Google and China

Mike ShannonNick CurrierKasey Gandham

2011 Case CompetitionAlpha Kappa Psi

Mike ShannonNick CurrierKasey Gandham

Our Negotiation Statement

Remain in China Operating censored

Full uncensored operations in Hong Kong & Mecau

Terms: Google will not release user informationGoogle will state reason of censorshipChina will engage in a five year contract with Google

Priorities for both parties

GoogleMaintaining core principles

“Do no evil” Obligation to shareholdersCapture Chinese market shareProtecting user’s rights

Priorities for both parties

ChinaAvoid threat to one party systemMaintaining Chinese global identity Compete economically on global scale Retaining young talent

Options for both parties

Google China

Ideal No censorship, full operations

Complete censorship

Negotiation To be discussed To be discussed

Alternative Censorship without R & D No Google, rely on Baidu

Ethical Dilemmas

Google“Don’t be evil”World’s information universally accessible and usefulEffective, quick, unbiased results Lost market share to Baidu

Google’s case to China

Achieve technological parity with western countries Reverse brain drain effect Services in higher education

Google’s case to China

“Googlization”: Google as a way of life

Google’s case to China

Sinification to develop and maintain a non-western Chinese image

Google’s case to China

Quantitative study on advertising effectiveness1 ad click$1 spent $2 revenue

For each ad click there are 5 “natural” search clicksEach click is only 70% as profitable an ad click$2($5 x 70%) = $7 revenue

$2 (ad click) + $7 (natural click) - $1 (initial investment) = $8 profit

Pro Forma Income Statement of Economic Output in China

Google

Revenue

1 Ad Click 2.00

5 Search Clicks 7.00

Total Revenue 9.00

Expenses 1.00

Advertising Profit $8.00

For 25% of total Chinese market of on-line advertisement in billions ($1.225 billion)

Revenue

Ad Click 2.50

Search Clicks 8.75

Total Revenue 11.25

Expenses 1.23

Net Economic Output $10.02 bil

Chinese online advertising expenditures will increase from $1 billion to $5 billion by 2012. Our market share 25% of $5 billion is $1.23 billion which we project will be spent on advertising through Google. Natural search clicks are 70% as profitable.

(25% x 5 billion) x 70%=8.75 billion

For $1 spent on Google advertisement

Ad Click + Search Click - Initial Investment = Profit

Google’s case to stakeholders

Emerging economy – provide the world with information Enhance globalization Maximize shareholder value Baidu’s rapid development Uphold principles

Respect for Cultural Background

19th century trade warsOpium war Unequal treaties

Local Champions

Unequal Treaty Effect on China

Treaty of Nanjing Opened up five trade ports

Treaty of Wanghia Extraterritoriality

Treaty of Shimonoseki Now in debt to all western nations and Japan, forced to give up Taiwan

Google’s strategic plans

Terms of Agreement:1. Google will not release user information2. Google will state reason of censorship3. Google will engage in a five year contract with China

Special Administrative Regions

Google’s Case in 5 Years

Help China become a global power Communication is key to globalization Censorship is not efficient Google’s presence in the universities

Sources

Works Cited Beebe, A., Hew, C., Yuequ, F., & Dailun, S. (2006). Going Global. Somers : IBM Consulting Services. How Multinational Internet Companies . (2006, August). Retrieved January 29, 2011, from Human

Rights: hrw.org/reports/2006/china0806/5.htm John A. Quelch, K. E. (2010). Google in China (A). Harvard Business School , 2. Kennedy, L. (2011, February 4). Google in China. (K. Gandham, M. Shannon, & N. Currier,

Interviewers) Ng, E. (2010, February 11). China's Ad Spending Hits $120 Bil. . Retrieved February 1, 2011, from

Adweek.com: http://www.adweek.com/aw/content_display/news/media/e3i4c8c39f58df428b9cd3132e23a00b97d

Sands, L. (2008). 2008 Olympic's Impact on China. Retrieved February 2011, from Chinese Business Review: http://www.chinabusinessreview.com/public/0807/sands.html

Yanhong Li, R. (2005). Baidu Annaul Report . Beijing: Baudi.com, Inc. . Varian, Hal. “Online Ad Auctions,” American Economic Review, May 2006. Jansen, Bernard and Amanda Spink. “Investigating customer click through behaviour

with integrated sponsored and nonsponsored results,” International Journal of Internet Marketing and Advertising, 2006.