Google's China Blunder

05/25/2010 05:12 am ET | Updated May 25, 2011

As Google starts to unravel in China, with the People's Daily accusing it of spying, its local partners tearing up their contracts, and threats that the Chinese government might shut down the search engine entirely, everyone seems to be questioning what the company could have been thinking. Did Google's management really believe they could face down the Chinese government by openly threatening to remove all censorship unilaterally? Did they truly imagine that they could outwit Beijing's censors by moving the search engine to Hong Kong?

These questions miss the fundamental point. Google was not reacting to any change in its agreement with China. Rather, it was making a public acknowledgement that the company had veered from its basic principles when it made that initial agreement and that it had now seen the error of its ways. It's just that "I'm mad as hell and not going to take it any more!" plays a lot better than "I screwed up."

But screw up is exactly what Google had done. Back in 2006, lured like so many before them by the enormous potential of the China market, Google's executives had flown to China to cobble out a compromise deal that was shaky from the start because it violated five fundamental principles of negotiating sustainable agreements.

1. Stay true to your values. When you agree to terms that go against your basic values the result is invariably regret. That's what Google faced after creating How could the company famous for it's mantra, "you can make money without doing evil" live comfortably with a decision to collaborate in political censorship, no matter how big the potential financial returns?

The tortuous struggle to justify this decision is clear from the pained testimony company spokesman Elliot Schrage gave in a House of Representatives hearing just a month after the unveiling of the China deal. He rationalized that Google had had to choose between the lesser of two evils: compromising its mission to expand access to information if it were to decide not to set up an company in China or compromising its mission to do no evil by complying with Chinese censorship laws. The company believed that the first would be the lesser of two evils, Schrage said, seemingly unconvinced himself.

"It is not appropriate to say we are proud of our decision. Our hope is that the decision will prove to be the right one," Schrage said weakly. Pressed further by the Congressmen, he sounded more like Hamlet than the spokesman of one of the world's leading companies. "Is a half truth better than no truth? Is it better to have half the results that are misleading rather than no results at all?" he mused, before once again admitting," This is not something we did enthusiastically, not something we are proud of at all."

Not a great way to start a business relationship.

2. Align your forces first. According to reports from within the company, Google's China venture attracted fierce internal dissent. Co-founder Sergey Brin, an émigré from the repressive Soviet regime, was known to be particularly opposed to's self-censorship agreement from the day it was proposed. He lost the battle, but being overruled does not equal being convinced. Brin remained a vocal and powerful force of internal opposition to the China deal.

His opposition became a locus of dissent within the company. In 2008 he pushed Google to sign the Global Network Initiative, pledging better protection of online privacy and freedom of speech. When a motion was subsequently raised to end the censorship of sites in China at a shareholders' meeting, Brin very publicly abstained, leaving co-founder Larry Page and CEO Eric Schmidt to vote it down. This internal division ultimately so weakened the forces supporting the China deal that, when the cyber attacks struck, their voices had little power.

3. Keep in mind those not at the table. In the heat of the negotiation, it is easy to fall victim to the fallacy that the only influential parties are those sitting at the table: satisfy them and you are done. In fact, there are always crucial influencers on the outside whom you would be dangerously misguided to ignore. In Google's case these ranged from customers to shareholders to human rights groups. Having been snubbed in the decision-making process, they became a powerful force in opposition to what they considered a sell-out.

Though the company tried to promote the China deal in moral terms, as bringing more good than it was doing evil, the influencers weren't buying. Google faced protests by Tibetan exiles, denunciations by Reporters without Borders, a shareholders' revolt, even condemnation in the US Congress, with Rep. Chris Smith (R-NJ) accusing the company of "sickening collaboration, decapitating the voice of the dissidents."

This bad publicity may well have hurt the company more than the shrinking 29 percent market share in China was helping it.

4. Adhere to the spirit of the agreement. It's far better either to resolve problems up front--or to walk away from a deal--than to try to wriggle out through loopholes after the fact. Google chose the latter with disastrous results. Long before it attempted to outflank Beijing's censors by moving its search engine to Hong Kong, sought to mitigate its discomfort over the censorship agreement by alerting users that the information had been removed in compliance with Chinese law. Though this may have seemed like a clever technical solution to an embarrassing problem, it violated the essence of the agreement.

The Chinese government felt it was a victim of bait and switch: after getting into the China market, Google was now going out of its way to embarrass the country. The state-run media compared Google to "an uninvited guest telling a dinner host the dishes don't suit his taste, but he's willing to eat them as a show of respect to the host."

Clearly, this was not the beginning of a relationship that could work collaboratively to iron out problems. With mutual trust so badly damaged, the agreement between Google and the Chinese government was doomed within weeks of signing.

5. Strong agreements depend on strong relationships. The most important negotiation principle we should take away from the Google experience in China is not to make a half-hearted deal with a party we don't trust and with whom we have built only the most tenuous relationship in hopes of improving the terms later. When the only thing holding opposing parties together is a set of terms, the first bump in the road will set mistrustful partners on a collision course.

It is far better to get an agreement we believe in from the outset--and to build the relationship that will ensure the sincere implementation of that agreement--than to have to extricate ourselves from a bad situation many months and millions of dollars down the road. Hopefully, Google's blunder will be a positive lesson for all of us.