Googles Problems in China

Statement

China is going to be the largest market in the world. If Google isnt the leader there, will it really be the leading search company in the world?

Stay?

A decisionisneeded!

Exit?

Agenda
1. 2. 3. 4. 5. Company Profile Timeline China Stakeholder Analysis Options Recommendations

Company Profile
Information: 1996: Founded by Larry Page and Sergey Brin Headquarters: Mountain View, Palo Alto, California Industry: Internet and Computer Software Since 2000: Largest search engine Since 2000: Presence in China with google.com and since 2006 with google.cn 2010 Revenue: $26 billion Googles Revenues (in USD Millions)
Costs and Expenses Income from Operations

25000 20000 15000 10000 5000 0 200 4 2005 200 6 200 7

2008

Mission: Organize the worlds information Make information universally accessible and useful
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Timeline China: Stage 1

Entering China 200 0 200 0 Google.com enters Chinese market with 24 million websites in Chinese Google.cn Era 2005 200 2 Google gainspopulari ty Google.comrestored but oftenfilteredwithservi cedisruptions New filteredsoftware ResistancebyChinas government Block google.com Current Situation 2009 2010

2003 200 5 No. 1 in Market share Chinas search < 30% engine market with 34,8% market Market sharedecreases share Launch of Chinese Google News service Baidureaches No.1 with 46% ofmarketshar e
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Government blocks English Google News and otherservices Environment in China

In 2005: Strategic decision to stay in China with as censored search engine

Timeline China: Stage 2

Google.cn Era 200 0 2005 2009 2010 200 8 Launch of musicsearc hservicewit houtbigsucc ess

200 200 2007 5Google develops a 6Launch of google.cn Partners transparentyetcens withTianya Club ored google.cn censorshipwithdiscl andentersalliance byself-censoring osure swith Sina Corporation and Representative Tom Online to office in isolateBaidu Shanghai and R&D Government China not clear in instructionsastow hat to filter

dissatisfiedwith google.cn itgetsblocked in severalcities Environment in China

Olympicgames ledtodecrease drestrictions but after theyincreased again

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International/National Conflicts (1/2)

Industry Experts: Google.cn enables Google to increase performance in China

Google Loyalist: China as a country will always remain unsatisfied Human Rights Watch: Danger that Google will cooperate with China and give government names of people who searched for banned words

Government dissatisfied with google.com and google.cn Google.com is blocked in China Google.cn works but with frequent disruptions and is often blocked

Senior Policy Counsel of Google: Censored search engine is more consistent with mission than providing no information at all Without Google.cn the existing search engines would continue to censor which keeps authentic information from the user If in the future Google wont achieve its goal to offer all information, Google will review its business in China

International Reactions

ChineseGovernmentRe action

GooglesAnswer
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Timeline China: Stage 3

Current Situation 200 0 200 9 Google removes somefeatures 2005 2009 2010 Google begins to offer uncensored content on google.cn 2010

Cyber Attack on Googles Server: Chinas hackers target corporate infrastructure Theft of intellectual property Human rights advocates Demand to increasecensorship Gmail Services like YouTube and Gmail but also Facebook andTwittergetblockedbyth egovernment Environment in China

Government is against features, e.g. Suggest Feature

Government invites Google toresolvethei ssuelegally

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International/National Conflicts (2/2) Industry Experts:

Remarkable decision because big corporations rarely put principles above profitgood business in long-term USA Government: We look to the Chinese government for an explanation China isputtingwesterncompanies in censorshipwithnetworksecu rityissues Other Experts: Just a reason to exit Government: Keep on blocking google.cn In China the online businesswouldthrive Chinasgovernmentenc ouragesinternetgrowth Foreigninternetcompani esshouldobeythelocalla w Google CEO: Wecannotparticipate in censorshipanymore Google mightnot fullyleaveChina

Unclearwhetherthey wanttoexitor not?

