Google-China as a case in Lose-Lose Negotiation

Everyone thinks that they know what Win-Win negotiating is, but what about Lose-Lose? Simply stated, it’s when both parties leave the negotiation worse-off then they entered.

There are two general categories of Lose-Lose negotiations:

The first is when a negotiation goes bad, and both sides lose time, money, assets or resources as a result. This what management students refer to as a ‘hygiene’ issue because unlike a ‘structural’ issue, the result is due to poor execution, bad planning or some other form of incompetence. If one or both sides were better at carrying out their own strategy, the result would not be lose-lose. Lots of US-China JVs end up this way.

The other type of Lose-Lose negotiation is structural. Due to environmental or external reasons there is certainly going to be a loss. The rational goal of this kind of lose-lose is to minimize the downside – either cooperatively or competitively. Think of a bankruptcy or divorce as an example of lose-lose.

So what do we have in the Google-China case?

3 Factors control this negotiation.

    1) Business interests
    2) Censorship
    3) Hacking

The hacking issue was actually the most significant – though it seems to be hazy and irrelevant to Google’s ongoing business. If the Chinese government is indeed, behind the hacking of Google’s servers then the company probably had no choice but to force the issue when it did – and had good reasons for doing it the way they did.

The Hack
If a bunch of 15 year-old script mutants from Estonia hack into, then the site owner has the option of forgetting about it. But if an unnamed foreign entity (i.e. China) conducts a concerted quasi-military attack on Google and the company not only learns about it but also discovers that A) sensitive companies involved in US infrastructure and defense industries were also hit and B) its own employees may have been involved, then the company has severely limited options. If Google knew about this and said nothing to anyone then the best it could have hoped for was a PR nightmare – and it sounds like it might be edging towards treason (or at least prolonged GlennBeckian rants and special Congressional hearings) in a worst-case scenario. Sure, it could have handled it more discretely – but then there was the possibility of losing control of the message (when someone in the company or either government reveal it at a time of their choosing or through a blunder) and looking, well, EVIL when the pattern became apparent.

Only a handful of people know for sure the actual extent of the hacking and who was behind it – but the facts as presented would make ‘business as usual’ impossible for a responsible management. After 4 years doing business in China, Google couldn’t claim it didn’t know what the downside of this kind of hacking might have been. This is their business.

The Business Interest
There are some very good reasons for Google to take the position it did. No – the problem wasn’t that Google was failing in China. It was doing fine – and the most recent stats indicate that Google was actually making significant gains in the last few months. With China cracking down on piracy and IP violations, the industry was moving in Google’s direction (since Baidu still gets lots of its search traffic from MP3 downloaders). The business issue has to do with WHEN to force a confrontation, not WHETHER to do it. If the hacking was real, then it was in Google’s favor to have the negotiation earlier rather than later; louder rather than quieter. There are lots of people shouting that Google didn’t understand China’s culture. Well, I can’t speak for Brin, Page or Schmidt, but I like to think that I do understand a little about China’s negotiating culture. Handling this according to Chinese convention would have been an unmitigated disaster for the company. By going public and presenting its case in the court of public opinion, Google can balance its losses in China with gains elsewhere. If the company had conducted quiet, behind-the-scenes negotiations with Chinese bureaucrats it would be bargaining away all its advantages before the first meeting even started with little hope of improving its position either in China or globally. Deservedly or not, Google has managed to turn 180 degrees and go from being seen as a co-conspirator with a human rights violator to being the champion of justice and freedom. At the time of this writing, Google is still up and running on both the .COM and the .CN sites so the company hasn’t given up anything. Google’s harshest critics are saying that it should have happened sooner.

Although the loudest of the three arguments, this was probably the least important. Freedom of information flows is Google’s stock in trade – and it routinely makes arrangements that limit those flows under certain conditions and in certain places. If it can marry a stronger anti-censorship image to its brand name, then The Goog is in a much stronger position to defend its de-facto position as ‘repository of all human knowledge’ from nervous Western authorities. The censorship position makes a great bargaining chip. If Google and China do want to arrive at a face-saving decision, then this is the only option on the table that makes any sense at all. Google.CN is the variable in play. If Google decides to give something up to appease Beijing, they can jettison or alter the CN site. Likewise if Beijing wants to let the Goog look like it won something (as unlikely that may seem right now) then the two can issue joint press release that the new and improved Google.CN will be freer and opener in some way.

Once Google discovered the hack it had no option other than to engage in a loss-minimization strategy. The discovery was a game-changer that significantly constrained Google’s negotiation options. It’s BATNA plummeted, and the only rational course of action was to negotiate to limit its losses and counter-balance with new gains elsewhere.

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