Google’s Failure in China.

The recent blog by David Drummond, chief legal officer at Google, proves that the company’s leadership learned little from their move to China in 2006.

China is a complicated market, more so with the media industry. The Communist Central Party (CCP) retains far more control over media, the press, and the internet than any other economy at a similarly-developed level. Internet companies must carefully consider how to enter China so they do not get forced into releasing personal account information.

Google took a long, hard look at the plight of Yahoo! in China. When it entered the country, Google kept its gmail and gchat services off of servers located in China. Because personal account information was stored on servers outside of China, Google was safe from being forced to turn over sensitive information.

Google made two broad errors since entering China: failing to assess its target consumer and reacting with ultimatums to the recent hacker attack.

When it entered China in 2006, Google tried to fight the CCP at every step, announcing that it was fighting for the rights of the common Chinese consumer. When taken from a western perspective these actions are honorable. But the Chinese are just as nationalistic and proud of their country as the US. They are not inclined to demand their rights from the government entity that brought them out of the Cultural Revolution and provided them with over 9.3% GDP growth for 15 years.

China comes from a cultural base that is collective, Confucian, and non-rebellious. Its perspective on freedom of speech and freedom of property varies from ours in that it assigns to these issues a lower level of importance. Google went into China espousing American values that did not translate well. As Kai-Fu Lee, former head of Google China, was quoted as saying, “The Chinese internet is different from the US and European internet. If you don’t listen humbly to your customers and pay close attention to the subtle differences you will fail…That is why, generally, US internet companies have, with the exception of Google, failed in China” (Neate, 2010). While Kai-Fu Lee seems to feel Google has listened to the consumer’s needs, I feel that Kai-Fu Lee’s departure from Google shows in part that it did not.

Additionally, Google’s ultimatum blog posting represents a major failure to grasp opportunity. Had it understood Chinese history, it would know to play the victim in this case. Take the Chinese classic “The Three Kingdoms” for example. Every Chinese businessperson reads this novel as a strategic guide to business. In it, a master strategist named Zhuge Liang finds his army stuck on a river bank awaiting an attack the next morning. They know they don’t have enough arrows to repel the enemy that will cross the river in the morning. So Zhuge Liang has his army build and dress straw mannequins and place them in boats. They then float the boats across the river with ropes and swimming soldiers. The enemy, fearing a pre-emptive attack, fires arrows that stick in the mannequins. The boats are pulled back and the next day Zhuge’s army uses the enemy’s own arrows to repel their attack, decimating the enemy in the process.

Stories like these are what Google should have read to gain an understanding of Chinese culture and history. Had it approached this situation with a more humble form of outrage, Google would have gained negotiating leverage and respect in a country where the government is not known to give it. It could have used the arrows from the ineffective attack as ammunition to fire back at the CCP.

Cited Works:
Neate, Rupert. “The former Google boss creating China’s answer to Silicon Valley”. The Daily Telegraph. London (UK). Mar. 12, 2010. Pg. 4.

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4 Responses to “Google’s Failure in China.”

  1. As someone who once participated with Kai-Fu in a team-building challenge while working for Microsoft, I can say this: He’s pretty decent at guiding a ball through a PVC pipe maze for his part in a relay race. Since that was the first and last time I interacted with him, that’s about the only personal story I can share.

    As for Google’s failures in China, I wonder how much of it has to do with competition? A lot of Google’s ability to monetize their service is based on having a comprehensive index and a large number of users to gather data from. In China, I believe Baidu still holds a commanding lead in market share. Part of Google’s success in the English-speaking world is that there has been no other product that could compete on quality… maybe with Baidu, Google has met their match?

  2. Hi Dave, thanks for the comment.

    As of the end of last quarter, Baidu held 58% of the market, and Google 34%, in China. I think you’re right about the quality question, but I also think that with the brand support Google had, they could be much further along in market share right now had they tried to compete with Baidu rather than attempting to run a profitable business on principles that at a societal level hold less command over personal choices.

    Google would have had a tough time in China no matter what they did, but I think by going in fighting with the government and then serving up an ultimatum that was more emotions than business strategy shows they have to learn a lot more discapline to enter a market as different from ours as China.

    Kai-Fu Lee now runs a VC company that is getting a lot of press. Seems like a highly intelligent individual.

    Thanks again for the comments.

  3. What would it have looked like for Google to employ the lessons of that story you mentioned above? It’s a great story, but I don’t quite see the connection.

  4. Hi Jamaal,

    The story wasn’t a great example of the specific issue Google faced back in 2010. I was using it as an example of how different the two cultures are and how cultural differences can affect business transactions.

    Directness in China can be viewed as extremely offensive and is reserved for only the gravest of situations. Even then, sometimes accusations such as those leveled at the Chinese government by Google at the time will serve only to make things worse.

    I am a passionate Google supporter and fan of their products and services. But the way they acted in 2010 could only have resulted in what we currently deal with in China: Access to Google sometimes times out, the page gets completely blocked every 20 minutes or so. One of Google’s mantras is “do no evil”. But by confronting the Chinese government directly, they eliminated the chance to compete in this market, influence web developers through their former research and development center in Beijing, or otherwise slowly work towards opening up China’s internet access. Google’s approach at the time was either a lack of understanding of Chinese culture or a very deliberate move to cut themselves out of the market. I should have probably put a better story into this entry.

    Thanks very much for your comment.

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