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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
     
o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) 
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
OR
     
o   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report                     
Commission file number: 0-50841
51job, Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Building 3
No. 1387, Zhang Dong Road
Shanghai 201203
People’s Republic of China
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
     
(Title of Each Class)   (Name of Each Exchange on Which Registered)
     
American Depositary Shares,   The NASDAQ Stock Market LLC
each representing two common shares,   (The NASDAQ Global Select Market)
par value US$0.0001 per share    
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 56,119,761 common shares, par value US$0.0001 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
o Large accelerated filer þ Accelerated filer o Non-accelerated filer
Indicate by check mark which financial statement item the registrant has elected to follow: o Item 17 þ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
 
 

 

 

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  EX-4.10 SUPPLEMENTAL AGREEMENT DATED APR 1, 2007
  EX-4.11 DOMAIN NAME LICENSE AGREEMENT
  EX-8.1 LIST OF SUBSIDIARIES
  EX-12.1 CEO CERTIFICATION TO SECTION 302
  EX-12.2 CFO CERTIFICATION TO SECTION 302
  EX-13.1 CEO CERTIFICATION TO SECTION 906
  EX-13.2 CFO CERTIFICATION TO SECTION 906
  EX-15.1 CONSENT OF MAPLES AND CALDER
  EX-15.2 CONSENT OF JUN HE LAW OFFICES
  EX-15.3 CONSENT OF PRICEWATERHOUSECOOPERS

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FORWARD-LOOKING STATEMENTS
     This annual report on Form 20-F contains statements of a forward-looking nature. These statements are made within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including the following risks:
  •   market acceptance of our services;
 
  •   our ability to expand into other recruitment and human resource services such as business process outsourcing;
 
  •   our ability to control our operating costs and expenses;
 
  •   our potential need for additional capital and the availability of such capital;
 
  •   behavioral and operational changes of our customers in meeting their human resource needs as they respond to evolving social, economic and political changes in China as well as stock market volatilities;
 
  •   changes in our management team and other key personnel;
 
  •   introduction by our competitors of new or enhanced products and services;
 
  •   price competition in the market for the various human resource services that we provide in China;
 
  •   seasonality of our business;
 
  •   fluctuations in the value of the Renminbi against the U.S. dollar and other currencies;
 
  •   our ability to develop or introduce new products and services outside of the human resources industry;
 
  •   fluctuations in general economic conditions; and
 
  •   other risks outlined in our filings with the Securities and Exchange Commission, including this annual report on Form 20-F and any amendments thereto.
     Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained in this annual report are qualified by reference to this cautionary statement.

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CERTAIN TERMS AND CONVENTIONS
     Unless otherwise indicated, references in this annual report to:
  •   “ADRs” are to the American depositary receipts that evidence our ADSs;
 
  •   “ADSs” are to our American depositary shares, each of which represents two common shares;
 
  •   “China” or the “PRC” are to the People’s Republic of China, excluding for the purpose of this annual report Hong Kong, Macau and Taiwan;
 
  •   “Nasdaq” are to the Nasdaq Global Select Market;
 
  •   “RMB” are to Renminbi, the legal currency of the PRC;
 
  •   “shares” or “common shares” are to our common shares, with par value US$0.0001 per share;
 
  •   “U.S. GAAP” are to the generally accepted accounting principles in the United States of America; and
 
  •   “US$” are to U.S. dollars, the legal currency of the United States of America.
     Unless the context indicates otherwise, “we,” “us,” “our company,” “our” and “51job” refer to 51job, Inc., its predecessor entities and subsidiaries, and, in the context of describing our operations, also include our affiliated entities.
     In addition, unless otherwise indicated, references in this annual report to:
  •   “51net” are to 51net.com Inc.;
 
  •   “AdCo” are to Shanghai Qianjin Advertising Co., Ltd.;
 
  •   “AdCo Subsidiaries” are to the subsidiaries of AdCo that conduct advertising businesses;
 
  •   “Qian Cheng” are to Beijing Qian Cheng Si Jin Advertising Co., Ltd.;
 
  •   “RAL” are to Shanghai Run An Lian Information Consultancy Co., Ltd.;
 
  •   “Run An” are to Beijing Run An Information Consultancy Co., Ltd.;
 
  •   “Tech JV” are to Qianjin Network Information Technology (Shanghai) Co., Ltd.;
 
  •   “Wang Cai AdCo” are to Shanghai Wang Cai Advertising Co., Ltd.;
 
  •   “Wang Ju” are to Shanghai Wang Ju Human Resource Consulting Co., Ltd.;
 
