Google and China Case Study

Executive summary

The problem facing Google in its attempts to expand to China relates to balancing its financial motives and acting in accordance with its corporate mission. The problem stems from the fact that the Chinese government has adopted Internet censorship policies, which will make Google seem hypocritical if the company adheres to them. Thus, Google should determine a practical approach for entering the Chinese market. The criteria for determining the suitability of different alternatives is based on their ability to improve profitability; increase Google’s market share in China; increase satisfaction and experience of Chinese users; improve corporate image; and be consistent with Google’s “don’t be evil” mission statement. Three alternatives exist, which include catering for the needs of Chinese users via censorship-free off-shore sites such as Google.com; agreeing to the censorship demands posed by the Chinese government, placing their servers inside China, and adopting damage control efforts; or leaving the Chinese market altogether. The recommended alternative is to acquiesce in the censorship demands posed by the Chinese government, place the servers inside China, and adopt damage control efforts. This alternative will enable Google to increase profitability, its market share in China, the satisfaction of Chinese users, and in some measure act in accordance to the corporate mission by not locking out Chinese users.

Problem (issue) statement

The problem that faces Google in this case relates to determining the approach that Google should adopt when entering the Chinese market. Should the company comply with Chinese censorship laws and risk its reputation and image? Google, the world’s leading web search company, entered the market in China in 2000 by developing its flagship homepage (www.google.com) in Chinese. Additionally, Chinese users could access other off-shore sites like Google.co.uk and Google.com. The server hosting this homepage was located in the US and had the ability to handle search requests originating from China. When using this approach, Google was able to bypass the Chinese censorship laws because the facilities were not physically located in China. Moreover, Google was not mandated to have a license issued by the government of China to offer its services to the Chinese people. However, the search results deemed unacceptable and inconsistent with the interests of China were filtered and blocked. Therein lied the problem. The censorship targeted content deemed harmful, such as materials related to democracy, freedom, and anti-government protests among others. As a result, Google was in a desperate need of placing their serves inside China in order to enhance its performance as well as user experience. This would help increase the competitiveness of the company. However, other challenges still remained. As of 2005, Baidu, a Chinese search engine firm, developed into a leading internet search site in China, threatening Google’s market share in the country. As a way of competing with Baidu, Google reached a decision to develop a search page with a Chinese domain name (www.google.cn), which was subject to content censorship strategies by the Chinese government through its filters referred to as the “Great Firewall of China”. Such search results were filtered and the access – slow.

 
 

A moral issue that remained in the situation was the question of whether the company was adhering to its slogan of “don’t be evil” and the mission of organizing the world’s information and ensuring it is universally useful and accessible. By consenting to being censored by the Chinese government, Google was deviating from its core guiding principle of making sure that every user had unrestricted access to information found on the Interne. The company admitted that the launch of google.cn posed significant problems regarding their corporate mission. The underlying problem for Google was that it was compromising its mission by failing to serve its Chinese users. The case would remain the same if the company opted to enter the Chinese market and comply with the censorship laws that required Google to censor its search results, which tarnished the company’s image and reputation. Consequently, the company would appear hypocritical as it would seemingly support a country notorious for oppressive measures and the infringement of internationally accepted norms.

Data analysis

The issues described above can be attributed to a number of factors including the disparity between globalization and differences in culture, the influence of the government on businesses, Internet censorship policies, and ethical considerations and corporate social responsibility (CDR) of Google. With respect to the issue of globalization, it is evident that the global consumer culture and the notion of free market play a role in Google’s relations with China. This is because governments are under intense pressure to liberalize their domestic markets. At the same time, the local context cannot be ignored when expanding globally. In this case, Google is facing the challenge of operating within the local context of China characterized by Internet censorship, which is against the company’s guiding principles. At the same time, the Chinese government is against the forces of globalization and is more concerned with protecting its local sector; hence, posing a significant obstacle in Google’s entry to the Chinese market. With respect to the issue of influence of the government on businesses, the problem stems from the policy of Chinese government that regulates foreign businesses by limiting their stakes in local companies. This way, Google was denied an opportunity to have a majority stake in Baidu. Additionally, the government regulates information, which accounts for the censorship imposed on search engine systems. The problem that Google faces can also be attributed to the Internet censorship policy adopted by the Chinese government with the aim of limiting political opposition and suppressing dissent. All businesses with a presence in China should adhere to its censorship policies. Another issue contributing to the problem relates to the corporate social and ethical responsibility of Google. By operating in China, Google will be forced to comply with the censorship policies adopted in China, which are not consistent with the company’s principles. This creates a CSR paradox where Google has to balance its business interests of entering the Chinese markets and upholding its ethical standards.

The issues in this case have a significant impact on the stakeholders involved, including Google, China’s government, and Chinese users. Google is being affected in the sense that its efforts to expand into the Chinese market are being thwarted by the requirement to comply with Internet censorship policies of China. Additionally, China denies Google the chance to buy a majority share stake in Baidu; hence, limiting its profitability. The government of China has the objective of achieving technological parity with the United States. However, providing Google with a Chinese domain relaxes its Internet censorship and poses a threat to political stability. The government also seeks to popularize the use of local Chinese search engines. Chinese Internet users are also affected by being denied the opportunity to use additional search engine services.

