Marketing strategy case study analysis on: Google case in China
Closing Case: Google in China
The closing case explores Google’s decision to compromise its guiding principle, “don’t be evil”, when the company invested in China. Since its inception, Google has made it a point to never compromise the integrity of its search results. However, when Google invested in China, it agreed that certain politically sensitive topics would be blocked. Discussion of the case can be based around the following questions:
What philosophical principle did Google’s managers adopt when deciding that the benefits of operating in China outweighed the costs?
In this case study it’s clearly understandable that in the question of outweighing the cost china Google’s managers adopted the UtilitarianPhilosophy. “Utilitarian recognizes that actions have multipleconsequences, some of which are good in social sense and some of which are harmful. As a philosophy for business ethics, it focuses attention on the need to weigh carefully all the social benefits and costs of a business action and pursue only those actions where the benefits outweigh the costs” For Google China was an attractive as well as potential country to do business. China is one of the largest countries in the earth along with have a huge population which makes it a profitable market for Google. So Google took decision to run business in China with the censorship byChinese government. In addition some Human Right activist’s quicklyprotested, arguing that Google had abandoned its principle to makegreater profit, but Google managers thought that it’s better to giveChinese users limited information than to give nothing. Google argued that it was the only search engine in China that let users knows about the censorship. Apparently Google’s managers decision was based on Utilitarianapproach. But we can match this case’s situation with some otherapproaches, like Straw Men (Google made an ethical decision by taking an in appropriate guideline of government that putting censor in the search engine), The Freidman Doctrine (taking the chance of increasing the profitby staying with the rules & regulations of Chinese Government), &Cultural relativism (adopting the ethics of Chinese government to run business in China) etc.
Google’s mission as an Internet search engine is to provide the most complete search results possible. The company’s guiding principle “don’t be evil” means that it should never, for any reason, comprise its results. The company takes numerous steps to ensure the integrity of its results. For example, paid links are listed on a sidebar rather than within its main search results. Prior to its investment in China, Google had been serving the country from the United States. However, when it became apparent that China was blocking access to certain politically sensitive sites, and redirecting users to its own search engine, Google made the decision to enter China directly. The company reasoned that while it would not be able to maintain the integrity of its search results, it would be able to provide better information to users than if the company continued to serve the country from the United States. Many students will probably agree that Google’s decision is in line with a utilitarian approach to ethics in that the decision to invest, even if certain sites were blocked, was more desirable than continuing to allow Chinese users to have even less complete search results. In other words, it was the best possible balance of good consequences over bad consequences.
Do you think that Google should have entered China and engaged in self-censorship, given the company’s long-term mantra “Don’t be evil”? Is it better to engage in self-censorship than have the government censor for you?
When Google entered China, it was between a rock and a hard place. China offered the opportunity to make tremendous profits, yet it also meant that the company would have to compromise a key guiding principle. Most students will recognize that Google has an obligation to do what right for all of its stakeholders. In this case, the company was obliged to be financially responsible to its shareholders, and at the same time, provide good service to its customers. Google believed that even if the Chinese government continued to censor search results, it could provide better service to users by investing in the market, and at the same time generate bigger profits for shareholders. While many students will probably agree with Google’s decision, other students may wonder whether Google, having violated its own guiding principle, will be tempted to do so again in the future when “the benefits outweigh the costs.”
The main beneficiary part will be the local search engines and Chinese government. Because –
Local search engines market share will increase more.
No tension of information licking for the Government authorities.
Local investors will inspire to invest on search engine business etc.
Chinese government which possibly will have an easier control on local companies than foreign ones
If all foreign search engine companies declined to invest directly in China due to concerns over censorship, what do you think the results would be? Who would benefit most from this action? Who would lose the most?
