Case Study

On
Google in China
 Table of Content

.........................................................................................................................2
INTRODUCTION:.................................................................................................3
CURRENT STATE OF INDUSTRY-.........................................................................................................4
NEW STRATEGIC DIRECTION/DEVELOPMENT AND METHODS-.........................................................................6

Background:
This case briefly discusses about search engine market in China, Google’s share in Chinese
market, Government rules and regulations related to the internet search.

The main issues discussed in this case study are:

• Google’s launch in the China and how it made its presence felt over there as well as the
key issues faced by the Google such as gaining the market share, although Google did a
fair amount of research before entering China but still wasn’t able to beat the local
competitor Baidu which is the biggest in terms of search engine in China and accounts
for nearly 60% of the market share.(Appendix 4)

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 • Chinese Government rules and regulations related to the censorship in China which was
against the Google’s Mission of providing the information.

• Cyber attack on Google China which mainly target the gmail accounts of the users who
were Human Right activists which forced Google on considering its exit from China.

• A brief analysis of the internet search market in China by discussing the market share of
various players such as Google, Baidu, Microsoft, Yahoo and other local Players.

• Possible strategy which Google could use in order to grow and sustain its market
share(Ivey Case B)

Introduction:
Google started its operations in China in 2005 earlier to that it provided search engine to Chinese
users through its servers based in US but in a very short span of time Chinese Government
developed its own firewall in order to provide the censored information to the Chinese people by
providing the cache copy of Google search results which resulted in slowing down of its web
pages, this resulted in slowing down its search results upto 7 times as compared to its competitor
Baidu. As a result of this, Google decided to open its operations in China in order to resolve
these issues as Google considered that it’s better to provide the information rather than providing
no information at all. So, it provided the censored information to Chinese population but still it
found difficult to extend its presence in the Chinese market in terms of developing products in
the Chinese language and localizing them whereas Baidu’s pay 4 performance model was much
better which was based on the performance rather than the flat charges in the beginning itself
which other search engines used.(Ivey Case B)

Google faced cyber attacks in January 2010 which forced it to consider its exit from the China
and named it as Aurora attack, moreover this decision from Google was considered diplomatic
one by internet security experts as this decision would make Chinese Government to reconsider
its decision on the censorship which could help Google attain the same level of leadership in the
Chinese market as it enjoys the world over (Worthen, Ben,2010)

Summary of Environmental Audit:

Google was not able to enjoy the same monopoly in the Chinese search engine market as it
enjoys world over that could be a possible reason it raised the issue of cyber attacks as it was
planning to exit from Chinese market and needed a reason to do the same. Also another possible
reason could be that it wanted to negotiate with the Chinese Government over the censorship
issue so it thought that the threat to exit from the Chinese market could force the Government to
renegotiate the terms and conditions for the censorship which eventually didn’t happen. As a
result of all these www.google.cn (its Chinese version) was routed to www.google.com.hk as
most of the services were blocked in partial or full manner in the Chinese territory. But this sort

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of complete isolation could have resulted in a protest from local population also Google didn’t
want to lose such a huge market which was nearly double the size of US so it didn’t
automatically redirect to www.google.com.hk but provided an option on site by doing so it
abided with anti censorship laws and regulations. (http://googleblog.blogspot.com)

Another important analysis which we can draw is that Google was not able to localize its
products so well in the Chinese language and it lacked in terms of paid search. Although Google
was gaining the market share as well as the revenues as it is clear from Appendix 4 & 5 but it
didn’t enjoy same kind of monopoly in China as it enjoyed world over (Ivey Case B)

Evaluating Current Strategy:

Current state of Industry-
As per a report published by iresearch overall search engine market in china accounted for nearly
470 million $. Overall internet users in China in 2009 reached to 384 Million much higher than
anywhere in the world and this made it a very lucrative market for players in the internet search
engine market. (Ministry of Culture) Baidu which was local player dominated the market with
over 60% market share followed by Google, Yahoo which took over Alibaba and Microsoft
enjoy 5% market share each and other players such as Sohu and Sina accounted for the
remaining market share. Appendix 1 shows the overall market share of all the players in the
market. China’s online advertising market grew at a rate of 20 to 30% per year(Appendix 3) and
overall market size was nearly 3 Billion $ as in 2009(Max Magni) Shown in Appendix 2 Overall
with such a huge population China’s search Engine market would surely increase in future at a
very fast pace.

Product Portfolio Analysis-

As per Johnson & Scholes Product Analysis can be done with the help of BCSG Matrix which
includes

• Stars- Products with high growth rate as well as high market share.

• Cash Cows-Products with high market share and low growth rate.

