Google China: Still Business As Usual

NEWS ANALYSIS

WASHINGTON—About a month ago, Google Inc. shocked the world with an announcement that it would consider leaving the Chinese market unless it could free up its search engines to access topics deemed sensitive to the Chinese communist government.

Today, Google is still operating in China. It has not fundamentally changed its way of doing business in China. Google still complies with Chinese laws and denies access to certain topics the Chinese government doesn’t want its people to read.

A recent Harvard Business School (HBS) case study sought to address the overarching issues asking, “Who are the winners and losers here? Has China been taught a lesson? Has Google been outfoxed? What can other companies learn from this collision of cultures?” Those are some of the topics explored by HBS’s case study author Professor John A. Quelch and discussed with Editor-in-Chief Sean Silverthorne in an article for HBS’s Working Knowledge.

In terms of revenue, the Chinese market accounts for around $300 million—or roughly 1 percent of total 2009 revenue at Google. Google’s market share in China is about 24 percent.

Google, just as so many other multinationals that operate in China, is losing money in the country, said CEO Eric Schmidt in 2007, according to the study. Today, some analysts still doubt that Google China is in the black.

Unnamed analysts and experts in corporate political issues worldwide—especially China—suggest that Google might have been in negotiations over greater access to the Chinese market, but in the end, overplayed its hand.

Most experts agree that Google must walk the walk if it wants to come out of this episode unscathed.

Taking a Step Back

A month ago, Google announced that it had been caught by surprise by cyber attacks originating from China, which stole intellectual property including information on Chinese dissidents.

At the same time, it let the world know that other corporate giants had suffered the same fate, hoping that the corporate world would jump on the bandwagon and collectively speak out against China’s machinations. However, response from other multinationals about similar attacks was muted at best—and completely missing at worst.

According to the HBS report, Microsoft Corp. CEO Steve Ballmer called the cyber attacks “Google’s problem.” Currently, Microsoft’s Bing search engine has no plans to stop censoring its results on its Chinese site.

In addition, none of the multinationals that suffered similar Chinese cyber attacks—including Yahoo Inc. and Adobe Systems—wanted to risk potentially losing out on the so-called “lucrative” Chinese market. Western firms have long refused to put on the radar screen that China’s business environment is an inhospitable one.

Going It Alone?

Shortly after its first announcement, Google shocked the business world by announcing in mid-January that it would no longer be interested in doing business in China under present conditions.

This was a courageous move, knowing that China, a country that absolutely abhors interference in what it calls its internal matters, would not bend—but may in some cases retaliate in unexpected ways.

Alas, a month later—it’s business as usual and Google is staying put. “Today Google is still self-censoring content exactly the same way as they were on January the eleventh. So Google has shot itself in the foot without gaining the moral high ground,” suggested Quelch in the HBS article.

Furthermore, Google’s top employees have been deserting the company in droves, moving to Baidu Inc., SINA Corp., Tencent QQ, the Alibaba Group, among other competitors.

Google will be left with only those employees who could not market themselves and hiring educated and experienced people will be almost impossible, suggested the professor.

But seen from a different point of view, Google may win in the quest for customer approval in Europe and the United States, making a difference in its bottom line, suggests Scott Kennedy, director of the Research Center on Chinese Politics and Business at Indiana University, in a recent Indiana University press release.

There may be another scenario—though slightly less likely at this time—in which “Google’s stance may affect the behavior of others and rather than Google being shut out of China, the Chinese may increasingly find themselves shut off from leading technologies and information,” states Kennedy.

In September 2000, Google offered searches in Chinese through Google.com from servers outside of China. Chinese Internet service providers filtered information not suitable for China and there was a lot of downtime.

Exactly five years later, Google established its Beijing research and development center, run by Dr. Kai-Fu Lee, a former Microsoft executive. Google.cn, its Chinese site, went live in 2006. The Chinese site complied with Chinese communist laws of censoring topics the government deemed to be “sensitive.”

So what can we expect next from Google?

“It’s hard to say,” according to the company as published on its Web site. “We don’t talk much about what lies ahead, because we believe one of our chief competitive advantages is surprise.”