Google in China Actual 2

MENG 3001 Radiyah Ali- 807002366 Kaleel Mohammed– 806003355

Table of Contents1. Abstract...................................................................................................2

2. Introduction.............................................................................................3

3. Case Questions and Discussion.............................................................5

3.1 Google was attempting to introduce its search engine in China. Google faced

many regulatory issues both at home (US) and in China. Was Google's China

strategy appropriate and did they implement it in a satisfactory manner?....................5

3.2 What challenges did Google managers face in launching a Chinese language

service?........................................................................................................................ 7

3.3 Identify stakeholders in Google's China language offering and describe their

various reactions to Google's offering.........................................................................11

3.4 Consider the outcome of Google's offering in China. Was it worth it?..................15

4. Conclusion..............................................................................................19

5. Bibliography............................................................................................21

1 | P a g e


1. Abstract

This study aims to highlight the motion put forward by major internet

service giant Google to venture into China, a country with strong communist

ties and media filtration practices. This study would answer four major

questions, namely was Google’s strategy appropriate and implemented

properly? What challenges were faced? Stakeholders input/reactions? Was

the venture worth it? Examining this move by Google would illustrate the

dynamism faced when cultural barriers are not addressed as part of your

essential business plan.

2 | P a g e


2. Introduction

Google China is a subsidiary of Google, Inc., the world's largest Internet

search engine company. Google China ranks as the number 2 search engine

in the People's Republic of China, after Baidu (Daily, 2006). In Jan 2010

Google declared that it had been the victim of a massive hacker attack

originating within China, and had decided as a result that it would no longer

participate in government-imposed self-censorship within mainland China. On

March 22, 2010, Google began redirecting all google.cn traffic to

google.com.hk (Google Hong Kong), thereby bypassing Chinese regulators

and allowing uncensored Simplified Chinese search results (Google Business

Reasons for Leaving China, 2010). People’s Republic of China has a highest

economic growth since 1990 and still evolving. Thus, Google China serves a

market of mainland Chinese Internet users that was estimated in July 2009 to

number 384 million. Hence, there were specific issues of self censorship,

considering the China’s biggest market Google may lose its biggest revenue.

This report examines:

1. Issues related to strategy formulation and implementation across

multiple markets

2. Impact of legal and regulatory and social pressures on strategy

implementation

3. The cultural and strategic influence affecting Google’s business

model in China and uses several strategic management theories

to analyze the future prospects of business in China, followed by

some recommendations taken from the analysis.

3 | P a g e


Table 1. Brief History of Google China

Timeline Details

2005 A Chinese-language interface is developed for the

google.com website.

Jan 2006 Launch of China-based google.cn search page

with censored results.

Mar 2009

– present

China blocks access to Google's YouTube site;

access to other Google online services is denied

to users on an ad hoc basis.

Jan 2010 Google announces it is no longer willing to censor

searches in China and may pull out of the country.

Feb 2010 Hacking attacks on Google are traced to mainland

China.

March 2010 Google re-routes searches to uncensored Google

Hong Kong.

4 | P a g e


3. Preparation Questions

1. What principles are relevant for Google’s decision to enter China? Is censorship consistent with Google’s core values? Should compromises be made?

Google was founded in 1998 by Larry Page and Sergey Brin, two

Stanford University graduate students who had developed a superior

search-engine technology to find and organize information on the Web.

The two embraced an ambitious mission: “To organize the world’s

information and make it universally accessible and useful.” The

company attracted users quickly through making Internet searches

simple, quick, effective, and unbiased. Consistent with its core principle

of “Do no evil,” Google displayed search results in order of calculated

relevance to users rather than in order of advertising payments, unlike

some competing search providers (Wilson, 2010).

5 | P a g e


4. Case Questions and Discussion

4.3 Google was attempting to introduce its search engine in China. Google faced many regulatory issues both at home (US) and in China. Was Google's China strategy appropriate and did they implement it in a satisfactory manner?

