The Wall Street Journal wrote that Google’s China threat carries long term business risks to Google. Some others have commented on how Google will have to work very hard to replace the revenues it is leaving behind in China.  Still others claim that departing the world’s largest internet market (by users) was a thoroughly bad idea.

Let us hypothesize for a moment: Google’s exit is not necessarily a face saving move or  a public stab at Baidu, but a tactic calculated to gain market share in more lucrative western markets, which represent the vast majority of Google’s currently reported financials (Q1-3 USD 16.974 billion with Q4 results also expected to be strong). Google is getting excellent publicity globally about this issue  (outside of China, that is). Even more interestingly, Google has recently become proactive on similar sensitive topics and I would not be surprised if this situation ends up creating a significant rise in activity and demand for Google products and services.

Imagine for a moment that Google does not care much about China as a domestic market at present. Sound foolish? Not if you have tried to do business in China as a foreign company, which is famously difficult and frustrating. It is almost a taboo to talk about China as a market to ignore, but just because Google might not be planning to focus on the domestic market that doesn’t mean there isn’t a Chinese market to address.

Google won’t exit China completely. Even if Google is forced to shut down all operations (which I think is unlikely), it will continue to have a growing and lucrative base of Chinese companies advertising outside of China for as long as China will continue to globalize and export to the world. This is something that Baidu is absolutely not in a position to do today or in the near to medium term.

As  Rebecca MacKinnon points out on her blog, Google’s actions – like the actions of any other company – are automatically motivated by self-interest. There can be no exception to this rule in the world of business.

The search market in China is still emerging. Baidu, the clear market leader, generated USD 466 million in the first three quarters of 2009, which is roughly 3% of Google’s overall revenue for the same period. It is very likely that Google’s domestic China revenue is much smaller than Baidu’s. Even the projected USD 310 million of Google China revenues that some analysts were predicting for 2010 would be tiny in comparison to what Google could earn if it increased market share in the US and Europe by just a few percentage points.

I think a legitimate question that few (if any) seem to have asked so far is whether Google’s exit from China may not actually lift its short or mid-term business prospects.

Will Google increase their search market share because they have earned higher public trust? After all, trust and safety are key issues in the battle for the cloud. Google has a lot of new enemies today across a dizzying range of sectors, and may feel it is more relevant to address them than to struggle in China. Also noteworthy,  Google has advertised its China stance, making it clear to the public that Google’s exit is motivated by a mixture of idealism and security. The battle in core western markets is heating up as never before, and Google knows that few if any US technology or media companies owe their success to China markets.

It doesn’t sound particularly plausible that a concentrated hacker attack and espionage concerns could trigger a company to exit a whole market. If the hackers were interested in dissidents’ Gmail accounts there is nothing that prevents them from more hacking after Google exits China (cyber-attacks are not geographically restricted). And if Google was  concerned about espionage then why would it want to maintain a significant development presence inside China?

As a business person, I can see the business and financial logic of retreating from China: Google will regroup and live to fight another day in a market that is not only extremely difficult to penetrate but that also has a hideously complex and fluid regulatory framework that all foreign companies must adhere to. Google is no exception, having struggled for domestic market share in China just like other foreign media and technology companies.

Anyone who has attempted to do serious business in China will tell you that it is very difficult and challenging. For one thing, the playing field is not level by any definition or stretch of the imagination, as recently illustrated by China moving to ban foreign investment into the lucrative domestic online gaming market (in China, revenues in the online gaming market are substantially higher than online advertising and search).

We know Google’s imperative is to do no evil, but as an individual I don’t think Google’s departure is good for China or the Chinese or Internet freedom, and on that basis I think the exit is a bad idea. I certainly agree that China and the Chinese are better off with Google than not, but I have no doubt that Google’s motives are also informed by very pragmatic business reasoning.

There is, of course, no question that China offers significant opportunities and (as I  noted earlier) China is not necessarily closed to Google. This is a country still squirming its way through Internet adolescence and Google will no doubt find the right moment to re-enter that market, probably as a more serious and better prepared player.  I don’t believe the present spat between Google and China should be interpreted as a long term Google exit from China. Let’s not forget this is Google, one of the world’s mightiest and savviest corporations, with more than enough resources and talent to re-enter China when they think the time is right. After all, they can start the process of re-entry simply by  making an acquisition or two.