International and National Reactions

ChineseGovernmentRe action

GooglesAnswer
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Users voicesfor and againstGoogle in Chinae.g. Thankyouforholdingvaluesoverprofits

Strategic Issue
ShouldGoogle stay in China orexit China (shut down google.cn)

Whatconflicts and issuesdoes google.cn face in China?

Whatisgooglemissing in China?

WhichoptionsshouldGoogle consider?

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Stakeholder Analysis
Whatconflicts and issuesdoes google.cn face in China?
Government

ChinasSpecific Environment

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Stakeholder Analysis

China has always been a relatively closed society that has tried to keep close control on its citizens media experience Communist government developed an internet infrastructure that let them control the flow of information Censor sensible political content to prevent "westernization
Episodic
Government blocksages& censorship

Structural
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Stakeholder Analysis

Google doesnotgettheinfor mationrequiredfort hecensorshipfromt hegovernment

Governmentis more powerfulthan Google Google fails in understanding the censorship Google asan american voice in the market hasdifficultiestoinfluencegovernmentsdecisions Canlead to international conflicts USA and China

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Stakeholder Analysis
Competitors
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 26% 28% 30% 31% 24% 26% 26% 17% 19% 23%

others Zhongsou

BAIDU Market Leader 58% 57% 58% 61% 60% 61% 64% 63% 60% 59% Since 2006

Sogou Yahoo China Google China Baidu

Market Players Google, Yahoo China Foreign Baidu, Zhongsou, Sogou

Baidu: Leading internet service provider offeringsearchengine in Mandarin MainUsers: Students Since 2003rapidlygainedmarket share: Extensive advertising throughtelevision and digital media Providedpopularserviceslikebull etinboards, MP3 search

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Local

Stakeholder analysis

Employeesworkaccording to the Chinese market

Understandsthe Chinese marketbetter as an Chinese company Has a good relationwiththegovernment

Baidu more powerfulthan Google Google wasnotabletooffer the samerangeofproducts and services Baiducouldbe in the future a potentialthreat in othermarkets

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StakeholderAnalysis
Users: High end users Reason: Business opportunities Expectedgrowth: From 2009 with 396 millionto840 millionusers in 2013 (47% growth) Usersremainloyal to a searchengine Further Issues: Google has failed to meetChinasculturalneedsand theneeds of Chinasyoungpeople. Simultaneously, Google faces a reputationalrisk in therestofthe world. Further Issue: Prospective customers wont choose to do business with Google, if it continues to threaten to exit China

Users andCompanies

Further Issues: Unstable Employer Damages trust in the job market 16 Employeeswant to have a safe job Decrease of employee loyalty

Result
WhatisGooglesmissing? Ability to operate in controlled Capabilties required in enviroment and offerfree internet search market to information succeed in China Government: Not able to Ability to work in a controlled negotiate/adaptthe environment Capabilitie censorship as wishedfromthe Government: Good s required government (againstmission) relations n do not User: Loyal professionaluser eeded to negotiate/ match basebutdoesnotreally capabilitie Cencorship understandculture and s User: Understandculture and language possessed language butfuture potential Competitior: Ability to face a Competitor: Ability to face hugecompetitorwhogets the governmentalsupport worldsleaderbutnotBaidu in Employees and business China customers: Prefer stabil Customer: Able to company attractcutomersbut just 17 What are the option? ifseenstable Whatisgooglemissing in China?

Available Options
WhichoptionsshouldGoogle consider?

