Sun Tzu: Foreknowledge through the use of spies
Porter: Understanding information technology versus core competence
The last chapter of Sun Tzu’s book is about spies: the importance, types, characteristics, and principles of using spies. Sun Tzu proposed active utilization of spies because an effective usage of spies can significantly reduce the cost of war and sometimes even prevent war from occurring in the first place. Given the cost-reduction effects, employing a spy can be seen as a relatively cheap, but high-return investment. According to Sun Tzu, spies can be used not just to acquire information about the enemy, but also to spread wrong information and make the enemy misjudge. However, due to the highly difficult and complicated operations of spying, Sun Tzu said unless one is wise, benevolent, righteous, and subtle, one cannot properly manage spies and benefit from using spies.
There is a coherent military thought throughout the thirteen chapters of The Art of War: the importance of knowing the enemy and oneself. On the other hand, among the Western military theorists, the significance of intelligence was not as strongly emphasized. Although Clausewitz admitted that intelligence could magnify strength by reducing uncertainty, he did not attribute as much significance to intelligence as Sun Tzu did. This is because Clausewitz thought that many intelligence reports in war are contradictory, filled with uncertainty, and frequently false (Clausewitz, Reference Clausewitz and Graham1968[1832]). Some ancient Chinese scholars also denigrated spying activities and argued that the use of spies is the worst policy and should be restricted because false information could actually damage entire military operation (Kim, Reference Kim1999). However, the majority of researchers on Sun Tzu’s military strategy agree that this chapter is no less important than other chapters, especially given that spies were the only way to obtain inside, highly secretive information on the enemy during Sun Tzu’s time (Kim, Reference Kim1999).
On the other hand, in business, information technology (IT) plays a significant role for acquiring useful information; thus some emphasized that IT can be a source of competitive advantage of firms. However, Porter (Reference Porter1985) argued that IT cannot replace the traditional sources of a firm’s unique competitive advantages, but can only complement traditional sources of competitive advantage. Although the combination of IT and a firm’s core competence is critical for achieving a firm’s competitiveness, simply the advancement in IT cannot sufficiently explain a firm’s competitiveness as demonstrated in the case of Google’s failure in China, which will be explained later in this chapter. Other factors, such as local business environment, also play vital roles. I will demonstrate that understanding customers’ real needs and adapting to local regulations and laws, particularly for the multinational firms operating in foreign countries, are also necessary.
In this chapter, I will first introduce Sun Tzu’s guidelines for using spies to acquire the enemy’s information. Then, I will explain Porter’s concept of IT and discuss how it affects the industry structure and firms’ competitive advantages. Following the analyses, I will analyze the linkage between Sun Tzu’s and Porter’s theories. For case studies, I will examine the military case of Mata Hari, a spy for Germany and France during World War I, and the business case of Google in China to demonstrate the application of these strategic linkages between war and business.
13.1 Sun Tzu: Foreknowledge through the Use of Spies
Any military general engaging in warfare must understand that every time he mobilizes the army – whether to move to a particular location, build a defense wall, or fight in a battle – he is exhausting enormous resources, including human lives, food, and weapons. Therefore, a general should always take every precaution possible when he makes a decision concerning the movement of the army. Unfortunately, however, military leaders are often paralyzed by what is called the “fog of war” – uncertainty about the conditions under which they will be fighting, as well as uncertainty about how the enemy will respond to their actions. In this regard, throughout The Art of War, Sun Tzu emphasized the vitality of obtaining information, especially before an action is executed.
A thorough preparation – such as securing reliable information on the enemy – should always precede the devising of any military strategy. When it comes to the reliability of information, the open-source information, which can be obtained by diplomats, traders, and other observers, is often limited and potentially erroneous (Sawyer, Reference Sawyer2005). Therefore, using spies is an effective way to gain access to the information on the enemy’s true situation and intentions. In this manner, the successful use of spies is an important part for winning a victory in warfare. One may argue that using spies is immoral and shameful, but Sun Tzu said that there is nothing which can be more shameful than waging a war without knowing the enemy and exposing the army to a dangerous situation, thereby resulting in unnecessary casualties. Therefore, instead of shying away from using spies, Sun Tzu pronounced that there is nothing more central to the art of war than intelligence operations, and none deserves higher rewards than spies who bring quality information about the enemy.