This question will probably generate significant discussion. Some students will probably suggest that if all companies decline to invest, China may be forced to remove its censors. Other students however, will probably agree that even with its more open economy, China is still a communist state that makes its own rules. Students taking this perspective will probably suggest that if foreign companies declined to invest, China would simply continue with the status quo – providing the market with its own server or allowing censored versions of the results of foreign servers. Clearly in the first scenario, both companies and users benefit, while in the second scenario both companies and users lose. Some students may suggest that it is unlikely that all search engines would agree not to invest in China and that companies that are ethically opposed to providing censored results will ultimately lose as companies that do not share the same principles enter the market. The victim will be the economy of China. The free market concept is always beneficiary for any country’s economy. Also, the local company may start syndicate, and then the general users will not get any extra advantages. Without foreign company the competition will be lower so new innovation and creativity will not come out.
Starbucks Foreign Direct Investment
Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why?
The closing case describes the growth of Starbucks from a single store based in Seattle, to a global company with a presence in 38countries. Starbucks began its international expansion in 1995 when it established a joint venture in Japan. Since then, Starbucks has used various strategies to build its foreign presence. In Asia, its most common strategy was licensing arrangements. In Britain, Starbucks acquired an existing chain. The company pursued joint ventures in its European expansion. China is Starbucks’ next target. The company eventually hopes to open up to 15,000 stores outside the United States. When Starbucks decided to expand internationally, their initial strategy to enter foreign markets was through licensing their format. Starbucks soon found problems with the licensing strategy when the company entered Japan and Thailand. The main disadvantage that Starbucks had with licensing was the lack of control of the license company. By licensing Starbucks could not control how strict the license companies were following the Starbuck’s success format; such as, the quality of product sold and the focus of customer service. In addition, Starbucks could not control the expansion rate in other countries. For instance, when Starbucks entered Thailand they had license agreement with the Thailand Company to open 20 Starbucks stores within 5 years. However, the Thailand Company had trouble obtaining funds for Thai banks to financing the new stores. Because this strategy did not give Starbucks the control needed to ensure that the licensees closely followed Starbucks’ successful formula. “Starbucks successful formula” refers to its basic strategy, which was: To sell the company’s own premium roasted coffee, along with freshly brewed espresso-style beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting also providing superior customer service.
Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures, to whom it licenses its format, as opposed using to a pure licensing strategy?
After several attempts of trying to expand internationally through licensing Starbucks changed their strategy to expand through joint ventures. Through local joint ventures Starbucks had more control over the local business strategy and business model. In a joint venture each company was equally invested to better align strategic goals of building the brand and business. To ensure the “Starbucks experience” was established at the joint venture, Starbucks required store managers to attend similar to the US. I am sure it is one of the most important Starbucks’ strategies: to license its format to foreign operators and also establishing local joint ventures with them. This fact (as I said before) gives Starbucks the control to be sure that licensees are following its success formula; “licensed to the venture” means that both joint owners have the responsibility for growing the business (Starbucks) presence where it has established. For example: at the beginning Starbucks decided to enter to Japan by licensing its format to foreign operators, but later it become a bad decision because Starbucks did not have the authority to control this new business was still following Starbucks successful formula. It is when Starbucks improved this situation adding to the license a joint venture, so both companies which participated as joint owners had the commitment and responsibility to work together in order to get the best result=sales. So it is clear Starbucks’ strategies had been innovated, in the way that it doesn’t want to affront directly a new business in other countries.
Local joint ventures seem to offer Starbucks the best of both worlds. On the one hand, the fact that at least half of the newly-created company is owned by Starbucks gives the chain the possibility to control and influence the strategies implemented by the joint ventures’ managers. Starbucks’ quality norms (e.g. those concerning the manner of roasting coffee, serving products, creating a “seductive atmosphere” in a restaurant) and managerial know-how (e.g. expansion strategy) can be more easily transferred to a new company. On the other hand, the risks of failure (due to the lack of knowledge of local conditions, cultural differences etc) are minimised by forming a joint venture. The joint-venture partner knows the market well and can share its experience with Starbucks. In this sense, a joint-venture company is better than a wholly-owned subsidiary.