Like most foreign corporations, Google mainly adopts market

development strategy in China. From the market aspect, this strategy

direction of Google China has no serious problem, which is proven by fact

that Google china market share has doubled from 2006 until it quit in 2010.

In other words as a world’s leading search engine, Google is doing well in

its products in the Chinese market. The reason Google china market share

is lower than Baidu (Rival Chinese search engine) mainly dues to the late

entry into Chinese market. If Google continues to operate in the mainland

china it is expected to obtain a greater success in that market.

Nevertheless Google now has moved its traffic out of mainland china and

continues losing market share. The consolidation strategy it adopts now

won’t work much. It is not sustainable that placing more video and banner

advertisement may get short term benefit of its revenue but will result in

losing more users in a long term. Google’s problem in china is mainly the

conflict between its motto and the Chinese communist party (CCP). The

CCP needs censorship policy to keep the limit at which the people are

informed for its control of the large country. The choice of Google seems to

be limited either quit or surrender to the CCP. If Google obeys the

censorship it will be able to operate in the market and get much financial

6 | P a g e


benefit but this action will be harm-full to its reputation. It is difficult to

identify how much potential costs Google will pay for this loss of reputation

in the whole worlds market but it will be significant. Perhaps Google might

consider some other options like acquisition of a Chinese local search

engine to re enter china and obey censorship laws to obtain market share

and keep learning how to operate in Chinese markets.

7 | P a g e


3.2 What challenges did Google managers face in launching a Chinese language service?

The problem faced by Google in China and its dilemma about whether to

stay in the Chinese market or not, is a good example of needing to devise a

strategy in action. This is not an examination of the past, but an attempt to

identify some strategic action choices for the future (Google Business

Reasons for Leaving China, 2010) suggests that “The process of strategy

formation is a dynamic one that corresponds to the dynamic conditions that

drive it”. If that is so, then we need to examine the changing factors behind

Google’s position in China.

Google’s operating environment in China seems to be constantly changing.

There are clearly drivers for change at work, and the need to identify these

drivers is by a PESTEL analysis; (standing for Political, Economic, Social,

Technological, Environmental and Legal). The use of the cultural web analysis

has highlighted that a main problem facing Google is the unpredictable

attitude of Chinese officialdom, (Political), allied to strong local competition in

a rapidly-growing and otherwise profitable market (Economic). In the Social

sector, the cultural web suggested that Google has not reacted well to the

Chinese local needs; which it needs to do in a market where Technological

change is rapid. Other drivers for change can also be identified. Looking at

Figure 1 below we can see the many dynamic features of the environment

Google has chosen to operate in representing clearly the differences in culture

and tradition and its effects on a growing business.

8 | P a g e


Figure 1 The Paradigm of China (Johnson & Scholes, 2008)

Google’s mission statement asserts that Google’s mission is to organize the

world’s information and make it universally accessible and useful (Google

Business Reasons for Leaving China, 2010).The core message under the

company’s code of conduct is that “being a Googler” means holding yourself

to the highest possible standard of ethical business conduct (Liu, 2007),

Google wants to be able to save its users time and frustration by making the

information that the user is looking for readily available, without having to sift

through tons of useless information. Not only does Google want to provide

fast and efficient service, but the company also wants to make its information

9 | P a g e


available for everyone who has access to the internet; they want their product

to be “universally accessible.” Also, the company claims not to want to make

ethical sacrifices just in order to increase value for shareholders. The

company has made it a priority not to sell high placement in search results to

anyone and to show only non-flashy ads that are relevant to the user’s search

query.

In early 2006, Google struck a deal with the People’s Republic of China and

launched Google.cn, a version of its search engine run by the company from

within China. By choosing to launch Google.cn, Google seemed to be

implying that its mission and values could be consistent with self-censorship in

China.

