Coping with 'Made in China' Scandals

(page 2 of 2)

Product safety problems and less-than-successful management of the ensuing crises have shed light on the shortfalls and disconnects between operating abroad successfully and fulfilling those changing needs and expectations.

Giving Back

Demonstrating a desire to offer more than jobs to a host country generates a favorable reputation. Sometimes charitable donations and other acts of corporate social responsibility and sustainable development of the local economy help to engender brand goodwill in the host country, similar to the notion of "giving back" in the U.S. Benevolence is also helpful for building social capital and avoiding negative commentaries in Internet blogs and the "court" of public perception, as evidenced by reports of slow or "inadequate" charitable contributions made by some large companies after the Sichuan earthquake.

Navigating the Landscape

Operating in various jurisdictions with numerous complex and evolving regulatory requirements and standards requires heightened awareness and a sincere effort to become knowledgeable of local practices and laws. Look for opportunities to participate in seminars and other avenues for learning about laws, regulations, and solicitations for comments and opinions on drafts of legislation. China's business community can take such opportunities by commenting on draft legislation, submitting white papers, and participating in informational exchanges between organizations that represent foreign-based businesses and Chinese officials and authorities. Multinational companies must develop relationships with key political stakeholders involved in developing, implementing, and enforcing regulations to enhance preparedness and foster an effective public and government relations program.

Emphasizing Compliance

Unable to ignore the damage caused by past incidents, companies can help protect their brands by taking active measures to emphasize and monitor compliance. Look to lessons learned by intellectual-property owners in China, who learned to depend upon themselves, and not their Chinese partner, to protect their intellectual property. Likewise, the product safety scandals necessitate greater vigilance and active management at all points along the supply chain without acquiescence or delegation of ultimate responsibility to the Chinese supplier. Most Chinese suppliers do not enjoy the same brand awareness, consumer confidence, rights, or revenue as multinational companies and their incentive to do so is not great; they must cope with higher costs and a demand for higher quality while making enough to continue operating.

Looking at Contracts

Contracts with realistic enforcement provisions are a good start in the effort to protect brands, as they can serve as meaningful guidance for acceptable behavior of the supplier and the company. It is critical that both parties fully understand clauses in contracts involving foreign parties. Companies must also be ready to enforce rights in a contract, including the right to inspect facilities, require proof of certifications, perform audits (books and process), require compliance to standards and guidelines, and seek indemnity or reimbursement. Just as important, companies must actually follow through by visiting facilities and inspecting the processes, plants, materials, subcontractors, storage, and other aspects of production. These companies should provide for approval and control where needed to help ensure product and process safety.

Knowing Partners, Suppliers, and Employees

A necessary part of brand protection is due diligence. Although limited, China has sources for researching companies, parties to suits, and potential key employees. While there will always be suppliers who engage in deceptive practices, companies without programs in place will have little chance to work within the supply chain to correct deficiencies. Take precautions when evaluating partners and candidates for employment in key positions. These parties are in a position of influence and control over the product and process.

In sum, it is just as important for companies to take steps to protect their brands with respect to operations or suppliers in China as it is in the U.S. The issues with melamine and other product quality problems mean that multinationals will be charged with taking greater control, if they were not previously. The key is risk management, including promptly and knowledgeably addressing and managing crises. It is both necessary and expected.

Mark C. Goodman, a trial lawyer in the San Francisco office of Squire, Sanders & Dempsey, served as the court-appointed liaison counsel for defendants in litigation stemming from one of the largest recalls in U.S. history relating to allegedly tainted ingredients from China. LaRhonda Brown-Barrett was an intellectual-property lawyer in the firm's Shanghai office.

Business Exchange

Track and share business topics across the Web.