Chinese Puzzle - Act Global or Look Backward

By George Gutowski - May 28, 2012 | Tickers: GOOG, MMI | 0 Comments

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Google (NASDAQ: GOOG) is trying to buy Motorola Mobility Holdings (NYSE: MMI) primarily to scoop up a huge treasure trove of patents and intellectual property. Anti-trust regulators around the world have in turn signed off on the deal. Except for the Chinese. China, the worlds second largest economy, seems to be officially sitting on its hands. They are holding up the deal. Google's track record in China is problematic to say the least. Let me rephrase that. Google's track record of governmental affairs in China is horrendous. The whole world knows it.

The past cannot be undone. When the decision to buy Motorola Mobility was made, Google's board probably did not say "What about China?" However, today it's very much "What about China?" Its not an accident that China waited until the end. This may be Google's moment to fix things in China and develop access to the huge market. Certainly there are back room conversations. Chinese sensibility needs to save face and appear to extract something from Google. China also should understand that if they block the deal they will appear to be backward thereby losing more face on the global stage. Face in China is huge. Don't mess with this. 

Google will be taken out back to the Chinese wood shed and dealt with. If they are truly in the business of maximizing shareholder wealth, Sergey Brin and Larry Page should cut a deal. Get into the China game. The market is too large to be ignored. You cannot have geo-political gaps in your global coverage. Hire Henry Kissinger if you need to. As a matter of fact why haven't you done so already.

Is China Important to someone like Google? Should China be important to someone like Google. The short answer is Yes. But is Google important to China? The short but much smaller, light weight, and not nearly as important answer is yes. Google needs world domination to achieve scale. World domination cannot be achieved without a strong footprint with the grandchildren of Mao Tse Tung. The Chinese model will be more problematic. Beijing is still controlled by the communist party. They still expect complete control and will not tolerate challengers. They are also interested in promoting China's interests first. They understand that it is in their best interests to nurture Chinese based enterprises. They also understand that the size of their economy will allow a global dominant. The global dominant will not necessarily be a domestic based search engine. Other countries will block a Chinese centric vehicle.

China needs something rather soon. If they block the deal when the rest of the world has given it the imprimatur stamp, they look foolishly backward. They run the danger of incurring an international backlash for a parochial approach. Not a preferred option for the Chinese. So Google, make the grand gesture. The Chinese market is too large to ignore. You need to drive EPS. Your competitors have access and can use China as leverage against you. Time is money. If you make the Chinese blink first to save face in a multi face game, you just build up a huge tab when the game comes around again.

If I could be so bold as to suggest several joint ventures and develop a co-operative approach with China instead of an antagonistic mind set, both parties could move a long way to achieving strategic objectives. Because Google if you don't do it, someone else will sooner rather than later.

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