13.1.1 Five Types of Spies
Sun Tzu categorized spies into five types. They are local spies, inside spies, converted spies, doomed spies, and surviving spies.Footnote 1
Local spies are ordinary people in the enemy’s country who can provide basic information on the characteristics of their home country. These spies are useful because they are easy to hire, but their roles are limited to providing only rudimentary level information.
Inside spies are those with high positions in the enemy’s army or government who can provide high-level intelligence about the enemy’s strategies and operations.
Converted spies are those who have been sent by the enemy, but are turned to work for one’s own army. These spies are hard to hire, but if one can manage to make an enemy spy a converted spy and use him effectively, the results can be substantially valuable.
Doomed spies are those who are sent to the enemy to deliberately spread false information in order to direct their military strategies to one’s intention. These spies are often intentionally captured by the enemy, confess the false information, and thus are mostly doomed to death.
Surviving spies are those who are sent into the enemy camp, but with a mission that requires them to return home safely with acquired information. These spies are able to embed themselves into the enemy’s organization and obtain useful information. Since they require highly sophisticated skills, they must be specially selected and trained.
Among the five types of spies, the first three (local, inside, and converted spies) come from the enemy’s side, while the other two (doomed and surviving spies) belong to one’s own country. Among the five types of spies, converted spies are the most valuable, because they can help and create synergy effects with the other four types of spies. With the help of converted spies, one can more easily hire local and inside spies, send the doomed spies deep into the enemy’s organization, and protect the security of surviving spies when they conduct their tasks. Therefore, Sun Tzu said generals should seek out the enemy spies and turn them into converted spies by bribing them with generous rewards and treating them well. However, converted spies have the disadvantage that they are hardly to be fully trusted, because their mission is to deceive one’s army in the first place. Due to this problem, Sun Tzu suggested to use not just one type, but all five types of spies.
13.1.2 The Principles of the Use of Spies
The Requirements for the Treatment of Spies
Spies can play a critical role enough to change the winner of the war. In order to successfully use the spies, the most important task is to be highly secretive when using the spies. If plans related to secret operations are prematurely disclosed, Sun Tzu warned that the spy and all other relevant persons will face the risks of being put to death. Because of the nature of the activity, which requires the maintenance of top-level confidentiality, the control and management of spies must be conducted seamlessly and strictly. When selecting spies, trustworthiness should be valued as the most esteemed quality. In other words, the military leader should possess good knowledge of the spy’s character and choose one he can trust and control with ease.
On the other hand, spies should also be loyal to the general or ruler even when personal safety is threatened. Sun Tzu said among all military matters, none can be compared to the intimate relations to be maintained with spies. In addition, spying is highly risky and the spies can lose their lives at any time. In order to encourage people to get involved in such dangerous operations, and also not to be bribed by the enemy, they should be rewarded as generously as possible in return for their contributions to the country. Therefore, Sun Tzu said none can be more liberally rewarded than spies.
The Requirements for the Leader’s Capability of Using Spies
The use of spies is not an easy matter; not all generals can successfully employ spies and benefit from using spies. The success requires superior wisdom to devise a strategic plan of sending the spies deep into the enemy’s organization and obtain useful information without being discovered. One’s spies can also be utilized by the enemy as converted spies or the enemy may deliberately release false information so that the spies could mistakenly deliver it to their home country. Sun Tzu said that only those who are detailed and subtle can obtain and decipher the truth from spy activities. Therefore, Sun Tzu said only those who are wise can benefit from using spies.
In addition, in order to obtain true loyalty from one’s spies, one should treat them with absolute sincerity. Although appealing to them with generous rewards is important, the enemy can also offer the same level of rewards to the spies, thus only trust built upon sincerity from the bottom of one’s heart can really move the mind of the spies. Therefore, Sun Tzu said only those with personal attractiveness and strong ethics can effectively manage spies.
