Saturday, April 3, 2010

Google-China Showdown

China is a tempting market with it's 400 million strong and quickly expanding middle class ready for market consumption - But China is a place where western norms of business apply only when the Chinese government says they do. Companies wanting a piece of that pie must remember that it is still Communist China and Google just found that out the hard way. Google is winding down it's operations in China. As the Chinese government holds steady, Google sees no other way out of its current predicament. It doesn’t matter what Google wants to do, Chinese law is not going to change the way Google thinks it should. There is no influence regionally or globally that Google can bring to the table influencing change. Google does very well in Russia, an important ally and trading partner to China. Did the executives of Google get any advice from the Russian government? If they did, it’s evident they didn’t follow it.

The U.S. State department has made some statements in support of Google but it can saber-rattle on behalf of Google all it wants; it will not change the outcome. The U.S. Senate has created an Internet Freedom Caucus aimed specifically at Iran and China. It won’t influence current events. China is moving toward an international and diverse global economy based on free trade and treaty agreements. Google is not a priority for the Chinese government to deal with. In fact it is puzzled by Google’s actions. It has other important challenges, importation of energy supplies, currency issues, protecting its US treasuries and industrial and service trade routes. Google is not that important to the country, except to be an annoyance and be a negative effect on the country, potentially destabilizing it. Robert Gibbs, White House Press Secretary, was asked if President Obama was briefed on Google’s decision. Gibbs responded that President Obama was aware of what may occur over the weekend. -So much for US government intervention.

If Google stays - it will have to abide by Chinese law - so it needs to get a grip and move on. In doing so, it would be prudent to remove services like email and any application requiring identity information. That doesn’t leave much except its search engine business - which implies going back on its public statement with respects to censorship. For now it has redirected its search engine to its Hong Kong website. That won’t work.

If Google leaves - it will not be the end of the world. Yes, it’s a big market with consumers that have money to spend. Other giants have come and gone, Walmart being one of them. Google could always go back as reforms occur within government.

Google, Yahoo, IBM, Microsoft, GM, Ford, and several others risked international criticism entering the Chinese market. Export of its products at lower cost was a fraction of the reason these companies have entrenched themselves into the country. Entering the biggest consumer market in the world is a bigger prize than exports - by a fairly wide margin. The industrial companies have fared well, so why are some high tech firms frustrated?

  • International internet business models, ideas and concepts are not a one size fits all. Visions that work in a closed and socialist countries have not fully adapted to ‘western concepts’.
  • Failed to heed history. The company decided it could risk forgetting lessons learned from the past and simply try creating new history. Recent black eye experiences such as Yahoo, Microsoft and other high tech companies did not influence how Google should approach the Chinese government.
  • Software and Intellectual services are threats to indigenous political institutions. Manufacture and assembly of cars, computers, cell phones and every other widget and gizmo are not threats.
  • During the cold war, the latest high technology products were stolen or received through defection by the other side. Think computer chips, and the atom bomb. Any device that can advance the power of an institution. In the post cold war era; the government will invite your company into the country with the red carpet awaiting you - literately.

Patent and intellectual property law will probably eventually be understood, recognized and enforced in China. Just not right now. It will not be a component of its foreign policy that is meaningful or acted upon consistently for the next several years. Microsoft for decades has been battling piracy issues in China and has barely made a dent. Microsoft has not complained to the point of leaving the Chinese market. Most analysts know why - long term vision. Microsoft knows that over the next 50 years it wants to be the dominant operating system and software brand in the country and there are signs that strategy is already paying dividends for the company. Google tried to change the culture and enforce its own long term strategy in significantly shorter time frames and believed it could do so publicly threatening the government. Oops.

Google will survive the experience regardless if it stays or leaves. For now it has decided to attempt keeping one foot on each side of China’s territories. China will likely not accept such a solution and Google will be forced either to comply to Chinese national law - or leave. If it tries to stay, management will need to wake up and adhere to the rules and culture of a “made in China” Google experience. It’s not rocket science. Google has to be careful or China may wind up banning the company completely.

1 comment:

Pluorov said...

If Google ever leaves China, it would be good for the Internet - so Google won't be a monopoly, and it could be, keeping in mind how better than Microsoft and Yahoo Google is.

Though in Russia Yandex is still ahead of Google.