case study google in china

Why Google Quit China—and Why It’s Heading Back

When American Internet companies do business abroad, they are sometimes forced to do a repressive government’s dirty work.

Link Copied

When Google shut down its Chinese search engine in 2010, it gave up access to an enormous market. There are more than twice as many people on the Internet in China as there are residents in the U.S., and the number of Chinese Internet users is growing at a rate that far surpasses that of any other country. Google has plans to return to China in the near future, but why did it turn away from the country for so long?

Censorship is why. Google effectively shut down its Chinese operations after it discovered a cyberattack from within the country that targeted it and dozens of other companies. And while investigating the attack, Google found that the Gmail accounts of a number of Chinese human-rights activists had been hacked.

Google had set up shop in China four years before the breach, offering a version of its services that conformed to the government’s oppressive censorship policies. At the time, Google officials said they’d decided that the most ethical option was to offer some services—albeit restricted by China’s censors—to the enormous Chinese market, rather than leave millions of Internet users with limited access to information.

But the 2010 attacks prompted the company to reverse course. Instead of complying with government requests to filter its search results, Google directed all of its Chinese traffic to the uncensored Hong Kong version of its search engine, a move that left the company vulnerable to being completely shut down in China. Indeed, Google’s services became inaccessible to most Chinese users within months.

Google’s move to pull the plug in China is an extreme example of the kinds of decisions Internet companies operating abroad are often up against: If they want to do business, they have to abide by local laws, which can include restrictions on speech. And since the United States has some of the most permissive freedom-of-speech laws in the world, American companies must adapt in order to do business even in parts of the world that are culturally very similar to the U.S.

Western European countries, which receive top marks from Freedom House for online openness, are far less tolerant than the U.S. of hateful speech and images. In Germany, where distributing swastikas is considered hate speech and is illegal, regulators recently investigated a complaint that Facebook was not adequately enforcing national hate-speech law. But it’s inconceivable that Facebook would close down its service in Germany just because the government asks for more censorship than the First Amendment would permit.

In countries with more repressive governments, companies routinely receive requests to take down a much wider range of content that violates local laws. In Russia, for example, speaking ill of public officials can lead to costly libel suits; just across the Black Sea, “insulting Turkishness” is punishable by fines and jail time.

Lee Rowland, a senior staff attorney at the American Civil Liberties Union, says companies should generally submit to governments’ requests for censorship, if it means they can keep delivering their services. But when they take down content from their platform, Rowland says, the company must be transparent.

“If these companies do whatever they’re capable of doing to publicize that their content is being screened, monitored, and sometimes censored by governments, I think there’s a really good argument that maintaining a social-media presence is inherently a liberalizing force,” Rowland said.

To that end, Google , Facebook , and Twitter all publish a detailed annual transparency report, where they show the number and type of content-takedown or user-information requests they received, and the number they complied with, from each country where they operate. The companies also lay out their rationale for dealing with these requests: Facebook, for example, says it checks every incoming request for “legal sufficiency” and “reject[s] or require[s] greater specificity on requests that are overly broad or vague.” But even the most thorough transparency report can be difficult to access in the countries where the reported censorship is taking place.

Rebecca MacKinnon, a prominent Internet-privacy advocate at New America, says companies should start thinking about how they will deal with free-speech issues even before they start doing business in a repressive state. “It’s about anticipating in advance what positions you’re going to be put in, and deciding in advance whether that’s an acceptable position to be in,” MacKinnon said. Many companies undergo a “human-rights impact assessment” before they expand to a new market with potential censorship pitfalls.

The calculus that goes into making decisions about free speech abroad is complicated. But there are few things that companies can do to push back against censorship-happy governments without losing access to an entire country.

Companies can set up stringent review processes for legal takedown requests. A stringent review can make sure governments aren’t taking advantage of Internet companies to censor content outside the bounds of the law, and thorough reporting and transparent policies can spur local activism to change repressive laws.

Twitter is an interesting test case. As with any company, its tolerance for complying with government requests can be gleaned from its actions. Twitter’s transparency report shows a sharp rise in takedown requests in 2015, driven in large part by a high volume of requests from Turkey and Russia; the company continues to operate in both of those countries.

In Iran, however, where Twitter has been blocked for more than five years, Twitter has made changes to accommodate Iranian users that are able to circumvent their government’s Internet filters. The company recently began allowing users with Iranian phone numbers to activate two-factor authentication, a login option which can protect accounts from being hacked. Rowland called Twitter’s actions in Iran the “ethical high-water mark for resisting government attempts to censor access to content.”

(A Twitter spokesperson declined to comment on the company’s legal and business decision-making, and spokespeople for Google and Facebook were not available to comment on this story.)