13.2 Porter: Information Technology versus Core Competence
Over the past fifty years, there have been three waves of IT-driven transformation. The first wave in the 1960s and 1970s promoted the automation of value chain activities, operating through manual, paper, and verbal communications, thereby substantially improving operational efficiency of activities. The second wave driven by the rise of the Internet during the 1980s and 1990s facilitated the coordination and integration of individual activities within a firm and with outside independent firms across national boundaries. Unlike the previous two waves which only transformed the value chain, in the third wave driven by the “Internet of Things (IoT)” since 2000s, IT was incorporated directly as an integral part of the product, thereby transforming the products significantly (Porter and Heppelmann, Reference Porter and Heppelmann2014). For each wave of IT-driven transformation, Porter examined the truth of the phenomenon and its influences on gaining firms’ competitive advantages. The following explains Porter’s two articles, published in 1985 and 2001, regarding the role of IT and Internet in creating competitive advantages.
13.2.1 Porter and Millar (Reference Porter and Millar1985): IT and Competitive Advantage
IT has changed the nature of products, processes, companies, industries, and even competition itself. According to Porter and Millar (Reference Porter and Millar1985), IT means more than just computers. It should be considered broadly as a phenomenon that encompasses the information produced and consumed by businesses and a wide spectrum of increasingly convergent and linked technologies that process information. In addition to computers, it includes data recognition equipment, communications technologies, factory automation, and other related hardware and software.
IT affects a firm’s operation through its value chain. Each activity in the value chain is composed of a different ratio mix of physical and information-processing components.Footnote 2 Before the information revolution, technological progress mostly affected the advancement of physical components, while information processing remained to be done manually with lagging technological development. However, since the age of information dawned, the development speed of IT has become faster than that of physical processing, and the scope of possible information processing is expanding.Footnote 3
Overall, IT affects each of Porter’s five forces for industry attractiveness, thereby influencing the industry structure either by eroding or improving the industry attractiveness. For example, because of readily available and easier access to information, consumers now possess the power to compare the costs of similar (or substitutable) products offered by different firms. Thus, the bargaining power of buyers increases due to IT development. On the other hand, by utilizing IT, firms can flexibly modify or add the latest and better features to existing products, thereby increasing the threat of substitution.
Nevertheless, the fact that IT can deteriorate the industry structure (i.e., eroding industry attractiveness) does not mean technology only poses harm without benefits. The development of IT can improve industry attractiveness by lowering the threats of potential entrants (i.e., raising the barriers), for instance, by creating complex software systems and new technologies that require large capital investments. In addition, an effective management of IT can replace some tasks of suppliers, thereby reducing the bargaining power of suppliers.
IT also creates great effects on competitive advantage by lowering cost or enhancing differentiation of the value chain activities. The enhanced capability of information processing can play a large role in reducing the production costs through automation and increasing the economies of scale. In addition, IT can change the cost drivers of activities in ways that can improve a company’s relative cost position. On the other hand, for the effects on differentiation, IT can affect a company’s capability of differentiation by adding information systems to the physical products or to the activities in the value chain.
13.2.2 Porter (Reference Porter2001): Internet and Competitive Advantage
In contrast to many arguments that the Internet nullifies the usefulness of management strategy, Porter (Reference Porter2001) argued that the Internet is not the source of competitive advantage. Instead of becoming obsolete, with the introduction of the Internet, strategy in business has become even more important as it distinguishes firms from other rivals, while the simultaneous introduction of the Internet by the competing firms makes their uniqueness blurry. The Internet, in fact, tends to weaken the industry attractiveness, as firms pursue similar strategies and engage in destructive price competition. What is even worse, some firms employ the Internet technology as the basis of competition, which leads to the shift from their extant differentiation to price strategy, and it becomes harder to earn higher profits. Thus, the two fundamentals of generating profits should be still the industry structure which determines the average profits of firms within the industry, and the competitive position which allows firms to earn higher profits than their competitors.
