CASE STUDY – Google, Inc in China
Google has implemented an aggressive strategy that seeks to duplicate its search engine success in the People’s Republic of China. The rapidly growing economy in China has presented a promising opportunity for Google to expand its search marking business the world’s largest population. However, China has strict censorship rules that filter much of the web content that is available on the Internet. The case study focuses on the challenges that Google must overcome in order to be successful in this emerging economy.
About this Essay
Student: Adam DeRosa.
Course: Econ 102
About: Case Study of Google’s Operations in China
Legal, Cultural, and Ethical Challenges
Internet based companies face a wide range of hurdles when attempting to expand into China. Google learned this first hand when it was required to censor its search engine result pages that were displayed in Chinese territory. Since it was founded, the company has maintained a high ethical standard on search results by providing users with unbiased algorithm-driven content. The legal system in China requires that Internet companies remain transparent and provide access to the information that is being delivered to end-users. Officials in China have the ability to limit web content that is deemed negative to the government.
Google was ultimately left with two choices regarding operations in China – either censor the results in-house, or let the Chinese government censor the results. The corporate motto of Google is “Don’t be Evil”, which refers to a commitment to offer technology that is not manipulated by human biases. In an effort to deliver better service to Chinese customers, Google decided to censor the results. Although this choice goes against their corporate values, it was a necessary step to deliver high quality search results to customers. Censoring the search results in advance allows the search engine to provide faster service. Also, Google made an effort to educate their customers about censorship in advance, which is a choice that reflects the high ethical standards of the company (Hill 2009).
Roles of the Host Government
The role of the Chinese government in regulating Internet activity is far more elaborate when compared to the United States. Freedom of speech and freedom of the press are not considered inherent rights in the People’s Republic of China. Therefore, the country makes a strong effort to eliminate any web content that speaks negatively about the government or its policies. However, the government is also very inviting to foreign businesses that can help increase the prosperity of the growing economy. Google’s powerful technological advancements are something that the Chinese government could use to increase economic growth. It is essential for the two parties to develop a strong relationship that is mutually beneficial. Google must invest heavily in developing new technology for the Chinese market and it must maintain positive relations with the host country to ensue long-term success.
Summary of Strategic and Operational Challenges
Any global business is bound to face a variety of strategic and operational challenges when expanding into a new foreign market. Google has a very complex collection of technology that must be tailored specifically for use by Chinese customers. Dealing with censorship requirements will create additional operating costs when compared to domestic operations. Google developed a physical operations center in Chinese territory to address the censorship challenges and build a product that can serve faster search results.
The company must also consider the competing search engines in the Chinese market, such as Baidu.com (Thompson, 2006). Domestic search companies have a competitive advantage when it comes to understanding the needs to their target customer base. Google will be required to perform a great deal of research to develop a product that will be welcomed by the Chinese people. The choice to set up a physical location in the country will help the Google become more competitive in the market.
In summary, the case study of Google in China provides an excellent example of the challenges that are faced by multinational firms. Internet technology is relatively new to the global economy and has experienced a unique set of challenges. In order to tap into the large Chinese market, Google was forced to stray from its traditional corporate values. However, the decision to be transparent about censorship tactics showed that company had very little flexibility in this matter. Google has able to overcome the challenges of international expansion and has developed a strong presence in the Chinese search market.
Hill, C.W.L. (2009). International Business. Competing in the Global Marketplace. Chapter 4 Case Study: Google In China.
Thompson, C. (2006). Google’s China problem (and China’s Google problem). The New York Times, 23.
Form the year 2002 onwards, Internet giant Google went many hardships in China due to government’s censorship over internet. Apart from that Google’s China rival Baidu.com was behind the scene as they intended to grab the market share which hold by the Google.com
The purpose of this case study is to study and understand how such a multi-national company went wrong unable to understand the culture in a country.
The study highlights the impact that Google had to undergo during 2002-2010 period of time in China. As a result of the pressure that Google faced in China, ultimate decision was to pull out and established company’s search engine in Hong Kong as Google.com.hk. For not maintaining a good relationship with Chinese government let Google in a terrible position as they had to pull out from a well growing Chinese internet market, which was a huge blow in Google’s financial perspectives.
The analysis of Google in China have shown how inter personal relationships in businesses, especially in terms of China, affects the company’s profit, image and success. Understanding each country’s culture is a must and it immensely helps to provide a sound service towards its customers.
Google is an American multinational internet software corporation which was first incorporated on September 4, 1998 and the public offering followed on August 19, 2004. Google specialized in internet search, cloud computing and advertising technologies. Also Google owns the most popular video site YouTube. Google is the world’s largest search engine. It hosts and develops a number of internet-based services and generates profits from advertising by AdWords program, a system Google has developed to assist in marketing products or services.
The company founded by Larry Page and Sergey Brin, two Stanford graduate students. This program began as a college research project, which gain immense success later. The project was supposed to implement an innovative technology that would analyses webpages and retrieve the most pertinent information for any given query.
