Google international business strategy for China

The objective of this study is to analyse Googles problems in China with a broad perspective on its International Business strategy. This report covers the study of Googles culture, values and what made it the most successful Technology Company globally, and keeping these facts in mind it explores the actual reasons behind Google’s dilemma to comply or not with the restrictive policies of Chinese government. This report examines the economic attractiveness of Chinese online market and tries to critically evaluate Google’s strategy to get a firm foothold in this lucrative market and how it impacted Google’s worldwide reputation. As conclusion, this report identifies key lessons for global internet companies and their strategy makers who wish to compete in the Chinese market.

Introduction

Who doesn’t know Google? It has become a synonym of the word “search” in modern dictionary. In short, Google Inc. is an American public company which provides online services like internet search, e-mail, online maps, online office products, social networking, video sharing and many other online services. It is one of the fortune 500 companies and has offices situated across the globe, and is headquartered at California, USA. Google’s main source of revenue is generated primarily by delivering relevant, cost-effective online advertising.

History

Google began in 1996 as collaboration between Larry Page and Sergey Brin to develop a search engine called BackRub. In 1997, Larry and Sergey decided that the BackRub search engine needs a new name. After some brainstorming, they go with Google — a play on the word “googol,” a mathematical term for the number represented by the numeral 1 followed by 100 zeros. The use of the term reflects their mission to organize a seemingly infinite amount of information on the web. In 2000, Google began selling advertisements associated with search keywords. The ads were text-based to maintain an uncluttered page design and to maximize page loading speed. Keywords were sold based on a combination of price bid and click-throughs, with bidding starting at $0.05 per click. While many of its dot-com rivals failed in the new Internet marketplace, Google quietly rose in stature while generating revenue.

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Google expanded from their web search business to online advertisement space, social networking, e-mail service, online office packages etc. Google is known for their innovative and unique solutions which are of daily use. These products have penetrated in our lives to such an extent that they are inseparable now and come under the category of basic needs.

Vision

Google’s Official Goal/Mission Statement: “To organize the world’s information and make it universally accessible and useful”. Its each and every product offering right from web search engine to Chrome browser shows how strongly it feels about its mission. Google believes in keeping the customer needs first and is committed to do the same by providing most relevant and useful search results possible, independent of financial incentives. Also, it continues to improve the user experience by improving its search technology and providing relevant and useful advertising.

Ethics/ Core Values/Operating Goals Ĭ Google Philosophy

Google follows very high ethical standards inside the organization. The unofficial company slogan, coined by former employee and Gmail’s first engineer Paul Buchheit, is “Don’t be evil”. Google follows “10-things” approach as its core values:

Focus on the user and all else will follow

It’s best to do one thing really, really well

Fast is better than slow

Democracy on the web works

You don’t need to be at your desk to need an answer

You can make money without doing evil (As Sergey Brin says “When somebody searches for ‘cancer’, should you put up the site that paid you or the site that has better information.”)

There’s always more information out there

The need for information crosses all borders

You can be serious without a suit

Great just isn’t good enough

Culture

Google’s culture emphasizes the terminal value of innovativeness and attains this outcome through the instrumental values of working hard, being creative and taking risks. This combination of terminal and instrumental values leads to an entrepreneurial culture.

As a growing organization Google has now spread across various countries. They have offices around the world and dozens of languages are spoken by Google staffers. The result is a team that reflects the global audience through Google servers with zero downtime.

Value Creation

Google’s value creation model can be described as:

Google’s value addition process provides customer with enhanced search experience, and has some unique features. It provides comprehensive and relevant search results, by continuously improving its technology and content. The services it provides have global access, and are easy to use.

China

When Tom MacLean, director of International Business at Google Inc. was tasked with formulating a strategy for launching the new Google website Google.cn in China in 2006, more than 100 US based multinationals were already operating various projects there. With a population of close to 1.6 billion, China was an attractive market for many global companies, which had entered into agreements establishing over 20000 joint equity ventures and wholly foreign owned subsidiaries.

