Google in China Case Study

Google in China Case Study

Introduction

On January 12, 2010 Google’s Corporate Development and Chief Legal Officer, David Drummond, posted an online memo that targeted the Chinese government. The company stated that it had detected highly sophisticated cyber-attacks originating from China and that the evidence suggested the primary goal of the hackers was to access Gmail accounts of Chinese human rights activists. The memo further disclosed that Google was no longer willing to censor its search results on Google.cn and it would exit China if its conditions on non-censorship were not met. The problem faced by Google is that, the Chinese government has been determined to control the flow of information on the Internet and insists on removing certain information that it considered politically objectionable from search results. Google’s mission as a company is “to organize the world’s information and make it universally accessible and useful. However, China’s policies on censorship seemed to conflict with several of Google’s core principles.

There is also the question; did Google do its homework to thoroughly analyze the Chinese operating environment as it relates to censorship? By 2005, Chinese search engine company, Baidu, emerged as the leading internet search engine in China. A very important piece of information to consider is that, freedom of speech and freedom of the press are not considered inherent rights in the People’s Republic of China. Therefore, to compete with Baidu, Google decided to launch Google.cn in 2006 and agreed to censor its search results to meet the Chinese government censorship standards. It therefore appears Google was very much aware of China’s political, regulatory, technological and cultural environment on internet censorship prior to entering, all in the name of exploring the rapidly growing economy due to its population size and internet market.

Analysis

Just like many other companies out there, Google has its own strengths, weaknesses, opportunities and threats. The google brand name is so well known and widely used around the world that it has been included in the Oxford English Dictionary as a transitive verb, “to google”. However, a weakness for Google’s search engine is that it is not tailored to individual cultures. When Google entered China, it was very much between a rock and a hard place. China offered the opportunity to make tremendous profits, yet it also meant that the company would have to compromise a key guiding principle, “do no evil”. Most people recognize that Google throughout its operations has an obligation to do what is right for all of its stakeholders. In this case, the company was obliged to be financially responsible to its shareholders, and at the same time, provide good service to its customers. Google believed that even if the Chinese government continued to censor search results, it could still provide better service to users by investing in the market, and at the same time generate bigger profits for shareholders. China’s market is an opportunity that Google hoped to explore due to the country’s rapidly growing economy and growing number of internet users.

The memo released by Google has some pros which are very much accompanied by cons. For starters, the memo denotes that Google very much cares for the privacy of its end users and it is ready to defend that. Also, the mere fact that there were only two Gmail accounts that appeared to have been hacked and the access was limited to account information such as subject lines rather than the actual content of the emails very much reinforces Google’s quality product and quality service image. Nonetheless, it would have been more appropriate and much effective if the memo came all the way from the top, Google’s CEO Eric Schmidt, rather than from its Corporate Development and Chief Legal Officer without making any direct allegations against the Chinese government on the cyber-attacks. Since Google considers this a serious issue, I feel whoever sends such a memo has to be someone who carries a lot of weight within the Google world.

So who are the winners and losers here and what can other companies learn from this collision of cultures and regulatory barriers? According to John A. Quelch a Harvard Business School professor, Google acted precipitously without giving due consideration to the impact of the announcement on stakeholders, including their Chinese employees, consumers, and business partners. After the release of the memo, Google stock prices became quite volatile with a declining trend possibly due to the mixed feelings of shareholders, business partners and potential investors. Historical data shows that between January 11, 2010 and February 25, 2010, Google NASDAQ stock prices fell from $601.11to $526.43 thus indicating about a 12.4% decrease within a time frame of a month-and-a-half. Clearly shareholder reaction to the news was not favorable, at least not in the short-term. It seems many feared Google could be cutting itself off from one of the fastest-growing economies in the world by shutting down Google.cn and its offices in China. Shareholders may have also feared the potential damage the exit would cause to profitable partnerships with other successful companies such as Motorola and Samsung who were all set to launch Android-platform handsets in China.

Google’s exit from China will very much benefit its competitors through the receipt of advertising dollars which were once paid to Google. In the short term, Baidu may be the biggest beneficiary because businesses will be more inclined to move their advertising needs over to them seeing as it already has the largest share of the Chinese search market (see Exhibit 2). While the U.S. State Department looked ready to stand by Google in its dispute with China by requesting a response to Google’s claims, the other foreign firms who were victims of the cyber-attack do not appear to be on board with Google’s tactics. Some are already looking at ways to jump into the void if Google carries through on its threat to leave. Microsoft's Steve Ballmer has pointedly said that his company will not be leaving China because it has high hopes for its new Bing search engine in that market. Therefore, in the longer term, we may see other competitors making their way into China in an attempt to capture some of the 31% market share that Google leaves behind.

The Chinese government seemed to have been taken aback by the memo that Google released as their initial reaction was to respond cautiously while they deliberated over what to do. China’s initial response came from a mid-level spokesperson at the Foreign Ministry stating that it resolutely opposed hacking and itself was a victim