From a financial perspective, China represented for Google a dynamic and

fast-growing, though increasingly competitive, market. With over 105 million

users online in early 2006, China’s Internet market was the second in size

only to that of the United States, but it still represented only about 8% of the

Chinese population (David Drummond, 2010). Though Google’s U.S.-based

site, Google.com, had been available in China since the site’s inception in

1999, service was slow and unreliable due to extensive Chinese government

censoring of international content. However, in the fall of 2002, problems

struck. Suddenly, in early September, computer users in China could not

access Google.com. The Chinese government had blocked access to the site,

and users were instead diverted to rival Chinese search sites. Two weeks

later, it again became possible to access Google.com, but government

censorship had been heightened, making the search engine far slower and

less reliable. Much speculation exists as to why China suddenly chose to shut

down and then to stringently censor Google.com. Google Co-founder Sergey

Brin and many technology professionals in China believe it was the result of

10 | P a g e


an effort by a Chinese competitor, like the then-new search engine

Baidu.com, to gain market share at Google’s expense through pulling strings

in the government (Google Business Reasons for Leaving China, 2010).

Whatever the cause, Google was left offering users in China a slow and less-

than-satisfactory version of Google.com. Moreover, Baidu.com, now Google’s

chief rival in China, began to grow, blossoming from a 3% market share player

in 2002 .

Google’s decision to self-censor Google.cn attracted significant ethical

criticism at the time. The company’s motto is “Don’t Be Evil,” and prior to

entering China, Google had successfully set itself apart from other technology

giants, becoming a company trusted by millions of users to protect and store

their personal information. Google’s choice to accept self-censorship, and the

discussion and debate generated by this choice, forced Google to reexamine

itself as a company and forced the international community to reconsider the

implications of censorship.

In 2010 Google withdrew partly from the Chinese market due to

reevaluation of censorship regulations and in light of a cyber attack that has

been clouded in confusion with sources showing encouragement from

Chinese government to acquire Google’s source code as well as links to

Chinese human rights activists.

11 | P a g e


4.4 Identify stakeholders in Google's China language offering and describe their various reactions to Google's offering.

Google has always been such a company who not only revolutionizes

the traditional online industry but also excelled in corporate social

responsibility (CSR) and ethics through their “Don’t be Evil‟ motto (Wilson,

2010). But since the time Google has launched google.cn in China in 2005

there have been numerous forces that consistently influenced Google’s

decision making process in China and hindered them from sticking onto their

organizational motto.

Even though China has the second largest internet market but from the

cultural analysis it became clear that the Chinese market is not only regulated

by the Chinese government but also controlled by the “Great Firewall” of

China (Wilson, 2010). Google has been struggling since 2002 and have gone

a long way of change, from google.com (unrestricted) to google.cn (restricted)

and finally to google.hk (unrestricted). Due to the lack of clarification of

intention, Google has been meeting with the consistent furies and outcries

from different groups (David Drummond, 2010). There has been observed a

serious cultural clash between Google and China starting from the very

beginning (i.e. 2002). Finally due to the heavy restriction to publish the

restricted information followed by cyber attack and to keep up with their

organizational belief of being not evil, in 2010 Google decided not only to

move to Honk Kong but also started their unrestricted “google.hk‟ (Google

Blog). Google’s decision of being in Chinese internet market but not being in

Beijing (China) needs more clarification and is yet to be defined. Even after

knowing the possible pitfalls of this decision, which may finally lead to leave

the fastest growing internet market, when they were enjoying the second

12 | P a g e


largest share after “Baidu‟(Chinese search engine) cannot be justified only on

the basis of their organizational motto and can be further understood through

stakeholders analysis.

