How Westerners in China Can Fight Back

The best strategy for dealing with Beijing's chilly new business climate is not to copy Google's example

By Daniel Michaeli

No matter how tense commercial relations between the U.S. and China become, American corporations cannot afford to mimic Google's (GOOG) mistake and give up huge growth opportunities in the world's largest market. That's why business leaders need to adjust their strategies quickly to stem the damage.

First, they must cultivate untapped sources of support within China, beginning with independent executives who also chafe at Beijing's market-unfriendly policies. Coordinating a message with these leaders would change the narrative, removing the perception that greater economic openness means giving in to foreign pressure.

Some are already willing to join U.S. companies in public support of better Chinese economic policies. On Mar. 24, for instance, Bloomberg reported that Chinese executives including Yang Yuanqing, CEO of Lenovo (LNVGY), have gone public with their support of the currency realignment U.S. exporters need to be more competitive in China.

Allies Inside China

One place to look for allies is among the private executives upset because they cannot secure loans from state banks that pump cheap money into state-owned enterprises. Case in point: Last year, Liu Jieyin, the founder of Okay Airways, complained about the unfair dominance of state companies to Forbes. And he said the business climate for independent firms was so bad that "if you asked me to set up a private airline now, I would not dare."

American companies should also try to enlist help from state-owned enterprises that have an interest in open trade and investment. For example, the Commercial Aircraft Corp. of China (Comac)—which is making the C919, China's first jumbo jet—recently signed a $10 billion contract for an engine made by a joint venture of General Electric (GE) and France's Safran (SAF:FP). Comac is already taking orders for the C919, but whether the jet will be ready by 2016 as pledged depends on the successful execution of the engine contract. A worsening of the business environment could put such contracts, and even access to future export markets, at risk.

Despite the shrill rhetoric coming from Beijing, many government officials appreciate the concerns of foreign businesses. Some have long histories with foreign companies; others hope to restore economic openness for other reasons. They worry about stifling innovation and weakening the private sector, which has fueled growth for decades; creating housing and equity bubbles; and paying the environmental and public health costs of overinvestment. These worries were all raised publicly at the National People's Congress meeting in March.

Choose Your Battles

In addition to mustering support within China, U.S. companies must choose their battles more carefully. So when an attempted hacking raised the prospect of local competitors stealing trade secrets, Google should have focused on compelling authorities, perhaps by dangling the threat of going public about the hacking, to commit to protecting its intellectual property. Instead, Google threatened to leave China's search engine market if search censorship wasn't lifted—an impossible request of an authoritarian state. This action invited a hard-line response, failed to secure Google's intellectual property, and will only hinder Chinese citizens' access to information.

When threats are necessary, they should come from business groups with substantial combined leverage. U.S. companies manufacturing in China are collectively responsible for the livelihood of millions of Chinese workers. They also have the ability to build up the capabilities of regional competitors such as India. This gives them political leverage if they act in unison.

Market openness serves China's long-term interests. It strengthens the country's dynamic private companies and improves access to Western technologies. But it may take time for China's leaders to realize that. In the meantime, U.S. companies need to challenge Chinese policies more effectively. If American businesses fail in China, they put at risk both U.S. economic competitiveness and the most important bilateral relationship of this century.

Michaeli is a research associate at the Council on Foreign Relations. He blogs at www.asiaruminations.com.

Google's Quixotic China Challenge

The Web search leader may make little progress getting other companies to join it in publicly criticizing Beijing's Internet policies

By Douglas MacMillan

Google (GOOG) is stepping up a campaign to get other companies and the U.S. government to join it in putting pressure on China's government over alleged human-rights violations. The Web search company may make limited headway.

Following a decision to stop censoring search results in China, Google co-founder Sergey Brin said in a Mar. 25 interview with the U.K. newspaper The Guardian that the U.S. government and other businesses should put a "high priority" on calling attention to human-rights abuses in China.

While one company did just that and some U.S. government officials have championed Google's cause, there's unlikely to be a groundswell of businesses willing to take public issue with China, the world's most populous country and third-largest economy. "Just because the situation got bad for you doesn't mean it's bad for everybody else," says Danny Sullivan, editor-in-chief of the Web site Search Engine Land.

