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Yoshikami: The Secret About Google and China

Wednesday, 14 Apr 2010 | 9:36 AM ET

Investors will be watching earnings from tech bellwether Google to see how technology spending is rebounding. And many will make note of the noise surrounding the recent drama in China and how this will affect current and future earnings as Google stands up to Chinese censorship.

But frankly, the Chinese issue is more noise than fact right now and here's why.

Google currently receives a very small part of their revenue from China operations. Yes, it's true that future opportunities will be impacted but frankly very few companies have been able to become a dominant player in China to its native population.

Google China
Liu Jin | AFP | Getty Images
Google China

Yahoo tried, Ebay tried, and others have attempted to make inroads with limited success.

And Google knows that.

That's why their main focus in China has been advertising sales.

Google has focused on grooming a sales force internally in China to sell advertising to Chinese companies.

Despite all the drama surrounding search engine censorship in China, this is the real growth engine for Google in this emerging market; selling ads to Chinese companies looking to increase regional and worldwide sales.

If you think about it, it makes sense that Google would be focused on becoming a platform for China to sell goods and services; its a smart strategy.

And theres one important point to always keep in mind. As illustrated by the pragmatic relationship of Rio Tinto and the Chinese government (despite spying allegations), China does business even with companies they have conflicts with.

Even after spying charges were leveled at Rio Tinto staff, the Chinese government pressed ahead with a new business agreement with Rio Tinto. And I expect the same will hold true with Google. Notice Google employees are not being kicked out of the country.

And I suspect the strong sales growth will continue as ad sales accelerate.

So, remember that when Google earnings are announced, there will be plenty of noise about China. Still try not to focus too much on these headlines. The internet is a global springboard for companies and China and its businesses are not going to pass by the opportunity to use Google for their own purposes; to increase their global exposure and to sell more products and goods to the rest of the world.

(*Program Note: Mr. Yoshikami will be a guest on the Closing Bell at 3pm/ET, today)

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.

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