Introduction Globalization can be defined as the integration of the world economies by allowing free movement of trade, technology and people (Daniel et al, 2009). Furthermore, the developments in technology are perceived as a driving force of globalisation (Denton & Al-Shamali 2000). This tends to be identified and observable in every day to day activity primarily due to the emergence of internet technology. The internet is globally integrating and merging the different nations of the world.
The impact of the internet cannot be over emphasized; it has provided a common base upon which countries from the entire world are able to communicate and share information leading to a wide spread of values, culture and trade (Luthans and Doh, 2009). The impact of the internet technology on globalization includes the globalization expansion and improvement in the business strategies (Luthans and Doh, 2009. Google incorporated (inc. ) which was formed in 1998 view the internet as a means for sharing the entire world’s data and to allow users a simple and quick mechanism to access this data.
Its primary function is organising the world’s information and making it universally accessible (www. google inc. com) This article will analyze the global strategy of Google Inc’s. subsidiary in the Chinese market. It will also examine the set backs of Google, a multinational company (MNC) faced in entering China, in terms of government policy and cultural differences on its strategy. The first section briefly discuses a literature review of the integrated responsiveness (IR) framework which is used in the analysis of the international strategy of the company.
This frame work was adopted in the analysis of Google because it is foundation for international strategy and also to examine the extent to which Google responded to the Chinese market. The second section will analyse Google as it carries out its international strategy in the Chinese market, while the third section focuses on the competitor analysis of other MNC’s in the internet search engine industry in China by comparing market share, customer satisfaction and company activities.
Hence, recommendations will then be suggested to improve the internalisation strategy of Google in China. Google China was chosen for this article because of its recent threat to withdraw its operation from the Chinese market due the government censorship policy which is in conflict with Google’s mission and motto (Skynews. com) Literature review The integration-responsiveness framework has long been used in the analysis of international firms in foreign markets.
Prahalad (1975), Doz (1976), and Prahalad and Doz (1987) designed the basis for the extensive research on international strategy. Giving a different view to international strategy, the main concept of the I-R framework is that companies operating internationally should be able to meet up with the need to respond to local demands and pressures imposed by government or consumers and at the same time exploit the market opportunities due to firms’ multiple country locations (Roth and Morrison, 1990).
The core idea of integration is to exploit the benefits of across national border, while responsiveness concerns the need for local customization and adaptation, and the two factors work in opposite directions (Benito, 2005). The Global integration and local responsiveness (GI-LR) model The GI-LR model is a conceptual framework for analyzing strategy in the international business of firms. Roth and Morrison (1990, p. 543) suggests that “in considering business as the unit of analysis, the integration-responsiveness (IR) framework has been suggested as a model for “mapping” or distinguishing international business strategies”.
This model was developed from early studies of the “I-R” model by Doz and Prahalad, 1991; Prahalad, 1975; Barlett and Ghosal, 1989; Prahalad and Doz, 1987). Based on the assumption that business managers tend to share different ideas and perceptions of the environment, the IR framework has been suggested as a “way of capturing the pressures on a given business” (Prahalad and Doz, 1987, p. 18). The IR framework is designed to consider managerial perceptions of the environment along two basic imperatives – the pressures for GI and the pressures for LR.
As shown in Figure 1, the IR framework is illustrated on 2 different axis forming a 2 by 2 matrix. According to, Prahalad and Doz (1987) international companies in foreign markets use three strategies in responding to integration or localisation pressures. On one hand if managers perceive the high pressure for “global integration”, they may concentrate on a global strategic approach. On the other hand, if managers perceive the high pressure for “domestic affairs”, they may apply “locally responsive” strategies.
Furthermore, Prahalad and Doz (1987) added that when perceptions of environmental pressures shows a need to respond concurrently to both integration and responsiveness demands, managers may choose to adopt “multifocal” business strategies to harmonize their the operations while maintaining a high level of responsiveness to each local context. Figure 1 [pic] Barlet and Ghosal, 1989 further classified MNC strategy into four basic strategies.
They developed the work of Prahalad and Doz and initially suggested three types of MNCs, each tackling a different strategy (namely Global (High integration and low responsiveness), Multi domestic (low integration and high responsiveness) and transnational strategies (high integration and low responsiveness). However, an international strategy was included in their later research (Bartlett and Ghoshal, 1987, 1989). There are several factors that affect a MNC’s local responsiveness, such as consumer demands, high competition and business culture.
In many industries the effect of consumer’s demand for locally differentiated product causes variation in standards, tastes, brand name and needs Thus, to balance GI and LR, Birkinshaw (1996) suggests that a MNC’s head offices should be sensitive to the local managers knowledge about customization contingencies in a specific environment because the local managers are better aware and able to screen and evaluate local dynamics and barrier in the market. Similarly, LR pressures are industry forces (such as business specificity and component localization), which call for local, context-sensitive strategic decisions.
