Companies can take simple steps to navigate China’s Internet regulatory process and boost their applications’ speed.
China’s fast-developing Internet economy and expanding workforce of highly skilled professionals have made foreign businesses eager to deliver Internet-based content and applications to the country (see Figure 1). From 2000-08, most Western enterprises leveraged the Internet primarily to extend their brands into China, but in the last two years many companies have shifted the purpose of their China-focused Internet initiatives. Many new initiatives move beyond basic website branding and instead target Chinese consumers for Internet-based sales or to extend enterprise applications, such as enterprise resource planning and supply chain management, to China-based employees and partners. All three types of initiatives—branding, conducting online sales, and managing enterprise applications—are “must do” items for companies with a China strategy.
Yet for all but the most China- and tech-savvy firms, optimizing and managing websites and web applications—such as customer support portals, e-commerce auction functions, and supply chain applications—in China can be daunting tasks. An array of business and government obstacles slow the licensing process, and Internet infrastructure obstacles slow the performance of Internet-based applications to a crawl.
In this environment, companies that seek to introduce their websites and web applications to China must understand best practices that address:
- How to identify and obtain the appropriate Internet licenses;
- How to manage website and application performance over China’s unpredictable Internet; and
- When to partner with an external specialist, instead of relying on internal staff.
Though the answers to these questions provide useful tips for a China Internet strategy, they also demonstrate that any Internet-based initiative that targets China must include realistic timelines for project milestones. By preparing for China’s Internet-related obstacles, companies can maximize investments in their website and enterprise applications.
Internet content licenses
The most common license the PRC Ministry of Industry and Information Technology (MIIT)—the agency that manages licensing—requires is called the bei an license. All foreign-based and domestic organizations that wish to register an Internet domain in China must possess this license. Though some organizations may acquire bei an licenses 1-12 months after the initial application, the process typically takes 3-6 months (see Bei An License Application Procedures below). To acquire the license quickly, companies should arrange to have a representative in China for the entire licensing period. This individual should be personable and comfortable with managing evolving requirements that may arise when dealing with the PRC government. For example, the government in April 2011 created the State Internet Information Office—a new agency tasked with patrolling the Internet. The agency will likely introduce additional Internet-related rules and regulations.
Companies that receive fast license approval usually rely on a representative with strong Chinese-language skills and a business development background. Managing the licensing process requires in-person meetings, so businesses should plan accordingly before assigning a US-based employee to oversee the process. Companies can assign licensing tasks to a local staffer without in-depth government relations experience, but this strategy has risks if the local employee lacks the skills and contacts to manage key government relationships. Organizations that pursue this strategy often spend considerable time and money to revitalize stalled efforts, and possibly even to repair damaged government relationships.
China’s Internet performance landscape
Foreign organizations that have struggled to deliver their websites and content into and across China recognize the inconsistent performance of the country’s Internet. Because of limited peering points (traffic exchange points between Internet network providers), fragmented networks, and the PRC government-managed firewall, many Internet initiatives are plagued by slow web page and application downloads, failed web pages, and application timeouts. Companies should thus explore options for overcoming China’s Internet performance lapses while they navigate the licensing process.
Local data centers
Because China’s Internet is run by a fragmented network of competing telecom operators over vast geographies, China possesses far fewer peering points compared to the United States and Europe. This lack of peering points creates backlogs that lead to slow Internet speeds. Foreign companies should consider making special arrangements to deliver content at rates faster than those provided by the networks’ basic peering agreements (standard speeds of data flows between different networks). To achieve faster performance, website owners must purchase peering upgrades at an additional price from multiple Internet service providers. For such service upgrades, companies should plan to pay a premium of 300-800 percent more than the price of basic peering agreements.
Some foreign companies have attempted to increase their website and web application performance and avoid China’s bureaucracy by setting up operations elsewhere in Asia.
By locating servers in regions close to China, such as Hong Kong and Singapore, website owners can improve performance in China. But this strategy does not address China’s internal peering issues and costs more than hosting a website and applications in Western countries.