  •   “WFOE” are to Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd.; and
 
  •   “Wuhan AdCo” are to Wuhan Mei Hao Qian Cheng Advertising Co., Ltd.
     Unless otherwise indicated, our financial information presented in this annual report has been prepared in accordance with U.S. GAAP.
     Solely for your convenience, this annual report contains translations of certain Renminbi amounts into U.S. dollar amounts at specified rates. All translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translations of Renminbi amounts into U.S. dollar amounts have been made at the noon buying rate in effect on December 29, 2006, which was RMB7.8041 to US$1.00. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. See “Item 3. — Key Information — Risk Factors — Risks Related to the People’s Republic of China — Governmental control of currency conversion may affect the value of your investment” and “— The fluctuation of the Renminbi may materially and adversely affect your investment” for discussions of the effects of currency control and fluctuating exchange rates on the value of our ADSs. On June 25, 2007, the noon buying rate was RMB7.6187 to US$1.00.
     We calculate the number of our print advertising pages by physically counting the number of paid advertising pages in each of our editions of 51job Weekly . In calculating the number of paid advertising pages, we make adjustments to take into account differing page sizes and pages with mixed advertising and non-advertising content. This is a manual process that is subject to error, including errors in judgment as to the appropriate adjustments to be made to the data.

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     We define a unique employer in our online recruitment business as a customer that purchases our online recruitment services during a specified period. We make adjustments for multiple purchases by the same customer within a city to avoid double counting. Each employer is assigned a unique identification number in our management information system. Affiliates and branches of a given employer may, under certain circumstances, be counted as separate unique employers. Our calculation of the number of unique employers is subject to misidentification and other forms of error, including errors in judgment as to the appropriate adjustments to be made to the data.
     We cannot assure you that our methodology, page counting, employer identification, calculations and analyses are accurate, or that they yield results that are comparable between periods or give a correct approximation of the actual revenues we generate per page or actual numbers of customers, as the case may be.

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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
     Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
     Not Applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
     The following table presents the selected consolidated financial information for our business. You should read the following information in conjunction with “Item 5. — Operating and Financial Review and Prospects.” The selected consolidated statement of operations data for the years ended December 31, 2004, 2005 and 2006, and the selected consolidated balance sheet data as of December 31, 2005 and 2006, are derived from our audited consolidated financial statements, which are included in this annual report beginning on page F-1, prepared in accordance with U.S. GAAP and are qualified by reference to these consolidated financial statements and related notes. The selected consolidated statement of operations data for the years ended December 31, 2002 and 2003, and the selected consolidated balance sheet data as of December 31, 2002, 2003 and 2004 have been derived from our audited consolidated financial statements, which are not included in this annual report. The historical results presented below do not necessarily indicate results expected for any future period.
     Certain prior year amounts have been reclassified with no effect on net income or retained earnings to conform to the 2006 financial statement presentation.

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    For the year ended December 31,
    2002   2003   2004   2005   2006   2006
    RMB   RMB   RMB   RMB   RMB   US$ (1)
Selected Consolidated Statement of Operations Data:
                                               
Revenues:
                                               
Print advertising
    116,989,356       182,606,297       300,651,791       356,284,649       389,534,921       49,914,137  
Online recruitment services
    28,938,327       76,960,121       111,508,533       159,494,922       219,793,658       28,163,870  
Executive search
    9,726,300       15,748,331       24,907,914       26,306,740       19,937,806       2,554,786  
Other human resource related revenues
    9,895,734       18,019,611       42,875,597       53,507,789       68,586,465       8,788,517  
 
                                               
Total revenues
    165,549,717       293,334,360       479,943,835       595,594,100       697,852,850       89,421,310  
 
                                               
Net revenues
    158,039,700       280,118,941       456,119,882       562,026,220       659,843,231       84,550,842  
 
                                               
Cost of services
    (92,220,940 )     (151,477,142 )     (224,606,635 )     (269,328,384 )     (294,068,613 )     (37,681,297 )
 
                                               
Gross profit
    65,818,760       128,641,799       231,513,247       292,697,836       365,774,618       46,869,545  
 
                                               
Operating expenses:
                                               
Sales and marketing
    (24,356,157 )     (39,042,744 )     (69,028,818 )     (115,094,797 )     (136,770,315 )     (17,525,443 )
General and administrative
    (39,191,781 )     (55,817,403 )     (72,096,009 )     (100,614,382 )     (114,321,711 )     (14,648,930 )
 