Stay Exit partially by leaving R&D Status Quo Stay + Build/Ac quirenee dedcapa bilities

Exit

Exit China

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Evaluating Options
Evaluation Parameters and What They Measure
Type A (Consistency with Googles Mission) Measuring the compatibility of Googles mission with each option available. Organize the worlds information Make information universally accessible and useful Score of 3 denotes full compatibility and vice versa Type B (Stakeholder Satisfaction) Measuring the effect of each option on the Stakeholder Satisfaction. Score of 3 denotes high Satisfaction and vice versa Type C (Opportunity) Measuring the ability to acquire Chinas market potential with each option. Score of 3 denotes maximum opportunity and vice versa

Measuring scale 1 2 3

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Option 1: Status Quo

Type A (Consistency with Googles Mission)

Google is facing a mission conflict with Chinese censorship policies Difficult to make information universally accessible because of Chinese government intervention Every stakeholder will be dissatisfied Users support Google but others are against Google Government and Google face continued friction if Google doesnt increase compliance Employees face uncertainty about their job future Customers will not advertise on Google because of its suboptimal service Chinese search engine market is huge and is expected to double by year-end 2013 However, China makes up just 2% of Googles revenues

Type B (Stakeholder Satisfaction)

Type C (Opportunity)

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Option 2: Stay + Build/AquireNeeded Capabilities

Type A (Consistency with Googles Mission)

Form agreements with government and local partners Build/Acquire capabilities required by the market without further sacrificing its values Make information accessible and available by entering into certain censorship agreements

Overall, all the stakeholders will be satisfied Government agreements will ensure better relations and Type B uninterrupted service (Stakeholder Users satisfied by continuous service Satisfaction) Employees satisfied with a stable employer Customers will feel confident about advertising on a reliable search engine Chinese search engine market is huge and is expected to double by year-end 2013 However, China makes up just 2% of Googles revenue
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Type C (Opportunity)

Option 3: Partial Exit (Maintain R&D)

Type A (Consistency with Googles Mission)

Google will not violate its values or business model when its operations are confined to R&D At the same time, Google will not be able to make information available to the Chinese market

Overall, all the stakeholders will be dissatisfied Government will make it even harder for Google to Type B operate in retaliation for the unwillingness to cooperate (Stakeholder Users will no longer have access to Google Satisfaction) Employees: Google will not be able to attract the best Customers will not buy advertising space if Google is just investing in R&D Chinese search engine market is huge and is expected to double by year-end 2013 At least Google is maintaining some presence in the country But note, China makes up just 2% of Googles revenue

Type C (Opportunity)

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Option 4: CompleteExit
Type A (Consistency with Googles Mission)

Leaving China is consistent with Googles mission and business model to offer all available information At the same time, Google will not be able to make information available to the Chinese market

Overall, all the stakeholders will be dissatisfied Government faces negative impact to international reputation Type B (Stakeholder Users dissatisfied by losing google.cn Satisfaction) Employees at google.cn will be left unemployed Customers will not be able to advertise on Google and so will move to and strengthen competitors Chinese search engine market is huge and is expected to double by year-end 2013 where Google exit from Bad for any return to the Chinese market in the future However China makes up just 2% of Googles revenue

Type C (Opportunity)

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Result
Stay with Status Quo Stay+ Build/Acqui re needed Capabilities 2 Exit Partially Exit

Consistency with googlesmission Stakeholder Satisfaction

Opportunity

Sum

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Result

Why China should have a agreement?

Pro Opportunity for improving USA-China relationship Maintain investment confidence in China Government invited google to negotiate and find a legal solution --> suggests openness to negotiate Con China prefers Baidumore than Google --> National interest

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Recommendation
Stay + Build/Acquire needed Capabilities
Recommendation are based on stakeholder analysis and on conflicts/ issues. They are arranged by importance and must be implemented as fast as possibles simultaneously.

Government: Long term agreements about what has to be censored; extent of censorship; must be reviewed periodically and kept up-to-date

2 Competitors:Get local partners to ensure Googles understanding of culture and Mandarin language; complete a deeper market analysis to understand users needs/identify target groups
Employees: By focusing on being a stable company, Google can attract highly educated employees and offer excellent business opportunities, competitive salaries, friendly working environment Users: Because Chinese users are loyal to their search engines, Google should focus on marketing presence in schools/universities and sponsorship for important Chinese events Customers: Become a stable company so that customers can continue advertising Best way to decrease international conflicts between USA and China
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Thankyouforyourattention.

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