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MGT6041 - Strategic Management

Google in China

Table of Contents

Introduction ................................................................................................................................ 2

Brief History of Google China ................................................................................................... 2

Google Strategic Reasoning ....................................................................................................... 3

Cultural analysis......................................................................................................................... 5

Stakeholder‟s analysis of Google china issue ............................................................................ 7

PESTEL and its use in Scenario analysis ................................................................................ 10

Conclusion ............................................................................................................................... 12

References ................................................................................................................................ 14

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Google in China

Google China

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. 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 (Wikipedia, 2010). People‟s Republic of China has a highest economic growth since
1990 and still evolving (see Exhibit 1). Moreover Google China serves a market of mainland
Chinese Internet users that was estimated in July 2009 to number 384 million (CNNIC,
2010). This estimate is up from 45.8 million in June 2002 (CNNIC, 2002). Hence, though
there were a specific issue of self censorship, considering the China‟s biggest market Google
may lose its biggest revenue. This report examines the cultural and strategic influences
affecting Google‟s business model in China and uses several strategic management theories
to analyse the future prospects of business in China, followed by some recommendations
taken from the analysis.

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 China blocks access to Google's YouTube site; access to other Google online
– present services is denied to users on an ad hoc basis.
Google announces it is no longer willing to censor searches in China and may
Jan 2010
pull out of the country.

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Feb 2010 Hacking attacks on Google are traced to mainland China.

March 2010 Google re-routes searches to uncensored Google Hong Kong.

Exhibit 1

Google Strategic Reasoning


Google as an international was making a significant move by entering the Chinese market in
2003, as every international firm either trading or in service industry hopes to capitalise on
the huge market unlike any other country. 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:

1. Strong competition

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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. In
recent years, Baidu has expanded and managed to lead the market with 58.4% compared to
Google with 35.6% (WSJ, 2010). 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. Volkswagen for instance,
was steadily losing its market share albeit Chinese car market was experiencing exciting
increase at the average of 49% between 2006 and 2009 (Volkswagen, 2010).

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.

4. Limited service variability and quality

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

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Google in China

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 analysing 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.

Cultural analysis
Culture is an integral part of any society and thus it‟s very essential for anyone to adapt to the
culture of the society to be a part of it. The idiom “When in Rome, do as the Romans do”
explains this.

But Google certainly did not follow this in China, which is evident with the way it has been
running its Chinese operations in the last few years. On analyzing the cultural difference, the
reason why Google is threatening to stop its operation in China is that one of China‟s
underlying principles is to protect and guards politically sensitive information from the public
which would otherwise cause mayhem in the country, whereas the mission of Google is “to
organize world‟s information and make it universally accessible and useful”. This is one of
the major cultural differences in this context. Though Google signed the censorship
agreement with China initially, the thought of influencing the Chinese government to change
the information and communication laws in due course of time was highly prevalent among
Google officials, which backfired. But there are other cultural differences which stopped
Google from doing something it does best, i.e. to be the market leader in China.

Confucianism, one of the components of Chinese business culture, includes six values. Some
of those values are need for harmony, concept of face, concepts of trust, respect for age and
hierarchy and avoidance of conflict. (Fang, 2006). The Chinese would maintain decorum and
avoid something that would cause public embarrassment. But Google accused the Chinese
government of backing the hackers who launched a sophisticated cyber attack on Google‟s
database, which brought about the frustration in the government. Google breached the
Censorship agreement, thereby breaking the trust of the Chinese government, disrespecting
them and bringing about a conflict between them and the government. In all the cases,
Google has managed to go against all the values mentioned above.

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In China any business negotiation would occurs at a slow pace. The Chinese business culture
has a very strong influence in the negotiation process and patience is the need of the hour
during negotiation. But Google issued the Chinese government an ultimatum stating that it
would pull out its operations from China if the government did not agree to their terms in a
month‟s time, which is completely a non-Chinese way of business negotiation. “The Chinese
negotiator will typically not force you into accepting the Chinese terms but rather signals that
your competitors are waiting next door prepared to present a better offer!” (Fang, 2006).
That‟s what‟s precisely the Chinese government did.

Business meetings in china would take place with appointments fixed a lot earlier. It would
not be held during meals and social events, whereas most of the meetings in Google would
take place during the lunch. Chinese social structure is very hierarchical and those in the
hierarchy follow certain protocol, whereas the structure of Google is flat with just one line of
top management (no hierarchy). The Google environment is very informal in that it neither
does have any departments as such nor are there any mandatory protocols to be followed..
This certainly reflected in the way in which Google held negotiations with the Chinese
government.

“The Chinese believe that interrelations with things and others are continuous. Once a
relation is established, it can hardly be broken”. (Yau*, 2007). He also says that Chinese are
considered to be the most loyal customers in the world. They often try to conform to group
norms and therefore are more like to buy the product from a certain brand recommended by
the group members.

Baidu could owe its success to the above characteristic of Chinese but Google could have
made good use of its customer base when it had a commendable market share earlier.

It‟s pretty apparent that Google went into China advocating the American values that
certainly did not go well with the Chinese.

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Stories
Symbols

- Trust and relationship -Standard dress for


matters more than profit communist party officials
- Language.