Strategically, the type of pressure from the stakeholders that exist behind

Google’s decision to leave Beijing (China) has been explained by the

Stakeholder’s identifying and positioning model (SIP). In the process of

decision making it is not important to know only about the different

stakeholders but to know about the stakes they hold and how much influential

they are (Fang, 2006). In a dynamic system stakeholders contend, conflict

and compete with each other and finally try to pull the organization in their

direction. The tug-of-war not only creates pressure on Google’s decision

making team but also affects their decision to a large extent. Base on the

study of Google’s stance in “Google Blog‟, various newspapers and articles,

some of the attributes of the stakeholders like power of influence, direction of

influence, consistency and visibility are noted, which will be of great help to

construct the SIP model (see figure 2.)

The optimization model shows arrows signifying the stakeholders and there

is a difference in the boldness of the arrow which represents the extremity of

stakeholder’s power and effectiveness. The model further has some

stakeholders like employees who has got a divided position and some neutral

stakeholders like U. S. Government who just supports Google in all cases (i.e.

whether to leave or enter China).

From the study of the model it has been quiet clear that ‘Enter China’

portion is collectively stronger not only because of their close association with

the decision making team but also because of their consistency in their push.

13 | P a g e


Figure 2. Optimization model – stakeholder analysis adapted from (David

Drummond, 2010)

Although there has been a maximum coverage of the overall decision

making process but this is not an exhaustive depiction of the whole

process and there are many more issues and patterns which can also

14 | P a g e


influence the whole decision process. For example, the mass media has

not considered as one of the stakeholder because of the increased bias of

media inside and outside China. Chinese media supports Chinese

government decision of restriction of the free flow of information whereas if

the media in the US and UK follow Google’s decision of free flow of

information and freedom of speech. As a result of this study it’s clear that

media mostly acts as a mediator of information to all different stakeholders

rather than acting as one in reality.

Google’s decision of continuing with the unrestricted Google.hk from

Hong Kong came as a result of Google’s strong organizational belief of

“Don’t be Evil‟, strong world market position, extreme profit and finally due

to the support from the customers worldwide. But it is also important to

note that understanding the structures and struggles among the

stakeholders may not always guarantee the success of the policy because

of the dynamics of the whole process which is greatly dependent on the

changing stakeholder’s needs and position in future. With the help of the

SIP model there is an attempt of simplifying the complicated reality and

also to enhance the robustness of the whole process of Google’s decision

making.

15 | P a g e


4.5 Consider the outcome of Google's offering in China. Was it worth it?

Google as an international entity was making a significant move by entering

the Chinese market in 2003, as every international firm either trading or in

service industry hopes to capitalize on the huge market unlike any other

country.

Figure 3 – GDP of the world’s major countries.

On this basis, it is important to determine the strategic reasons behind

Google’s considering exiting China.

Based on on-going development reported in the news coverage, business

reviews and widely available literature on the nature between Google and

China, the strategic reasoning by Google can be narrowed down to four main

factors:

16 | P a g e


1.Strong competition During the early period of Google’s presence in China, it remained the

significant market leader ahead of other search engine providers, including

Baidu which was just starting up. Even when Google began to provide

Chinese interface on its google.com in 2005, followed by the inception of

google.cn the next year it was still not getting anywhere close to becoming the

leader. The main reason behind this was due to the fact that Baidu has

developed an incomparable understanding of Chinese internet users, hence

able to provide much preferred content.

2. China’s economic nationalism Although undeniably a huge market waiting to be capitalised on, beyond

its size factor potential China is also a very complicated market. Historically,

many foreign firms ended up struggling to understand the Chinese

consumers. Conventional international business strategies strongly practiced

by Western multinationals must be adopted differently in China since the

market tends to strongly support local firms, eventually.

3. Google business policies and principles Google has been very reluctant towards the Chinese authorities imposing of

extensive filtering in internet search results, mainly on subjects related to the

country’s history of political violence and human rights suppression in the

pasts. This contradicts with Google’s corporate philosophies such as “freedom

of information” and “you can make money without doing evil”. In addition,

Google constantly wants to maintain its reputation as an efficient search

engine globally with user-friendly features, without exception.

