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Inside Google and China Negotiation

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Inside the Google and China Negotiations
MGMT583N-Negotiation Research Paper Cathy Zhang

Google have experienced two series of negotiations with the Chinese Government from 2006 to 2010. The first round negotiation settled successfully when Google first entered China in 2006. Google established a local domain (google.cn) to better serve the mainland China Internet users when it failed to acquire a stake in the Chinese top search engine company Baidu. However, in January 2010, David Drummond, Google’s Senior Vice President posted “A new approach to China” on their official blog, threating to pull out of China due to a series of cyber-attacks and excessive censorship on search results.This negotiation concluded in July 2010 when Google had redirected google.cn queries to Google.com.hk, where uncensored search delivered via servers in Hong Kong. This research paper is aimed at discussing the two rounds of negotiations from both Google’s and Chinese Government’s perspectives.
Google’s Perspective From a Silicon Valley start-up to one of the world’s Internet titans, Google would never be satisfied limiting its business in the U.S. market. In 2006, China has 111 million Internet users, the second highest Internet population right after the United States. At this point, Google’s strategy to enter China must be profit-driven. From the second quarter of 2006 to the fourth quarter of 2009, Google’s market share in China has increased from 16 percent to 36 percent. Although revenues in China in 2009 were estimated at $300 million, less than 2 percent of total revenue, Google’s business was flourishing. More importantly, the Chinese search engine market had grown to $1 billion by 2009 which Google can’t let go so easily. In addition to its financial goal, Google strives to build its brand by “providing the best user experience possible.” Although users in mainland China could access any of Google’s unfiltered offshore sites, such as Google.com or Google.co.uk, many search results returned error because they were monitored or blocked by “Great Firewall”, a system “that includes a blacklist of foreign sites blocked in China and filters that can stop e-mail and make webpages inaccessible if they contain certain keywords.” Therefore, Google’s motive to acquire a local domain is that Google.cn will not be subject to the Great Firewall and thus provide faster and more precise search results. However, Google’s operation in China faced a dilemma. Chinese authorities required Google to censor and monitor some search results contrary to Chinese government’s interests. If Google were to agree to filter search results in conformity with Chinese censorship laws, Google would be very likely face criticism from worldwide free speech proponents because of its “evil” actions. It seemed that Google could hardly maintain its reputation for free access to information because its company policy also stated the requirement for compliance with local laws and regulations. On the other hand, Google’s management team had to please shareholders by increasing their revenue in this emerging market. Despite the global economic crisis in 2008 – 2009 and a series of frictions with Chinese government, Google’s business in China expanded rapidly. Yet good times don’t last long, Google “discovered an attack on its servers by hackers in China that stole proprietary computer code as well as data about Gmail accounts of human rights activists” in December 2009. Google expressed its desire to negotiate with the Chinese government in January 12, 2010 blog posting, and Hillary Clinton, the predecessor secretary of state made a statement “looking to the Chinese government for an explanation.” Since Chinese government insisted that doing business in China must follow Chinese laws, Google finally decided to discontinue self-censoring its search results and redirected Google.cn search requests to uncensored site in Hong Kong. However, search results may be partially or completely blocked by Great Firewall at the back end.

China’s Perspective China’s leaders, the Chinese Communist Party, viewed the Internet as a double-edged sword. The biggest incentive for China to bring Google in is its positive influence to economic development. The Chinese government always aimed at achieving technological parity with U.S. It has been a long history that China is striving to catch up with the world’s most advanced technology and shrinking the gap between China and those developed countries. Dr. Kai-fu Lee, hired by Google in charge of China district from Microsoft, is a prestigious computer scientist graduated from Carnegie Mellon University. His return to China encouraged many young scientists and programmers who studied or worked abroad to join his team. The truth is Chinese government did benefit from the job opportunities created by such a high profile company. When Google opened a research and development center in Beijing, it hired seven hundred Chinese programmers and computer scientists. To reduce unemployment rate and improve economic condition are always the top priorities for Chinese government. Also, citizens and organizations need the very best technology to improve life quality and working efficiency. The downside of Google’s unfiltered search service is that it may undermine its political-economic model. The party emphasizes the importance of collective interests of social harmony and stability. In order to achieve this objective, any content deemed contrary to China’s interests will be strictly controlled. Several popular websites have been blocked and restricted in China, such as YouTube, Twitter, Facebook and Wikipedia.
BATNA

