International Business 13th Edition by Donald Ball,Michael Geringer,Michael Minor ,Jeanne McNett

Exercise 7

Google's Values and Strategy versus the China Opportunity
Google, the world's leader in the global Internet search engine business, with more than two-thirds of global net searches, has actively promoted its ethical values-including its unofficial motto of "don't be evil"-as a foundation for its business activity. In 2006, Google entered the rapidly growing and potentially lucrative Internet search market in China. To obtain permission for entry, Google agreed to modify its operating approach to fit with Chinese requirements to censor Internet searches, particularly those involving certain socially or politically sensitive topics. Google's decision to engage in censorship, taken after much soul-searching, reflected a belief that the company's participation might contribute to a gradual loosening of Beijing's restrictions on free speech. The company included a disclosure on its site, stating that some search information had been removed, in an effort to raise awareness of censorship among Chinese Internet users. "I actually feel like things really improved" in the initial years after Google's entry, co-CEO Sergey Brin said. "We were actually able to censor less and less." a
By the end of 2009, Google had gained 36 percent of the Chinese market, second only to local company Baidu and far outdistancing rivals such as Microsoft and Yahoo. Google's Chinese revenues, estimated at $300 million in 2009 and projected at $600 million in 2010, had the potential to reach $5 billion to $6 billion by 2014. b
However, Google decided that its reputation for ethical behavior was more valuable than the potential returns from China's search engine market. In a highly publicized move on January 12, 2010, Google announced it would stop obeying censorship requirements on its Chinese site. This decision was triggered by increasingly strict government requirements to limit Internet freedom in that country, as well as a series of highly sophisticated cyberattacks on its servers in the United States, allegedly originating in China. Google's chief legal officer, David Drummond, asserted that these attacks were, "almost singularly focused on getting into Gmail accounts specifically of human-rights activities, inside China or outside." They were "all part of an overall system bent on suppressing expression, whether it was by controlling Internet search results or trying to surveil activists." c CEO Eric Schmidt stated, "We like what China is doing in terms of growth... we just don't like censorship." d
Despite a series of tense negotiations with the Chinese government, on March 22, 2010, Google shut down its Chinese search site. Google moved its Chinese-language search activities to Hong Kong, a special administrative region which has broader protection of free speech under the "one country, two systems" approach that was established in 1997, when the British handed over control of their former colony.
Brin, who was born in the Soviet Union and whose family experienced government repression prior to emigrating to the United States, explained Google's move by stating, "in some aspects of their (China's) policy, particularly with respect to censorship, with respect to surveillance of dissidents, I see the same earmarks of totalitarianism (as in the former Soviet Union), and I find that personally quite troubling." e This argument ultimately prevailed over CEO Schmidt and others who believed that Google should maintain its presence in China. "One of the reasons I am glad we are making this move in China is that the China situation was really emboldening other countries to try and implement their own firewalls," said Brin. f "Ultimately, I guess it is where your threshold of discomfort is. So we obviously as a company crossed that threshold of discomfort."
Google's high-profile exit was applauded by many, both inside and outside the company. By positioning Google as a champion of free speech, it reinforced Google's well-publicized "don't be evil" motto and reputation for ethical values and behavior, a reputation that had been questioned as a result of the company's Chinese censorship activities. Mitch Kapor, a well-known Silicon Valley venture capitalist, stated that, "More businesses ought to follow 'gut principles' and shareholders and customers ought to support and encourage them to do so." g Google's decision to exit China was also expected to enhance customers' perceived trust in the company and its commitment to protect customers' personal information. This is a particularly important consideration, because Google's business model increasingly emphasizes cloud computing-an approach by which data that individuals and businesses currently keep on their own computers will instead be stored online, making it accessible from virtually any computer or wireless device. Implementation of such a model requires a high level of trust that a company such as Google will protect these data. As one of Google's former Chinese employees stated, "If what Google does in China makes its data seem unsafe, then Google's global strategy is gone." h
However, Google's decision to exit the Chinese search engine market was not without its detractors. The Chinese government expressed displeasure with Google's highly visible actions, stating, "Google has violated its written promise it made when entering the Chinese market by stopping filtering its searching service and blaming China in insinuation for alleged hacker attacks. This is totally wrong. We're uncompromisingly opposed to the politiciza-tion of commercial issues, and express our discontent and indignation to Google for its unreasonable accusations and conducts."i Li Yizhong, Minister of Industry and Information Technology, said, "I hope Google can respect Chinese rules and regulations. If you insist on taking this action that violates Chinese laws, I repeat: You are unfriendly and irresponsible, and you yourself will have to bear the consequences." j The highly publicized actions threatened
Google's ability to compete in the world's largest and fastest growing Internet market, leaving the company exposed to the risk that the Chinese government could block access for users from the Chinese mainland. Although a complete blockage of access did not occur initially, repeated interruptions of Google searches initiated in China raised concerns about the reliability and long-term commercial viability of Google's services for China-based customers. Chinese Foreign Ministry spokesperson Qin Gang said, "The one whose reputation has been harmed isn't China, rather it is Google." k
Google's actions also potentially aided local Chinese competitors. Baidu saw its market share increase by nearly 10 percent, to 64 percent, in the three months after Google's announcement, along with a 60 percent increase in its stock price. International rivals also stood to benefit. Microsoft's senior manager for regulatory policy, Cornelia Kutterer, stated, "We have done business in China for over 20 years, and we intend to continue our business in China," reaffirming Microsoft's intention to adhere to local laws, including Chinese censorship requirements. l A Microsoft spokesperson said, "If we do a great job with the product, then we will hopefully attract more share." m A number of Google's partners terminated or sharply scaled back their involvement with the company. For example, Tom Group Ltd. removed Google's search service from its Chinese Internet portal and Motorola announced plans to provide links to other search engines on its phones in China. China's second largest wireless carrier, China Unicom, announced that it would drop Google as the company's default search engine for its newest smartphones. "We are open to cooperating with any handset makers and companies. But they must obey China's regulations," said Unicom president Lu Yimin. n
Did Google make a good decision to leave China? What do you think?