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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2010. Google announces it is no longer willing to censor searches in China and may pull out of the country. Inc. thereby bypassing Chinese regulators and allowing uncensored Simplified Chinese search results (Wikipedia. Hence. On March 22. followed by some recommendations taken from the analysis.8 million in June 2002 (CNNIC. Jan 2006 Mar 2009 – present Jan 2010 Launch of China-based google. after Baidu. This estimate is up from 45. In Jan‟2010 Google declared that it had been the victim of a massive hacker attack originating within China. 2010). 2002). China blocks access to Google's YouTube site. Moreover Google China serves a market of mainland Chinese Internet users that was estimated in July 2009 to number 384 million (CNNIC. Google China ranks as the number 2 search engine in the People's Republic of China. Page 2 of 15 . Brief History of Google China Timeline 2005 Details A Chinese-language interface is developed for the google. access to other Google online services is denied to users on an ad hoc basis.MGT6041 .cn traffic to google.cn search page with censored results.hk (Google Hong Kong).com. and had decided as a result that it would no longer participate in government-imposed self-censorship within mainland China. Google began redirecting all google. People‟s Republic of China has a highest economic growth since 1990 and still evolving (see Exhibit 1). the world's largest Internet search engine company. considering the China‟s biggest market Google may lose its biggest revenue..Strategic Management Google in China Google China Introduction Google China is a subsidiary of Google. 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.com website. though there were a specific issue of self censorship. 2010).

Strategic Management Google in China Feb 2010 Hacking attacks on Google are traced to mainland China. Based on on-going development reported in the news coverage. March 2010 Google re-routes searches to uncensored Google Hong Kong.MGT6041 . as every international firm either trading or in service industry hopes to capitalise on the huge market unlike any other country. the strategic reasoning by Google can be narrowed down to four main factors: 1. On this basis. business reviews and widely available literature on the nature between Google and China. Exhibit 1 Google Strategic Reasoning Google as an international was making a significant move by entering the Chinese market in 2003. it is important to determine the strategic reasons behind Google‟s considering exiting China. Strong competition Page 3 of 15 .

Dalai Lama. In recent years.MGT6041 . Even when Google began to provide Chinese interface on its google. hence able to provide much preferred content. images or articles on police brutality. including Baidu which was just starting up. Tiananmen Square protest (1989). In addition. The services are blocked by the firewall to stop contents such as pornography. Volkswagen for instance. beyond its size factor potential China is also a very complicated market. The Page 4 of 15 . Historically. 2.Strategic Management Google in China During the early period of Google‟s presence in China. Baidu has expanded and managed to lead the market with 58. eventually. 4. 3. 2010).4% compared to Google with 35. 2010).cn the next year it was still not getting anywhere close to becoming the leader. followed by the inception of google. Conventional international business strategies strongly practiced by Western multinationals must be adopted differently in China since the market tends to strongly support local firms. was steadily losing its market share albeit Chinese car market was experiencing exciting increase at the average of 49% between 2006 and 2009 (Volkswagen. China‟s economic nationalism Although undeniably a huge market waiting to be capitalised on. Google constantly wants to maintain its reputation as an efficient search engine globally with user-friendly features. Tibetan Independence Movement or any content that originates from the Taiwanese authorities. YouTube. The main reason behind this was due to the fact that Baidu has developed an incomparable understanding of Chinese internet users.com in 2005. mainly on subjects related to the country‟s history of political violence and human rights suppression in the pasts. it remained the significant market leader ahead of other search engine providers. without exception. Limited service variability and quality Three of Google‟s main services.6% (WSJ. Google business policies and principles Google has been very reluctant towards the Chinese authorities imposing of extensive filtering in internet search results. many foreign firms ended up struggling to understand the Chinese consumers. This contradicts with Google‟s corporate philosophies such as “freedom of information” and “you can make money without doing evil”. 2010). 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.

Extensive filtering of internet content is also causing the slow data transfers for Google consumers. which brought about the frustration in the government. In all the cases. (Fang. Some of those values are need for harmony. The review above reveals that by analysing Google strategic reasoning behind its consideration. thereby breaking the trust of the Chinese government. 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. On analyzing the cultural difference. 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. Page 5 of 15 . 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. respect for age and hierarchy and avoidance of conflict.MGT6041 . Google has managed to go against all the values mentioned above. concept of face. The Chinese would maintain decorum and avoid something that would cause public embarrassment. which is evident with the way it has been running its Chinese operations in the last few years. Though Google signed the censorship agreement with China initially. The idiom “When in Rome. concepts of trust. which backfired. to be the market leader in China. do as the Romans do” explains this. But Google certainly did not follow this in China. Confucianism. 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. includes six values.e. Google breached the Censorship agreement. 2006). i. one of the components of Chinese business culture. But there are other cultural differences which stopped Google from doing something it does best.Strategic Management Google in China Golden Shield Project is under the control of China‟s Ministry of Public Security. disrespecting them and bringing about a conflict between them and the government. But Google accused the Chinese government of backing the hackers who launched a sophisticated cyber attack on Google‟s database.