Although the Internet can enhance the overall efficiency of an industry, in general it leads to deteriorating profits of the industry. However, the negative effects do not mean that firms should simply avoid adopting the Internet technology; it means that firms should be careful about how they deploy the Internet technology, because the Internet is no longer an optional accessory to business but a necessary condition for firms to maintain competitive advantages and survive the fierce market competition. Some may assume that the Internet would provide first-mover advantages by increasing switching costs and creating strong networks. However, Porter argued that the switching costs will be lower in reality than the traditional ways of doing business, and that the formation of networks through partnering with complements or outsourcing is also not enough to keep the entry barriers high. This is because the increased open access through the IT development will make competitors more similar and erode their distinctiveness.
Therefore, according to Porter (Reference Porter2001), the appropriate view of the relationship between the Internet and competitive advantage is that the Internet does not replace the conventional sources of competitive advantage, but complements the traditional ones. In other words, firms should integrate the Internet with other existing competitive advantages such as skilled talents, proprietary technology, or efficient logistical systems to further enhance their competitive advantages. For example, Walgreens, a pharmacy chain in the United States, introduced an online ordering system that actually required the company to open more stores, because customers preferred to pick up their prescriptions at the nearby stores rather than receiving them through the mail. The Internet system helped the company increase its sales, but the extensive network of stores was still maintained as the core competence of the company rather than being replaced by the Internet.
Porter’s views have been supported by other scholars studying the role of IT in achieving competitive advantages. For example, Powell and Dent-Micallef (Reference Powell and Dent-Micallef1997) found that although IT itself does not help firms produce sustained performance, firms which combined IT with their existing critical resources such as human and business resources gain superior performance. On a similar note, many scholars (e.g., Clemons and Row, Reference Clemons and Row1991; Mata, Fuerst, and Barney, Reference Mata, Fuerst and Barney1995; Breznik, Reference Breznik2012) denied the view that IT can be the source of competitive advantage. Referring to the resource-based view of the firms, they argued that IT itself does not satisfy the four qualifications of competitive resources: valuable, rare, inimitable, and nonsubstitutable, or VRIN (Barney, Reference Barney1991).
13.3 The Integration of Sun Tzu and Porter
13.3.1 Acquiring Foreknowledge on Rivals in War and Business
Obtaining information about the enemy is a crucial determinant for winning a war. Sun Tzu said, “Whether the objective is to strike the army, to attack the city, or to assassinate an individual, it is always necessary to begin by finding out the proper information of the enemy commander, his assistants, staff, door guards, and attendants.” Sun Tzu emphasized the unquestionable significance of conducting high-quality preliminary research to acquire foreknowledge on the enemy before going to war.
Similarly, in business, firms have to thoroughly study their rivals’ competitiveness. McNeilly (Reference McNeilly1996) argued that firms should know what the competitors are capable of and what their current plan of attack is. Moreover, one must also be able to predict how the leaders of the competing firms may react to one’s actions. However, since the ecosystem of business competition is complicated, a firm not only has to confront the competition against its direct rivals, but also consider all the competitive factors – such as suppliers, buyers, substitutes, extant rivals, and potential rivals – that compose the five forces of industry structure (Porter, Reference Porter1980).
Then, how do we acquire foreknowledge? Sun Tzu said, “Foreknowledge cannot be acquired from ghosts or spirits, nor obtained inductively from experiences, nor by any deductive guess. It must be obtained from men who know the enemy and their situation.” For this purpose, he claimed that the role of spies is to obtain the needed information of the enemy. In modern days, besides the use of spies, IT (e.g., cyber hacking) is widely applied in military to obtain the needed information from the enemy. On the other hand, IT also allows its users to spread information among the targeted audience. The Islamic States’ strategy provides a good example for this case. Islamic State has attracted and recruited foreign fighters by using the SNS such as Facebook and Twitter, online magazine (e.g., Dabiq), and radio broadcast, as propaganda tools. The number of foreign fighters doubled to a total of 27,000–31,000 during the period of June 2014 and the end of 2015 (Economist, 2015).