Reacting to the pressures on LR, management may respond generally to each local market or industry setting irrespective of the strategic consideration of their subsidiaries in other countries or regions (Roth and Morrison, 1990). In this article, the global strategy of the IR framework is further discussed as it is relevant in the analysis of the case study which will be discussed. However, it is worthy of note that the three other strategy are equally relevant but specific to a particular market. Global strategy
A global strategy could simply mean that a company views the world as a single market entity and thus, it offers standardized products (Kedia et al. , 2002). Kedia et al (2002) also argues that global strategy is driven by a “shared managerial philosophy”, which may be based on empirical evidence (Roth et al. , 1991). In practice, this strategy is used by firms serving multiple host country markets with internationally branded products that are produced from a particular location (that is, in the home country) (Baden-Fuller and Stopford, 1991; Kedia et al, 2002).
Roth and Morrison (1990) further support this argument with the notion that firms may take advantage of economies of scale by adopting a global strategy. Previous researches by other authors also suggest that many Japanese firms have often applied this strategy with success (Johansson and Yip, 1994). However, Rugman and Verberke (1992) argue that adopting a global strategy implies counteracting on the country-specific advantages and/or opportunities. CASE STUDY
Google, the fast developing internet search engine with a highly profitable advertising business incorporated company was founded by Sergey Brin and Larry Page while studying for a PhD at Stanford University with a goal to ‘‘organize the world’s information and make it universally accessible and useful” which it adopted as its mission statement and a mantra ‘’Don’t be Evil” (Hill, 2007) which has become Google’s code of conduct and the ethical touch stone both the company and managerial decisions.
In 2000, Google began language service, with service operating from the United State of America. By 2002, Google realised that serving the Chinese from the state was slow and the service was its value by the censorship imposed by the Chinese government. The authority blocked their services and redirects the search site to other Chinese rival Baidu and its U. S rivals Yahoo and Microsoft (Hill, 2007). Google realised the strategic importance Chinese market, which is ranked as the second largest internet market globally (O’Rourke IV et al (2007).
In order for Google to exploit theses opportunities, it established operations in china, hosted by its computer servers and Chinese management with a Chinese home page (Hill, 2007). In January 2006 Google entered the Chinese market as Google cn. by signing the ‘‘Public Pledge on Self Discipline for the Chinese Internet Industry’’ which requires censorship on all internet providers websites and search engine results in addition to provision of customers identity who post offensive content (Einhorn and Elgin, 2006).
However, Google’s decision to comply with the Chinese Government’s censorship policies were perceived by numerous stakeholder groups as a violation of Google’s core value: ‘‘Don’t be evil’’ (Financial Times, 2006). Human right activist also protested against Google contradicting its core principle in order to make profit. Entry Mode Strategy MNC’s may enter international markets for different reasons; however it is necessary for companies to have efficient market entry strategies to be productive in their international expansion and operations (Hill, 2007).
Root (1994) also suggested that, the entry strategy for international market consists of five process of acquiring objectives, resources and polices such that the company will maintain and sustain its business. This process includes the choice, target market, product to sell, marketing plan and control to check performance. Once the firm has these factors are in place then the market entry mode is considered. “An international entry mode is an institutional arrangement for the entry of a company’s products, technology and human capital into a foreign country or market” (Hollensen, 2004 p. 72). The success of a company’s international operation can be determined on by the choice of entry mode into the proposed foreign market. This is as a result of sensitive decisions often implys the level of control over the foreign operations which include operational and strategic decision-making (Hill et al. 1990; Luthans and Doh, 2008. ) The common entry strategies in international operations are: exporting, licensing/franchising (contractual), joint venture/strategic alliances and wholly owned subsidiary (direct investment).
Each of these has advantages and disadvantages therefore careful deliberation is demanded when making a successful entry strategy. Hill et al. , (1990) characterised these entry modes according to control and dissemination threat level, and also resource dedication. For this article wholly owned subsidiary entry mode strategy will be reviewed. These modes are classified into foreign direct investment (FDI) by many authors as it involves a direct invest in the business operations in a foreign market (Root, 1994; Hill 2009; Hollensen, 2004).
According to Rugman & Hodgetts 2000, MNC’s invest directly in the foreign markets for a number of reasons some of these reasons such as: maximisation of profit and sales, obtaining technological advantages and managerial know-how in emerging markets and also reduce costs Figure 2 . Five process of acquiring objectives In entering the Chinese market Google adopted wholly owned strategy, which involves either the acquisition an exiting firm in the foreign market or setting up its own operations but in the case it started up a new operation also referred to as “green-field venture” (Hill, 2005). . Foreign entry by wholly owned subsidiary enables global strategic coordination. However, its high cost and risk can not be overemphasized (Hollensen, 2004; Hill, 2009). In the case of Google this has facilitated control over its subsidiaries and protection of its technological advantage abroad and the integration of Google’s business goals and objectives. According to Carr (2006) Google purchases its infrastructure in order to exercise control over its infrastructure.
Google chief executive officer Eric Schmidt defended its business strategy in a May 31 call with financial analysts. “We believe we get tremendous competitive advantage by essentially building our own infrastructures”. Strategy Analysis Using the IR framework Managers need to recognize local demands in terms of markets, regulations, customer taste and preference as they are faced with competitive pressures from the foreign market.
