Assessment 3 Briefing

MGMT3001 International Management: Individual Case Study Analysis

Page 407

Brief Integrative Case 3.1

Google in China: Protecting Property and Rights

Google in China In early 2008 Guo Quan announced plans to sue Google in the United States for blocking his entire name from search results in China. But why was his name blocked from search results? Guo Quan had published an open letter in early January to his government leaders Hu Jintao and Wu Bangguo, calling “for government reform [with] multi-party democratic elections” that served the interests of the common people.1 In response to his letter, the government labeled Guo as a dissident and a political danger. He was ultimately arrested on charges of “subversion of state power.”2

Guo Quan's name might have forever been lost in the shadow of the then-upcoming 2008 Beijing Summer Olympics, but formal and informal networks of information helped publicize his case; his harsh sentence, which resulted in his imprisonment until 2018, and the fact that he named Google in his suit have made him infamous. The story of Guo Quan reflects the many challenges faced by Google over the course of the past decade as it has attempted to expand globally. During this period, Google's relationship with China has undergone a series of advances and setbacks, each reflecting in some way China's response to the challenges of the Internet and social networking as well as Google's difficulties of translating a uniquely North American business model to countries and environments with different regulatory regimes, legal environments, and fundamental values.

Rough Beginnings At the break of the new millennium, Google began to offer its search services in a Chinese- language format with the hope of furthering its mission “to organize the world's information and make it universally accessible and useful.”3 Disappointingly, the website was consistently unavailable “about 10 percent of the time … [and] slow and unreliable” due to

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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“extensive filtering performed by China's licensed Internet service providers.”4 This sense of distrust persisted for another two years until the autumn of 2002, when Google first became completely unavailable in China because Google claimed to have “stood by its principles and not subject[ed] itself to Chinese laws and regulations.”5 The dysfunctional use of Google search services for mainlanders continued and in December 2003, Google.com was again blocked in China.

Three years later, in 2006, Google.com was again blocked while Google.cn, Google's Chinese subsidiary, remained in operation. The following year, in 2007, CEO Eric Schmidt gave an upbeat assessment of Google's outlook in China amid challenges of censorship issues and competition from Baidu.com.

More Than a BackRub: Google's Rise to Power But how did Google come to such international prominence? In 1996, Stanford graduate students Larry Page and Sergey Brin began collaborating on a search engine called BackRub. This search engine got its name because Page and Brin used backlinks to measure the importance of a site.6 By using the innovation called PageRank, a new system of ranking a website's relevance using “an objective measure of its citation importance … according to an idealized model of user behavior,”7 Page and Brin dramatically increased search relevance compared to other search engines like Yahoo.

A little more than a year later, BackRub's massive bandwidth usage, which had downloaded over 30 million indexable HTML pages, made it inoperable on the Stanford server.8 From then on, Larry and Sergey realized the potential of BackRub, changed its name to Google, and moved their office to a colleague's garage.9

Google's first investor became interested in 1996 when Sun Microsystem founder Andy Bechtolsheim provided a $100,000 check, allowing Google to incorporate and become officially Google Inc. In 1999, more investors grew attracted to Page and Brin's idea and, with an increased budget of around $1 million, Google Inc. was able to relocate to a real office in Palo Alto, where a staff of only eight answered about 500,000 queries per day.10

In mid-1999 Google received an additional $25 million in equity funding for its search engine from two venture capital firms: Sequoia Capital and Kleiner Perkins Caufield & Buyers. The confidence to invest such a large amount of capital came from the previous experience these VCs had in funding high-tech companies, such as Amazon and Cisco Systems. Google's engineering genius and a monthly growth rate of 50 percent fueled only

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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Page 408

by word of mouth easily proved its value to these seasoned investors.11

By the year 2000, Google became the world's largest search engine, supporting 15 languages.12 Google's service was nothing new considering the existing search engines at the time, like Yahoo and AOL, but it was indisputable that Google offered the best search services. The innovative PageRank algorithm was combined with a minimalist homepage that focused on its search tool and reminded the user of its chief focus while helping to reinforce confidence in its best feature. Having secured a solid foothold in America, Google continued to seek more ways to expand. Visionaries from the very beginning, Page and Brin created Google to have “simplicity in our user interface and the scalability in our back-end systems [that] enables us to expand very quickly.”13