Google’s mission statement from the outset is “To organize the world's information and make it universally accessible and useful" and the company's unofficial slogan is "Don't be evil". Google’s unofficial slogan is said to recognize that large corporations often maximize short-term profits with actions that may not be in the best interests of the public. Supposedly, by instilling a Don't Be Evil culture, the corporation establishes a baseline for honest decision-making that disassociates Google from any and all cheating. This in turn enhances the trust and image of the corporation, which may outweigh short-term gains from violating the Don't Be Evil principles (Birch, 2010).
Internet, Computer software
Melno park, California, U.S (September 4, 1998)
Sergey Brin, Larry Page
Mount View, California, U.S
US$ 37.905 billion(2011)
Google launched the Google.com in China in the begging of 21st century, but that was operated from outside of China, California-USA. As from financial point of view, Google saw China as a dynamic and fast growing market despite of increasing competition. China’s internet market is about 105 million in 2006 which represented only 8% of the Chinese population (Kalathil,2003). According to Google’s 2006 projections Chinese internet market was expected to grow from 105 million users to 250 million users by 2010 (Google, 2006). The main advantage with this U.S.-based version of Google.com, company was able to control an estimated 25% of the Chinese search market by 2002 and to avoid Chinese government censorship completely. (Kalathil, 2003)
Current Chinese government functions under the leadership of Communist Party., who more keen on protecting the country’s government and political situation by out coming threats. Chinese Government takes any action at any cost to prevent those situations. This is done through various ways of rules. But the ultimate purpose is crystal clear, Government needs a smooth flow within country.
One of the government’s main concerns is the Internet. The Chinese state was able to block 90% of websites about the “Tiananmen massacre,” 31% of sites about independence movements in Tibet, and 82% of sites with a derogatory version of the name of former President Jiang Zemin. Chinese censorship was effective, though not total, and that information was available, though on a limited scale. (Human Rights Watch, 2006)
Chinese Ministry of Public Security is using a system call “Great Fire Wall” to block their citizens from seeing some overseas news reports and searching various words and pornography in search engines.
The Great Fire Wall
The “Great fire wall” or The Golden Shield program was initiated in 1998 and began operations in 2003 (McLaughlin, 2006). It has been nicknamed the Great Firewall of China in reference to its role as a network firewall and to the ancient Great Wall of China. A major part of the project includes the ability to block content by preventing IP addresses from being routed through and consists of standard firewalls and proxy servers at the Internet gateways. The system also selectively engages in DNS cache poisoning when particular sites are requested.
In Chinese internet market Google’s major competitors Yahoo and MSN each had entered Chinese market as Internet Services Providers (ISP) earlier. In addition, Chinese search engine Baidu.com was the major competitor that Google.com faced in China.
As for the rules in the game, when a company, whether it is a Well-financed multi-national or a domestic corporation, they have to do it in the way Chinese government want. Otherwise company can take their business elsewhere. This factor hugely matters when establishing an early position in market dominance in China. Good favors with the government vital towards long-term profitability, means any businesses wishing to operate in China must do so with the blessings of the Communist Party, the ruling party known for its pervasive corruption and widespread human rights abuses. Yet China is a country where the term free market is still being defined and where the power of ‘Guanxi’ (informal personal connections), can place western notions of business ethics on shaky ground. (Kalathil, 2003)
In the fall of 2002, this problem struck for Google. Suddenly, in early September, computer users in China could not access Google.com. The Chinese government had blocked access to the site. Users were diverted to rival Chinese search site, Baidu.com, the heavily censored Chinese search engine. 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. Chinese users found that Google.com was down over 10% of the time; Google News was never available; and Google Images was available only 50% of the time. ( Lin, 2004)
Google Co-founder Sergey Brin and many technology professionals in China believe it was the result of an effort by a Chinese competitor, Baidu.com, to gain market share at Google’s expense through pulling strings in the government. The stoppage could also have been due to heightened internet security in anticipation of a November 2002 shift in political leadership (McLaughlin, 2006). 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 to a 63.7% market share player in fall 2006, they drag the young Chinese crowd by catering in large part to young users looking to download MP3 files. Concurrently, Google dropped its market share from 25% in 2002 to 19.2% in 2006 (McLaughlin, 2006).
The huge market potential let Google thinking in Company’s decrease in Chinese market during 2002 and 2006. So it was important to make decisions about escalating Google’s mission in China at the price of self-censoring the search engine. So in order to cope up with this problem in early 2006, Google struck a deal with China government and launched Google.cn, a version of its search engine run by the company from within China. This is a move towards transparency that distinguishes it from competitors like Baidu.com, Yahoo!, and MSN, Google.cn provides users with a brief message indicating if any pages have been censored from their search results. The message does not inform users what specific pages have been censored; it simply lets them know that censorship has occurred. The Washington Post printed a list of the words and phrases that seem to be censored by Google.cn, reporting that these words are the result of Google’s research into what they needed to censor in order to fall under Chinese legal guidelines (Worsfold, 2006).
