Off The Record

The crisis in the US started when pets began dying of kidney failure in the past few months.  An investigation by the US Food and Drug Administration concluded that the pet-foods involved in the crisis had been using wheat gluten imported from China.  Further investigation found that the wheat gluten contained high levels of melamine and were traced back to two companies, Xuzhou Anying Biologic Technology Development Co. in Jiangsu Province, and an associated firm in Shandong, Binzhou Futian Bio-technology Co.  The FDA has banned imports from the two companies.

The companies’ immediate reaction to the crisis confronting them was to deny knowledge of the melamine and claim that they did not use it in their products.  However, their denial was demolished when an online advertisement placed in March by Xuzhou Anying seeking to purchase melamine was discovered by investigators.

The first mistake of crisis management is to try to escape by lying – it usually fails, especially in today’s highly advanced technological world which has made it almost impossible to erase all tracks.  Bad move Xuzhou Anying.
 

Since then it has transpired that many Chinese animal feed companies add melamine to their products as it boosts nitrogen levels in the products.  Nitrogen is usually a yard-stick measure of the amount of protein in animal feed.  Melamine in animal feed has no nutritional value.  In other words melamine is used to mislead purchasers that the animal feed contains a higher level of protein than is actually the case.  Put another way, the Chinese animal feed industry is based on lies and half-truths.

For the time being, the feed suppliers are saying their customers prefer their product with the melamine in it. It will be interesting to see how the domestic industry reacts to the news that their feed suppliers have been misleading them all these years.

The lesson for companies in China is that corporate social responsibility is not just about donating money to worthy causes.  It is first and foremost about a company’s practices being consistent with its stated principles and policies.  Lying to your customers is obviously very bad CSR practice indeed.

In the US, where concerns are already riding high about the risks of poor health and safety standards of imported animal feed from China, the crisis could spillover into imports of foodstuffs for human consumption.

So far the Chinese government has reacted appropriately, promising to ban the use of melamine in animal feed.  But questions remain – including why weren’t stricter laws introduced sooner; and what guarantees can be provided on enforcing the soon to be introduced ban.  After all, China has some of the most stringent IP protection laws in the world, but some of the worst enforcement of its own laws.

Chinese companies need to learn that if they wish to be global players they are going to have to comply with international standards, especially on issues of health and safety.  They will need to align their CSR policies with world best practice standards.  Watch this space.

By Paul Dixon*

In my latest flirt with the on-line virtual world “there.com” I commented to a fellow avatar how great she looked in her bright pink boots - only for her to flee into the jungle.  Did I offend her?  Should I have pursued her?  I think I was more confused in suddenly facing a decision that was for me, well, weird.  But for 400,000 there.com members these kinds of experiences aren’t weird at all – in fact they’re perfectly normal.

Online social interaction is transforming the way people communicate, the emergence of blogs, vlogs, podcasts, RSS, and social interaction websites such as Facebook, Myspace, and Second Life have created an arena for people to communicate in a way the world has never seen before.  If PR is really about communicating with your publics, then PR practitioners – especially those who are just starting out like me – need to embrace the emergence of new media as a powerful tool for PR practice in the future.
 

The last thirty years has witnessed the proliferation of mass media.  Long before the advent of the now already out-dated internet-dial-up, audiences were able to choose media outlets dedicated to their special interest, rather than having to watch prime-time programs.  Greater choice is part of modern day life, look at food for example. Once upon a time you had the choice of maybe a strawberry, vanilla or chocolate ice cream - now you can enjoy green tea flavor, with nuts.  In today’s consumer-driven world, consumers – audiences if you like – are making choices based on their own preferences more than they have ever done in the past.  This new found ‘empowerment’ has caused the audience to fragment, requiring a fresh PR approach.

This newly fragmented audience is also doing something that has serious consequences for PR strategies:  they are placing their invaluable trust in fresh and new ‘credible’ sources.  Yes, that’s right, the public no longer only trust doctors, public organizations – and even governments – more than ever, people trust their peers and the people around them.  You may argue that word-of-mouth began when humans learnt to talk, but what is so clearly different today is that the public is empowered to find their peers – and talk to them directly - through the platforms the Internet provides.  One Chinese woman created a blog dedicated to the discussion of family matters – such as creating online photo albums from old photos tucked away in the attic.  The 60,000 netizens who regularly visit her blog learnt about the best scanner to use, the most efficient on-line photo sharing website – they placed their invaluable trust in the Chinese lady’s opinions.