When deciding how to deal with censorship abroad, companies aren’t going at it alone. The Global Network Initiative, a privacy and digital human-rights organization, provides a roadmap for companies navigating business in repressive legal environments. GNI members represent for-profit companies—including Google and Facebook—investors, and nonprofit and academic organizations.

MacKinnon, who was a founding member of GNI and sits on its board, says the organization provides a space for companies who are up against tough choices to confer with other members, academics, and privacy advocates, in order to make informed decisions. But she says most companies are too preoccupied chasing short-term profits to put too much time and energy into implementing long-term free-speech protections. “GNI has at least put a framework in place that’s preventing things from being much worse than they’d otherwise be,” MacKinnon said.

Companies that do business abroad—even just in Europe—are dealing with an increasing number of government requests for content takedowns every year. Europe’s two-year old “right to be forgotten,” a European Union decision that allows citizens to ask Google to remove links to misleading, inaccurate, or irrelevant information about them, has opened a whole new category of content takedown requests. And growing worry that terrorist groups like the Islamic State are using social platforms to recruit and spread propaganda means that more governments are on the lookout for content that promotes terrorism, which typically violates platforms’ terms of service.

But while terms-of-service violations can result in bans and content takedowns, most Internet companies don’t report them in their transparency reports. This is a problem, says Rowland, because a government that’s particularly active in flagging terms-violating content for removal is essentially engaging in a different form of censorship.

The United Kingdom, for example, has taken special advantage of flagging tools, and at least one counter-terrorism unit in the U.K. government has been granted “super-flagger” status to request YouTube video takedowns, allowing it to flag violations en masse.

One reason some companies don’t report takedowns of content that violates their terms of service is because they can’t tell which requests come from governments. A spokesman for Twitter said governments are required to use the same mechanism for flagging tweets, photos, and accounts as the general public must use. The spokesperson said requests for takedowns based on terms-of-service violations are “very rare.”

Even as requests for takedowns increase every year, companies are engaging more and more with the governments that issue them. Take China: Google is hiring for dozens of positions there as it prepares its reentry, and is working toward an agreement to offer an app store for Android devices that would only include government-approved apps. In Pakistan, Google launched a localized version of YouTube last week that will adhere to local law, in a bid to get the government to lift a ban on the service.

These expansions will allow Google access to a large number of Internet users, delivering them more information, and at the same time bolstering the company’s bottom line. But for the millions of Internet users in China, Pakistan, and other places where censorship is the norm, the tradeoff for getting to use new services remains the same: Easily accessible information comes at the cost of continued government control, filtered through American Internet companies.

We want to hear what you think about this article. Submit a letter to the editor or write to [email protected].

Looking Behind Google’s Stand in China

China has become more emboldened and self-confident as a result of its increasing economic significance.
Google acted precipitously without giving due consideration to the impact of its announcement on stakeholders.
The Google issue has become a cause célèbre that exacerbates the already fragile and festering U.S.-China relationship.

Google, the "do no evil" company, gained entry into the Chinese search engine market last decade by agreeing to ban search results on topics deemed sensitive by the Chinese government. To Google's way of thinking, it could do more good for Internet freedom and the cause of human rights by working inside the country to create value for its Chinese users, employees, and business partners. To critics, Google was selling out its core principles to play in the world's second largest economy.

“Google shot themselves in the foot without gaining the moral high ground."

So it was a shocking turn of events on January 12 when Google announced it would pull up stakes in China unless the country agreed to stop censoring search. The precipitating event: an unsuccessful cyber attack from inside China attempting to burrow into the Gmail accounts of Chinese dissidents. Since the announcement, little has transpired publicly; the two sides are presumably negotiating.

Who are the winners and losers here? Has China been taught a lesson? Has Google been outfoxed? What can other companies learn from this collision of cultures?

Harvard Business School professor John A. Quelch and research associate Katherine E. Jocz have just published a case study, titled Google in China (Case 9-510-071), based on public sources, that delves into some of these issues. We talked with Quelch last week.

Sean Silverthorne: Some see this as a heroic effort by Google to live up to its "do no evil" pillar. But others note the company is turning its back on its Chinese employees, users, partners, and an incredibly large market opportunity that would benefit Google shareholders. What's your view?

John A. Quelch: Google acted precipitously without giving due consideration to the impact of the announcement on stakeholders, including their Chinese employees, consumers, and business partners.

Google's justification is that they are putting a stake in the ground on behalf of human rights. If Google is forced out of China, this could become a rallying cry for Internet freedom worldwide, to the benefit of the Google brand. And eventually, the Chinese regime might change to a more democratic form of government, in which case Google's stand might go down in history as one of seminal moments on China's road to democracy.

But this upside for Google is relatively speculative. The immediate downside consequences are more certain. Google has some 700 employees in China, the best of whom are already finding alternative employment. So de facto, Google is going to be a much smaller entity in China. It seems unlikely to me that many talented Chinese will be lining up for jobs at Google in China going forward.