Chinese social structure is very hierarchical and those in the hierarchy follow certain protocol. 2007). Page 6 of 15 . This certainly reflected in the way in which Google held negotiations with the Chinese government. He also says that Chinese are considered to be the most loyal customers in the world. It would not be held during meals and social events. That‟s what‟s precisely the Chinese government did. 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.MGT6041 . which is completely a non-Chinese way of business negotiation. Once a relation is established. Business meetings in china would take place with appointments fixed a lot earlier. it can hardly be broken”. whereas most of the meetings in Google would take place during the lunch. 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. “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. (Yau*.Strategic Management Google in China In China any business negotiation would occurs at a slow pace. It‟s pretty apparent that Google went into China advocating the American values that certainly did not go well with the Chinese.. 2006). 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. 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. “The Chinese believe that interrelations with things and others are continuous.

Due to the lack of clarification Page 7 of 15 .com (unrestricted) to google. 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.hk (unrestricted). Power structures The Paradigm . there have been numerous forces that consistently influenced Google‟s decision making process in China and hindered them from sticking onto their organizational motto. 2007). from google.government decides and people obey the law Control systems -Bureaucratic -Highly formal Organisational structures Hierarchical Source: Adapted from (Johnson & Scholes.Language. -No freedom of speech. 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). Google has been struggling since 2002 and have gone a long way of change.High influence of communism.cn (restricted) and finally to google. .cn in China in 2005 (Wu.Strategic Management Google in China Stories Symbols -Standard dress for communist party officials . But since the time Google has launched google.MGT6041 . 2010).Trust and relationship matters more than profit Rituals and routines .

which may finally lead to leave the fastest growing internet market.Strategic Management Google in China of intention. 2006). Google has been meeting with the consistent furies and outcries from different groups (Thompson. The tug-of-war not only creates pressure on Google‟s decision making team but also affects their decision to a large extent. 2006 cited in Yardey. 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. Even after knowing the possible pitfalls of this decision. 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. direction of influence. which will be of great help to construct the SIP model. 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 a dynamic system stakeholders contend. Strategically. in 2010 Google decided not only to move to Hongkong (China) but also started their unrestricted „google. Base on the study of Google‟s stance in „Google Blog‟.e. Google‟s decision of being in Chinese internet market but not being in Beijing (China) needs more clarification and is yet to be defined. some of the attributes of the stakeholders like power of influence. There has been observed a serious cultural clash between Google and China starting from the very beginning (i. 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. 2002). Page 8 of 15 .MGT6041 . various newspapers and articles.hk‟ (Google Blog). conflict and compete with each other and finally try to pull the organization in their direction. 2007). consistency and visibility are noted.

whether to leave or enter China).e. 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. Government who just supports Google in all cases (i.MGT6041 . 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 Page 9 of 15 Not Visible Visible Chinese Government . S.Strategic Management Google in China Media Google's Decision Making Team Chinese end users ENTER CHINA Google’s Investors Advocacy Group LEAVE CHINA American Internet Providers Chinese Search Engines Google’s Employees Google’s Investors Users outside China 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.

MGT6041 .Strategic Management Google in China patterns which can also influence the whole decision process.hk from Hongkong came as a result of Google‟s strong organizational belief of „Don‟t be Evil‟. Walsh (2005. For example. Economic. Social. the cultural web suggested that Google has not reacted well to the Chinese local needs. which it Page 10 of 15 . the mass media has not considered as one of the stakeholder because of the increased bias of media inside and outside China. Environmental and Legal). 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. 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. If that is so. (Political). and the need to identify these drivers is by a PESTEL analysis. is a good example of needing to devise a strategy in action. 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. then we need to examine the changing factors behind Google‟s position in China.119) suggests that “The process of strategy formation is a dynamic one that corresponds to the dynamic conditions that drive it”. they follow Google‟s decision of free flow of information and freedom of speech. There are clearly drivers for change at work. In the Social sector. Technological. strong world market position. (standing for Political. Google‟s operating environment in China seems to be constantly changing. 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. but an attempt to identify some strategic action choices for the future. This is not an examination of the past. The use of the cultural web analysis has highlighted that a main problem facing Google is the unpredictable attitude of Chinese officialdom. Chinese media supports Chinese government decision of restriction of the free flow of information whereas if we talk about media of US and UK. p. allied to strong local competition in a rapidly-growing and otherwise profitable market (Economic). extreme profit and finally due to the support from the customers worldwide. Google‟s decision of continuing with the unrestricted Google.

