05/12/97 BLAZING AWAY AT FOREIGN BRANDS IN CHINA

BLAZING AWAY AT FOREIGN BRANDS IN CHINA
Buoyed by consumer activism, the media are having a field day
Northwest Airlines never thought it would be watching the Chinese media this closely. But in April, when China National Radio, China Central Television, and major newspapers started reporting how a Chinese chemical-company official flying to Los Angeles was the target of a racist remark by a Northwest flight attendant--a charge Northwest neither confirms nor denies--the Minneapolis-based carrier found itself in the midst of a media firestorm.
What had seemed a relatively small incident over a passenger being refused a second meal has turned into a hail of criticism that's blackening Northwest's reputation in China. Indeed, Northwest's managing director for Greater China and Southeast Asia, James P. Reinnoldt, has made two trips to Beijing to deal with the fallout. Says Reinnoldt: ''We deem the China market to be a major part of our future.''
It doesn't stop there. Buoyed by a wave of rising consumer activism, the Chinese media are having a field day reporting critically on foreign companies and their products and services. The criticism ranges from Beijing Television reports on inconsistency in the quality and quantity of french fries and other products at KFC and McDonald's to attacks on quality and services at Sony, Samsung, Sharp, Daewoo, Wal-Mart, and Microsoft.
Much of the coverage has had a nationalistic tone--and has fostered ''buy China'' sentiments. Stories about Northwest, in which the attendant is alleged to have said, ''You Chinese always get hungry,'' call the incident a human-rights violation. They have also judged the U.S. hypocritical for supporting a U.N. censure vote on Chinese human-rights abuses. ''This is a regime that has been promoting nationalism aggressively,'' says Scott Seligman, China director at Burson-Marsteller.
As China increasingly opens its markets to foreign competition and prepares for entry into the World Trade Organization, the negative press may also be an effort to raise the cachet of Chinese companies. Indeed, some of the toughest criticism has been leveled at foreign electronics companies, which compete with a domestic sector that China is particularly eager to develop.
China's Electronics Industry Ministry, along with the State Technology Supervision Bureau, held a widely reported press conference on Mar. 15 that criticized the quality of Sony, Samsung, and Sharp products sold in China. And a series of newspaper reports berating Sony's after-sales service even led the largest retail chain in the southern island province of Hainan to ban Sony goods from its shelves.
FALSE ADS? Similarly, Wal-Mart Stores Inc. has experienced a rash of negative media reports since it opened two stores last summer in Shenzhen. That press outpouring over everything from accusations that the company sold pirated books to recent complaints that loud air conditioners disturbed neighbors culminated in a suit by local company Shenzhen Longdasheng. Arguing that the U.S. retailer was guilty of false advertising for selling audiovisual systems labeled ''Made in U.S.'' but assembled in China, the Shenzhen buyer took its charges to the media. After a full roasting in the local press, Wal-Mart in late March was told by the Shenzhen People's Court to return the full value--$120,000--of the electronics and to pay transportation and storage costs. Wal-Mart was unavailable for comment.
With foreign brands usually costing more, Chinese consumers often expect better quality and service--the latter not always easy to provide in China. To tell its side, McDonald's recently invited reporters to tour its facilities. ''Whether it's the customer or a reporter, we have to answer their concerns,'' says Tim Lai, president of Beijing McDonald's.
Finally, consumers are bargain-hunting more, and choosing cheaper local brands. When McKinsey & Co. China recently completed a survey in Beijing, Guangzhou, and Wuhan, it found only 14% of buyers willing to pay the premium for imported goods. Says McKinsey principal Tony Perkins: ''The Chinese are becoming much more sophisticated consumers.''
Of course, plenty of Chinese will keep snapping up foreign products. But there's trouble on the horizon. Regardless of whether the critical coverage is legitimate, foreign companies wanting to sell in China can no longer ignore the message--good or bad--of China's media. Unfortunately, lots of companies are still learning that the hard way.
By Dexter Roberts in Beijing