By anticipating the need to be flexible in order to expand, Google was set to go global. And as Larry Page remarked: “Google's search engine has always had strong global appeal. We attribute this success to the site's simplicity of design, ease of use, and highly relevant results. By localizing our search services to new international communities, Google will open up a host of new revenue, sales, and partnership channels.”14

Unfortunately, Asian countries in general had always been more difficult to penetrate because of competition from well-established local search engines. As recently as 2015, local search engine Naver had a market share of 49.8 percent in South Korea, while Google had 36.9 percent.15 Furthermore, China posed the greatest roadblock with censorship and competition from Baidu. However, with a population of one billion people and Internet usage on a steady climb, Google was determined to establish a stronger foothold in China (see Figure 1).

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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Figure 1 China's Internet Users and Population

Google vs. Baidu China's policies have directly influenced the competitive landscape for search firms in China. In the space of Internet search, Baidu is usually referred to as China's Google. But in reality, Baidu holds a strong market share lead over Google.16 Prior to the launch of Google.cn in 2006 in China, Google held 33.3 percent of the search engine market share between Shanghai, Beijing, and Guangzhou while Baidu held 47.9 percent.17 Google was optimistic about the close margin in market share and considered the possibility of perhaps buying out Baidu in competition. But instead, in mid-2006, Google made a fatal mistake, selling its 2.6 percent stake of more than $60 million in Baidu shares and introducing Google.cn to China.18

Nevertheless, Google.cn was launched with the promise that it would agree to block certain websites in return for the opportunity to run local Chinese services.19 Google promised to notify Chinese users when their search results would be censored and also promised not to maintain any services that involved personal or confidential data, like Gmail or Blogger, on the mainland. Google.cn was a response to improve the poor service Google believed it was providing in China. As senior policy counsel Andrew McLaughlin put it, “Google users in China today struggle with a service that, to be blunt, isn't very good … the website is slow, and sometimes produces results that when clicked on, stall out the user's browser. Our Google News service is never available; Google Images is accessible only half the time … the level of service we've been able to provide in China is not something we're

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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Page 409

proud of.”20

Fundamentally, Google's strategic move to create a local presence with Google.cn was driven by its desire to follow its mission of creating the most organized and efficient search engine. However, while Google thought it had the flexibility to set up a better search engine in China, Baidu CEO Robin Li was already ahead of the curve. While PageRank was being developed by Page and Brin, Robin Li was simultaneously working on a similar strategy for siteranking called RankDex. As a result, this similar search concept was brought to Baidu. In the end, Google had erroneously presumed that it could overtake Baidu by maximizing its core competencies within China.21

Not only did Baidu have a strong competing search engine against Google, but it also provided several innovative search features customized for more local tastes. It introduced community-oriented services, including information-exchanging bulletin boards and instant messaging. These extra services appealed strongly to Chinese Internet users and put Baidu ahead of a foreign Google that did not seem to understand the Chinese market as well.

In addition, Baidu also took an extra step that Google missed by setting up “a national network of advertising resellers in 200 Chinese cities to educate businesses about the power of online advertising.”22 By specifically targeting the business market segment, Baidu aimed to secure the Shanghai business sector. To secure the more general student population in Beijing, Baidu also offered a search engine that provided easy access to pirated film and music downloads.23

While Baidu strategically offered services that targeted specific market segments, Google was at a loss because of its slow comprehension of the Chinese market. Among one of the failures Google made was its attempt to rebrand Google.cn to Guge, which was Chinese for Harvest Song. Six months after the launch of Guge, “72.6 percent (62.8 percent of the users whose first choice was Google) of the interviewed users still weren't able to [recall] the Chinese name of Google.”24 The lack of brand loyalty was reflected in the insignificant number of Google users who were willing to convert from using the Chinese version of Google.com to Guge. Most users still preferred to use the original Google.com that was only censored by the People's Republic of China.25

Google seemed to be fighting a losing battle, while Baidu continued to receive positive press coverage during its 2005 IPO on NASDAQ. Consequently, in just one year, Baidu gained 14 percent of the search engine market share while Google lost 8 percent.26

In the following year, 2007, Google fought hard to hold onto its piece of the China

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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market, increasing its total market share from 19.2 percent to 22.8 percent while Baidu fell from 63.7 percent to 58.1 percent. Google increased its efforts by “hiring Chinese employees and … partnering with Chinese technology firms … [and establishing] two research centers, one in Beijing and one in Shanghai.”27

The small victory was short-lived as Google was soon met with conflict from both China's and the U.S.'s governments.

