Will Facebook Ever Break into China?

Despite Mark Zuckerberg’s recent charm offensive earlier this year, China continues to deny Facebook access. As the holder of the keys to the world’s largest Internet market (721 million, and counting, with Internet access), Chinese officials wield considerable power.

Related: Facebook Discussed Investment in Chinese Smartphone Maker Xiaomi

And, thus far, their government has refused to let Zuckerberg and his social media giant in. But all that may be changing. While pundits decreed Zuckerberg’s April visit a “ failure,” in July Facebook poached a former top executive from Wechat, China’s leading social networking company. While other social networks like Twitter have refused to comply with China’s censorship policies, Zuckerberg continues to signal that Facebook is willing to play ball.

Recently, I spoke with Gustaf Hagman, CEO of LeoVegas Mobile Gaming Group, to learn more about international internet laws governing social media, mobile gaming and privacy concerns -- and the question of whether Facebook will ever break into the Chinese marketplace.

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While LeoVegas is a mobile-gaming company, not a social network, Gustaf and his team have plenty of experience navigating international business laws and internet regulations. Here are a few highlights from our conversation.

How can businesses find success in a complex environment like China's?

Q. Mark Zuckerberg has long tried to bring Facebook to China. However, the country’s restrictions on internet freedom and foreign tech companies have grown tighter, not looser, in the past decade. As a mobile gaming firm, you face your own restrictions in the international marketplace. How can businesses set themselves up for success in this complex environment?

Hagman: Facebook is up against a unique challenge in China because authorities want to regulate speech and information, not just gaming. One option for entering the marketing is to come in as a “buddy” firm for another company. LinkedIn did just this when it cracked the Chinese market by partnering with two domestic venture capital firms. It also helps that LinkedIn offers a service that thus far has never been duplicated by another Chinese company. Companies like Weibo and Alibaba positioned themselves as alternatives to Amazon and Facebook in China, but no other company was able to provide the broader networking opportunities that LinkedIn can.

Should Facebook finally get permission to launch a service in China, it will likely be as a joint venture that runs separately from the main company. Interestingly, the Chinese government has received a lot of attention recently about their use of Facebook, Twitter and YouTube to share propaganda geared towards a foreign audience, since those social networks continue to be banned in the country.

As a mobile gaming firm, we certainly understand the challenges of trying to enter a marketplace with various regulations. In the United States, for example, online gambling is heavily regulated. Many companies left the American market after the passage of the Unlawful Internet Gambling Enforcement Act [UIGEA] in 2006. Conflicting levels of regulation can pose a huge challenge for mobile gaming firms that want to offer comprehensive gaming services but avoid running afoul of local laws.

Related: Facebook Beverages Won't Be a Thing in China After Rare Trademark Win

What's happening with online gaming in the international arena?

Q. How has online gaming changed in the last decade in response to new regulations? What are the biggest challenges you face?

Hagman: Between 2008 and 2012, the market for global interactive gaming exploded by 42 percent, topping $30 billion, according to KMPG. But while the U.S. became more regulated, in Europe many countries have been shifting their regulations to be more open to non-native competitors. Asian countries are also attractive marketplaces for gaming. Ironically, given our discussion about Facebook, China is one of the largest markets for gaming, even though the country prohibits online gaming altogether.

Q. How does LeoVegas manage different foreign regulations?

Hagman: The biggest challenge online gamers face is payment processing and privacy. In the U.S., for example, credit card companies tightened restrictions on the use of credit cards for egaming transactions, before UIGEA went into effect, in 2010. Privacy is also a huge concern. In the EU, for example, we have extremely strict privacy laws. These laws enumerate specific consumer rights and require gaming providers to honor specific obligations. There are also issues with cross-border restrictions. Different countries have different regulations, which can create many conflict regulations within a small geographic zone.

Related: The Goldilocks Test: Why China Is Just Right

Bottom line

companies that find ways to work through these regulations