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Domestic firms learn to manage crisis issues
By Raymond Zhou (China Daily)
Updated: 2004-12-23 08:55

On November 16, Henan Commercial News came out with a feature article that detailed its investigation into Junen Calcium, a nutritional health supplement that commanded a significant market share.

Juneng Calcium, a nutritional health supplement, was in the middle of a strom featuring food security and corporate crisis management. [newsphoto]
It charged that several of the calcium tablets contained large traces of hydrogen peroxide, which the paper claimed had the potential to cause cancer.

The report aroused immediate public concern for food safety. As the news made its way round the nation's press and online media, the products were removed from shelves in many provinces; and in places where Junen calcium products were still available, sales plummeted.

On December 3, the Ministry of Health announced, after conducting new tests, that the chemical traces found in the tablets are within safety limits.

In the two and half weeks between the initial accusation and the delivery of the official verdict, Beijing Juneng New Technology, the maker of Junen Calcium tablets, faced a crisis that almost crushed the company.

While acknowledging the existence of the said chemical traces - but insisting the amounts were not harmful to humans, Juneng countercharged that the media report was part of a conspiracy to taint its reputation.

Juneng is not the only company in China to have found itself thrust into a sticky situation. In the past year alone, there have been about two dozen cases that presented Corporate China with the unique challenge of crisis management.

Empirical data shows that most of China's businesses do not have contingency plans to deal with sudden traumas of this kind, some of which have the potential to jeopardize a company's very survival.

Denial is the first choice for many enterprises, sometimes without regard to the end result of this approach. When news leaked out in March that there was a mass exodus of executives at Founder Technology Group - inadvertently confirmed by an insider, the company still went out of its way to claim that "not a single executive had departed." A few weeks later, the rumoured "defectors" appeared en masse as part of a rival's management team.

Another routine response is to blame the media for irresponsible reporting. When the Beijing Times ran an expose in June on Empire Group, alleging the paper products manufacturer had outsourced much of its operation to low-quality small mills, it held a news conference intended as a counterattack against the paper.

But a dozen media organizations lobbed so many contentious questions the company, had to bring the publicity event to a screeching stop.

Another noticeable characteristic is the length of time it takes companies in crisis to make a public statement. The Empire Group took six days to post an open letter from the president to all employees after the newspaper published the story.

Insiders close to another recent corporate scandal disclosed that senior executives were flabbergasted by the turn of events and did not have a clue how to handle the emergency. One company even suggested launching a corporate image advertising campaign, which, according to some public relations experts, would have just added fuel to the fire.

Deficiencies in the crisis management of most domestic companies are deep rooted, says Xin Xiangyang, professor at Capital Social Economic Development Research Institute. "When a Chinese company knows how to handle a crisis, it's often because the CEO is armed with the necessary knowledge."

Xin attributes it to the high cost of setting up a crisis management system. That's why multinational corporations, with their deep pockets and rich experience, tend to outperform domestic companies, he says.

In July, CCTV reported that Dupont's Teflon cookware might contain a substance harmful to humans. The very next day Dupont denied the charge, which was based on an accusation by the US Environmental Protection Agency. A week later, it flew three experts to Beijing to elaborate on technical details to bring about better public understanding. In the next three months, the company actively sought out media and explained that its products were not harmful to humans or the environment. In October, an official investigation confirmed the company's position.

Dupont is one of four companies - three of which are multinational corporations - that won a recent award for excellence in crisis management during a Beijing forum organized by the Institute of Public Relations Research late last month.

Xin Xiangyang points out that domestic companies tend to be more focused on their own survival rather than the social impact of their products. "They believe they can get out of the PR ambush by picking fault with the media. Instead they should focus on the quality of their products."

Back at Juneng, managers are still picking up debris from the media hurricane. It has hired a public relations firm and is sending out copies of the official conclusion.

To be fair, Juneng did not make some of the obvious mistakes when the media frenzy first began. For example, even though it questioned the validity of the Henan paper's test results as well as the testing lab's eligibility, it did not flatly deny the existence of the chemical substance. Instead it opened a hotline for public inquiries and its executives made frequent media appearances to calm public furore.

Communication and the sharing of information is the crucial ingredient in solving such a crisis, says Zhang Chengfu, professor at Renmin University of China. Correct information can restore public confidence. But in the long term, an information system should be built into the crisis management mechanism to sound the alarm before a company gets embroiled in an unfavourable PR storm.

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