Informer's World

The prospect that Google Inc.’s business in China might not reach its fifth birthday must be particularly difficult for Eric Schmidt. As Google’s chief executive, he claimed to have 5,000 years of patience (as long as Chinese history) for Google’s business in China.

But a Blog Post declared ending of censorship was widely interpreted as a signal of pulling out as a non-filtered search engine is not possible under current regulations in China.
Without a final deal, both sides are at the negotiation table, Google and the Chinese government are already under the lime light. the Chinese government is again losing its reputation on human rights issues, but it continues to be the government for over one sixth of world population. Google is merely gaining back some points from its heavily criticised decision to cooperate with the Chinese government on censorship. From a business perspective, if Google finally does quit China, its guiding ambition-’organize the world’s information’ is very likely left as a fantasy by leaving out nearly 400 million Chinese web users out of its reach. Google can argue its Chinese business, which only accounted for around 1 percent of its annual revenue the last year(estimated by an analyst at Collins Stewart), is not a big deal. But this might just be a footnote among the reasons Google is challenging Beijing.
Like other Internet companies that entered in China earlier, Google gives up some ethnics to do business in the ‘land of promise.’ It agreed to censor search results on its Chinese site to be launched in 2006. When Google hired Kai-fu Lee in 2005 to set up Google.cn, the seven-year old company understood too well the strategic importance of China–population of its web user is soon to exceed U.S.’s to be the world number one, and it has lots low-cost IT talents.
Looking back four years later, the embarrassing lose-lose situation may possibly mark an end for Google’s adventure in China. This reflects the fact that global Internet companies whose expansion has been perceived as unstoppable in fact are stoppable.
First of all, Google’s failure to achieve domination in China is commercial. For foreign companies, China is indeed an attractive market, but a tough one to get into. Google has so far failed to achieve what it compromised for. Baidu, Google’s major local rival in China, has more than twice Google’s market share. China, together with four other countries (Russia, Japan, Korea and Czech) still stand in the way for Google to be global dominant search engine. Virtually, none of global Internet companies has really succeeded in China. when Google came to China in 2006, the earlier batch such as Yahoo, AOL, eBay, Amazon and MSN that entered just after new millennium had already mostly failed: After suffering from large share losses, they were either sold to local IT companies, or simply shut down. From these examples, Google learnt not to expect a quick return and starting up with localised strategy: It recruits local engineers to develop products for local markets(which might also be extended for global use), and it has 26 small advertising sales units dispersed over 20 major cities across the country. However, result of Google’s business in China did not turn out to be satisfactory: In 2009, sales recorded in China only account tiny bit of its global business and well behind its local rival. There are some reasons can explain Google’s disappointing performance from purely commercial considerations. First, Google developed its core search technology based on English, which naturally becomes alien while sorting information in a linguistically and culturally different language. To be accepted by users also turned out to be more difficult for similar reasons. Google had to adopt a Chinese name ‘guge’ and spent $20mn to buy ‘g.cn’ with from a local Internet company after it found Chinese do not remember how to spell ‘google’. Make everything worse, Google found its local competitors more aggressive than it has estimated. Baidu for instance,funded by foreign venture capitals has abundant amount of cash at its disposal.
Second, as a pioneer to test boundary of state and market in China, Google demonstrates powerlessness of foreign business in front of the Chinese government. If Google were a company that provides hardware, it would have been much easier maintaining a solid relation with Beijing. Cisco, which supplies equipments and technique to implement censorship in China has good government relations. The problem is, what Google aims to do–organising information is just what the Chinese Communist Party is also keen on avoiding. The Golden Shield Project (usually referred as the Great Firewall) was launched the same year Google started and it serves to control information in the Party’s interest. Filtering information was justified to protect the youngsters from pornography and a means to maintain social stability and is empowered by judiciary enforcement.
As the first official response to Google’s blog post, Jiang Yu, the spokeswoman for Foreign ministry, re-alleged that ’foreign companies are welcomed to do business in China, but they have to obey the Chinese law’. Local government holds an arbitrary position in building its local business environment with local laws, qualification and procedures to get an operating license, tax and policies etc. Google and other information-related companies often find themselves in a particular awkward position in China due to the product they provide. They are strictly required to operate within the ‘Chinese law’ which often runs in conflict with their interest. International bindings such as WTO is not that helpful in reducing this kind of conflict as Google was not treated unfairly compared with its Chinese competitors, in in terms of level of censorship for instance. Western society has long believed economic liberalization will finally bring in democracy in China. Google has now found this expectation far too naive: to play the game in China, it is often the global companies that have to adapt, not China.
More widely, the breach of Gmail accounts loomed the future of cloud computing. Google as a leading company that advocates cloud computing heralded a one-stop destination for information. Users of Google’s Software as a Service soon realize that amount of information they have stored in their Gmail account has made them dependent on the service provider and therefore hard to abandon it casually with a click. Here is where security rises as an issue. In the year Google launched of email service in 2006, 60 users found information on their accounts permanently lost due to an internal problem of Google. Google was fortunate that this news was not widely exposed. But this time, although Google is an obvious victim of Chinese cyber attacks, its ability to protect users’ privacy is in question. And as a specialist told Financial Times, “It would be a mistake to assume that Google is any more vulnerable than other providers. Any mail server that we have tested is vulnerable to an attack”. It is a blow to the whole industry.
Without a doubt, Google builds an global empire faster and more efficiently than anyone could have imagined. Google is getting closer to its ambition, but it is too optimistic to conclude a borderless winner as its experience in China has just suggested the opposite.
A speech on Internet Freedom given by Hillary Clinton, the U.S. Secretary of State emphasized the fundamental importance of information. This is both good and bad news for Internet companies. For the gloomier side, when national diplomacy and security expands into virtual battlefields, as it already did, global Internet companies will find themselves even more powerless in front of politics.
Planet Google has so far failed to prove an exception.