• Dogs-Products with low market share and low growth rate.

• Question Marks-Products with low market share and high growth rate.

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BCG Matrix helps the Company to decide which products it should focus on and from which
products it should exit. It is a very valuable tool in terms of defining the strategy of the company.
(Cooper, R. G., Edgett, S. J., & Kleinschmidt, E.J. ,2006). On the basis of product analysis of
Google we have developed a BCG matrix for Google.

BCG Matrix

Critical Strategic Direction-

In view of all these happenings Google decided to route its China’s Online Traffic to Hong Kong
but it would result into non renewal of its ISP Licence which would result in its permanent exit
from China and Google would never desire to loose such a lucrative market also Chinese
Government would not like to prohibit its people from accessing the world’s largest search
engine. So, Google agreed to abide by the Chinese censorship laws by providing filtered results
to the Chinese Population with footnote about the censorship. This critical strategic step would
help Google to increase its presence in the Chinese market and take over its Chinese counterpart.
(Cohn, William A)

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Discussion:
Critical Analysis-

If we analyze the startegy being implemented by Google it’s a win win situation for both Chinese
Government as well as Google as it agreed to provide the filtered information to Chinese
population though it is against the Google policy on information flow but in order to stay
competitive and present in such a huge market it needs to abide by the local rules and regulations
and this is not the first time Google has done this, it has done the same in France and Germany
where it agreed to remove some of the content which was considered as offensive by their
Government. Had Google not agreed to rules and regulations it would have resulted in the
complete exit of Google from China so considering the China’s role in the emerging world order
and taking into account its internet population and overall market size Google took a significant
step by agreeing to The China’s Censorship laws and regulations. (Bridis, Ted ,June 6, 2006)

Conclusion:
Assessment of Current Strategy-

As discussed above the current strategy followed by Google is quite sustainable if it wants to
stay competitive in the Chinese market, also when the Google diverted its Chinese Online Traffic
to Hong Kong most of the services were banned by Government of China which drastically
reduced the overall revenues of Google so in order to regain its position in the China’s market it
had to come out with a sustainable strategy which it did by falling in line with the guidelines of
the Chinese Government. (Johnny Ryan and Stefan Halper,2010)

Recommendation:
New strategic Direction/Development and methods-
Now with the censorship issues had been sorted out Google can adopt other strategies in order to
gain its presence in the China’s market. Few of the strategies have been discussed below:

• Google can look for Mergers & Acquisitions in the local market by acquisition of players
such as Sohu & Sina in order to increase its presence in China as Sian has got huge
internet traffic but its search engine is not good so Google can capitalize on this ground.

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 • It can acquire 51 job which is No.2 player in China’s job search market such a move can
help Google to provide an added range of service as well as increasing its customer base.

• Another strategy which Google can focus on is acquiring online gaming firms as most of
the internet population is young so this strategy would give it an edge over other players
and for this possible acquisition could be of the company named as Netease.

• Developing more and more Google products in the local language so that people can
access them. (http://seekingalpha.com)

References/Bibliography:
• "Johnny Ryan and Stefan Halper, 'Google vs China: capitalist model, virtual
wall'". OpenDemocracy. 22 January 2010. Retrieved 22 January 2010.

• “Google China resumes recruiting”,

http://www.sbs.com.au/news/article/1201707/headline, accessed June 4,2010

• Bridis, Ted (June 6, 2006). "Google compromised its principles in China, founder
says". USA Today. Associated Press. Retrieved February 7, 2010.

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 • Cohn, William A. (2 – Autumn/2007) Yahoo's China Defense. "The New Presence."

• Cooper, R. G., Edgett, S. J., & Kleinschmidt, E.J. (2006). Portfolio Management.
Working Paper No 12: The Product Development Institute.

• Drummond, David (22 March 2010). "A new approach to China: an update". The Official
Google Blog. Retrieved 24March 2010.

• Drummond, G. & Ensor, J. (2004). Strategic Marketing: Planning & Control. 2nd Ed.
Butterworth-Heinemann: MA, pp. 96-100.

• Google Annual Report,2009

• http://seekingalpha.com/article/11494-google-ceo-questioned-about-china-strategy-and-
competition-with-baidu-goog-bidu

• Ivey Case B

• Ministry of Culture, People's Republic of China. "How Many Internet Users Are There in
China?."ChinaCulture.org, 2003.

• Worthen, Ben (26 February 2010). "Researcher Says Up to 100 Victims in Google
Attack". Wall Street Journal. Retrieved 24 March 2010

Appendix:

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 Figure1

Figure 2

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 Figure 3

Figure 4

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Figure 5

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