In business, before the information revolution, the access to information mainly depended on the human efforts. However, since the rapid development of IT, manual jobs have been replaced by machines for gathering and processing information. This technology has made it faster and more accurate than manual operations. In addition, before the information revolution, the process for competitive analysis was very weak, but due to the development of advanced IT, firms can conduct more sophisticated analysis with a greater number of variables, scenarios, and alternative strategies than before.
13.3.2 The Role of Spies and IT in War and Business
Despite their importance in obtaining critical information from the enemy, spies are no more than a supplementary tool – far from being the main means of winning a victory. Although Sun Tzu did stress the noncombat victory in defeating the enemy’s stratagem or their alliances, in many cases, a victory is gained by head-to-head fighting. Therefore, even if one has a capable spy and information network, they cannot replace a competitive, physical military force. For instance, even if one obtains foreknowledge that the enemy will attack soon, the information will have no use if one does not have an army that can effectively react against the enemy attack.
In business, Porter and Miller (Reference Porter and Millar1985) also argued that although IT has a great effect on creating firm’s competitive advantages, it is not the main source of competitive advantage. According to Porter (Reference Porter1980), there are only two sources of competitive advantage: low cost and differentiation. IT is a tool for achieving competitive advantage by either lowering cost or enhancing differentiation levels as it influences each activity in the firm’s value chain. While acknowledging that the Internet is very powerful as it can influence the value chains of an entire industry, Porter (Reference Porter2001) argued that the Internet is not the fundamental source of competitive advantage but a useful conduit in achieving extraordinary performance. Firms should use it in a manner that complements traditional activities with Internet applications, thereby strengthening their existing unique position in an industry, rather than thinking of IT as a substitute for firms’ strategic positioning.
Clear differences exist between the objectives of employing spies for military missions and implementing IT for gaining competitive advantage in business. In military, spies are used to obtain the information of the enemy particularly to find their weaknesses, so that one can attack the enemy’s weaknesses and avoid their strengths. Another objective of using the spies is to spread wrong information to evoke the enemy to make a wrong decision. However, in business, IT is used to enhance one’s competitive advantage, without directly incurring benefits or costs to one’s competitors. In military, one’s victory is achieved by exploiting the enemy’s weaknesses toward one’s advantageous position, but in business, success is based on the fundamental enhancement of one’s competitiveness, while the rivals’ strengths may be unchanged. This is because military espionage is considered necessary, normal, and acceptable, while business espionage is frowned upon and many people condemn it as unethical and unacceptable (Wee et al., Reference Wee, Lee and Hidajat1991). McNeilly (Reference McNeilly1996) suggested that in business, most competitor data and information can be obtained from public sources where no trickery is required. Hence, the activity of industrial espionage is restricted, and companies’ intellectual properties are protected by law. For example, employment contracts are often designed in a way to prevent employees of a company from moving to another company, especially a direct competitor, within a certain timeframe to protect the firm’s proprietary knowledge from its rivals.
13.4 Military Case: Mata Hari, a Spy for Germany and France
Mata Hari was a Dutch dancer and courtesan executed for alleged espionage for Germany during World War I.Footnote 4 She is often portrayed as the most famous female spy of the twentieth century. Mata Hari was her stage name, and her original name was Margaretha Geertruida Zelle (1876–1917). She was born in Leeuwarden of the Netherlands in 1876. At age nineteen, she married a Dutch army officer and accompanied him to Indonesia where she experienced an unhappy marriage due to her violent and unfaithful husband. In this exotic world, on the other hand, she encountered the dances that later inspired her to become a dancer. In 1902, the couple moved back to Amsterdam and were soon separated. She decided to go to Paris for a new start in 1903.