Constraints and opportunities are also important in this situation. A key constraint is that search engine services offered by Google are not customized to meet the needs of individual cultures, which has been the core issue that affected Google’s attempts to expand into China. For the search engine to be able to penetrate certain markets effectively, there is the need to modify the existing search algorithms to consider cultural differences. Another constraint affecting China’s expansion attempts is the Chinese government. In essence, Google needs the Chinese government to be on its side more than the Chinese government needs Google. Despite this constraint, there is an opportunity that Google can exploit. China has a huge Internet market (123 million users), which presents an excellent opportunity for Google to establish and grow its operations and market share in the country. Whereas Google is the leading search engine across the globe, it has not managed to penetrate the Chinese market, which has a vast and unexploited customer base for the company.

Key decision criteria

In deciding on the course of action, a number of factors will be taken into consideration. The first criterion to be applied when evaluating alternatives is the impact on the profitability of the company. The underlying reason for Google’s expansion to China is to improve the company’s profitability; hence, this is a key measure when determining the suitability of an approach. Moreover, by reviewing the case, it becomes evident that the focus of Google’s negotiation team is on profits. By expanding to China, Google seeks to gain an additional revenue stream through offering advertisings services to Chinese users. Thus, the financial considerations are an important aspect in the case. The second criterion used to evaluate the alternatives relates to their consistency with the corporate mission of Google, which is avoiding evil actions. In this regard, the alternatives will be evaluated with respect to the degree to which they support or contradict the guiding principles of Google. The third criterion utilized to evaluate the alternatives is their impact on the corporate image. By complying with China’s Internet censorship policies, Google will appear hypocritical by supporting an oppressive regime. In brief, the following are the criteria for evaluating the alternatives:

  1. Improved profitability,
  2. Increased market share in China,
  3. Increased satisfaction and experience of Chinese users
  4. Improved corporate image,
  5. Consistency with Google’s mission of “don’t be evil”

Alternative analysis

Google can adopt several alternative courses of action in this case. The first alternative simply involves catering for the needs of Chinese users via off-shore sites such as Google.com, which are censorship-free. This will require Google to host its servers outside of China. A key drawback associated with this alternative is that the speed and efficiency of the search engine service in China will be slowed down significantly as the Chinese government will attempt to block Chinese users from accessing this site. The upside is that Google will not need to enter negotiations with the government of China in trying to expand its operations in China. With slow search results, advertising revenues from Chinese users could also dwindle significantly, although not to the point that it will hurt the company’s profitability and its market share. Another upside of this alternative is that Google will be acting in a way that is consistent with its cooperate mission since it will not comply with the censorship requirements imposed by the Chinese government.

The second alternative for Google is to agree to the censorship demands posed by the Chinese government and place their servers inside China. After adopting this decision, Google will then focus their efforts on damage control. An upside of this alternative is that Chinese users will enjoy better experience and customer satisfaction. This approach will also enable Google to establish its presence in China; hence, exploiting the vast Internet market in the country, which will allow it to increase its profitability and market share in the country. This alternative is similar to Google localizing its services to suit the needs of the local cultural context. The downside of this alternative is that it will dent the corporate reputation and image of Google, because it is not consistent with the company’s corporate mission. Google will appear hypocritical since it will stop adhering to its mantra of “don’t be evil.” However, with damage control, Google will be able to restore its image.

The third alternative for Google in this situation is to close shop and simply abandon the Chinese market. This alternative is only suitable if the negotiation efforts by Google have failed and the Government of China has denied Google the license to operate in China and opted to develop local search engines such as Baidu instead. Since there are slim changes that an agreement that will enable Google to reconcile its profit motives and principle will be reached, Google can just abandon its efforts to expand to China. A positive aspect of this alternative is that the company will act in accordance with principles espoused in its corporate mission, which will help maintain its image. A disadvantage is that Google will lose the opportunity to exploit the vast Internet market of China; hence, the company’s profits will not be increased. Table 1 below shows an evaluation of the alternatives based on the key decision criteria.

Recommendations

Based on the above evaluation of the alternatives, the second alternative is the most preferable. It entails agreeing to the censorship demands posed by the Chinese government and placing Google servers inside China. This alternative will help Google increase profitability, its market share in China, increase the satisfaction of Chinese users, and to a certain degree act in accordance to its corporate mission by not locking out Chinese users. Therefore, this alternative is the best in helping Google balance its financial motives and act in accordance to its mission. The negative publicity emanating from agreeing to China’s censorship policies can be reversed using damage control. Moreover, this approach is preferable since Google needs to acknowledge local laws and regulations.

Action and implementation plan

During negotiations, Google can agree to comply with the censorship laws of China provided that they are issued a license to acquire a Chinese domain name. This will be followed by adopting a damage control strategy to present the case in a more favorable light. The resultant bad publicity can be countered by the issuance of press releases indicating pulling out of China altogether is more damaging, illustrating that agreeing to censorship is a preferable move that will prevent the government from blocking Google, and insisting that it is not Google’s responsibility to fix governance issues, but to offer the best service to Internet users, and that censorship issues are not an isolated problem in China, but also prevalent in other countries such as Germany, where the company had to comply with legal requirements.

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