If I was a CEO with the responsibility to up-hold the reputation of a brand that was built up over the course of decades, I would be pretty concerned by this paradigmatic shift in communications.  In these new environments brands risk losing control of their message – as PR practitioners, it is our role to guarantee to our clients that this never happens. I am not saying we should all abandon the bread and butter aspects of being a young PR professional – communicating with mainstream media will always be one of the cornerstones of PR.  For us all to build and preserve our own brand, as perceived by our clients, we do however need to look beyond these traditional push communication models and become familiar with the less formal platforms.  As professional communicators, embracing the increasingly influential two-way group communications found online can only help us along in our career ahead.

_________________________________________________________________                                                      * Paul Dixon is an Assistant Account Executive in the Beijing office of AC Capital Strategic Public Relations.

I bet most PR people no matter whether they are working in-house or in an agency are doing everything to help companies get their names out in the media - and of course, the more the better.  But in reality, no one wants that to happen - because if it happens, it means you are in a crisis.

If you are a newspaper addict like I am, you will be surprised to find that in the past 30 days two company’s names have been appearing on the front page of most publications with an incredible frequency.  The debate between Danone and Wahaha has got considerable attention; and it’s changed from a simple acquisition case to a huge public debate involving media, government, dealers, employees, analysts, and academics.

Even more astonishing is that many first and business class lounges, including in key commercial centres like Shanghai and Guangzhou’s Terminal A, still do not provide free and easy wireless Internet access.  Come on Chinese airlines – get your act together.  The additional cost of providing free and easy wireless access to your premium-end passengers would be marginal compared to the benefits of developing brand loyalty amongst the jet-setter class.  So let’s name names.  China Eastern – you suck in Shanghai.  The only wireless Internet access in the First Class lounge is via the hit-and-miss CNC.  Give us wi-fi now!
 

Readers, please tell us which airlines and airports are driving you terminal.

By Uma Li*

One of the problems with
China’s guanxi or relationship culture is that its practice has been carried into the workplace.  But guanxi doesn’t work too well in a modern business or corporation.  And those working in foreign enterprises in particular soon find that they need to either get over this cultural complication or ship-out, back to a State-owned enterprise.  Those who want to work in an organization where ability and effort are recognized and rewarded read on.

And it is a tyranny because the practice of guanxi places relationships ahead of good business performance, and personal ability and effort.  Guanxi companies end up selecting their business partners and suppliers on poor criteria rather than for their ability to deliver goods and services either efficiently or cost effectively.  Choosing your cousin’s company as a key supplier might sit well at Auntie Ming’s tea ceremony soiree, but doesn’t necessarily do your employer any good in the cut throat world of business.

If you work in a foreign company you are likely to find yourself thrown out by the scruff of your neck when it’s discovered that your key supplier is Cousin Ming.  And it could be much worse if it is also discovered that your cousin was paying you a commission for the business you sent his way.

Guanxi can also be a bad thing to introduce to the internal workings of your company.  Promoting staff based on guanxi rather than merit can be very dumb.  While even foreigners play internal politics and try to curry favour with the boss, good foreign bosses do not join the game.  They keep themselves above it and can take drastic action against those who are playing it.

If you think you can butter up a foreign boss with sweet talk and dumplings, think again.  The good foreigners are hip to what’s going on and won’t fall for it – even if they listen to your flattery and eat your dumplings.

Merit means performance
At the end of the day a good boss, foreign or Chinese, is interested in one thing and one thing only – are you delivering against your performance measures?

So, when performance review time comes around, enter it with an open mind.  A bad review doesn’t mean your boss has been paying attention to your enemies in the company or that those enemies have developed better guanxi with your boss than you have.  It probably means you have been doing a bad job and you need to improve.  Pay attention to your boss’ feedback and make a plan to improve your performance.

You are the owner of your personal brand – it is up to you to take note and to manage your brand better.  The best way to do that in a foreign managed company is to do your job well.  Astonish your boss with your ability and your effort.  Actions speak louder than words.  And your boss probably prefers the dumplings s/he can get at the restaurant up the street to the ones you stayed up all night to make.  You can give your dumplings to Aunt Ming on the weekend to smooth things over with her.  In other words, leave the guanxi at home and focus on proving your merit in the workplace.