Without a husband, not professionally trained in any career, and without any money, she used her experiences in Indonesia to create a new personal character, one who put on jewels, smelled of perfume, sometimes spoke in Malay, and danced seductively. She first debuted as a dancer in a salon and achieved an instantaneous success. In order to make herself more exotic, she also used “Mata Hari” as her stage name, which means the “eye of the day” in Malay. Not surprisingly, the sensual dancer had scores of admirers who willingly paid for her. In the spring of 1914, she accepted a very attractive contract from the Berlin Metropole. At the time, however, the world was on a fast track to war and it was soon to engulf her. Penniless and adrift, she had no option but to return to her native Netherlands. In the fall of 1915, she was approached by a German consul. He told her that he was recruiting spies and offered her 50,000 francs and the code name H21, if she would spy for Germany. She agreed and took the cash.Footnote 5
She visited France two times in 1915 and 1916, and during both times she was closely tracked by the French counterintelligence. However, there was no evidence that she was working for Germany. On her second trip to France, the French counterintelligence chief, Georges Ladoux, contacted her and tried to persuade her to spy for his side to seduce the German officers and that in return they would give her a million francs. At that time, she fell in love with a young Russian officer; the relationship with him seemed to be one true love in her life. She needed the money to settle down with the young officer. Eventually she accepted the offer from the French.
She was sent to Spain to seduce a German military attaché in Madrid via the sea lanes. However, the British forced the ship ashore at Falmouth, a city on the southern coast of England, and arrested Mata Hari, believing that she was a German spy named Clara Bendix. She was released after convincing the British that she was actually working for France. Mata Hari continued her journey to Madrid; she soon quickly formed liaisons with Germany’s naval and military attachés in Madrid, and succeeded in seducing the German attachés. However, what exactly was the nature of her duties to the German officers remains part of the mystery surrounding Mata Hari.
At the end of 1916, Berlin advised the two German attachés in Madrid that they were paying too much for the routine information provided by “Agent H-21” and sent Mata Hari back to Paris. On the other hand, the Germans then deliberately sent a telegram to Berlin which was intended for the French to intercept. As expected, the French decoded it and used it to prove that she was still working for the German intelligence service. Mata Hari returned to Paris on February 12, 1917 and stayed at the elegant Hotel Plaza. The next day, however, she was captured and was executed by the firing squad on October 15, 1917, at the age of 41.
According to Sun Tzu’s classification of spy, Mata Hari can be classified as converted spy, because she first worked for Germany and then was utilized by the French. Mata Hari was employed as a spy because she had relationships with many prominent political figures, including military officers and other influential men in Russia, France, and Germany. She was also smart and could speak several languages. Moreover, as a citizen of the Netherlands, a neutral country during the war, Mata Hari was allowed to travel across national borders easily.
Sun Tzu said in order to obtain the spy’s loyalty, the employer of the spy should treat the spy with sincerity. However, there was no such relationship between the employers (Germany and French) and Mata Hari. Their relationship was established based on taking advantage of each side and lacked in sincerity. Germany and France preferred Mata Hari’s several competitive advantages and intentionally used them. Mata Hari’s main goal was to earn money rather than to faithfully serve any particular country. This is why she was also easily persuaded to accept the French offer, although she was already working for Germany. Therefore, their relationship was bound to be very short term and volatile.
On the other hand, Germany arranged the whole process to make its adversary (France) directly punish Mata Hari, by sending her to France and sending the telegram to betray her to France. The French arrested and executed Mata Hari without even obtaining enough evidence that she had released important secrets to Germany. At that time the French claimed that she released top secrets to Germany about the information of the French weapons such as the tanks, which led to the deaths of thousands of French soldiers on the battle. However, after decades following Mata Hari’s death, one report by the UK government wrote that there was in fact no evidence that Mata Hari delivered any secrets to Germany. Leon Schirmann, who spent ten years studying the case of Mata Hari, also admitted that she was the “perfect victim” who became the scapegoat for the French.
If we use Porter’s view on the information advantage, we can easily see the mistake of French execution of Mata Hari. According to Porter, information is not the main source of competitive advantage, but just an aid to efficiently achieving a strategic goal. Therefore, the French did not have to execute Mata Hari as the execution did not aid France at all. Furthermore, the French already knew that Mata Hari was a converted spy from Germany. As the war was still going on, the French should have thought how to use Mata Hari more effectively rather than just to execute her. Germany also made a similar mistake as it had intentionally released the information of Mata Hari to have France kill her.
