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Published: December 7, 2009

 
 

The Power of (Online) Public Opinion

Executives should track Internet commentary in China to protect their company’s reputation — and market position.

In the days after a devastating earthquake struck China’s Sichuan province on May 12, 2008, China Vanke Company, one of the country’s largest home builders, found itself at the center of an unexpected controversy. The company’s chairman, Wang Shi, had made what was perceived as a small donation (2 million RMB [US$286,000]) to relief efforts. He also asked his staff to restrict their individual contributions to just 10 RMB ($1.50), believing that charity should not become a burden. As word of Wang’s actions spread, a furor erupted on the Internet. Chinese netizens attacked Vanke for being stingy, despite the company’s established reputation for social responsibility and philanthropy. The situation worsened when Wang defended himself on his blog — one of the most popular in China. Vanke’s stock price dropped by 12 percent between May 15 and May 20. Wang had to scramble to repair the black mark on his company’s name, issuing an apology both on his blog and directly to shareholders, pledging 100 million RMB ($14.6 million) to rebuild homes in the disaster zone, and offering to resign if company performance suffered more serious setbacks.

Vanke’s woes were a sharp contrast to the experience of the JDB Group, the parent company of Wang Lao Ji, a maker of herbal teas. JDB made an extremely generous initial donation to earthquake victims of 100 million RMB, an openhandedness that did not go unnoticed. China’s Internet activists highlighted JDB’s actions on numerous online bulletin boards and in e-mails urging fellow consumers to support the company by buying its products. Demand for Wang Lao Ji beverages surged overnight.

The Internet is the most popular medium for the expression of public opinion in China, a country where open communication is often limited. As these incidents illustrate, public opinion channeled through the Internet can have a huge impact — positive or negative — on corporate reputations in China. According to data from the state-sponsored China Internet Network Information Center, China has the world’s largest Internet population, with 340 million people, or 22.6 percent of the population, online as of January 2009 (compared with a world average of 21.9 percent). And the number of Chinese Internet users is increasing rapidly, growing 13.4 percent from the end of 2008 to June 2009. Through Web forums, bulletin boards, video-sharing sites, instant messaging, and other online tools, the country’s Internet users — generally a young, activist, and influential group — can discuss a wide variety of topics and gain access to reams of information beyond the state-controlled media in ways that would previously have been inconceivable. For companies, the challenge is to manage the threats and the opportunities posed by the speed with which public opinion can spread online. Never before has it been so easy to reach mass audiences. And never before have negative views been able to wreck corporate and individual reputations so fast.

It is not just domestic companies that need to tread cautiously. Foreign multinationals are also at risk of having their reputations tarnished, and not only if they show a lack of sensitivity and generosity. The biggest threat they face is being branded anti-Chinese or imperialistic, which is how Western governments and companies have been perceived for centuries. Such attitudes came to the fore in 2006, when U.S. private equity firm Carlyle Group LP made a bid for Xuzhou Construction Machinery Group Inc. (XCMG), a leading Chinese industrial equipment manufacturer. Carlyle suddenly found itself facing an online onslaught of criticism after Xiang Wenbo, executive president of Sany Heavy Industry — also a bidder for XCMG — wrote a series of blog entries calling the deal a “cheap sale of state assets.” This ignited a public discussion on whether the government was letting foreigners acquire Chinese companies at prices below their value, a debate that almost certainly played a role in Beijing’s eventual decision not to approve the sale to Carlyle.

 
 
 
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