I’ve seen quite a lot of comment, but not much analysis, of Google’s decision to face down China. The comment says (a) it’s a principled stand on human rights; (b) a response to poor business performance; (c) a lack of confidence in the prospects for the Chinese economy; (d) a risk management decision to underline its commitment to the integrity of the ‘internet cloud’ in the face of Chinese hacking. My take is that it’s a belated realisation that international businesses can no longer partition the world – and that oft-cited ethical concerns about its role in China were increasingly likely to damage more compelling business opportunities elsewhere.
Of the commentary, I suspect that the human rights angle creates the most enthusiasm (and here) but cuts the least ice. As commenters have noted on different posts, Google tolerates forms of censorship in other markets, and although I don’t normally quote the radio show The News Quiz as a source on this blog, one of the contributors this week joked this week (here until Thursday 21st Jan) that Google can return a search in a third of a second, but has taken five years to notice that there are human rights abuses in China.
The ‘poor business performance’ story has some resonance but isn’t completely convincing (though seems particularly popular in the US). Yes, Google has only a 30% share (only!) of the Chinese market, and trails the domestic provider, Baidu, but its share has been growing quite fast as it has learned how to work better in Mandarin and in the Chinese market. [Update, 19th Jan: 35% share in the fourth quarter of 2009, according to Business Week. Update 2, 27th Jan: interesting blog on some ethnographic research on the cultural reasons Google may have been making slower progress in China than it expected (hat-tip to Oliver)] And given its overall profitability, Google can afford to take a long view of its markets. It’s also worth pointing out that the statement doesn’t say that Google is pulling out of China, just that they’re not willing to censor searches in China any more (so there’s some wiggle room there).
The third thought is that Google has decided that overall, the Chinese market is less promising than conventional wisdom dictates. There’s quite a lot of this about at the moment, and I’ve blogged on aspects of this (political, environmental) in the past. Stephen Aguilar-Milan argued in a blog post this week that “the development of the Chinese economy is a lot more fragile than it appears”.
Finally, the thought that Google’s action has been driven by its need to be seen to ensure the security of the whole of the “internet cloud” comes from Nick Carr, whose specialist subject is, well, the rise of cloud computing. Although he doesn’t dismiss the ethical issues, his argument is simple: the security breaches described in the Google statement could wreck the company’s entire business model.
Google’s overriding business goal is to encourage us to devote more of our time and entrust more of our personal information to the Internet, particularly to the online computing cloud that is displacing the PC hard drive as the center of personal computing. … In order to continue to expand the time people spend online, Google and other Internet companies have to make the Net feel like a safe, well-protected space. If our trust in the Web is undermined in any way, we’ll retreat from the network and seek out different ways to communicate, compute, and otherwise store and process data. The consequences for Google’s business would be devastating.
I think that the answer to the question, ‘why now?’, is a bit bigger than any of these specific issues. When we did some futures work for a global resources company last year, one of the clear trends was that, for the transnational company, policy and practices in any one market influence the way consumers, advocacy groups, and governments see you, favourably or unfavourably, in all of your other markets. Umair Haque, picking up on one of his favourite themes, blogged in response to the Google decision about ethics as being “the new high ground of moral advantage“.
An ethical edge just might be the ultimate cause of advantage. It’s how better distribution, production, marketing, and pricing — all just proximate causes of advantage — ultimately happen. Jim Chanos’s investment thesis says: without an ethical edge, new value cannot be created — old value can only be shuffled around (hi, Wall Street).
The rise of strategic ethics
Obviously I’d like to believe this, and it may be true; Umair Haque sees it as the core difference between what he calls ’21st century companies’ and the 20th century world of mass production, mass distribution, and mass advertising. But it still leaves open the question, in Google’s case, of ‘why now?’. Businesses can want to be ethical, but ethics are not black and white, which leaves room for all sorts of contestation, especially if a business does not believe that the balance of moral advantage is sufficiently tilted in its favour. Which is pretty much what Google was doing when it went into China in the first place, dressing it up with some rhetoric about even a censored Google search engine being better than none at all.
What’s changed now? I have some sympathy for Nick Carr’s argument that as the cloud gets bigger, the stakes get higher. At the same time, China and the US are about to start trade talks, while the increasingly controversial Google Books Settlement is aboout to hit an important deadline – and will surely end up, sooner or later, end up with the US Department of Justice as issues of the public domain and public interest become noisier. And on China, the twelve year sentence given to legal activist Liu Xiaobo just before Christmas has also raised the stakes.
What’s happened is that the stakeholders who are likely to be influenced by ethics are suddenly rather more important to the future of Google’s business than the stakeholders who aren’t. (The fact that Microsoft won’t or can’t follow suit on China is just an added bonus.) Perhaps business schools need a new module to help their students with this emerging discipline of “strategic ethics”.