Much has been made about Google threatening to leave China, saying it will not tolerate censorship anymore and disclosing a sophisticated cyberattack on the e-mail accounts of advocates of human rights over there. It's a Mexican stand off with the Chinese government saying of foreign internet firms are welcome to do business there "according to the law". The US government has entered the dispute, saying it wants China to fully investigate the hacker attacks.

It's created a difficult situation and Google has effectively painted itself and China into respective corners. As Miguel Helft at the New York Times says, striking some sort of deal with China will not be easy. "The company's public repudiation of censorship in China has put the authorities there in a position where a forceful rebuke of Google may be all but inevitable."

Google's problem is that the Chinese government cannot back away without losing face and in China, that's impossible.

Just as significantly, it may well affect other parts of the Google business with Google announcing it will postpone the release in China of two mobile phones that are based on its Android operating system. This is highly significant because China is already the world's largest mobile phone market, with more than 700 million accounts.

Was this avoidable? Probably not. Google is not Robinson Crusoe here. Yahoo and eBay have similarly failed to take hold in the Chinese market. The problem is that you can't run a business in China out of Silicon Valley. "When the core of your business is operating in mature markets with similar user habits, this strategy can work. However, applying this strategy to a rapidly developing, dynamic market with vastly different online behaviors spells disaster, a sixth-place finish and a quick market exit," T.R. Harrington, co-founder and CEO of Darwin Marketing, an online search marketing specialist based in Shanghai told AdvertisingAge. "Rather than developing trust in their local China teammates to make local context-based and market-facing decisions, US teams dominated strategy from afar and were outmaneuvered by some very strong and talented Chinese competitors."

Again, it comes back to not letting the Chinese lose face. It's a mistake many Western companies make.