13.5 Business Case: Google’s Failure in China
Google was founded in California, U.S.A., in 1998, by two graduate students of Stanford University, providing the Internet search services; currently it has become the global leading provider of the Internet search services. The mission of Google is “to organize the world’s information and make it universally accessible and useful.” In order to increase its international market, Google launched a Chinese-language version of google.com in 2000, hosted in the United States. Although the company secured a dominant position in the overall global market, its market share in China remained secondary to Baidu, a Chinese IT company. The problem was mainly due to the fact that the censorship by the Chinese government had reduced the speed of Google’s search engine substantially.
In order to solve this problem, Google launched Google.cn in January 2006. To make it as “Chinese” as possible, the company hired Chinese employees and partnered with the Chinese technology firms. According to CEO Eric Schmidt, one of Google’s “big projects” during 2007 was to grant greater autonomy to Google’s local management in China. Google tried to make Google.cn as distinctly Chinese by adopting the local Chinese name of Guge, which roughly translates to “harvest song” but this name choice has been widely mocked by the Chinese users. Despite all these efforts, however, Google decided to leave the Chinese market in 2010, and moved its headquarters from China to Hong Kong. What are the main reasons that caused Google’s failure in China, despite its superior global position in its field?
The Censorship by the Local Government
Since 2000, the US-based Google.com has been available to Chinese users. However, in September 2004, the Internet users in China suddenly could not access the site. Only two weeks later, Google.com could be accessed. However, the message of strengthened government censorship, which made the search engine slower and less reliable, was clearly delivered to both Google and the users. Google was proud of providing a high-quality user experience. However, because of the Internet censorship by the Chinese government, the quality of Google search in China deteriorated. Google generated search results extremely slowly and it took a very long time to load search results compared to other search engines in China, such as Baidu. The difficulties Google faced can be seen in its performance during the period of 2003 to 2005: the share of Google in the Chinese market slightly increased from 24 to 27 percent, while Baidu’s market share increased substantially from 3 to 46 percent (Raufflet and Mills, Reference Raufflet and Mills2009).
When Google established the more localized, new search engine, google.cn, Google expected the firewall restriction to be lowered, which had slowed searching speed and constant dead-end results for online users in China. However, the Chinese government continued to censor Google to filter out the information considered as inappropriate and harmful to China. Google executives were severely frustrated by the constant censoring of Google’s local search engine. For example, the Chinese character for river, jiang, could cause an error message or a timeout on Google. This is because it is the surname of a former Chinese president Jiang Zemin. Hence, the names of many other leaders of China were also not allowed to be searched on Google in China. However, the government trusted Baidu’s search service with any keywords, because their search system and contents were pre-examined and thoroughly censored – with potentially problematic pages deleted and prevented from appearing on the results – by the Chinese government before the service commenced (Raufflet and Mills, Reference Raufflet and Mills2009).
Google’s competitive advantage has always been offering a variety of specialized services, such as images, videos, maps, news, products, and phone numbers, but most of these services were restricted or blocked by China’s censorship. As a result, in January 2010, Google decided to close the Chinese-language search engine, Google.cn in mainland China and moved the server to Hong Kong, claiming that the restricted activities in China are not consistent with Google’s value of business.
Failure in Knowing China
The Internet activities in China are quite different from those in the United States and other developed countries. The most popular Internet activities in China are related to entertainment which include online chatting; downloading music, TV shows, and movies; and playing online games (Raufflet and Mills, Reference Raufflet and Mills2009). In contrast, Americans and people in other developed countries use the Internet more for work-related tasks, such as reading the news, searching for information, and sending and receiving emails (New York Times, Reference Barboza and Stone2010). Ironically, however, Google did not provide the services of the highest demand in China. In contrast, Baidu, founded in 2000, increased its market share in the Internet by offering services that Google did not offer at first, such as easy links to download pirated songs, TV shows, and movies from Chinese websites. Baidu claimed this was legal in China because the media files were not in the users’ own computers. Therefore, Google also introduced a free online music service in China in 2009, with the permission of the music labels, but it was too late to win back the lost ground.