On Mar. 22, Google said it had stopped censoring its Chinese Web site and shifted search services from the mainland to an unfiltered Hong Kong site, an act criticized as "totally wrong" by China. Google said on Jan. 12 it was no longer willing to censor content on its Chinese site after being targeted by cyber attacks from within China. Hackers obtained proprietary information and e-mail data of some human-rights activists in a "highly sophisticated attack," the company said at the time.

Crossroads for Internet Companies

The standoff provoked global debate about how Internet businesses should operate in a country with a questionable record of protecting the online privacy and freedom of expression of its citizens. "A lot of businesses around the world are now realizing they have to think through and figure out how to respond to these kinds of controls—not just in China but in other parts of the world," says Ed Black, CEO of the Computer & Communications Industry Assn. "What Google has done is made them realize they may be facing a fork in the road that they better start planning for."

Two days after Google's withdrawal, Internet domain registrar GoDaddy.com announced it had stopped selling new Web domain names in China, citing dismay with government policies it says are designed to tighten control over Internet use by residents. "We don't want to be an agent for the Chinese government," says Christine Jones, Go Daddy's general counsel.

Some politicians applauded Google's move. "Google, more than any other business or force, has been the game-changer," says Representative Chris Smith (R-N.J.) in an interview. Smith and other U.S. officials are pushing for new policies that would see the U.S. government play a role in ensuring the protection of American Internet businesses in China and other countries.

In remarks in January, Secretary of State Hillary Clinton called on Beijing to investigate the hacking attacks that affected Google. "Countries or individuals that engage in cyber attacks should face consequences and international condemnation," she said during a public speech at the Newseum.

How Much to Push Back?

It's not clear that condemnation will emanate from corporations. "How far are [companies] willing to go?" asks Leslie Harris, president of the Washington nonprofit Center for Democracy & Technology. "How much are they willing to push back and what steps are they willing to take to try to mitigate the human-rights impact to their users?"

Seeking to help provide businesses a template for addressing these problems, Harris and others formed the Global Network Initiative (GNI) in 2008, a coalition of major U.S. Internet businesses like Google, Microsoft (MSFT), and Yahoo (YHOO), as well as think tanks and universities. The group meets periodically to draft and update guidelines on what procedures to take when, for example, foreign governments ask for sensitive information about users.

Yet when it comes to publicly upbraiding the Chinese, other companies may be less willing to cooperate. Google approached other companies to seek their help drawing attention to the cyber attack and was frustrated by their reluctance to come forward, a person familiar with the matter told Bloomberg News in January.

Representative Smith says the government should play a bigger role in calling out foreign countries that restrict access to the Web. Four years ago, he drafted the Global Online Freedom Act, legislation that would, among other provisions, require the U.S. State Dept. to issue an annual list of "Internet restricting countries," and require American companies to notify the State Dept. before complying with requests from foreign governments.

The bill is supported by Google, Smith says. The question now is whether other companies can get behind getting tough on China.

Douglas MacMillan is a staff writer for Bloomberg BusinessWeek in New York.

Star Insurance

Owen Wilson's alleged suicide attempt has left executives at Paramount and News Corp.'s 20th Century Fox in a bind. His health aside, the Wedding Crashers star has two films in production and another two to promote for their studios.

But there is one group that stands to benefit from the funnyman's troubles: the insurance companies. While it isn't the sexy story that sells tabloids, a star's downfall translates to higher premiums for the firms that agree to underwrite them.

In order for any film to be made, its stars--track record or not--must be insured. The rationale: With production costs on a typical feature film already at exorbitant sums, any delay--be it from weather, an injury or a star's poor health--can set movie makers back between $100,000 and $400,000 per day. The more likely a star is to cause that delay, the more costly he or she will be to insure.

But just how much more is a decision left up to insurance or underwriting companies. With only a handful in the business, including Fireman's Fund and the Chubb Group, these firms make it their business to understand the film industry and its players. Among other things, each has confidential files on every actor, which include everything from prior medical certificates to claims histories to newspaper or Web clippings pertaining to the star. With that information, and the medical exam and affidavit a star must complete some 30 days before the cameras roll, firms are able to assess the risk.

