The team of Google executives assigned to negotiate with Chinese government officials began to arrive at San Francisco International Airport two hours before their scheduled departure.
The seasoned team had been briefed on Chinese culture throughout the past two weeks by a special consultant retained for the negotiations. They had also been provided with an executive summary of press coverage on China and China’s most recent policy announcements regarding the Internet. The flight across the Pacific would give the executives valuable time to prepare for the negotiations concerning the acquisition of a Chinese domain name for Google and to reflect on just how far the company had come.

By the summer of 2005, Google had matured from a cutting-edge Silicon Valley start-up to emerge as one of the world’s Internet titans. In only eight years the brainchild of two Stanford
University graduate students had transformed an industry and was generating impressive earnings from advertising and the licensing of its search engine technology. Google’s publicly traded stock had skyrocketed since it began trading a year before (Exhibit 1). The company was admired for its audacious goals (nothing short of organizing and providing access to “the world’s information”, its corporate principles (famously and succinctly encapsulated in three words:
“Don’t be evil”, and its healthy balance sheet. By combining a Microsoft-like aggressiveness, an Apple-esque zest for innovation, and seemingly rigid adherence to utopian ideals, Google had captivated its users, customers, and investors. The company’s flagship Web site, Google.com, stood among the most visited sites on the Internet
.
A company that sought to organize “the world’s information” would never be content with limiting its presence to the U.S. market. As Internet usage in other countries had grown, so had
Google’s presence in those countries (for estimates of Internet usage in various countries, see
Exhibit 3). Google had gradually expanded its geographic presence and established itself as one of the most visited sites in the world. During this expansion, it had added other domain names to assist non-American customers with their searches. These names, such as Google.fr for French users, could be viewed as brand extensions of the original Google.com, and captured a great number of international users. This in turn netted Google additional revenue. By 2005 nearly 40 percent of Google’s revenue and more than half its user traffic came from outside the United
States (see Exhibit 4 and Exhibit 5). Google had also added a number of complementary services to its core search engine business, including both consumer and commercial applications.

While the company had made strong inroads into Europe and Asia, the team of executives headed to Beijing was keenly aware that one market remained beyond their reach: China.
Though Google.com was periodically available to Chinese users, it did not provide reliable and efficient service to that market. The company had tried to protect its financial interest in the
Chinese market by acquiring a stake in the Chinese search engine company Baidu, but Chinese law prohibited Google from holding more than a minority stake. Therefore, Google decided to expand its own presence in China. In the summer of 2005, plans for an expansion became more public—and appeared more concrete—after Google finally succeeded in hiring Dr. Kai-fu Lee away from Microsoft. Lee was a world-renowned computer scientist widely praised and highly regarded in China and among the Chinese high-tech community. Court documents made public during Google’s efforts to pull Lee away from Microsoft revealed that Google intended to establish a new Chinese research and development center supporting thirty to fifty engineers, headed by Lee. The executives on the flight were aware that these revelations had fueled speculation that Google was planning to establish a more permanent presence in China.
Although users in China could access any of Google’s censorship-free offshore sites (e.g.,
Google.com or Google.co.uk), their searches were monitored by the Chinese government, and results found unacceptable were blocked by the censors. One notable example of this censorship was the difference in the results of searches for Tiananmen Square on Google.com and Baidu.cn
(see Exhibit 7 and Exhibit 8). Because Google’s searches could return results deemed contrary to China’s interests, the government tried to block access to Google’s site. This interference slowed the Google site’s speed and actively interfered with its efficiency.
The Chinese government was able to accomplish this monitoring and blocking using its
“Great Firewall,” a system “that includes a blacklist of foreign sites blocked in China and filters that can stop e-mail and make Web pages inaccessible if they contain certain keywords.”