Google’s best alternative to enter the Chinese market is to acquire a large stake in a “homegrown” search engine company instead of initiating its local domain to fit the business environment in China, providing that “homegrown” search engine company must comply with state laws and thus Google will be able to maintain its uncensored Google.com site. However, Google attempted to acquire Baidu, its major rival in Chinese market, but failed to obtain a controlling interest owing to regulatory limitations in China.
Chinese government has another option if not giving permission to Google’s business in China. As the major search engine in China, Baidu has been monitored its compliance with Chinese law since its foundation. Even if Google was not allowed to establish a “cn” domain, China could still rely on Baidu as well as other emerging search engine companies to eliminate regulatory issues. This further protected the business interest of domestic IT companies from invasion of foreign competitors.

Conclusion
Nevertheless, Google was not able to use its BATNA and its departure from China indicated an avoiding strategy (lose-lose negotiation). The negotiation between Google and China had been time-consuming and neither of them would like to compromise since the two parties had different objectives during the negotiations. China was trying every effort to maintain its political stability by restricting the freedom of speech, while Google could not afford to lose its intellectual property and to put reputation as risk. Moreover, the importance of relationship between two parties and the outcome are low. China does not necessarily depend on Google’s search engine to provide information access to its Internet users because of its BATNA; Google’s revenue in China only counts less than 2 percent of its total, which cannot outweigh its international reputation. Though failure to reach an agreement had wasted plenty of time and money, both parties would be better off to drop the matter entirely in this case.

--------------------------------------------
[ 1 ]. David Drummond, “A New Approach to China,” The Official Google Blog, January 12, 2010, http://googleblog.blogspot.com/2010/
01/new-approach-to-china.html
[ 2 ]. CNNIC Dec. 2005 and Nielsen//NR Dec. 2005
[ 3 ]. “Google’s Results Bode Well for Baidu’s Earnings,” Seeking Alpha, October 30, 2006, http://seekingalpha.com/article/19500- google-s-results-bode-well-for-baidu-s-earnings. [ 4 ]. “Google’s Loss Is Really Baidu’s Gain,” ChinaDaily, April 30, 2010, http://www.chinadaily.com.cn/cndy/2010-04/30/content_9795183.htm.
[ 5 ]. Miguel Helft, “For Google, A Threat to China With Little Revenue at Stake,” New York Times, January 14, 2010.
[ 6 ]. Miao Xiaojuan, Cheng Zhuo, and Wang Cong, “China Seeks Clarity on Google’s Intentions,” China View, January 13, 2010, http://news.xinhuanet.com/english/2010-01/13/content_12804080.htm. [ 7 ]. http://www.google.com/intl/en/about/company/tenthings.html
[ 8 ]. Philip P. Pan, “The Click That Broke a Government’s Grip,” Washington Post, February 19, 2006.
[ 9 ]. http://www.nytimes.com/2010/03/24/opinion/24wed2.html?_r=1
[ 10 ]. http://www.state.gov/secretary/rm/2010/01/135105.htm
[ 11 ]. Jeanne Brett, Lauren Pilcher, Lara-Christina Sell, “A New Approach to China: Google and Censorship in the Chinese Market”, Kellogg School of Management, Northwestern University. Oct 09, 2011.
[ 12 ]. Christopher Grogan, Jeanne Brett, “Google and the Government of China: A Case Study in Cross-Cultural Negotiations” Kellogg School of Management, Northwestern University. Jan 01, 2006.…...

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