What are the advantages of a joint-venture entry mode for Starbucks over entering through wholly owned subsidiaries? On occasion, Starbucks has chosen a wholly owned subsidiary to control its foreign expansion (e.g., in Britain and Thailand).Why?
Using joint ventures has allowed Starbucks to share the cost and risk of developing its foreign markets. While a wholly owned subsidiary would give Starbucks complete control, it also implies that Starbucks would incur all of the cost and risk involved. In Britain, Starbucks did acquire an existing coffee chain that was modeled after Starbucks. Because the chain was already successful, some of the risk that would normally be associated with introducing a new concept to a foreign market was eliminated. Starbucks also shifted to a wholly owned operation in Thailand after its joint venture there experienced difficulty raising capital for further expansion. By acquiring the joint venture, Starbucks was able to gain control over the process. Joint venture is tantamount to taking the best of both worlds from licensing (risks of failure due to the lack of knowledge of local conditions is smaller) and full ownership of a subsidiary (the possibility of a stricter control). This rationale is generally valid. Nonetheless, paraphrasing Otto von Bismarck, management is not an exact science and exceptions do occur. In the case of the Seattle Coffee Co., the reason for buying out the company was that the firm was trying to act as a successful competitor. By buying it out, Starbucks aimed to achieve two objectives: entering the British market and removing a possible competitor. Furthermore, Seattle Coffee had already built a chain in the UK, which made Starbucks’ entry easier. In the case of Thailand, one may conjecture that the step was probably motivated by multiple factors. Firstly, Coffee Partners may have been unwilling to form a joint venture company: they invested much money, and now the contract was to be totally renegotiated, so they feared losing much of their profits by starting to run its operations under a new strategy (which they may not have fully espoused). Forming a joint venture with another company was not an option either – it would have taken time and effort. Hence, buying Coffee Partners was the fastest way to establish a strong market position. Furthermore, buying the company was once again removing a market competitor. Coffee Partners most likely gained at least some know-how from licensing Starbucks’ model, which made it a potential rival of Starbucks in the future.
Which theory of FDI best explains the international expansion strategy adopted by Starbucks?
The preferred answer for this question is the market imperfections (internalization) theory. Internalization theory suggests that when licensing is difficult, foreign direct investment is appropriate. Starbucks seems to have followed this philosophy. Starbuck’s strategy is based on horizontal FDI – Starbuck does not buy plantations (sources of inputs), but creates or buys companies in its own industry. Hence, I would like to analyse the strengths and weaknesses of five theories of FDI: transportation costs, market imperfections, strategic rivalry, follow the competitor, and location specific advantages. Out of the theories, the first seems to explain Starbuck’s FDI strategy per se: services like coffee-houses simply cannot be exported to a different country. What is needed is a chain of restaurants. The market imperfections theory is, by contrast, a much more precise explanation of Starbuck’s strategy. As it was explained in one of the previous questions, joint ventures offer a superior method to transfer Starbucks’ know-how to a new market. The theory also provides the rationale for creating wholly-owned subsidiaries, namely, eliminating competition. The strategic behaviour theory offers scant explanation for Starbucks’ foreign direct investment because the case gives no indication that Starbucks followed another global coffee house chain (in an oligopolistic industry) into Asia in order to ward off future competition. As to the product life-cycle theory, the weakness of the theory is that the Starbucks FDI was not undertaken at particular stages in the “life cycle” of the “coffee-house-experience” “product.” Furthermore, Starbucks did not export its “production” abroad because of price competition and cost pressures back home in the United States. As to the location specific advantage, it does not play any role – coffee can be served and prepared anywhere in the world. Summing up, it seems that market imperfection theory is the best explanation of Starbucks’ strategy – other explanations are partial or totally invalid.
If you want Marketing management Assignment Help study samples to help you write professional custom essay’s and essay writing help.
Receive assured help from our talented and expert writers! Did you buy assignment and assignment writing services from our experts in a very affordable price.
To get more information, please contact us or visit www.myassignmenthelp.Com