As the situation demands Google had to determine the extent they should self-censor Google.cn. For users of Google.com in China, searches for censored subject matter, ranging from political subjects like “democracy” and “Tibet” to religious subjects like “Falun Gong” and “Dalai Lama” to social subjects like “pornography”, would generate the same list of links as would be generated for a user based in the United States. However, if the user in China tried to open any censored links, either the user’s browser would shut down or the user would be re-directed to a non-censored site.
Also Google had to concern on another important point related to user interests is the importance of user privacy. In early 2006, just as Google was planning to launch Google.cn, it became known that Yahoo! China had turned over private user e-mail data to the Chinese government and that this had led to the ten-year, eight-year, and four-year prison sentences of Chinese cyber dissidents Shi Tao, Li Zhi, and Jiang Lijun (Birch, 2010). In addition, Microsoft had recently shut down the blog of famous Chinese political blogger Michael Anti (a penname for Zhao Jing) at the request of the Chinese government (Birch, 2010). Clearly any decision made by Google to enter China would have to take into account concerns about user privacy and government surveillance. In terms of expanding access to information, it was Google’s position that due to the poor quality of Google.com for users in China after 2002, Google was in fact not providing the population of China with good access to information. But despite of poor quality in Google.com, Google has kept Google.com in addition to Google.cn available for users.
Even though Google.cn available in Chinese market, in a shareholder meeting, Google’s Co-founder, Sergey Brin revealed that more than 99% of searches originating in China were still performed on Google.com (Don't Be Evil, 2005). This meant that 4 months after the launch of the censored site, nearly all Chinese users were either unfamiliar with Google.cn or were happier with the slower, unreliable, yet unfiltered version of Google. The fact that the uncensored version of Google remains so heavily used in China seems to indicate that Google could discontinue its operations in China and still offer its users an acceptable level of service. The consequences of this option would appear to eliminate Google's complicity in government’s censorship and allow Google to continue to build its Chinese market. However, that’s where Great Firewall of China comes into play. Although the data that Sergey Brin mentioned suggests that for some reason the firewall permits the majority of requests for the uncensored version of Google, there is no reason to expect this pattern to continue. It is quite possible that based on government directive or technological innovation, the government could decide to completely block Google's uncensored site.
Moral Principles that affect due to Google’s action
Google’s decision to self-censor Google.cn attracted significant ethical criticism. The company’s motto is “Don’t Be Evil,” (No censoring) 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 decision to accept self-censorship let the company to reexamine itself as a company and forced the international community to reconsider the implications of censorship. Google has already, along with Yahoo and Microsoft, signs an industry code of ethics to safeguard human rights and the freedom of speech online (Birch, 2010). However, Google does continue to censor results on Google.cn.
If one concerns about the Google’s action in China with their utmost priority, which is not to censor anything and secure the private things of the user, it’s a big dilemma that whether Google acting according their Slogan “Don’t be evil”. In that case while human rights advocates ask why a powerful American company like Google won't fight abroad for the same freedoms that make America great, those in the business world may interpret the move as a sign of managerial weakness on Google's part. In Company’s point of view if Google were to end its operations in China it seems fairly certain that they would have to resign themselves to life without the Chinese market. Launching Google.cn, Google has decided not to give some of the main services such as Gmail and Blogger. While adhering to government’s policy by censoring search results, Google was able to bring public attention to China's media censorship and indirectly show their disapproval of it (Birch, 2010).
Google’s action to pull out from China
In 2009 Chinese government again block Google, citing pornography as the reason. Also the government blocked Google-owned YouTube. The things got worse when in 2010 Gmail accounts were under attacked (Lin, 2011). Those Gmail accounts belonged to human rights activists that originated in the country. It describes the attack as highly sophisticated and targeted, and Google claimed that no more censor its search results. Google started to redirect all search queries from Google.cn to Google.com.hk, Google’s Hong Kong based search engine, thereby bypassing Chinese regulators and allowing uncensored simplified Chinese search results. As a special entity recognized by international treaty, Hong Kong is vested with independent judicial power and not subject to most Chinese laws, including those requiring the restriction of free flow of information and censorship of internet materials (Birch, 2010).
The internet giant Google lost its business in China due to lack of their understanding of Chinese government behavior. On balance we can’t argue on Google’s operation in China as it’s a human right to things correctly and perfectly. If Google were to give imperfect facts to the society, in a long run they lose the faith of their stake holders despite of they live in China or not. That factor affects Google’s global market also. Society cannot be a better place if its full of false factors. The responsibility of giving the society lays with the government, but if its harm the system within the country, Government will decide the final outcome. When it’s come to politics, different countries use different tactics to hold their power. In case of a threatening factor which is not complying with their government policies, they are well within their limits to refuse it by any means.
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