Google vs. China

All the discussions about Google's threat to withdraw from the Chinese market have so far have talked about freedom of speech--whether it's good (most people) or bad (some Chinese Government supporters). Many others are of the opinion that Google is trying to make a business decision look like a moral one. So which one is it?

IMHO Google’s decision to stand up to Chinese cyber-oppression is praiseworthy. By announcing that it no longer plans to censor search results in China, even if that means it must withdraw from the country, Google is showing spine — a kind that few other companies or governments have shown toward Beijing. No one was willing to start a confrontation with the Chinese Government. You can justify a lot of things if the pot of gold is big enough.

This move is also in line with Google's move to place its business and ethical interests squarely behind open technologies and open information (which essentially means against censorship). In December, a Google senior vice president, Jonathan Rosenberg, issued an online manifesto which had the following text “There are forces aligned against the open Internet — governments who control access, companies who fight in their own self-interests to preserve the status quo. They are powerful, and if they succeed we will find ourselves inhabiting an Internet of fragmentation, stagnation, higher prices, and less competition.”

Also the argument that Google has been out-competed in the Chinese market is incorrect. In the last 3 years it has managed to penetrate the Chinese search market. Google’s search market share has climbed from 13 percent in 2006 to 36 percent in the fourth quarter of 2009 While Google’s sales in China remain small, the business is growing rapidly and Google just had its best quarter in that country. 

Google’s change of heart in China may not have been solely about freedom of speech, but also about something that strikes at the core of its business: the security of information stored on Google’s servers. Also to the extent that there is any gain from this kind of move, the first company to do it gets all the headlines. The second company to do it will be seen as a follower who didn’t have the courage to act according to its convictions in the first place.

Google is the only entity in the world that has moral authority against China, and they just used it. By publicly challenging China’s censorship, Google has stirred up the debate over the government’s claim that constraints on free speech are crucial to political stability and the prosperity that has accompanied it. Even if it is unlikely to pose any immediate threat to the Communist Party, Google’s move has clearly put the Chinese Government in a difficult position. What could be likely outcome? In a conflict between the Communist Party and Google, the party will win in the short run. But in the long run, my money is on Google.

Google To Exit China ?

On  12th January, Google threatened to pull out of China after it learned of immense security attacks and attempts by the Chinese Government to gain access to the Gmail accounts of Chinese dissidents and human rights activists. Read Google's official statement here. Google agreed to censor its search results in China when it entered the market in 2006. If Google does leave, it would be an unusual rebuke of China by one of the world's largest companies.

Foreign companies already face a long list of obstacles while doing business in China, including “buy Chinese” government policies, widespread counterfeiting and growing restrictions on foreign investment. China has long restricted the sale of foreign movies, books, music and other media. For example, China only allows the broadcast of only 20 foreign movies per year.

When China joined the W.T.O. in November 2001, it promised to allow free trade in government buying. But it has never actually done so, leaving the Chinese government free to use its enormous buying power to steer contracts to Chinese-owned companies. China has also restricted the export of the so-called 'Rare Earth' elements which are important ingredients in things like hybrid engines, magnets used in wind turbines etc. China has become the world’s largest auto market, yet it still limits foreign automakers to 50 percent stakes in auto assembly plants in China and imposes steep tariffs on imported cars.

If Google pulls out of China China could be left with just one major Internet search engine: Baidu.com. Baidu is the clear market leader in China. Refer the market share below:

Considering the size of the Chinese market (300mn plus internet users), the market is considered strategically important. The search market in China reached revenue of two billion yuan ($293 million) in the third quarter of 2009, 28% higher than a year earlier

Google's revenue in China is relatively small. As per analyst estimates only a few percentage points of Google's nearly $22 billion in 2008 revenue came from China. In fact it is possible that Google’s inability to catch Baidu was one reason the company might have decided it was willing to give up on the China market.

Does Google still believe in 'Do No Evil'?
Maybe, maybe not...