Google relied just on its own strengths to tackle the huge Chinese market, but found later that their services were too far from meeting the demands of Chinese users. Porter said that the firm’s strategy should be adapted to the industry structure, implying that one should know the competitive forces of the industry. However, Google ignored or underestimated the particular way of doing business in China (i.e., Chinese government censorship) and also failed to know the local industry (e.g., the real needs of Chinese consumers). In Sun Tzu’s words, Google failed to obtain the foreknowledge before launching business in China.
An interesting point of discussion is the issue of downloading pirated media files. While absolutely prohibited in most of the developed countries of the Western Europe and North America, servicing pirated media files is not only legal but also a highly popular practice in China. What Google overlooked was the regional difference in standards of what is accepted or unaccepted. In order to compete with such companies as Baidu in China, Google should have been more knowledgeable of Chinese ways of doing business. It is ironic that the most successful IT company (i.e., Google) overlooked the importance of local information of the largest potential market. This basic information about the local market can be easily obtained even by the local spies, the most basic, not sophisticated spies, according to Sun Tzu.
As mentioned earlier, spying in the business world is not allowed, but the case of Google is a little different. It is not about spying and stealing information from other firms, but spying activities by the government on a firm with a strong political intent. Google claimed that the hacking by the Chinese government targeted Google’s secure servers in the United States, thereby causing the sensitivity problem of data security. However, according to the Chinese government’s position, in order to do business in China, both domestic and foreign firms must obey Chinese rules and laws.
13.6 Conclusion and Implications
One of the consistent military thoughts that pierces the entire volumn of Sun Tzu is to know the enemy and oneself. The main idea to take from this chapter is the significance of knowing the enemy by using spies. Sun Tzu argued that the portion of expenses on employing spies is much smaller, but their roles and effects on achieving a victory in war are substantial. Therefore, Sun Tzu proposed an active utilization of spies in warfare to obtain highly sophisticated information about the enemy’s status and their intentions. Sun Tzu’s military thought on obtaining the enemy’s information was very sophisticated compared to other military strategists living in Sun Tzu’s period. At that time, people relied much on the superstitious ways of fortune telling when making important decisions such as waging war.
In the business world, information also plays an important role in determining a firm’s competitive advantage. However, according to Porter, it can help firms increase operational efficiencies, but it is not the main source of competitive advantage. The practices of many companies in the 2000s supported Porter’s concerns about the overblown emphasis on the Internet and its impacts. The most successful companies were not those that just integrated the Internet into their strategies, but those that used the Internet as a tool to complement their existing sources of competitive advantage. A standardized technology such as the Internet cannot be a source of uniqueness. What is truly important is how to differentiate, specialize, and provide unique products and services to the customers, utilizing the Internet as a means to an end. Porter correctly pointed out the fundamental sources of competitive advantage.Footnote 6
For the military case, if we use Porter’s view on the limited role of information as a fundamental source of advantage, the French should have utilized Mata Hari more efficiently rather than executed her because she was just a means of obtaining information, not a fundamental source of competitive advantage. The case of Google in China also needs to be reiterated to derive more important implications. Google executives and other people in developed countries did not correctly understand the unexpected and seemingly somewhat irrational behavior of the Chinese government. On the other hand, the Chinese government just as well did not understand Google. The problem arose because both Google and the Chinese government behaved based on their own predetermined philosophies and policies, which was detrimental to both parties. Google lost the great potential market; China lost the most innovative company and its potentially enormous spillover effects on the development of China’s IT-related industries. This lose-lose result was caused by the misunderstandings and misevaluation of their potential business partners. From this perspective, business managers and policy makers can find useful implications from Sun Tzu’s strategy of using the spies and Porter’s strategy of using information technology.