China’s Great Firewall was the result of laws and regulations that required Chinese Internet service providers (ISPs) to extensively filter all Web sites for illegal information. Sites targeting the
Chinese market therefore faced a choice: establish a server presence in China (and submit to state regulation on the front end of the search) or maintain an offshore server and force users to endure significant delays caused by the Firewall acting on the back end of the search. Google had operated offshore in an attempt to skirt Chinese law, so its users’ results had to pass through the
Great Firewall on their way to and from the company’s offshore servers. Search results were slow, if not blocked entirely. Thus, to improve performance and its users’ experiences, Google desperately needed to place servers behind the Chinese firewall. Once its servers were located in
China, Google’s search speed would be more competitive. Yet obstacles remained, and time was of the essence. Baidu was gaining momentum and Google’s management was very concerned about the possibility of losing market share. The executives began to formulate their negotiation strategy shortly after takeoff.

Google’s Perspective
The negotiations team had received a list of Google’s management’s concerns prior to leaving the company’s Mountain View, California, headquarters. Management wanted to enhance the company’s legitimacy with Chinese users, but knew doing so might be difficult for a company labeled as another Silicon Valley success story. China was a nationalistic culture, and the Chinese consumer was less willing to accept foreign brands when Chinese alternatives existed. As an example, Zhao Jing, a journalist well known for his provocative, political blogs about the Communist Party, was sharply criticized by some Chinese bloggers for moving his blog to an American site—MSN’s Spaces—instead of a Chinese blogging site.

The sooner Google could acquire a “.cn” domain name, the sooner it could distance itself from its American roots.
Only then would it become a member of the “in-group.” This in turn could lead to greater revenue streams from advertising to Chinese users. However, Google’s goals were not all financial. One nonfinancial consideration concerned governmental regulation of the site through monitoring and filtering. Because the company’s primary goal was to satisfy users’ preferences for “instant gratification” of their information needs, it opposed any interference that might slow down or restrict a user’s ability to retrieve information. This was a major motive for acquiring a “.cn” domain name. However, censorship could harm Google’s credibility among Chinese and non-Chinese users, which would conflict with its goal of building “the most loyal audience on the Web.”

Google’s management also would have to reconcile any action in China that could be viewed as censorship with its most famous principle: “Don’t be evil.” If Google were to agree to the level of censorship required by the Chinese authorities, it would likely face fierce criticism in the
United States for appearing to act antithetically to its philosophy (see Exhibit 9 for excerpts from
Google’s code of conduct). The Google negotiations team had witnessed the media furor that
Yahoo had faced when it turned over information transmitted by Chinese users of its e-mail services to the Chinese government. That information was later used to sentence three cyberdissidents to prison terms ranging from three to ten years.

Yet even though the Google team would seek to avoid “evil” actions, the company’s policy also required it to comply with local laws and regulations. Google complied with requests from authorities not to list neo-Nazi sites returned in searches in France and Germany and not to list results in the United States that violated the U.S. Digital Millennium Copyright Act. Google’s adherence to these forms of state-mandated censorship demonstrated its willingness to abide by local laws.

The negotiations team had an alternative approach to entering the Chinese market, though it was not particularly attractive. The company could lobby China for access to a larger stake in
Baidu. By upping its investment in a “homegrown” search engine company, Google could comply with the Chinese government’s regulations governing Internet firms, maintain an uncensored Google.com site, and maintain its integrity. However, access to Google.com would remain painfully slow, and the result would likely be user frustration and lost market share.
Further, because of regulatory limitations in China, Google might not be able to obtain a controlling interest in Baidu. Without complete control over Baidu, Google’s revenue from China would be limited. Fortunately, Google’s negotiations team would be assisted by Dr. Lee, who had gained experience dealing with the Chinese government while working for Microsoft. He also brought with him an element of prestige as a result of the admiration that many Chinese scientists and programmers held for him.