Content delivery networks
To boost web application performance, companies can also employ a content delivery network (CDN) to deliver content on their behalf. CDNs are companies that own servers and data centers in multiple networks in and outside China and have experience collaborating with PRC government agencies, such as MIIT, to accelerate approval processes. Companies that hire CDNs maintain control of their domestic data centers, forego Asia-based centers, and pass their applications and content directly from their home networks to the CDN service provider. CDNs can streamline companies’ entry into targeted markets and save time, effort, and up-front costs. For example, a company that needs to establish several data centers in China can save more than $100,000 in up-front infrastructure costs and several thousand dollars per month in operating costs. Companies’ whose CDN provider also possesses global capabilities may leverage a single relationship across multiple countries without changing their home-country infrastructure.
The decision to partner or tackle China’s Internet market alone should depend on several factors:
- The company’s depth of knowledge on Internet technologies;
- The company’s understanding of China-specific Internet infrastructure nuances;
- The company’s ability to employ business development experts with Mandarin-language skills; and
- The company’s risk profile.
Companies with a high risk tolerance and substantial China market savvy and staff have been known to successfully “go it alone” using their own data center arrangements with local Chinese data center providers. These companies tend to be multinational corporations with longer-term goals and lower short-term expectations. Companies that seek fast entry with minimal up-front investment, however, may find a CDN provider to be the most efficient way to enter China.
Best practices for foreign Internet companies in China
Foreign companies in China can take several steps to promote strong Internet performance and avoid lapses in service.
- When deciding whether content is appropriate for China, companies should seek the counsel of a service provider with experience delivering a broad range of web content into China.
- Firms should comply with PRC requests related to the Internet whenever possible, as non-compliance can result in the permanent black-listing of a website. Companies must carefully monitor changes to PRC government rules, as rules can change frequently.
- When using a CDN, companies should do so on a global basis and incorporate their China strategy into that global view.
Companies of all sizes should establish market-entry strategies that take into account China’s unique Internet environment. A sound strategy should account for stringent and evolving government regulations; the need for in-person collaboration with government agencies; and technical hurdles presented by inefficient network connectivity and China’s government-managed firewall.
Organizations that fail to plan their China Internet strategy carefully can quickly find themselves bogged down in government red tape and technical breakdowns. Companies that seek the advice of experienced solution and content providers that have already entered China may benefit from the experiences of others.
Bei An License Application Procedures
Bei an license applications are processed through the PRC Ministry of Industry and Information Technology (MIIT). A company that seeks this license should be prepared to submit to MIIT
A copy of the company’s business license in China, with a company seal;
A domain name certificate;
An identification (ID) card and photo ID of a Chinese contact person; and
Signed license application forms.
Because application procedures and policies change frequently, companies should check the MIIT website (www. miitbeian.gov.cn) before beginning the application process. Specific requirements may vary between companies, depending on industry and the nature of the content the companies wish to deliver.
Case Study: How One Company Optimized Supply Chains
Historic Futures Ltd. (HF) is a UK-based company that provides supply chain traceability consulting services and solutions. The company’s unique Internet-based tracing application known as “String,” allows brands and retailers to visualize complete supply chains, from primary production to finished product. The application is used by many major brands, including the Gap, Inc.; Levi Strauss & Co.; and Wal-Mart Stores, Inc. String helps brands learn more about their supply chains and assure customers that product quality matches branding claims.
Poor Internet performance caused String to load at painfully slow speeds when first introduced in China. The application was served by two data centers in Manchester, England, and China-based users experienced average login delays of 25 seconds and slow speeds when using the application. Some suppliers complained that these performance issues made String unusable in China. As a result, HF customers struggled to collect traceability data. HF needed to improve its applications’ performance in China—a key sourcing partner country for its brand customers—or risk losing the brands’ business.
According to Simon Warrick, HF’s chief technology officer, expanding internationally “would have cost thousands of pounds per data center per month. Plus we would have had to deal with the headache of managing globally dispersed facilities.”
HF instead chose to use a content delivery network (CDN) partner to improve String’s performance in China. The CDN partner was critical to String’s performance because String is a dynamic application that requires many database transactions from end users in China to data centers in the United Kingdom. With help from the CDN partner, login times quickly shrank from 25 seconds to 3 seconds on average. The dramatic performance improvements allowed HF to begin developing a more feature-rich version of the String application for the China market.
Jeff Kim ([email protected]) is vice president of Global Products and Marketing at CDNetworks Inc. He is based in San Jose, California.