Google's announcement has also disrupted the plans of a number of important business partners such as Samsung and Motorola, who were all set to launch Android-platform handsets in China. I doubt those partners were notified ahead of time.

Q: OK then, why did Google take this course of action?

A: The hacking incident was probably the last straw in a rather long line of issues.

Sooner or later, Google had to stand up for its principles. They have always been at odds internally as to whether or not being in China, operating a self-censorship approach, is consistent with their "do no evil" philosophy.

Add to this the business fact that only 1 percent of their revenues come from China. There is no reason to suppose that they were going to do any better by being cooperative with the Chinese government.

Interestingly, a resolution had been reached in the prior week on a separate matter involving the China Written Works Copyright Society, which accused Google of failure to inform or pay authors of books it was digitizing. Google issued an apology. My suspicion is there was thought to be a quid pro quo due from the Chinese that failed to materialize.

Q: One point made by your case, perhaps missed by Google, is that companies doing business abroad must be able to see the world through the eyes of the host government.

A: The Chinese government was taken aback by the Google announcement. True to form, they responded very cautiously initially, while they deliberated what to do. The initial Chinese response came from a mid-level spokesperson at the Foreign Ministry, while the initial response from the United States government came from the secretary of state herself—and that perhaps elevated the conflict.

“China certainly is not going to change its ways because of a threat from Google."

Now the Google issue has become a cause célèbre that encapsulates and exacerbates the already fragile and festering U.S.-China relationship. On the other hand, the concern over human rights in China is a big deal for many in the Western world.

The Chinese argue that they allow and support free information flow over the Internet with some restrictions. They contend that the United States doesn't feel any discomfort hacking into the Internet traffic of U.S. citizens who are suspected terrorists in the United States. Rightly or wrongly, the Chinese view the political dissidents and Falun Gong activists whom they attempt to track as equivalent.

Q: It was interesting that no other companies backed Google in this dispute. Microsoft CEO Steve Ballmer called it "Google's problem."

A: Google's announcement was self-confident and unilateral, but they have the market capitalization to back it up.

Among multinationals doing business in China, many others have endured cyber attacks on their private networks, although it is unlikely those attacks had the same human rights implications as the attacks on Google.

Multinationals doing business in China have been almost universal in their unwillingness to publicly support Google. Their view is that Google has needlessly upset the apple cart for everybody else. For many of these multinationals, China is or will soon be their second most important market in the world. That is not true of Google.

Q: If Google is forced to exit China, will it be a blow financially?

A: I don't think so, although they were looking to make progress in China with other lines of business, such as the Android mobile phone platform.

Q: Do you think Google has at least won the PR war here, and raised the flag of human rights in China?

A: Not yet. Today Google is still self-censoring content exactly the same way as they were on January the eleventh. So Google has shot itself in the foot without gaining the moral high ground.

How can you impress your customers and supporters around the world through this announcement if you don't actually follow through?

Q: Best guess: Will this dispute be resolved, or will Google be forced to keep its word and abandon China? Does China need Google more than Google needs China?

A: The Chinese cannot permit Google's public challenge to go unpunished. However, they need not do anything, as the leading employees of Google China are jumping ship to take jobs with Baidu and other competitors. Google will soon be down to a skeleton shift in China and, if they are permitted to stay, they will have a tough time recruiting new employees.

Q: Are there lessons here for other multinationals doing business in emerging economies?

A: Government relations are critical to business effectiveness in developed as well as in emerging economies. But, in emerging economies, where the public sector and government-controlled enterprises are usually a higher percentage of GDP, managing government relations at the national, provincial, and local levels is even more important.

You have to know what you are getting into. You have to know whom you are dealing with, what their expectations are, what their rules are. And you either have to operate on a "when in Rome do as the Romans do" policy, or, if you have a clear set of global values that cannot be compromised, you have to decide which countries are off limits.

The Foreign Corrupt Practices Act helps U.S. multinationals protect their employees from being compromised. But we have no rules of engagement that bear upon the defense of human rights of citizens in host countries in which our multinationals operate.

Q: What do you make of China's assertiveness of late, not only in the business sphere but in the political world as well?

A: China has become more emboldened and self-confident as a result of its increasing economic significance. China is reluctant to be badgered by Western companies or Western governments into changing its rules and regulations.

The Chinese do not yet understand international public relations and have perhaps too short-term a view. If they have power and are in the driver's seat today, they act very confident. If, on the other hand, they take a hit or two economically, they become more flexible. There is a very short-term transactional aspect to their diplomacy, which is reflected in their unwillingness to bend on these issues. They certainly are not going to change their ways because of a threat from Google.