To: Secretary Clinton From: 7774; Thomson Re: Formal arbitration is necessary to alleviate Google/China dispute Date: 2/2/10 Formal intervention is necessary for both sides to reach an agreement. Potential financial and political implications are making the decision difficult for both parties. If Google decides to stay in China, it will be comprising its public image. At the same time, if it leaves the country, it will lose revenue. China wants Google to remain, but also wants the company to abide by their laws and censor their material. Google and China’s differing aspirations are the reason behind the strife A compromise has not been made because both sides desire totally different outcomes. The model in the appendix shows why this is apparent. Google wants to stay in China and not be forced to censor their material. The only way for this to happen is if China agrees to this as well. This will not happen because it is China’s worst outcome. Google may be presented with the option of remaining in China but being forced to censor their material. The company would never select this option though because, as the model shows, they could instead pullout and have a better outcome. Google instead could decide to pullout on its own. This would be the company’s second best option if it feels that monetary gains are not as important as public image. If China decides to make Google censor their material and Google pulls out, the company would have made a wise decision. Google and China’s decisions are based on direct advantages According to the appendix, the only options for Google are to pull out or stay in China. China’s only two options are to stop censorship or to continue it. It is advantageous for Google to remain in the country if China offers to stop censoring. This would allow Google to continue making money in China and would not damage the company’s image. China’s most attractive outcome also involves Google remaining in the country. China wants Google to continue staying in the country, but only if it submits to their laws on censorship. The worst situation for Google would be if they immediately pulled out of China and China lifted the censorship ban. This would cost Google millions and also reflect negatively on the company. The model in the appendix shows a representation of this and of all the possible outcomes. Formal arbitration must first occur to mollify both parties The only way either side will give in to the other’s requests is with some form of outside intervention. Neither party is currently willing to listen to the other. The main problem is that both sides want Google to stay in the country. The issue with that is both parties want different levels of censorship to go along with Google’s presence. This is why discussion proves difficult for the two sides and it also shows why an outside arbiter is necessary. An outside arbiter must bring both parties together to try to reach an agreement. Even small, innocuous negotiations between both sides would initially be helpful. Although a compromise is the intended and ultimate goal, these first encounters would be beneficial to everyone involved. The problem will most likely grow and eventually cause more serious disputes in the future, if outside involvement does not occur soon. Google’s real motives and Chinese hostility limits model A major limitation of the model is that it implies a lot of things about both parties. The model follows the assumption that Google wants to maintain the best public image it can. This may not be the case. Google may actually prefer revenue over a positive reputation. The $300 million profit may be more important to the company than preserving good public relations. Google may also want to completely avoid the dispute and evade poor publicity all together. This would greatly change the model and make China’s decision useless. On the other hand, the Chinese government may not be willing to cooperate. The Chinese government became enraged following Google’s accusations of the internet attacks. If hostility is still present among the Chinese government, they may refuse to collaborate at all. This would lead to a Google withdrawal from China because, according to the model, it would be in the company’s best interests. If any of the aforementioned assumptions prove to be false, the model would need considerable alterations.