Rituals and routines


Power structures
- High influence of
communism. The - government decides and
-No freedom of speech. Paradigm people obey the law

Control systems Organisational


structures
-Bureaucratic
-Highly formal
Hierarchical

Source: Adapted from (Johnson & Scholes, 2008)

Stakeholder’s analysis of Google china issue


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 (Google Blog). But since the time Google has launched google.cn in
China in 2005 (Wu, 2007), 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 et al, 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

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of intention, Google has been meeting with the consistent furies and outcries from different
groups (Thompson, 2006 cited in Yardey, 2006). 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 Hongkong (China) 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 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 (Wu, 2007). 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.

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Media

Google's Decision Making Team


Chinese Government

Visible
Chinese end users Advocacy Group

ENTER Google’s Investors LEAVE


CHINA CHINA

Not Visible
American Internet Providers
Google’s Investors Chinese Search Engines
Users outside China Google’s Employees
Google’s Chinese Employees
Users outside China

US Government

Symbols directory:

•Arrow = Stakeholders
•Direction of arrow = Position on whether to enter China or leave China
•Size of arrow = The power and strength of influence
•Solid or broken arrow = Consistency and continuity of influence
•Arrow starting point = Extremity/ Sincerity of the position
•Up or below surface line = Salience and Visibility of influence

Optimization model – stakeholder analysis


Source: adapted from (Wu, 2007)

We can clearly see in the optimization model that there has been arrows‟ signifying the
stakeholders and with the extremity of their power and effectiveness there is a difference in
the boldness of the arrow. 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.

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

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patterns which can also 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 we talk about media of US and UK, they 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 Hongkong 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.

PESTEL and its use in Scenario analysis


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. Walsh (2005, p.119) 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

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needs to do in a market where Technological change is rapid. Other drivers for change can
also be identified.

This PESTEL analysis is useful for classifying the drivers for change, and it can be rather
static. However, it is a useful starting point for further strategy development. Stakeholder
analysis can be used to suggest how some of these drivers might change, and can also
identify those that might be correlated, either negatively or positively.

The drivers can also be used for the next stage in the process of strategy development, which
is Scenario Planning.

Scenario Planning is helpful when the environment is highly complex, or is rapidly changing
(as it is here). It tends to be especially useful when:

 There are a limited number of key drivers influencing the success of the strategy.
 There is a high level of uncertainty about such issues.
 Outcomes could be radically different.
All these factors apply to a greater or lesser extent to Google in China. The numbers of key
drivers are not high. With regard to one of the key drivers, the Chinese political attitude, it is
difficult to predict what their future attitude will be; but there‟s no doubt that a positive
attitude would probably ensure success for Google, while a stronger negative attitude could
well stop Google from trading in China at all.

Given this degree of uncertainty, the use of scenario planning could well be a help to Google.
Typically, starting from the drivers with the greatest uncertainty, managers could prepare
different scenarios, to give plausible views of how the business environment may change in
the future. Interrelated drivers and scenarios must be consistent; e.g. it is possible that very
low economic growth in China might produce an unstable political situation, but it‟s highly
unlikely that high economic growth would. Scenarios tend to be „optimistic‟, middling‟ or
„pessimistic‟, and normal procedure is to create between 7-9 initial scenarios, which would
then be reduced to between 2-4 most likely positions.

The use of this technique could help Google, but there are problems associated with it. The
choice of the most likely scenarios will probably still contain a strong element of value
judgement, and managers will have to guard against the temptation to so weight the scoring
as to pick an option which may have been initially prepared anyway. The flexibility of the

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system and its ability to react to changing situations is attractive, but it may not always be
advisable to try to change strategy on a regular basis. However, when used in conjunction
with the cultural web and stakeholder analysis, it is another technique that might help to give
Google a clearer indication of what strategy they need to follow.

Conclusion
The aim of this investigation has been to find a strategic structure that will help Google in its
assessment of its operation serving the Chinese market. The economic attraction of such a
large and growing market is obvious, but the difficulties involved in the continued operation,
(and the rapid rate of change in the internet service industry anyway), 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 (or more likely a combination of theoretical
approaches), 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 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.

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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.

What we need is therefore a strategic model that links these techniques together. Such a
model is shown below:

Strategic Development Model, adopted from (Walsh P.R. 2005)

This strategy development model shows how the theories we have examined can help
improve the analysis of the present situation, and also be sufficiently flexible to help update
Google‟s management team as and when needed. However, it also emphasises that there are
other factors to be taken into account when making a final decision. The three theories we
have looked at have helped to explain the rapidly-changing environment that surrounds
Google‟s operations in China, and there is no doubt that these are important; but just as
important is the internal operation of Google as a company, its core competencies and beliefs,
and the other factors that might be affecting its global operations.

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References
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[Accessed 3rd April 2010].
 CNNIC. “25th Statistical Survey Report on the Internet Development in China.” China
Internet Network Information Center website.
 David Drummond, “A new approach to China: an update,” March 3, 2010, post on blog
“Policy and issues,” The official Google blog,
 Fang, T. (2006). “Negotiation: the Chinese style.” Journal of Business & Industrial
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 Volkswagen (2010), available at


http://www.volkswagen.com/vwcms/master_public/virtualmaster/en2/aktuelles.html,
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 Wall Street Journal (2010). Google Business Reasons for Leaving China, 6th April 2010.
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 Yardley, J. (April 12, 2006). Google chief says it won‟t fight Chinese censorship. New
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