Crisis Management in China: How it differs from the West

When operating in China, it is important to understand cultural and political differences. Photo / 123RF

COMMENT:

With China as New Zealand's largest trading partner, it is important for New Zealand companies to understand key differences in Crisis Management practices between China and the West. Fonterra and Zespri have experienced crises in China over the past few years, and in the future other New Zealand companies will experience crises in China as well.

I will focus on two key differences between China and the West, the use of public apologies by companies during a crisis, and the power of the government as a stakeholder. These differences have important implications for companies operating in China.

In the West when companies experience crises, it is common for them to issue a public statement of apology, especially if they are responsible for the crisis. A good example from a recent crisis involves Boeing and the 737 MAX airplane. Earlier this year the company's CEO apologised to both family members of the victims from the 737 MAX plane crashes, as well as the airlines who were forced to stop flying 737 MAX planes.

In China, on the other hand, public apologises are much less common when compared with the West. An important factor in this difference is a "face-saving" mindset in China.

Face-saving involves avoiding shame and embarrassment to oneself and others. During a crisis, Chinese companies are able to save face by remaining silent. A good example of this is the melamine contamination crisis involving over 20 Chinese dairy companies in 2008. This resulted in one of the largest food poisoning scandals in China's history.

During this crisis, most of the Chinese dairy companies remained silent, and they did not issue a public apology despite the enormous amount of harm caused by the crisis. The Chinese dairy companies did not issue an apology even though the cause of the crisis was clear. Companies added melamine to dairy products which caused the food contamination.

Despite the infrequent use of public apologies by Chinese companies during a crisis, Western companies should question whether this strategy is appropriate for them.

Multinationals are held to a higher standard in China, and remaining silent during a crisis could backfire. It is worth noting that McDonalds effectively used a public apology during a crisis it faced in China in 2012. A popular TV program alleged that McDonalds was selling food at its restaurants after the expiration date. The TV program also highlighted issues involving questionable sanitary practices in the restaurants. As a result of the allegations in the TV program, McDonalds quickly issued an apology and promised to take corrective action to address the issues raised.

Another key difference between China and the West in the area of Crisis Management is the central role of the government as a stakeholder.

McDonalds effectively used a public apology during a crisis it faced in China in 2012. Photo / 123RF

In the West, the government is only one of a number of key stakeholders that a company needs to consider when responding to a crisis. Due to the communist political system in China, the government is a very powerful stakeholder with an enormous amount of influence during a crisis.

For example, in China the government has control over the media, and there is censorship over the internet. In the West, on the other hand, there is freedom of the press, and free speech.

From a crisis management perspective, in the West the government and the media would be viewed as two relatively independent stakeholders. In China, on the other hand, because of the government's control over the media, there is a blurring of the distinction between these two stakeholders.

Another factor in the power of the government in China is the lack of clarity in legal regulations. This ambiguity enables government officials in China to exert considerable power in determining the legality of company actions. If the government determines that a company has acted

inappropriately, it could trigger a crisis for the company. In the West, on the other hand, there is more clarity regarding laws and regulations, so there is less of a need for government intervention.

As a result of the power of the Chinese government, it is very important for companies to develop a strong relationship. For example, when Foxconn, a Taiwanese manufacturer of electronics parts in Mainland China, was accused in 2010 of mistreating its workers, it turned to the local government in China for assistance. The local government assisted Foxconn in number of ways, including resolving labour disputes resulting from the crisis. Foxconn's strong relationship with the local government in China was an important factor in successfully managing the crisis.

When Western companies operate in China, it is important to understand differences in both the cultural environment and political systems that could have an impact on the business environment. Examples of key differences include the importance of saving face in Chinese culture, and the communist political system in China. These differences can also influence Crisis Management practices.

New Zealand companies operating in China need to understand these differences in order to successfully navigate their operations in this complex business environment.

- Daniel Laufer, PhD, MBA is an Associate Professor of Marketing at Victoria University of Wellington, and an expert in Crisis Management. He has previously provided commentary on best practices in Crisis Management for the Wall Street Journal in the USA. In this monthly column, Dr. Laufer gives his perspective on important topics related to Crisis Management.