                                               
Total operating expenses
    (63,547,938 )     (94,860,147 )     (141,124,827 )     (215,709,179 )     (251,092,026 )     (32,174,373 )
 
                                               
Income from operations
    2,270,822       33,781,652       90,388,420       76,988,657       114,682,592       14,695,172  
Income before income tax provision
    2,686,608       35,792,274       95,201,216       91,367,337       127,900,988       16,388,948  
 
                                               
Income tax benefit (expense)
    1,259,194       (3,192,011 )     (34,058,184 )     (29,945,033 )     (28,559,639 )     (3,659,569 )
 
                                               
Net income
    3,945,802       32,600,263       61,143,032       61,422,304       99,341,349       12,729,379  
 
                                               
Earnings per share:
                                               
Basic
    0.09       0.83       1.32       1.10       1.79       0.23  
Diluted (2)
    0.07       0.75       1.26       1.07       1.76       0.23  
Earnings per ADS (3) :
                                               
Basic
    0.18       1.65       2.65       2.21       3.58       0.46  
Diluted (2)
    0.15       1.50       2.52       2.15       3.52       0.45  
Other Financial Information:
                                               
Share-based compensation (4) :
                                               
Included in cost of services
    —       (596,551 )     (1,811,496 )     (1,479,841 )     (4,620,675 )     (592,083 )
Included in operating expenses:
                                               
Sales and marketing
    —       (423,221 )     (1,757,722 )     (1,438,083 )     (3,972,118 )     (508,978 )
General and administrative
    (8,808,931 )     (17,681,791 )     (16,920,516 )     (11,635,397 )     (19,926,274 )     (2,553,308 )
                                                 
    As of December 31,
    2002   2003   2004   2005   2006   2006
    RMB   RMB   RMB   RMB   RMB   US$ (1)
Selected Consolidated Balance Sheet Data:
                                               
Assets:
                                               
Cash
    68,637,760       115,084,572       848,292,672       830,633,550       868,698,254       111,313,060  
Total current assets
    79,635,683       145,573,376       893,647,186       892,544,201       919,575,700       117,832,383  
Total non-current assets
    24,025,881       39,830,903       43,735,155       70,875,359       208,039,501       26,657,718  
Total assets
    103,661,564       185,404,279       937,382,341       963,419,560       1,127,615,201       144,490,101  
 
                                               
Liabilities:
                                               
Total current liabilities
    26,025,436       56,096,191       85,564,019       109,540,097       139,074,706       17,820,723  
Total non-current liabilities
    32,080       23,533       —       —       122,757       15,730  
 
                                               
Total liabilities
    26,057,516       56,119,724       85,564,019       109,540,097       139,197,463       17,836,453  
Total shareholders’ equity
    77,604,048       129,284,555       851,818,322       853,879,463       988,417,738       126,653,648  
 
                                               
Total liabilities and shareholders’ equity
    103,661,564       185,404,279       937,382,341       963,419,560       1,127,615,201       144,490,101  
 
                                               
 
(1)   Translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. The translations of Renminbi amounts into U.S. dollar amounts have been made at the noon buying rate in effect on December 29, 2006, which was RMB7.8041 to US$1.00.

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(2)   Diluted earnings per share is calculated by dividing net income attributable to holders of common shares as adjusted for the effect of dilutive common shares, if any, by the sum of (1) the weighted average number of common shares outstanding and (2) the weighted average number of common equivalent shares, which consist of common shares from the conversion of Series A preference shares and common shares issuable upon the exercise of outstanding share options as calculated under the treasury stock method. In the case of diluted earnings per ADS, the data are adjusted to reflect the ratio of two common shares to one ADS.
 
(3)   Each ADS represents two common shares.
 
(4)   We have recognized share-based compensation in connection with our historical grant of options to employees and certain directors, and the historical issuance of restricted common shares to our founders and one of our directors. In our consolidated financial statements, portions of our share-based compensation expense are allocated separately to our cost of services and operating expenses. Since we evaluate our performance, make determinations regarding the expansion of our operations, allocate resources among our operations and determine the compensation of employees and management based on our financial results before the overall effect of our share-based compensation expense, we have separately disclosed our share-based compensation expense for each of the periods presented. We believe that disclosure of our share-based compensation expense allows investors to better understand the primary financial measures that we use to manage our business. In addition, separate disclosure of our share-based compensation expense provides a useful approximation of our taxable income for purposes of determining PRC enterprise income tax, or EIT, which is calculated based on our income prior to any deduction for share-based compensation expense.
Exchange Rate Information
     We publish our financial statements in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for your convenience. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 29, 2006, which was RMB7.8041 to US$1.00. The prevailing rate on June 25, 2007 was RMB7.6187 to US$1.00. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The Chinese government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.
     The following tables set forth information regarding the noon buying rates in The City of New York for cable transfers of Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York for the periods indicated.
                                 
