Courtesy of Benzinga.
LinkedIn (NYSE: LNKD) is up in pre-market trading on rumors that the company may be entering China.
The move would open an enormous customer-base for the professional social media site, which has maintained respectable profitability and growing revenues since going public in May 2011. The company has rallied in the past two months, and is up over 35 percent from the beginning of the year. The company’s international expansion combined with broad market optimism in new internet companies has helped the stock rally, and it is still trading nearly double its IPO price of $45.
The stock may continue to rally today on the rumors, although a bet on LNKD could quickly turn sour if the news is not confirmed quickly as the stock’s meteoric rise might inspire profit taking amongst investors riding the recent bull run. If the company is indeed expanding into China, investors may be hungry for a piece of the company.
Investors tend to be very sensitive to any news relating to China, mostly because the emerging giant economy smells of opportunity. The country’s growing middle class has motivated just about every company to want a piece of the action, whether it is a financial or retail firm. While ideological issues and the Chinese’s government’s tightening stronghold on the flow of information moved Google to leave the world’s most populous country, LinkedIn’s motto is not “do no evil,” and its more morally-neutral entreprenurial focus may be a good match for the amoral Chinese Communist Party who care more about economic growth and profitable partnerships with foreign capitalists than just about anything else.
However, Google’s experiences with the Asian giant should be a learning experience for any foreign firm looking ot capitalize on China’s growing middle class. Google’s move away from China spelled opportunity for Baidu (NASDAQ: BIDU), which has marketed itself as the real Chinese alternative to the imperialist American company. In a commercial where Abraham Lincoln spews blood after losing his Chinese girlfriend to a Chinese nobleman, Baidu employed xenophobia and nationalism to increase its user base.
If it enters China, LinkedIn should pay special attention to the ardent nationalism of the nation. This will be a major stumbling block, as the company will need to compete with Renren.com, 51.com, and especially Kaixin001.com, which is targeted towards middle class and white collar workers. These companies can remind the Chinese that they are native companies, thereby retaining market share through national loyalty. On the other hand, the allure and prestige of a foreign brand, which has helped companies like Yum! Brands’s (NYSE: YUM) KFC restaurants and designer brands like Louis Vuitton (EPA: MC), could drive users to an American site.
LinkedIn can rely on more than exotic appeal for its Chinese operations. Social networking is a perfect industry for China. Chinese culture is driven by the idea of guanxi, a difficult-to-translate concept that Millennials will understand more than any other generation. Guanxi refers to the personal connections between people in a large social network of varying relationships. While young Americans may see these networks in terms of symbiotic or personal connections with several varying factors, their Chinese counterparts may seem them more as hierarchical relationships relating to age, social status, wealth, and title.
The deeply hierarchical nature of a Confucian culture like China, combined with its emphasis on social relationships over all else, makes it a more ideal candidate for social networking than the post-Enlightenment individualism of the west. LinkedIn can profit from this if it enters the market, but it will also need to be sensitive to local attitudes and values, even if it won’t face censorship issues as directly as Google. Since LinkedIn speaks the universal language of business and profit, it may find itself a more welcome foreigner to the Middle Kingdom than Google, but things change quickly in China, and LinkedIn should be ready to change too.