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Administracin Intercultural

Case: Google in China


Introduction
China is one of the biggest markets for online services in the whole world. With more than 600
million frequent users it is bigger than the whole European market. Therefor China does and has
attracted a lot of attention from internet-services companies like Google. While Google nearly
completely left the Chinese market in 2010 throws up questions. How is it possible that the most
successful and most used search engine in the world cannot take over the Chinese market? Why is
Google not able to react appropriately to its competition on this specific market? How influential can
a government be in a rather free online-world?
The following answers to the questions should respond to all these open questions, give an insight
into the reasons for Googles withdrawal from the market and draw a picture of an particularly
difficult business environment.
1. How would you characterize Chinas market for online search and related services?
The Chinese market for online search and related services differs in a huge extent from those in
Europe and the Americas. While the number of potential consumers is very large, companies in the
sector have to apply rather different business models in order to be successful on this market. The
first dictum is that without the support or the goodwill of the Chinese government, a successful
introduction of online search engines or other online service is nearly impossible. Due to the political
situation in China, the freedom of opinion is severely limited. That is why companies in the search
engines industry have to anticipate that government intervention on this stage is quite high. A
related service would be Wikipedia. Wikipedia is prohibited in China, because its database also
contains government critical information. Also other topics like religion, social issues or for the
unfavorable historic incidences are not accepted by the Chinese Government. That is why local
players can use the gaps huge companies like Google or even Wikipedia leave open. At the moment
Google.cn does not exist anymore. The website automatically forwards you to the Hong Kong
website of Google. Chinese government censorship does not apply in Hong Kong, due to its special
privileges due to its status as former British colony. Google practically left the Chinese market in 2010
after an ongoing back and forth with the Chinese Government, but also criticism coming from the
United States. To be successful on the market, as mentioned before, you have to comply to the rules
given by the Chinese government. Doing that, you earn criticism from liberal western countries like
the United States. That is why Google was in a predicament, which they solved by concentrating
more on other products for the Chinese market, besides the search engine. As mentioned before,
local players like Baidu (which comply with the requirements of the Chinese government) could take
over the market. At the moment approximately five search engine companies (all from China) are
operating on the market.

Administracin Intercultural
Case: Google in China
Another anomaly of the Chinese market is that it is very difficult for foreign companies to meet users
needs. The complexity of the language and the lack of cultural knowledge make it very difficult to
adopt western logarithms for a Chinese search engine. The consequence is that the search results are
not as exact as they should be. The local players do not have to overcome such barriers, and
therefore could develop a better working product.
To summarize the main aspects of the market the complexity of the culture, the governmental
intervention, but also a huge number of internet users, have to be named.

2. Why was Google initially attracted to China? What changed its perspective?
The biggest attraction of the Chinese search engine market lies in its size. Over 600 million people
use the internet in China regularly. This means that the Chinese search engine market is six times
higher than the German. Therefor Google wanted to safe its stake there. Another point of attraction
is the dynamic the Chinese market contains. It is still a growing market, and only about half of the
Chinese population is using the internet. That is why there is still a lot of potential for growth, which
in addition enlarges the market even more. The third reason for Googles temptation to become
huge on the Chinese market is that Google has a global appeal and the own set goal to become the
worldwide leader regarding search engines. To achieve that, the company cannot just ignore such a
huge market. Google has not been doing well in Asia; therefor China would have been a good
foundation to start the invasion of the Asian markets. The last point of attraction is that by becoming
a huge player on the Chinese market, Google could have directly thwarted companies like Baidu and
avoid further growth of competition, by keeping them small on the Chinese and consequently also on
other foreign markets.
The change of perspective came with the increasing intervention of the Chinese government
regarding the operation of the search engine. The censorship did not only worsen Googles service
(the website was often down or slow), it also was contradictory to the values of the company. Google
is not only a search engine; it is also a medium for transparency and access to critical sources.
Communism and transparency are not the best friends, that is why the intervention of the Chinese
government made it so hard for Google to offer its original services and qualities. In addition
accusations of copyright infringement, camouflage of human rights and unethical advertisement
brought a lot of criticism and fines for the company. Google was torn between two fronts. Western
governments and institutions wanted Google to bring more transparency to the country and avoid
the encryption of government critical sources. The Chinese government wanted the exact opposite.
And without the Chinese government, such service could not be provided in an adequate way. Over

Administracin Intercultural
Case: Google in China
and above these reasons, Google also had problems concerning related services to its search engine.
The competition successfully implemented maps, message boards and directories into their portfolio,
all things Google had missed or implemented incorrectly. After gaining over 30 percent of market
share, Googles ration melted. In the end dropping out of the market on a large scale with its search
engine and concentrating on other products, was the only way to avoid more loss of image, further
problems with the government and loss of money due to a seemingly unbeatable competition.