China’s Perspective
After discussing its options, the negotiations team began to review its executive summary on
China. The documents made it clear that the two parties would have different objectives during the negotiations. While the Google team would focus on profits and brand management, China would focus on a number of other considerations. The Chinese government had a goal of achieving technological parity with the United States, and consistently strove to provide its citizens and companies with access to the very best technology. Allowing Google to have a
Chinese domain name and set up a research and support facility site in China would give some
Chinese engineers access to Google’s proprietary research technology. This access might help curtail the “brain drain” (loss of technologically talented students and engineers to the United
States and other countries) and create jobs for Chinese citizens. The possibility of retaining key talent might have been reinforced by the hiring of Dr. Lee, whose continued presence in the country might encourage other scientists and engineers to remain in China.
It was also clear that China’s leaders viewed the issue of Internet regulation (or censorship) as extremely important. They recognized how important Internet access and use was to China’s economic development, but also sought to control the Internet’s power. In order to squash dissent and limit political opposition, the government had long had a policy of strict media control.
Content in newspapers, radio, television, and now the Internet was heavily controlled by the state, and these sources were prevented from reporting on or providing access to news deemed contrary to the Chinese government’s interests.

The report provided to the Google negotiations team noted China’s leaders’ desire to improve their nation’s economy while preserving political stability. This balancing act was conducted
“bearing in mind the history and culture of China.”

In a September 2004 address to the Central
Committee of the Communist Party, President Hu had warned that outsiders were attempting to westernize China.

The government was striving to prevent this process, and an unambiguous mode of doing so was to censor political discussions. The Internet was “unwittingly ushering an age of startling social change” in China, and the government was willing to employ censorship, including more than 30,000 Internet policemen to patrol the Internet, to put the brakes on it.
The summary also discussed China’s leaders’ bureaucratic efforts at self-preservation. Both the functionaries in the Internet Propaganda Management Department and the Ministry of
Information Industry (which issued the Internet content provider [ICP] licenses) sought to please the party hierarchy to ensure their jobs and political longevity. The media had reported that despite initial hopes that President Hu would introduce democratic reforms, the president “has placed particular emphasis on tightening the party’s control over public opinion, presiding over a crackdown to restore discipline to state media and intimidate dissident intellectuals.”

Thus, it was firmly in the interest of the Chinese bureaucracy to insist that, as a condition of getting a license to establish a server within China, Google had to agree to censor its content and search results. Finally, in restricting westernizing elements of the Internet through censorship, China could affirm its status as an independent actor in the global marketplace. As head of a hierarchical culture that valued status, the Chinese government sought to promote China as a powerful and independent actor in world forums. The government had in the past been critical of other Internet businesses that refused to follow its objectives and directives. For example, the online encyclopedia Wikipedia was completely banned in China until 2006 (see Exhibit 10). An anonymous post on the Wikipedia site claimed that Wikipedia’s users had been acting as
“running dogs for American imperialism.” “Running dog” is an expression in Mandarin that means servile follower or lackey. Many Chinese suspected the post had been made by a government agent. The government would likely seek to prevent any loss of face that might accompany a decision to cave in to any of Google’s demands concerning Chinese law and the government’s official policy on the availability of information deemed contrary to the state’s best interests. China had another option as well. Instead of allowing Google access to a “.cn” domain name,
China could deny Google the license and continue to rely on local search engine alternatives to provide Chinese consumers with Internet searching services. Baidu had been steadily gaining market share, and was already one of the most visited sites in the world. It was a known entity and the Chinese government was already monitoring its compliance with Chinese law. The site was very similar in substance and style to Google. Though failure to bring a technologically advanced company such as Google to China would damage the regime’s international reputation, it would likely produce fewer domestic repercussions.

Searching for a Resolution
As the Google negotiators arrived in Beijing, several concerns lingered. Chief among them was how the team would be able to reconcile the company’s principles with its profit motives.
The Chinese government officials assigned to negotiate with the Google team had concerns as well. Given the distance between the two parties on a number of important issues, neither party was confident that a deal would be reached. It would take a keen understanding of each other’s issues, positions, and interests to understand their motivations. Moreover, each party would have to understand how the culture of its counterpart might influence the outcome of the discussions.
The Google team settled into its accommodations and prepared to meet with government officials later that day.