Google vs China: We All Win.

Doing business in China as a western company is always a tricky endeavour. It’s got nothing to do with the people, they are particularly welcoming of foreign investment and appear to be aspiring more to the western way of life. No the problem lies directly with the government and the level of control that they require over almost any business that sets itself up in their country. Not only that recent developments have shown that you have to tread extremely lightly when dealing with state owned companies. Even when the People’s Republic of China (PRC) has emphatically stated that “State owned is not state run” their behaviour speaks the opposite. With the only streams of information coming from the PRC state it’s hard to verify what they say, save for risking the same fate as the Rio executives.

It’s no secret that many large world governments aren’t completely comfortable with the way China has been conducting itself recently. It’s not a new problem and not one I’d expect to go away overnight. Still, for the most part there seems to be a lot of hot air around the subject and little action. That was until recently Google launched what can only be described as one of the most damaging statements that the PRC has had flung at them to date:

Like many other well-known organizations, we face cyber attacks of varying degrees on a regular basis. In mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google. However, it soon became clear that what at first appeared to be solely a security incident–albeit a significant one–was something quite different.

First, this attack was not just on Google. As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses–including the Internet, finance, technology, media and chemical sectors–have been similarly targeted. We are currently in the process of notifying those companies, and we are also working with the relevant U.S. authorities.

Second, we have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves.

China has a very checkered history with the Internet and companies who have made their fortune and fames from it. Google had to make some hefty concessions in order to open up shop in China and the short term result was quite a lot of flak sent their way from the privacy and net neutrality groups. It was partially deserved as well since Google had a taken quite a hard line in respect to neutrality and privacy in the past. This was a big red flag stating that they were more concerned with their bottom lines than the principals they had been trumpeting before. Still their line of “better some of the information than none of it” carried some weight and eventually the wider Internet community forgave them.

This development however is a power play on a scale that we’ve rarely seen before. Openly stating that you have evidence that the government is attempting to gather information on certain individuals illegally (and on indviduals who’s association has been the target of persecution in the past) is not something that big corporations do. Truthfully if any other company had attempted such a feat they would be committing business suicide in the Chinese market, and it would have made little waves in the media. However when a company like Google, who’s services and presence are trademarks of a developed nation, dissents against your wishes (after they fought so hard to comply with them) and then openly threatens to pull out of your country completely this sends a message to all other foreign businesses in China. The price of admission is not worth the value you can derive.

The immediate reaction from the statement was huge and it prompted the  Secretary of State Hillary Clinton to demand an explanation from China on these events. With Clinton having a reputation for being a rather hard-line political figure (the adage “With me or against me” comes to mind) China is going to have a rough time dealing with her, and I can’t see them explaining their way out of it. Not to the extent that will satisfy Clinton and the technologically inclined citizens of the US at least, which means the pressure for the PRC to act will more than likely come from another area, commerce.

Google’s move to publicly name and shame the Chinese government is the signal of a much larger movement against the PRC government. Initially this will begin with the corporate sector with many companies rethinking their strategy for the Chinese market. That in turn will lead to China either writing them off as lost and continuing the way it always has (hurting their economy and international reputation) or will be forced into changing their behaviour towards foreign companies. Right now I’m not sure which way they will swing as history dictates they will shrug this off like they have with all previous controversies however with their growing middle class that is now aspiring to the aspects of the western life that we all take for granted (education, health and pervasive technology) the PRC can’t keep ignoring these problems forever. They’re not stupid either and they have strong support for the majority of their actions, especially the youth who have the government to thank for the progress that have given them so many opportunities when compared to their parents.

Everything’s balancing on a hair trigger now, the results will only come with time.

At the end of the day the world at large is better for Google having taken this action. The censorship of their search engine is already starting to fade away and this will eventually lead to the wider (non-tech) crowd question why a company with a presence that reaches all corners of the globe is leaving China. It could be the beginning of the end for the totalitarian PRC, but even I think that idea is a little far fetched.

And now, we wait.

4 Comments

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  1. Storm in a teacup. Google has been steadily losing market share to Baidu since it first moved into China, and many of its services are already blocked (most notably Youtube). It experiences regular service outages too, roughly 5 mins out of every hour. Anyway, Google may be having a crisis of conscience after getting a bloody nose from across the Pacific, but don’t for a minute think that this situation will in any way cause other western companies to take their eyes off the dollar sign attached to the 2010 Q1 financial projections. The global financial crisis should have taught you that.

  2. While Google may have struggle initially when moving into China to dethrone Baidu your statement of them losing market share is completely false:

    According to web analytics firm StatCounter, the Internet major had a search engine market share of 43 per cent at the end of 2009, while its rival Baidu held 56 per cent. “Google has made impressive gains in China since July last when it was at 30 per cent against Baidu”s 68 per cent.

    “Our analysis suggests that given Google”s recent strong performance, market share is certainly not the reason behind its threat to leave China at this time,” StatCounter chief executive Aodhan Cullen said in a statement yesterday. The analysis is based on 24 million search engine referring clicks from China which were collected between July and December 2009.

    The complaints about service outages are more than likely due to China’s Golden Shield as anyone (even people from outside China) can test. Try going to any site with the words “Falun Gong” in the url, you’ll be disconnected and unable to reconnect to that url for approximately 5 minutes. Here’s some urls to prove my point:

    http://search.cn.yahoo.com/search?p=Hong%20Kong

    http://search.cn.yahoo.com/search?p=Falun%20Gong

    Click the first one, everything is fine. Click the second you’ll get dropped. Try clicking the first link again after clicking the second and you won’t be able to connect. The service outage problems are most likely due to the Golden Shield, not any failure on Google’s part (have you heard of any other country experiencing the same?)

    What bloody nose has Google suffered recently? The only 2 I can think of was a gaff from Eric Schmidt on privacy and a slight controversy over a picture of the US first lady. Google isn’t doing this to gain credibility with countries outside the US. They’re making a stand against a totalitarian government who’s constantly interfered with their business and refuses to acknowledge it.

    I didn’t state that the western corporations would be forgoing their strategic goals just because Google is pulling a power move on China, far from it. Breaking into the Chinese market as an Internet based company has never been easy, and if Google pulls out it will become even harder. We’re not going to see a big exodus of companies from China but should the dispute continue and Google ultimately pulls the plug any company that had them as part of their marketing plan will be affected, and I can guarantee their anger won’t be focused on Google.

  3. Well a 2 min check on Google (yay) yields some articles quoting different statistics that have been written as or more recently than what you’ve quoted above:

    http://www.eweek.com/c/a/Windows/Google-China-Pullout-May-Not-Benefit-Microsofts-Bing-237476/
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/16/BU151BIO84.DTL

    My point is not that you’re wrong, it’s more the lies, damn lies, and statistics factor.

    The service outages are definitely related to Golden Shield, as access returns when logging in through a remote (out of country) server. I’m not saying that Google is in any way at fault for lack of technical expertise (far from it), I’m saying that the restrictions that it operates under results in it providing a service that is in some ways inferior to the service that Baidu provides.

    Ah, also – the bloody nose that I was referring to was the attack that started this in the first place.

  4. They do show a different market share but neither of them say anything about Google losing market share to Baidu. Both articles use Analysis International as their source (my article used StatCounter) and unfortunately their numbers are behind a paywall, so I can’t see if their numbers show a decline or just a lower share.

    So in essence Baidu gets to play under different rules to that of Google? Seems like a rather hostile environment to be getting into, especially if you’re an Internet based company. I know I’d think twice about setting up shop there if I couldn’t compete on a level playing ground with the national alternatives.

    I see now, I was thinking the other way around 😉

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