The drivers can also be used for the next stage in the process of strategy development. e. Other drivers for change can also be identified. which is Scenario Planning. to give plausible views of how the business environment may change in the future.g. but it‟s highly unlikely that high economic growth would. which would then be reduced to between 2-4 most likely positions.Strategic Management Google in China needs to do in a market where Technological change is rapid. The choice of the most likely scenarios will probably still contain a strong element of value judgement. Given this degree of uncertainty. and can also identify those that might be correlated. The flexibility of the Page 11 of 15 . but there are problems associated with it. It tends to be especially useful when:    There are a limited number of key drivers influencing the success of the strategy. while a stronger negative attitude could well stop Google from trading in China at all. This PESTEL analysis is useful for classifying the drivers for change. There is a high level of uncertainty about such issues. Outcomes could be radically different. but there‟s no doubt that a positive attitude would probably ensure success for Google. Stakeholder analysis can be used to suggest how some of these drivers might change. either negatively or positively. Typically. and it can be rather static. the Chinese political attitude. Scenario Planning is helpful when the environment is highly complex. managers could prepare different scenarios. Interrelated drivers and scenarios must be consistent. middling‟ or „pessimistic‟.MGT6041 . it is possible that very low economic growth in China might produce an unstable political situation. With regard to one of the key drivers. Scenarios tend to be „optimistic‟. and normal procedure is to create between 7-9 initial scenarios. the use of scenario planning could well be a help to Google. The use of this technique could help Google. or is rapidly changing (as it is here). it is a useful starting point for further strategy development. starting from the drivers with the greatest uncertainty. it is difficult to predict what their future attitude will be. All these factors apply to a greater or lesser extent to Google in China. However. The numbers of key drivers are not high. 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.

Strategic Management Google in China system and its ability to react to changing situations is attractive. but this could change. The situation is fluid. when used in conjunction with the cultural web and stakeholder analysis. in that they can both help to explain the existing situation.MGT6041 . 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. This has highlighted several features. using the Cultural Web. Should Google continue to lose market share to Baidu. it is another technique that might help to give Google a clearer indication of what strategy they need to follow. However. but it may not always be advisable to try to change strategy on a regular basis. Thus. so an analysis of the cultures involved. To take account of this. namely Stakeholder Analysis and PESTEL/Scenario Planning. Many international organisations attempting to set up operations in China have struggled. Page 12 of 15 . then the shareholders might decide this no longer fits with Google‟s desire to be market leader in its chosen markets. Both these models have the degree of flexibility required. (and the rapid rate of change in the internet service industry anyway). but also be used to indicate what might happen if the details of the drivers for change alter to any degree. but also give some guidance as to how to approach strategy in the future. that will not only help to clarify the situation. The economic attraction of such a large and growing market is obvious. was a logical starting point. something that Google did not do well in the initial stages of its operation in China. and the direction of change uncertain. such as the position of the Chinese Government with regard to control. and their support for Google in China might weaken. make the certainty of future activities unclear. and the importance of being in tune with the Chinese culture and market demands when providing a service. we need a theoretical approach (or more likely a combination of theoretical approaches). The major factors produced by the Cultural Web have then been taken and input the other theoretical models used in this report. but the difficulties involved in the continued operation. the Stakeholder Analysis emphasises the importance of Google‟s shareholders and the economic pull of the Chinese market. 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.

Such a model is shown below: Strategic Development Model. What we need is therefore a strategic model that links these techniques together. and see how changes in these drivers would affect the overall operating situation for Google. and the other factors that might be affecting its global operations. and also be sufficiently flexible to help update Google‟s management team as and when needed. which would take the drivers for change identified by the Cultural Web and Stakeholder Analysis.Strategic Management Google in China Such possible changes could then be tested on the scenario planning model. and there is no doubt that these are important.MGT6041 .R. but just as important is the internal operation of Google as a company. Page 13 of 15 . The three theories we have looked at have helped to explain the rapidly-changing environment that surrounds Google‟s operations in China. its core competencies and beliefs. it also emphasises that there are other factors to be taken into account when making a final decision. 2005) This strategy development model shows how the theories we have examined can help improve the analysis of the present situation. However. adopted from (Walsh P.

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