Google?s China problem ? The cost of doing business in China

Posted on April 4

Google’s recent problems in China are generating heated discussions all around the world. The Chinese cyber attacks on Google raises issues about how or whether tech firms should continue to do business in China.  It also raises the question of whether doing business in China actually outweigh the costs. Google is the highest profile and latest case of a company asking whether China is worth all the trouble.

For many companies China seems to be a land of immense opportunities, which is one of the main reasons for Google’s venture into China in 2006 with the launch of Google.cn. A few months after opening its office in Beijing, Google announced that it would be introducing a new version of the search engine to comply with Chinese censorship laws, which require the search engines to purge results of any web sites that are disapproved of by the Chinese government. To many people, this decision taken by Google seemed considerably less than idealistic. Also this decision did not go over well in the United States and the company executives were called into congressional hearings. The company’s stock fell and there were protests in front of the company’s headquarters in California.

The recent attacks on Google that allegedly include theft of intellectual property and hacking of e-mail accounts of human rights activist in China are making companies think about the costs of doing business in China and how much they are willing to put up with,  for a shot at 1.3 billion customers. Google’s decision to review their business operations in China will have far reaching consequences.

 If Google decides to exit China, it will have an impact on its revenues. China has about 338 million internet users. With only 30% market share, (The local Chinese search engine Baidu enjoys 60% of the market share) this translates into a few hundred million dollars. Though this is a small amount as compared to Google’s worldwide revenue of 22 billion, this decision will also result in internet advertising vacuum that will lead to hundreds of millions of dollars flowing into China. Internet research firm eMarketer.com estimates the advertising market for China in 2010 to be over $1 billion dollars. This means Google will be giving up $300 million in advertising revenue which will be split among the remaining competitors. Apart from financial implications, Google also has a reputation in the world as a company that is trustworthy and does public good. Therefore Google will also have to consider the reputational cost, in their much larger US and European markets, of doing business with a repressive Chinese government. The costs to Google of not defending itself against these attacks may be more than the benefits of a presence in China. If Google decides to exit China, the people  affected by that decision will be  Google’s Chinese users, Google’s shareholders who will lose out on a few hundred million revenue and further opportunities in that country and Google China employees. But an exit from China would uphold the freedom of self expression and acquit Google in the eyes of those who were initially against it for complying with the Chinese restrictions. Also if Google takes the high road and exits China, that will put additional pressure on Bing and Yahoo and questions the standards and ethics of these two companies. If these companies also follow Google and exit china, Baidu will have complete market share. Google’s announcement that it may exit China has already raised Baidu’s stock price.

Google’s decision will also impact China’s economic growth which is dependent on creating healthy relationships with the western world. Google’s review of their Chinese operation, paints a negative image of China to the world which is not in the best interest of their nation.

Google decision to exit China will impact Google and China and it should be a carefully thought out decision after weighing in all the costs to all the parties involved. Google has to make a decision –sweep it under the rug or call the Chinese authorities on it. The Chinese authorities also have to make a decision-keep up the censorship laws or relax them a bit. The likely result is somewhere in between and both parties involved should take into consideration the costs associated before taking a decision on this issue.

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1 Response

  1. 英文
    May 25th, 2010

    Hello,guy. I come here form bing,I consider this article is wonderful ,.thanks u for sharing.




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