Case study: Google in China Google came into existence in March 1998 when two Stanford University students, Larry Page and Sergey Brin, set up the shop in a friend's garage to work on their big idea for a search engine. Today. Google is one of the most admired companies in the United States; and in 2009, appeared for the first time on Fortune's list of most admired companies in fourth place. According to several sources Google handles between 87 and 77 per cent of the Internet search market in the US. In 2008 Google sold nearly 522 billion in advertising, more than any media company in the world. Recent profits have been $13.17 billion on sales of $23.65 billion, with profit margins of 27.57 per cent (the return on equity is just over 20 per cent). The firm has cash reserves of over $24 billion. As a comparison the sales and profits figures for Yahoo! Are $8.48 bilion and $4.19 billion respectively, with profit margins of 9.28 per cent (return on equity is just over 5 per cent). The firm is committed to sustainability and supports a range of 'Green initiatives. In 2005 Google announced the launch of a new foundation, Google.org. The intention was that 1 per cent of Google's equity and profits would be used for philanthropy although this figure was cut back as a result of the global recession Google's declared mission is to organize the world's information and make it universally accessible and useful. Consequently, the firm has used its profits to grow the business globally as well as to finance the expansion of its services into a number of semi-related and unrelated services. The firm operates in highly competitive markets prompting a senior manager to state that competition is a click away". Certainly, Google has demonstrated the ability to be competitive. The firm achieved competitive advantage between 1999 and 2001 because of its innovative and radically different approach to Internet search and since then has sustained its advantage by developing more products and online services, such as Google Chrome and Gmail. The business model at the heart of this strategy is both simple and clever. The model enables Google to provide a free product/service to one set of customers (i.e. users carrying out searches) while making another set of customers pay (ie. advertisers). The firm enjoys considerable latitude in setting prices for key words. Google has used acquisitions to diversify its interests. For instance, it now owns YouTube which is the largest online video site; and Motorola Mobility purchased for $12.5 billion in 2011. The latter acquisition was intended to strengthen its Android operating system and enable Google to expand into areas other than the Smartphone market. The deal enabled the firm to access intellectual property comprising over 17.000 patents (with another 7.500 pending) and, in turn, potential access to even more customer information. Although Android had secured Google a 43 per cent share of the global market in mobile phone operating systems (June 2011) the firm still could not match Apple's 40 per cent operating margins. Until recently Google's strategy in China had provoked a great deal of criticism and adverse publicity. China has been a problematic market for many Western multinationals. Concerns have been raised since 1990s, when China first opened its home markets to foreign firms, about human rights abuses as well as a range of ethical issues around employee rights, working conditions, and environmental practices. Google had to decide if it was prepared to operate in compliance with China's censorship policies as a condition for expanding its services/products into Chinese markets. Up to this point the firm had no physical presence in China and its search engine could only be accessed through local providers (with the level of server performance being very inconsistent). Google wanted Chinese consumers to be able to access a high quality service directly from the firm (i.e. Google.cn). However, the firm's decision to comply with China's policies on censorship by filtering key words provoked widespread criticism from organisations such as Amnesty International, Reporters without Borders, and Human Rights Watch. A number of stakeholder groups saw this decision as a violation of Google's core values of honesty, responsiveness, trust, and "Don't be evil (all of which are set out in the firm's own code of conduct'). In January 2010 Google claimed that it had been subjected to cyber attacks intended to access the firm's software codes and the email accounts of human rights activists. As a result of these violations of intellectual property, Google threatened to pull out of China unless the government agreed to a new legal unfiltered search engine. In the meantime the firm decided to redirect users in mainland China to its unrestricted site in Hong Kong. The Chinese Government condemned Google's new stance. Given the Chinese market is expanding by 40 per cent per annum Google effectively made a high risk strategic decision Activity 1. "Businesses face complex, difficult, and unavoidable ethical situations wherever they operate, but especially so in international contexts" (Breaked, 2009:472). To what extent does this statement reflect Google's approach to doing business in China? 2. To what extent should Western firms co-operate with indigenous laws, customs and practices in Asian countries