3. Should companies like Google conform to Chinese governments expectation regarding privacy,
censorship, and distribution of information?
The answer to this question depends on the weight values have versus the need for expansion and
profit. If the company wants to be successful on the market, it always has to comply with the ruling
law and governmental guidelines. It is surely an important approach to respect given rules and
guidelines. If you do not act the way you are supposed to, intervention and sabotage only increase.
The Chinese government buggering Googles service it the best example for the consequences a
disregard has. So if the company wants to make profits and expand its user base, adapting to local
circumstances is inevitable.
Companies with search engines have a special type of responsibility. They are the key for spreading
knowledge in the 21st century. By acting conformingly to the expectations of the Chinese
Government, it also means giving up the privacy of its users and limiting the distribution of
information and knowledge. A company like Google normally does not work well with censorship. If
people in China only find results in the search engine, they could read in every Chinese library,
Google fails its mission. It is more about giving the user the opportunity to find international, critical
and independent information. In the 21st century every human being should have the right to express
his opinion freely and having access to other sources of information. The global aspect of Google
does not function in China. In this case Google would not connect the users with the rest of the
world; they would only create a local and dependent network within the borders of the country. The
special responsibility arises out of the capability to give the users the opportunity to find all
information they want, as long it does not compromise others. Consequently Google should not
conform to the expectations of an oppressing government, because they would breach their own
mission. The problem is that Google only left the Chinese market because they were not
economically successful. If they would have had success, they would not have withdrawn their
Google.cn-website from the market. The insight is that out of Googles point of view profit stands
before democratic values, and even sometimes before their own guidelines.

Administracin Intercultural
Case: Google in China
On all accounts a company should always scrutinize governments, which apparently do limit basic
human rights. A company should never betray its users or customers by giving their private acts to
governments, as long as they do not compromise other people. Profit should never be more
important than ethical behavior. Withdrawing their search engine only after having failed on the
market, allowed censorship and giving away the privacy of their users, Google did not show decency.
They acted out of economic reasons, which makes the company a disreputable.
4. What advantages does Baidu have over Google in the Chinese marketplace? How might Google
overcome those advantages?
The advantages of Baidu on the Chinese market were and are multilayer. Baidu could implement
additional services successfully. Not only their copy of Google-Maps, but also message boards, a
social network and a directory of companies were a huge success. Baidu showed more market
understanding. The best example is the accuracy of their search results. Even though the logarithm is
a copy of Googles page rank, their search results are better and more accurate. Baidu could achieve
that by having the better market and cultural knowledge. The Chinese language is so complex, that
small anomalies decide how accurate the search results are. Baidu also understood the Chinese
preferences in a better way. In addition Baidu can be seen as a safe search engine. It is completely
censored and users do not have to run the risk of going on the wrong websites, which might bring
them into jail, due to strict government prosecution of political or seemingly political enemies.
Another plus factor is that they do not have to care about copyrights or patents. A prosecution of
infringements is nearly impossible for international claimants, because the Chinese jurisdiction is not
known to punish their own companies. Google had to pay huge fines for infringements because they
are an international corporation and come from a land where the rule of law still has significance.
Regarding the search engine market and related online services, Google is not going to be able to
compete with Baidu until the character of Chinese politics and jurisdiction change. The only way they
can strike back is by moving into other segments: building dependence and creating needs. That is
why Google is focusing on their mobile products like Android or Andorid@Home. Thereby Google can
play its first mover advantages on the Chinese market, having lots of experience in the area. It is for
sure that Chinese companies will also try to copy these products, but when it comes to high complex
technological inventions, it is much more difficult to keep track. That is why nobody buys Chinese
smartphone technology (regardless of where they are produced), because they cannot cope with fast
changing technologies. That is exactly where Google has to spud in. But as mentioned: The search
engines market is a lost property until the political and judicial environment does not change.
5. What recommendations would you make for Google in China going forward?

Administracin Intercultural
Case: Google in China
With the change of focus regarding the Chinese market, Google is on the right track. Google invests
huge amounts of money into R&D. Regarding future developments they are one of the most
advanced companies in the world. The Chinese consumer does not want cheap products. The
demand for high quality and innovative products is increasing. That is why China is a very attractive
market for Google, regardless of the online services. During the last five to eight years, Google has
diversified its product portfolio a lot. Therefor the dependency on merely online services has
decreased. Consequently Google can use its cutting edge to its advantage by benefiting from firstmover advantages on the Chinese market. As mentioned in question four, high technological
products are not easy to copy. Hence Google can count on a huge head start and lots of more
experience than possible competitors on the market. The online services (search engine and mailing)
should be put aside, at least for some time until the political and judicial environment is fathomed.
To summarize: Google should capitalize its other products on the Chinese market. Its core
competencies (search engine etc.) are not lost, but should be kept on hold for some time. Google has
to create needs and dependency on its products. The rate of Smartphones operating with Android is
already very high in China. This already existing customer base should be used to implement new
innovative services and functions.
Conclusion
This case demonstrates that even huge companies and world market leaders are not always in the
position to come through with the way they are doing business. This is not meant in a negative way.
Sometimes it is better to keep morals and the value of freedom of speech and information ranked
first. A company should never cooperate with oppressing governments in order to be economically
successful. This case also shows that cultural differences (in this case the complexity of the language)
can create barriers for normally homogenous business models. The case also illustrates that complex
markets need adapted, innovative and flexible business models, in order to stand competition or
become a market leader. But more important it also shows that sometimes it is better to leave a
market with one product, and come back with another one. Companies have to identify desperate
situations in order to avoid huge losses and further financial liabilities.

References:
Online:

Administracin Intercultural
Case: Google in China
(Last access 12th of November 2014)
http://www.brandeins.de/archiv/2012/nein-sagen/jein/
http://www.computerwoche.de/a/baidu-nutzniesser-der-zensur,3070281
https://gigaom.com/2010/01/12/how-much-will-it-cost-google-to-exit-china/
http://www.faz.net/aktuell/politik/internetzensur-china-blockt-alle-google-dienste-12969635.html
Literature:
Brief Integrative Case 3.1: Google in China: Protecting Property and Rights: International
Management: Culture, Strategy and Behavior, Ninth Edition. Pages 138 143.