Advocating on behalf of the production companies are insurance brokerage firms, a similarly small cadre, which include AON/Albert G. Ruben Insurance Services and D.R. Reiff & Associates. Often brought on board before any actor is ever hired, the role of these companies is to compile a list of what they believe are necessary coverages associated with the film. After the insurance carriers quote their terms and conditions for those risks, the brokerage firm selects and recommends the best proposal to the production company.

So while Wilson's example may be garnering greater media attention than troubles past, his behavior, and the insurance implication it carries, is nothing new. From Robert Downey Jr. to Courtney Love to the more recent Lindsay Lohan, underwriting companies have long been feasting on Hollywood's wayward.

The way Ross Miller, a partner with New York-based insurance brokerage firm D.R. Reiff sees it, no actor is actually uninsurable. Or that's what he'd like to believe, since it's his job is to find underwriters to take on the risk that stars pose. "If a studio wants something, or somebody has enough money to throw at a project, then they will make it work," he says.

Brian Kingman, the director of strategic account management at AON/Albert G. Ruben Insurance, agrees: "If you've got enough time, talent and money, anything is insurable."

The reality is this: While the conditions for hiring errant stars may be unappealing--too expensive or too risky--it is almost always possible.

"Some people like to declare [trouble-prone stars] uninsurable, but I think that's way too easy an answer," says Joe Finnegan, vice president of entertainment at Fireman's Fund Insurance Company, the film industry's leading underwriter. Instead, he says it's companies like his that look to find solutions for the production companies. After all: no insurance, no film--or not with the star of choice, anyway.

More often than not, those solutions entail higher deductibles. Miller says production companies are often looking at hundreds of thousands of dollars as opposed to a typical deductible, which can range from $25,000 and $100,000, depending on the movie.

And while most underwriting experts hesitate to provide exact figures--they vary greatly depending on the picture's budget, a star's past, etc.--insurance rates for these troubled types can range from 85 cents to $3 for every $100 of a film's production budget.

The stars can also be asked to put their salary in escrow, making them personally accountable for any losses if their actions were to cause production delays. And if the troubles are drug-related, regular testing can also be required, and chaperones, or "minders," as they're called in the business, can be placed on set to ensure a star doesn't slip up.

Now, whether the star is worth all of this is a question the movie maker must weigh heavily. While that star's record is a critical piece to consider, the box-office potential of the film is worth factoring in as well. As in, are we dealing with The Life Aquatic or Wedding Crashers?

Lifestyles Of The Pets Of The Rich And Famous

Everybody knows it's not a dog's life to be rich, but no one knows this better than a rich person's dog.

Leona Helmsley, dubbed the "Queen of Mean" for personifying the 1980s stereotype of greed and excess, made her pet Maltese Trouble her biggest heir, leaving a $12 million trust fund for the pet in a will that disinherits two grandchildren and doesn't even mention great-grandchildren.

Helmsley, who died last week, put contingencies on the inheritances of the two grandchildren who will actually get some money: They have to visit their father's grave site once a year. No such demands are made of Trouble.
In Pictures: Lifestyles Of The Pets Of The Rich And Famous

And her chauffeur got $100,000.

Sound wacky? It may be, but it isn't rare. Inheritances for pets are not uncommon among the wealthy, according to Russ Alan Prince, of Prince & Associates, who tracks the habits of the rich. That's especially true of people who tend to alienate all other humans in their lives.

"For some wealthy people, the only true love they get is from their pets," Prince says. "They're estranged from their children, they are at war with their business partners, but their pets are always there for them."

It would not be a stretch to put Helmsley in that camp, if tabloid tales of her terrorizing employees and executives of her husband's real estate empire are to be believed. She is perhaps most infamous for telling a housekeeper that "only the little people pay taxes," a comment that came out during her trial for tax evasion in the late 1980s.

Trouble once appeared in ads for Helmsley hotels and no doubt led a pampered life. The dog is to be buried alongside Helmsley and her husband, Harry Helmsley, in their $1.4 million mausoleum in suburban New York.

According to Prince, rich people who love to lavish money on their pets (a category he calls "pet-focused") spend $328,000 on their pets annually. His survey, released this year, included 304 affluent families who describe themselves as pet lovers, 46% of whom say their love is singularly focused on their own pets and the rest who are animal lovers in general. The survey group was 58% female with a mean age of 56 and a mean net worth of $46.7 million.