The Challenge of Censorship: Google under Fire Shortly after Google.cn received its license from the Chinese government in 2007, Google proceeded to sign a set of guidelines, designed to reduce the risk that their actions would lead to human rights abuses in China and other countries.28 By promising to comply with censorship when the government filed a formal request, this effectively removed Google's presence from the majority of human rights activities.

From this point forward, Google was fiercely criticized for running advertisements from nonlicensed medical websites in 2008, launching free music services, scanning books without proper copyright laws, and making pornographic content easily available multiple times in 2009.29 What has unfolded in the most recent years has been the climax of this drama between country and company.

On January 13, 2010, in response to an attack on the Gmail accounts of human rights activists by the Chinese government, Google released an initial statement saying that it was ready to end censorship of its search service.30 The announcement caused a stir, with speculations that Google would pull out of China completely.

Soon afterwards, however, CEO Eric Schmidt released a counterstatement stating that Google was planning to stay in China, even if it was forced to close down its local search services and just carry through with its other range of services.31 In the same month, Hillary Clinton, the U.S. Secretary of State, called upon Beijing to carry out a thorough and transparent investigation regarding the cyber hacks of human rights activists' e-mail accounts. Ultimately, she threw her weight behind Google's threat to pull out of China unless Beijing permitted an “unfiltered search engine.”32

Following the conflict in January, Google formally announced in March that all Google.cn users would be directed to the uncensored Google.com.hk website instead. According to Google, the decision reflected a legal move that still allowed mainland users access to their search engine.33 The move to stop offering a local search engine and battling

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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with China over censorship reflected a shift in Google's attitude, giving up competing with Baidu for Internet usage. In April, Google's share of Chinese Internet searches dropped from 35.6 percent to 30.9 percent and Baidu's rose from 58.4 percent to 64 percent.34 Despite no longer providing Google.cn to China, Google still cannot escape the censorship battles and attacks on its server. In 2014, China restricted access to nearly all of Google's auxiliary services.35 Almost instantly, Google's market share in China dropped to less than 2 percent.

But criticisms of Google have not always been from China. On March 22, 2011, New York Judge Denny Chin rejected a settlement between Google and both the Authors Guild and the Association of American Publishers (AAP). The original settlement had included an annual payment of $125 million in royalties to the copyright owners in order for Google to continue its project of scanning and selling online access to 150 million books.36 But copyright concerns persisted because no one could establish ownership of the digitized and scanned pages. It was concluded that Google's current pact would simply give the company an unfair advantage over its competitors while rewarding it for engaging in wholesale copying of copyrighted works without permission.

In October 2012, the AAP announced a new, yet controversial, settlement deal with Google. For each book already scanned by Google, publishers could choose to contact Google for removal. Moving forward, every digitized book catalog would first require an express opt-in from publishers. None of the financial terms of the deal were released. The Authors Guild, on the other hand, remained in litigation, leading a class-action lawsuit criticizing Google for its opt-out approach.37 In 2016, the U.S. Supreme Court dismissed the case, stating that Google's actions were within the realm of “fair use.”38

Some of the hardest-hitting criticisms have come from Google employees themselves. In August 2018, online magazine The Intercept released details of a leaked internal Google memo, highlighting a new attempt by the company to create a search engine, code named “Project Dragonfly,” for the Chinese market. The memo seemed to suggest that, rather than holding firm to its commitment to providing an open and uncensored search engine, Google was exploring the possibility of creating a product that met the demands of the Chinese government. In specific, the Project Dragonfly search engine would censor items that dealt with human rights, democracy, protesting peacefully, and religion. Additionally, users' search histories would be shared with a Chinese JV partner, giving the Chinese government the ability to spy on its citizens. Upon learning of the project, Google employees, fearing that Project Dragonfly would compromise the business ethics of the company, penned open letters

Luthans, Fred, and Jonathan Doh. ISE EBook for International Management: Culture Strategy and Behavior : Culture Strategy and Behavior, McGraw-Hill US Higher Ed ISE, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/curtin/detail.action?docID=6212572. Created from curtin on 2022-09-04 08:24:22.

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