5. Limited service variability and quality

17 | P a g e


Three of Google’s main services, YouTube, Google Blog and Picasa are

blocked from being accessible by internet users in China through the country’s

network firewall, The Golden Shield Project or also famously known as The

Great Firewall of China (Google Blog, 2010). The services are blocked by the

firewall to stop contents such as pornography, images or articles on police

brutality, Tiananmen Square protest (1989), Dalai Lama, Tibetan

Independence Movement or any content that originates from the Taiwanese

authorities. The Golden Shield Project is under the control of China’s Ministry

of Public Security. Extensive filtering of internet content is also causing the

slow data transfers for Google consumers.

The review above reveals that by analyzing Google strategic reasoning

behind its consideration, it is obvious that Google is encouraged not only by

the information freedom policy but also business fertility factors and in the

business world the effort was worth it. Now Google can learn to understand

this new market and adapt strategies to satisfy both consumer and legality

regulations (see Figure 4 below) and complete what it initially started to do

and fulfill its motto which is held in highest esteem in the business world.

Figure 4:

18 | P a g e


19 | P a g e


4. Conclusion

The economic attraction of such a large and growing market is obvious,

but the difficulties involved in the continued operation, make the certainty of

future activities unclear. The situation is fluid, and the direction of change

uncertain. To take account of this, we need a theoretical approach that will not

only help to clarify the situation, but also give some guidance as to how to

approach strategy in the future. Many international organisations attempting to

set up operations in China have struggled, so an analysis of the cultures

involved, using the Cultural Web, was a logical starting point. This has

highlighted several features, such as the position of the Chinese Government

with regard to control, and the importance of being in tune with the Chinese

culture and market demands when providing a service; something that Google

did not do well in the initial stages of its operation in China. Another important

point is that the approach of the Chinese Government with regard to

censorship is in direct conflict with Google’s stance on freedom of information,

and willingly accepting such censorship would damage its brand image and

reputation.

The major factors produced by the Cultural Web have then been taken

and input the other theoretical models used in this report, namely Stakeholder

Analysis and PESTEL/Scenario Planning. Both these models have the degree

of flexibility required, in that they can both help to explain the existing

situation, but also be used to indicate what might happen if the details of the

drivers for change alter to any degree. Thus, the Stakeholder Analysis

emphasises the importance of Google’s shareholders and the economic pull

of the Chinese market, but this could change. Should Google continue to lose

20 | P a g e


market share to Baidu, then the shareholders might decide this no longer fits

with Google’s desire to be market leader in its chosen markets, and their

support for Google in China might weaken. Such possible changes could then

be tested on the scenario planning model, which would take the drivers for

change identified by the Cultural Web and Stakeholder Analysis, and see how

changes in these drivers would affect the overall operating situation for

Google.

21 | P a g e


5. Bibliography

Daily., C. (2006). “How Many Internet Users Are There in China?”. Retrieved

03 2012, from Ministry of culture, People's Republic of China website.

David Drummond. (2010). “A new approach to China: an update,”. “Policy and

issues,” The official Google blog,.

Fang, T. (2006). “Negotiation: the Chinese style.”. Journal of Business &

Industrial Marketing, 21 (1), , 50-60.

Google Business Reasons for Leaving China. (2010, April 6th). Wall Street

Journal .

Johnson G, S. K. (2008). Exploring Corporate Strategy. London: Prentice Hall.

Liu, J. (2007, July 26th). “Baidu and Google at logger heads in China;

Business Asia by Bloomberg”. International Herald Tribune .

negotiations, C. (2010). A stakeholder analysis of Chinese negotiation.

Retrieved 03 2012, from http://www.chinesenegotiation.com/2010/

Wilson, K. R. (2010). “Google in China: the great firewall”. Case Study in

Ethics, Duke University.

22 | P a g e


23 | P a g e

Google in China Actual 2

Documents

Transcript of Google in China Actual 2