The biggest spending area is in "life enrichment" services.

This includes everything from deep-muscle massage (pet masseuses can make up to $2,000 an hour, Prince says) and psychic readings to life coaching and "cosmic sensitivity."

One-third of pet-focused owners paid for special diets for their pets, not for medical purposes, mind you, but because it was seen as being good for the animals. This includes meals prepared by famous chefs.

More than a fourth of pet-focused owners surveyed said they spend $25,000 or more on wardrobes for their pets. Yes, 25 thousand.

Even better, 16% of pet-focused owners recently surveyed by Prince & Associates spend $25,000 or more on a birthday party for a pet.

Several pets regularly fly around on private aircraft, alone (except for flight crew).

But pet inheritances really raise the bar. More than a quarter of so-called pet-focused owners surveyed had established trusts for their pets in their wills before their deaths. This makes it harder for surviving family members to fight the will, Prince says, and ensures the owner will have at least some say in what happens to the pet after the owner's death.

Seventy-eight percent of pet-focused owners leave money to pets in their wills, to the tune of $526,000, according to Prince. Mostly, the money is to ensure a quality of life for the pet.

Pet trusts are increasingly popular, so much so that 39 states now have statutes outlining them, says Frances Carlisle, a New York estate lawyer who specializes in pet trusts. In most cases, the trusts left behind are small, in the $30,000 range, and meant to ensure that the pet left behind has adequate care and won't be dumped on the street or sent to a shelter.

Because pets are pets, money cannot be left to them directly in a will, so trusts are the next best thing to leaving money to a designated guardian, Carlisle says. The stigma of the kooky old rich lady, present company excluded, is gone. "This sort of thing used to be laughed at," Carlisle says. "But a lot of animals really do end up on the street."

Sometimes the arrangements are punitive, however, and directed at getting revenge on family members.

Prince says he knows of an ostrich that stands to inherit $4 million, all because the owner's children once threatened to cut the ostrich up into food. Somewhere out there a parrot stands between his owner and the owner's children, who stand to lose tens of millions of inheritance money if they fail to follow specific instructions about the parrot's safekeeping and well-being after the owner's death.

"True pet lovers can be off-the-wall already, and what you're doing here is adding money to it," Prince says. So true.

Web Ad Spending To Eclipse Radio In '07

U.S. Internet advertising spending is poised to overtake radio advertising for the first time, providing a reminder that broadcasters need to be more aggressive in their embrace of online opportunities.

U.S. radio ad spending is expected to inch up 1.5% in 2007, to $20.4 billion, short of online ad expenditures of $21.7 billion, which will be up 22% from last year, eMarketer senior analyst Ben Macklin said in a report.

Over the next several years, radio station Web sites and online audio advertising "will be the principal drivers for radio advertising growth,'' Macklin said.

But he doesn't think that growth will add up to much. He expects the sluggish radio advertising market to continue experiencing slow growth, climbing to an estimated $22.6 billion in 2011, when online ad spending is expected to surge to $44 billion.

Terrestrial radio companies like Clear Channel Communications (nyse: CCU - news - people ), CBS (nyse: CBS - news - people ) and Cox Radio (nyse: CXR - news - people ) still retain massive audiences, but consumers are spending less time listening to radio than they do surfing the Web or watching TV.

In addition, only 17% of U.S. consumers consider radio the "most" essential medium, down from 26% five years ago, according to a study released earlier this year by Arbitron and Edison Media Research.

For many advertisers, the choice between radio and non-radio online ads won't be an either-or proposition, Macklin said, pointing to studies showing that consumers often listen to the radio while consuming other media and that a mix of terrestrial radio and online ads can be far more effective than online ads alone.

"There are many synergies between radio and the Internet and, for the most part, they complement rather than compete with each other,'' he said. "Advertisers should not abandon radio in favor of the Web but combine the two media to take advantage of the unique attributes of each."

Those might sound like encouraging words for the radio industry. But as Macklin's estimates show, these new opportunities don't appear likely to kick-start the radio industry out of its doldrums.