While some firms standardise their products and operations in all their markets, others adapt their products and strategy to the specific feature of the market it operates in (Daniels et al. , 2009) so as to enable firms penetrate and remain competitive in the foreign market (Doz and Prahalad, 1984). Using the IR framework matrix, Google can be classified as adopting global strategy in China due to the pressures for high integration and low local responsiveness.
Google was able to integrate advance technology with its organizational goal of making information available by running on hundreds of thousands of servers in numerous data centres around the world a (Carr, 2006) by devising common protocols between business processes and their supporting software. Figure 3. [pic] Local Responsiveness According to Bartlett (2002), the high competitive pressure has increased the global competition, thereby compelling companies to re-examine their global strategies.
The IR framework suggests that high pressures for localization in the countries such as the Chinese internet market ranges from, government policy, culture and standards and diversity in consumer taste. Google was able to penetrate the Chinese market by satisfying the consumers taste and preference for native language enable search engine, Google China adopted the Chinese language version of Google. com known as Google cn as a strategy to remain locally responsible (Martin, 2006) , How ever it maintained low level of local responsiveness.
This is because Google agreed to the censorship policy of the Chinese government and must abide to the terms of operating an internet search company in China. In other to operate internet service Google was required to ensure censorship on contents on its search engines and website, such as pornography and anti- government postings, as well as reporting offensive posting from users (Hamilton et al 2008) These terms contradicts Google principle of operations and mission of having unedited and unified information all over the world.
For instance in China internet search result restricts access to information on Dalai Lama, Taiwanese independence and Falun Gong religious sect Gong (Grossman, 2006). China does not maintain a legal system like those of the western world, its Chinese business norms and standard is based on power and connection rather than law. ’’Guanxi’’ which can be referred to as a relationship network or connection associated with mutual obligations (Hill, 2007) which bind business agreement in china.
Google’s conflict with the government policy and threat to exit the Chinese market can be suggested as lack of guanxi between Google and the Chinese government. However in the recent times Chinese business environment cultivates a guanxiwang and would continue to be an important issue in developing a long-term business environment. The guanxi can be a better form strategy for Google to adopt in order operate in China this is because of the tacit acknowledge that if you have the right guanxi, legal rules can be bent (Hill,2007)
COMPETITORS ANALYSIS: The globalization and china business economy has attracted d MNC’s such as Yahoo and Microsoft MSN. From the chart below (figure 2) Google cn has a larger market with share of 26. 0%, Yahoo is the second largest with 7. 9% and Microsoft MSN shares about 0. 8%. It can be deduced from this data that Google has penetrated the Chinese market more successfully than its multinational competitors. (Figure 4) Market share of China search engine Chart shows Google’s market share in China. [pic]
Source: (www. iresearch. com. cn) Furthermore, comparing customer satisfaction as a measure competitor’s activities, Google was ranked first by the Chinese customers in terms of customer satisfaction which were determined by search quality, reliability and image search, therefore increasing market share (Business Wire 2006). Google through its activities with its competitors has been able to transfer its success from the US market to the Chinese market. While Baidu an indigenous company is toping the chart with 63. %, this is because its taking advantage of its home ground and supports illegal downloads of mp3s(New York times, 2003) Google image and publicity Google integrity was criticized by human rights activists and they also accused Google for trading their mission and motto of operating ethically for profit maximization similarly its competitors also were not spared of criticism on their operations, thereby raising the issues of ethics in the methods of operation in China (Brenkert 2008).
For instance, while Yahoo was criticize for providing information that led to the conviction of Shi Tao a Chinese internet journalist in 2003 (Delaney 2006) Microsoft MSN also received same criticism for agreeing to shut down the of Michael Anti a New York Times employee because it addressed sensitive political issues (French 2006). These critics indicate that making profits out streams the operating ethically values of its competitors as well. RECOMMENDATION
As Google is threatened by the government policy, the management should draw out possible strategies that will counter the government policy and at the same time, that will make Google reconcile with the human right activist group in order to restore its dignity and integrity . This can be achieved by acquisition or merging with an indigenous company like Baidu (Argenti et al, 2007). This will aid in building a better effective guanxi with the government and stakeholders furthermore it may also increase its market share by exploiting Baidu responsiveness in the Chinese market.
Google also need to consider the long term impact on its operation, image and profitability in China with regards to the Chinese government relationship and possible security threat it may face therefore different scenario or proactive measures should be planned in advance to tackle these issues . CONCLUSION: Google’s entry into the Chinese internet market has witnessed a success although there was room for improvement if Google had increased its local responsiveness though it will contradict its core principle. This is evident from the size of its market share and customer satisfaction.
However, executives would have to develop and implement a strategy that would ensure compliance with the Chinese government policies and overall objectives. This essay also shows how unpredictable the Chinese internet market could be to MNC’s. It is also suggested that, Google’s pursuit for profit should not conflict with its companies motto of “Don’t be Evil” so as to enable it sustain brand name and customer’s confidence globally. Finally, its threat to exit the Chinese market should be reviewed in terms of loss to the company and type and strengths of stakeholders involved, which would make Google profitable in the long run.
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