Beginning 2006, China decided to shun away classical communist model of socialism and opened itself to outside world by accepting privatization. China, already a WTO member since Dec 2001, agreed to lower tariffs and abolished free market impediments. By 2006, the US exports to China rose by more than 50% to USD41.8 billion from USD19 billion in 2005. With a highly successful 2008 summer Olympics, China was displaying to the world its growing prowess.

Chinese market reforms led to improving the living standard of millions, greater social mobility and expanding the scope of personal freedom. This meant greater freedom of employment, opportunities, travel, business, education, housing and cultural pursuits. But most of all, it meant greater access to unbiased information by the masses. However, the country was still entrenched by a totalitarian regime that enforced rules and regulations through its brutal system. The government allowed free flow of economic data for market related reforms, but enforced harsh rules on political and religious matters. As some western observers commented, “China’s well-documented abuses of human rights and violation of internationally recognized norms were a major setback that often disrupted trade relationships with democratic countries”. Despite these shortcomings, the western nations saw trade with China as a crucial step in lifting the socio-economic levels of Chinese population. The goal was to “fully integrate China into the global, rules-based economic and trading system” thus creating a vast market to tap into.

Internet market in China

In Jan 2009, CNNIC, the country’s official research organisation reported the number of internet users in china touched 384 million, more than the entire US population. Moreover, as China started offering 3G services to its citizens, more than 233 million netizens accessed the net through hand held devices. The chinese are so obsessed with internet that people in 60 biggest cities spend 70% of their leisure time surfing the net. The PC is fast replacing the television set as the preferred mode of entertainment and emotions are soaring over who logs the highest number of hours online. A recent report by Renub research highlights the attractiveness of Chinese market in below points:

During 2000 to 2010 the growth rate of the Internet users in the world and China has grown by 399.28% and 1,500% respectively

China Internet market has crossed CNY 290 Billion by 2009 and it is expected to cross CNY 900 Billion by 2012

In 2009, the number of Chinese mobile Internet users accounting for 60.8% of all Internet users making Mobile phone Internet market worth CNY 15 Billion

China Search Engine Market is expected to be more than CNY 9 Billion by 2013 growing with a CAGR of 11.88% for the period spanning 2010-2013

Online news users have crossed 300 Million by 2009 with annual increase rate of 31.5% and Online Stock Trading user in 2009 are more than 50 Million, an increase of 67% over 2008

It is forecasted that by 2012 China Online Game market will be worth more than CNY 70 Billion and China Online Video market will be around CNY 4.9 Billion

In 2009 Online Shopping market was CNY 250 Billion making it the biggest segment of the China Internet market

However, this vast uncensored information endemic is not welcome to Chinese authorities. Officials have been implementing vague rules regarding conduct and content on the internet taking advantage of the physical infrastructure of the internet which is owned by public sector company, China Telecom. Inorder to circumvent government censoring of online content, tech-savvy Chinese users rely on proxy servers and anonymizer programs located outside China.

The Great Firewall of China

Often referred as The Golden Shield Project, the great firewall of china is a surveillance and censorship project operated by the Ministry of Public Security (MPS). Acting as gatekeepers to China, the government installed routers at the edges of domestic network filtering content based on URL, keyword searches and email content. MPS employed more than 30000 cyber policemen to monitor government buildings and cybercafés through CCTV cameras. Internet service providers and cybercafé owners were harassed to perform self-censoring their users or they would lose license from the state.

Despite the government cracking its whip of censorship, an anti-surveillance movement had also started in China with funding from foreign government and private organisations. The motive of this campaign was to limit the monitoring capabilities of government by providing Chinese users access to new proxy sites and anonymizing softwares. This group was also active in disseminating important news such as AIDS epidemic in Henan Province, safety conditions in mines, poisoning of the Songhua River, and the SARS outbreak which had been censored by other Chinese media outlets.