    Noon buying rate of Renminbi per U.S. dollar
Period   Period-end   Average (1)   Low   High
2002
    8.2800       8.2770       8.2800       8.2669  
2003
    8.2767       8.2772       8.2800       8.2765  
2004
    8.2765       8.2768       8.2771       8.2765  
2005
    8.0702       8.1826       8.2765       8.0702  
2006
    7.8041       7.9579       8.0702       7.8041  
December
    7.8041       7.8219       7.8350       7.8041  
2007
                               
January
    7.7714       7.7876       7.8127       7.7705  
February
    7.7410       7.7502       7.7632       7.7410  
March
    7.7232       7.7369       7.7454       7.7232  
April
    7.7090       7.7247       7.7345       7.7090  
May
    7.6516       7.6773       7.7065       7.6463  
June (through June 25)
    7.6187       7.6370       7.6680       7.6175  
 
(1)   Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.
B. Capitalization and Indebtedness
     Not Applicable.
C. Reasons for the Offer and Use of Proceeds
     Not Applicable.

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D. Risk Factors
Risks Related to Our Business
Because we face significant competition, including intense competition in several of our markets, we may lose market share and our results of operations may be materially and adversely affected.
     We face significant competition in our 51job Weekly and www.51job.com businesses as well as in our executive search and other human resource businesses. 51job Weekly currently faces competition within all of our markets. Competitors of 51job Weekly are primarily comprised of local newspaper publishers and specialized recruitment advertising publications. 51job Weekly also faces competition from online job search websites and other online businesses seeking to expand into print recruitment advertising.
     Our online recruitment services face intense competition from other dedicated job search websites such as ChinaHR.com , Cjol.com and Zhaopin.com , as well as from local job search websites. For example, according to public reports, ChinaHR.com and Zhaopin.com have significantly increased their sales and marketing activities in recent years. In addition, many executive search firms and other competitors currently engaged in print advertising have started to internally develop or acquire online capabilities.
     Our executive search and other human resource related businesses face significant competition from a variety of Chinese and foreign firms in all of our markets, including certain firms that compete with us in the market for print and online recruitment advertising.
     Many of our competitors or potential competitors have long operating histories, have international strategic partners, may have greater financial, management, technological development, sales, marketing and other resources than we do, and may be able to adopt our business model. As a result of competition, we may experience reduced margins, loss of market share or less use of our services by job seekers and businesses. We cannot assure you that existing or future competitors will not develop or offer services and products which provide significant performance, price, creative or other advantages over our services. If we are unable to compete effectively with current or future competitors as a result of these or other factors, our market share and our results of operations may be materially and adversely affected.
New competitors face low entry barriers to our industries, and successful entry by new competitors may cause us to lose market share and materially and adversely affect our results of operations.
     In the future, we may face competition from new entrants in the recruitment advertising industry and other human resource industries in which we operate. We may face greater competition from Internet portals, newspapers, dedicated recruitment advertising websites and publications, and other human resource services providers who may enter the market for any or all of our services. Our businesses are characterized by relatively low start-up and fixed costs, modest capital requirements, short start-up lead times and an absence of significant proprietary technology that would prevent or significantly inhibit new competitors. As a result, potential market entrants, both in China and from abroad, face relatively low barriers to entry to all of our businesses and in all of our markets. In addition, we believe that there are relatively low existing penetration rates in our markets, and that competitors could acquire significant numbers of customers and establish significant market share within a relatively short period of time. Furthermore, the newspaper and print media industry in China is highly regulated at present which may have the effect of limiting competition and keeping prices, including print advertising prices, at higher levels. Any deregulation of the print media industry may result in increased competition and a material decrease in advertising rates, including the prices we charge for our print advertising services. Increased competition could result in a loss of market share and revenues, and have a material adverse effect on our business, financial condition and results of operations.
If we are unable to achieve or maintain economies of scale with respect to our recruitment advertising businesses, our results of operations from these businesses may be materially and adversely affected.
     We incur fixed costs such as printing, distribution, direct marketing, advertising, management, staff, office, infrastructure and utilities in each of our geographic markets in connection with operating our print advertising business. We also incur fixed costs relating to website connectivity, maintenance, design and operation in our online businesses. Our ability to achieve desired operating margins in our recruitment advertising businesses depends largely on our success in generating a sufficient amount of revenues from print and online recruitment advertisements to offset the associated fixed costs. In addition, to build and maintain employer and job seeker acceptance of 51job Weekly and www.51job.com as attractive media for posting and finding jobs, we need to reach and maintain a critical mass of recruitment advertisements.

