Google Loses Guanxi in China

As an entrepreneur living in Shanghai, I am well aware of the rules of the game. When doing business here, you are doing business with the Chinese government. If you don’t want to follow the rules, you can take your business elsewhere. And that is what Google did. Does Google’s bold move mean that other multinationals will follow in suit? Certainly not.

Business as usual will continue in the Middle Kingdom. While Google’s direct suppliers are scrambling for new partners, the bigger players are finding plenty of opportunities elsewhere. Motorola, which uses Google’s Android as its mobile operating system in the U.S, has promptly dropped Google’s search engine from its Chinese models, adding Baidu and Bing to its handsets.  China is Dell’s second largest market behind the U.S., and HP is the fastest growing computer company in Asia. Neither corporation plans on changing it entry strategy to accommodate Google’s high and mighty push for uncensored search results.

In the short run, Google is likely to lose its 31% market share in China, while users switch to Baidu, the leading Chinese search engine that controls 61% of the market. The Chinese government will continue to welcome foreign investment and enterprise, but will not budge on the issue of censorship. While this is not as much of an issue for hardware and product companies, the Yahoo’s and Microsoft’s of the industry have to deal with the daily crackdown for now.  In the long run, it is the presence, not the absence, of international companies that will have an impact on the freedom of information here.

I suppose hindsight is 20/20 in these cases, but perhaps if Google had taken another route it could have kept its investment in the world’s largest emerging market. Rather than publicly complaining about the hacking attack and its decision to stop complying with Chinese search censorship, Google could have discussed the situation further with its Chinese counterparts. The concept of Guanxi is the idea of “saving or preserving face.” When doing business in China it is very important that both partners in a negotiation maintain their pride, regardless of the outcome. In this situation it appears that Google caused its own loss of face, in addition to 338 million customers.