* Uma Li is a human resources development consultant living in the United States.  She previously worked in public relations in China.

Further to our recent posts on this issue, a superb analysis of the problem has been written by Associated Press and published by the International Herald Tribune.  The article lists a number of institutional problems that have led to corruption and low ethics among Chinese journalists, including:

1. Tight controls on what the media can report;

2. The close link between media advertising departments and editorial departments, with many journalists required to bring in revenue and meet monthly revenue targets;

3. Increasing business pressure in a saturated media market.
   

Interestingly the article highlights that journalists at the business magazine Cai Jing are required to sign a code of ethics that forbids them from accepting hong bao.  Cai Jing is revered – and feared - in the market for its hard-hitting, no holds barred investigative reporting that has blown the lid on wrong-doings at many Chinese corporations.

Read the IHT article for more insight into this problem.

A major problem that confronts companies doing business in China is that of graft and corruption.  Generally we tend to think of government bureaucrats requiring some payment to expedite some matter held up in red tape.  Occasionally we relate the problem to senior politicians demanding major payments to help resolve an issue.  But more common than these are the problems companies face from within their own ranks.  It is more likely to come from the employee who takes kickbacks from a supplier to push business in the supplier’s direction.

These issues came to the fore earlier this month when some foreign press, including the Financial Times (subscription required), reported that a number of foreign enterprises had become caught up in a bribery investigation by Shanghai authorities.  According to the authorities, staff at several companies had been arrested for taking bribes from IT equipment suppliers.  Foreign companies caught up in the swoop included management consultancy McKinsey and Co., fast food giant McDonald’s, engineering firm ABB, and appliances manufacturer Whirlpool.  The bribes had totaled more than RMB4 million.

The PR machines of the companies concerned went into overdrive, stating the companies knew nothing more than what they had read in the press and that they were cooperating with the authorities in their investigation of the matter.  They could do little more given the circumstances.  This was text book crisis management.

But the real issue for foreign companies operating in the market is what can be done to avoid these types of problems in a market where graft and corruption are known to be rife.

First companies need to adopt a “zero toleration” policy on matters of graft or corruption.  Communicate to staff that if anyone is caught taking bribes or kickbacks they will be fully investigated and, if evidence or sufficient cause for suspicion is found, they will be fired.  No questions asked.

If the transgression is serious enough, employees need to understand that the police will be called in to investigate and that this could result in criminal prosecution.  Few would find the prospect of internment in a prison in China appealing.

Second companies need to have a clear code of ethics detailing what is allowed and what is not.  The door for infringement of the code of ethics is often opened by a foreign manager who is suckered into the view that China is different and that HQ doesn’t understand what we are facing out here in the frontlines.  It’s reminiscent of the Jack Nicholson speech in the film A Few Good Men, where he justifies breaking the rules on the frontline where US troops in Guantanamo Bay stand eyeball-to-eyeball with their adversaries in Cuba.  Let’s not forget that Nicholson was the bad guy in the movie and his approach directly led to the excesses and abuses of power that formed the basis of the film’s plot.

Allowing local staff to bend the rules or ignore the code of ethics because China is different sends them a signal that you will understand the differences if they do other things like taking kickbacks.  Managers need to take a firm stand on the company’s code of ethics.

Third, put in place strong checks and balances to ensure employees do in fact play by the rules, to ensure there is little room to maneuver and get up to mischief.  Here are some things that should be put into place:

1. Make sure all procurement decisions are checked and vetted by another department (the procurement department) and that payments are only made directly by the finance department.
    
2. For major contracts require three tenders for the contract.

3. Require a two envelope tender process with the technical bid assessed by the technical department while the financial bids are checked by procurement and finance departments.

4. Tendering companies should be vetted in an open and transparent tender environment.
        
5. If the contract is unusually large, bring in an accounting firm to monitor the tender process.

    

China, like all developing markets, is a murky place to do business.  But there are ways to make it less opaque and more transparent.  Put in place good standards and procedures and stick by them.  Under no circumstances should you yield to the “China is different” syndrome.