Last updated: September 5, 2010 6:52 pm

Google warned on China plans

Google’s technological lead over Baidu has eroded, the company’s former China head has said, highlighting the increasing challenges western internet companies face in the world’s most populous internet market.

In an interview with the Financial Times, Kai-fu Lee said western internet companies had no chance in China unless they build a more nimble and flexible local presence and retain a strong technological edge.

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“Multinational players [must] hire the right senior people and empower them to have the flexibility to win [in China],” said Mr Lee, who resigned as president of Google’s operations in China a year ago.

“Another way is if you have a technology that’s way ahead of everyone else. Google had some of those things [but] Baidu became good enough.”

Mr Lee said Chinese internet companies such as Baidu, Tencent and Alibaba were likely to retain their stranglehold on the Chinese market as misgivings about China held their American rivals back.

His remarks come after Google saw its market share in China slide following a radical change in its approach to the country over the past eight months. “People have to evaluate their overall equation, their level of discomfort with this country, their belief they can be successful, how lucrative the market is, how flexible they are with their policies, how much money they have,” Mr Lee said. “They have to balance all those things. Clearly, today, those stars are not aligned.”

Mr Lee declined to comment on Google’s stand-off with the Chinese government and its prospects in China. Under Mr Lee, Google built a local search service in China, accepting it had to self-censor search results as required by Beijing. But following increasingly extensive censorship demands from the Chinese government over the past two years, the company started questioning that model.

Mr Lee resigned a year ago to set up his own internet start-up incubator. Google replaced him with two executives in charge of research and development, and sales and marketing, who report to the company’s US headquarters.

This year, Google said it would no longer comply with Beijing’s censorship demands even if that meant leaving China. Since March, Google has been redirecting mainland Chinese users to its Hong Kong site, where Beijing’s restrictions do not apply.

Mr Lee cited Amazon and Groupon, the US e-commerce companies, as western internet companies that could have an edge in China. He will announce on Monday the first series of Chinese technology start-ups fostered by Innovation Works, the technology incubator company he now heads.

The projects include an Android-based mobile phone operating system for the Chinese market and an application that allows users to edit photos on mobile phones and upload them to social networking sites.

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