As Facebook filed for its IPO (initial public offering—symbol FB) on the stock market in February 2012 (from which the above quote was taken), investors questioned the company’s ability to negotiate further expansion overseas to justify its goal of $100 billion market value. As of that time, Facebook had 845 million users—making it the largest institution of all time; if it were a country it would be the world’s third most populous country. Of Facebook’s users, 80 percent are overseas; however, since six out of ten Internet users in the U.S. and Canada are Facebook’s “friends,” most of the company’s growth must come from other countries. To date, the company’s progress overseas has been impressive, although those markets are far less profitable than the home market.

Facebook had 37 million monthly active users in Brazil, a nearly 300 percent increase from the year earlier. In India, the company had 46 million active users, 132 percent more than in 2010. By comparison, Facebook had 161 million active users in the United States, a 16 percent increase from the previous year.

However, negotiations have been thwarted in accessing some important large markets such as China. This has led observers to comment that, as indicated in the company’s IPO filing, Facebook’s Asia strategy is India, Japan, and South Korea, because Internet censorship in China has left the company with near zero penetration. The Chinese government bars its citizens from direct access to Facebook; instead people are steered toward censored, home-grown social networks like Renren and Sina.

Government agencies in China would probably want not only to censor postings but to have access to personal data posted by Chinese citizens. Much of the population can’t afford the products and services needed for Facebook, including broadband Internet access, a personal computer, or a smartphone, Agrawal said.

It’s clear that Facebook’s founder, Mark Zuckerberg, who is learning Mandarin and has made trips to China, is going to continue negotiations to pursue the Chinese market, saying that “We continue to evaluate entering China … However, this market has substantial legal and regulatory complexities that have prevented our entry into China to date. If we fail to deploy or manage our operations in international markets successfully, our business may suffer.”5 Local competitors in China are Renren Inc. and Sina Corp., which runs a popular Twitter-like microblogging service called Weibo.

While other Internet companies such as Google have tried to negotiate a compromise with the Chinese government, Facebook executives are clearly concerned about the prospect of citizens giving up their personal details to the government authorities, not knowing how that information might be used.

Some progress has been made. In April 2011, after several meetings between Facebook Chief Executive Officer Mark Zuckerberg and Baidu CEO Robin Li, Facebook signed an agreement with Baidu; however, the China website won’t be integrated with Facebook’s international service, and the start date was not confirmed. Facebook executives have had a number of meetings to negotiate agreements with various partners in China to enter the market, stating that “We are currently studying and learning about China, as part of evaluating any possible approaches that could benefit our users, developers and advertisers.”

Questions

1. You are probably a Facebook “friend.” What is your opinion about how it is used in your country?

2. Discuss the company’s approach to global expansion.

3. Do you think Facebook should operate in China even if it means complying with the restrictions there?