facebook’s vice president of corporate development, told Bloomberg in an e-mailed statement.

The word that Facebook is eyeing a Chinese sales office underscores the magnetic pull of a Chinese marketplace now home to 1.4 billion people, one in which social media has emerged with particular vigor as a popular means of forging personal connections and selling goods and services.

While Facebook and Twitter (NYSE:TWTR) remain officially beyond the Great Firewall of China, vast domestic social networks have grown to enormous proportion, not least Weibo (NASDAQ:WB), which now counts 130 million active users, and WeChat, the instant messaging service run by Tencent that claims 355 million monthly active users. Alibaba, the world's largest ecommerce company is making plans to sell shares in the United States in what is shaping up as the largest initial public offering in history.

Even as Facebook expands -- now boasting 1.31 billion monthly active users worldwide -- it has been largely shut out of China, raising the risk that it could fall permanently behind Chinese companies.

And yet, despite the ban, Facebook still has a Chinese customer base to tap.

 

“There are multiple ways to access facebook in China, despite the block,” said Min Ye, an assistant professor and the director of East Asian Studies program at Boston University, and the author of the book Diasporas and Foreign Direct Investment in China and India.

According to Facebook’s own data on its advertising platform, some 612,000 China-based people older than 13 were registered on the site in 2012. By last year, the number had grown to 840,000.

“Facebook is smart in thinking about an office in China at this point,” said Ye. “Having a sales office will make it a real presence in the country and galvanize the various interests in the company in China. It also prepares for a possible lift of internet bans in the country, which is not a huge possibility at this point, but not entirely impossible either.”

Facebook's current office in Hong Kong handles the company’s dealings with advertisers in Taiwan and mainland China. While Smith did not comment on the timing or location of the new China office, an anonymous source told Bloomberg that the new office could materialize within a year. The report also cited other people close to the matter as saying that the company is in talks to lease space in Beijing’s Fortune Financial Center in the city’s central business district. And the real estate negotiation may only be the first move from Facebook to retake the world’s biggest population.

“I believe Facebook's China strategy will be tentative and testing the ground,”  Ye said. China  has strong business and social interest in Facebook wants to engage top internet providers in the U.S. at its own pace.

This is not the first time that a technology company has planned to open a sales office in a country where its main product is blocked. Google (NASDAQ:GOOG) has maintained a local sales presence in mainland China for years even though it shuttered its search operations there, The Next Web reported.

China does not represent a standalone market in Facebook’s strategy. It’s an important part of its rapidly growing Asian market and the company’s push there is a necessary step to maintain presence in the continent, said Kevin Paul Scott, the co-founder of ADDO Worldwide, an international business consulting and management company with extensive business in China.

“The fear is that not only will [Facebook] lose out in China to domestic Internet companies like Alibaba and Tencent, but they the loss could reduce revenue and their presence in Asia,” Scott said. “Investors want [Facebook] to reach an agreement with the Chinese government.”

In 2012, Facebook said in the prospectus for its initial public offering, or IPO, that China’s “substantial legal and regulatory complexities” had prevented the company’s entry into the country. In the first quarter of 2014, the company’s earnings in Asia accounted for 14 percent of its overall revenue, up from 11 percent at the time of its May 2012 IPO. 

Kukil Bora contributed to this article.

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