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China Briefings

Reports on China issued by Samsung Economic Research Institute

Crisis Management of Multinationals

Crisis Management of Multinationals

Samsung Economic Research Institute Beijing Office

Dec. 14, 2006

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Multinational companies (MNCs) have faced a steady rise in corporate reputation incidents since 2000. According to Samsung Economic Research Institute (SERI), 31 MNCs operating in China have faced 51 crisis incidents from 2000 to October 2005. In 2005, many notable MNCs including Nestle, Procter & Gamble (P&G), Johnson & Johnson (J&J), Kraft Foods, and Sony experienced crises in 2005.

Crises continued to pose threats to global companies in 2006. Camera maker Kodak and SK-II, a cosmetic brand made by P&G, encountered serious public relations incidents. In May 2006, Chinese consumers expressed dissatisfaction over Kodak's LS 443 digital camera. However, the camera maker refused either to repair the camera for free or recall already sold cameras, thus sparking fury among Chinese consumers. In September 2006, SK-II cosmetics were found to contain caustic ingredients. However, SK didn't deal with the case effectively, damaging its brand image.

MNCs need to strengthen their crisis management capabilities. Consumer incidents negatively affect corporate sales. For example, toothpaste maker Colgate's sales fell by 49.84% in a week after its products were suspected of containing carcinogens in April 2005. Also, an ineffective corporate response significantly mars the image of foreign brands. According to a survey conducted by Sina.com in May 2005, Chinese consumers' confidence in Nestle fell from 80.76% to 11.22% when Nestle's formula turned out to contain iodine levels higher than the national safety standard.

This report will analyze root causes and ripple effect of negative consumer incidents and provide suggestions for global companies running business in China.

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