Jan. 13, 2013 (TSR) – Some foreign companies are digging their own graves in the world’s top consumer market by eroding the trust of Chinese customers.
These multinational businesses could risk losing the profits they came to China to seek if they don’t correct their practices.
A belated apology from Yum Brands Inc., the parent company of U.S. fast food chain KFC, marks the latest case.
News of tainted chicken sold by the company was reported on Dec. 18 by China Central Television, which conducted an undercover investigation of the company’s suppliers in east China’s Shandong province. The investigation revealed that some suppliers were using excessive amounts of antiviral drugs and hormones to make the chickens grow more quickly.
Yum apologized to customers in China on Jan. 10, admitting shortcomings in the company’s self-checking process and a lack of internal communication.
As a U.S.-based food giant, Yum should know negative publicity can be fatal. In 2008, videotaped mistreatment of cows at a California slaughterhouse prompted the largest meat recall in U.S. history. The subsequent penalties caused the Hallmark Meat Co. to go bankrupt.
Yum’s understated apology is rooted in its arrogance and propensity for unfairly treating Chinese consumers, who usually regard foreign brands as being safer and of higher quality than domestic brands. Other multinational companies have displayed the same attitude, capitalizing on loopholes in Chinese law and regulations to escape punishment.
Carrefour, the world’s second-largest retailer, has displayed particularly callous behavior in China. Since last year, several of its stores in six Chinese cities have been fined for fraudulent pricing practices ranging from mislabeling products to offering nonexistent discounts.
Auto giant Volkswagen upset Chinese consumers last year after it refused to recall vehicles with defective direct-shift gearboxes. The company recalled 13,500 such vehicles in North America in 2009, when similar complaints surfaced.
Such practices reflect a double-standard in multinationals’ operations and marketing. This has happened with many other global brands. After launching their businesses in China, they quickly shift gears and exhibit behavior that is contrary to the practices that have made them successful elsewhere.
Last week, the country’s top price regulators fined six overseas companies, including Samsung and LG, for rigging prices between 2001 and 2006. The settlement was smaller compared to those imposed in the U.S. and European markets due to lax Chinese regulations.
However, the fines sent a strong signal that the government is serious about cracking down on illegalities perpetrated by all companies, including large multinationals.
Establishing a world-recognized brand may take a hundred years, but it takes just one ugly incident to destroy it. Wherever a global brand operates, it should bear in mind that consumer trust can never be a matter of course, but should be constantly tended.