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     In some of our markets, 51job Weekly has not achieved the necessary economies of scale to achieve our desired profitability targets, despite our having operated in these markets for a significant period of time. We believe that this has been primarily due to competition from rival print advertising publications as well as a decrease in market demand for print advertisement services in recent years. We may be unable to achieve and maintain sufficient economies of scale in any or all of our geographic markets in connection with our recruitment advertising businesses. Any failure to do so could materially and adversely affect our results of operations from these businesses.
A slowdown or other adverse developments in the PRC economy may materially and adversely affect our customers, demand for our services and our business.
     Substantially all of our operations are conducted in China and a significant majority of our revenues are generated from providing recruitment advertising services for PRC businesses or divisions of foreign firms operating in China. Although the PRC economy has grown significantly in recent years, we cannot assure you that such growth will continue. In 2005 and 2006, the Chinese government instituted a number of austerity measures and other policy changes aimed at restricting credit to certain industries and to regulate the pace of economic growth. Print advertising, online recruitment services, executive search and our other human resource related businesses are all relatively new industries in China, and we do not know with any degree of certainty how sensitive we are to a slowdown in economic growth or other adverse changes in the PRC economy. In response to adverse economic developments, employers might hire fewer permanent employees, engage in hiring freezes, lay off employees, or reduce spending on print advertising, online recruitment services and executive search services. Employers may decide to rely more heavily on traditional recruitment methods such as referrals and job fairs, and utilize more “in-house” resources to conduct training and perform other human resource functions, or otherwise modify their behavior in ways that may have a significant negative impact on our business. As a result, a slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our services and materially and adversely affect our business.
If the use of advertising to conduct recruitment does not achieve broader acceptance in China, we may be unable to expand our recruitment advertising businesses.
     The use of advertising services to recruit employees is relatively new in China. Due to significant control and regulation by the national and local governments, the private sector recruiting process in China continues to be largely characterized by the use of personal referrals and large job fairs. We believe that the use of advertising by employers and job seekers remains relatively low. As a result, we face considerable challenges in promoting greater use of advertising, which involves, among other things, significant changes in the way that employers disseminate information about jobs, the way that prospective employees search and apply for jobs, and the way in which hiring decisions are made. We cannot assure you that recruitment advertising will achieve broader acceptance in China. Any significant failure of advertising to gain acceptance among employers and job seekers may substantially limit our ability to expand our recruitment advertising businesses.
If the Internet, and online advertising in particular, does not achieve broad acceptance in China as a medium for recruitment, our online recruitment services business may be adversely affected.
     We generate a significant portion of our revenues from online recruitment services, which are targeted toward employers and job seekers who use the Internet. As part of our online recruitment services, we offer general online advertising on our website, which is an important element in our ability to sell online recruitment advertisements to employers and which generates a material portion of our revenues. China has only recently begun to develop the Internet as a commercial medium and has a relatively low Internet penetration rate compared to most developed countries. Our future results of operations from online recruitment services will depend substantially upon an increase in Internet penetration and an increase in acceptance and use of the Internet for the distribution of services and for the facilitation of commerce in China. In addition, as Internet penetration rates vary widely across the different cities and regions of China, the level of acceptance of online recruitment services may be low in certain geographies for an extended period of time, which may negatively impact our operations in those markets. Moreover, unless they are resolved, telecommunication capacity constraints may impede further development of the Internet to the extent that users experience delays, transmission errors and other difficulties. Any negative perceptions as to the effectiveness of online recruitment services, or online advertising generally, or any significant failure of the Internet to gain acceptance as a medium for recruitment may adversely affect our online recruitment services business and our ability to further integrate our online and print recruitment advertising businesses.

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The markets for executive search services and business process outsourcing are still in the development stage in China and we may be unable to expand these businesses.
     Many employers in China are not familiar with the executive search model or may not accept the value of a targeted, professional search. Many employers may be unwilling to pay a commission of up to 30% of a candidate’s annual compensation. Similarly, we believe the market for the third party outsourcing of business processes is also in an early stage of development in China. As such, companies may not be willing to use third parties for significant administrative functions and may instead choose to continue to perform such operations in-house. If these services do not gain wider acceptance in China, we may be unable to expand these businesses.
We are dependent on local newspaper contractors in each of our geographic markets