Call it brand dilution, China-style. Any company entering a joint venture as a minority partner is aware its brand could be damaged by events beyond its control.
Farmer shareholders would expect New Zealand’s biggest multinational, Fonterra, to be acutely aware of the risks, with its global growth strategy heavily aligned to soaring demand for dairy products in Asia, South America, Africa and the Middle East.
These emerging markets promise infinite rewards; but you enter at your peril. They tend to lack infrastructure needed to ensure robust quality assurance; supply chains are often fragmented and subject to change; and central governments may exert little influence on behaviour in rural areas.
Such markets may be fledgling and remote, but scandals related to product safety or quality quickly reverberate around the world and damage the brand – no matter how diluted.
Dr Anne-Marie Brady, a specialist in Chinese politics at the University of Canterbury, writes in the Sunday Star Times:
While Chinese mothers were feeding poisoned milk to their babies , the state was suppressing any controversies that might tarnish the Olympics.
In the last two weeks Chinese consumers have been in uproar over revelations that local officials, the central authorities, and a major Chinese dairy producer, San Lu – 43% owned by New Zealand dairy giant Fonterra – colluded to suppress information on a massive scandal involving tainted infant milk formula. The formula was adulterated with melamine, a substance used in the production of plastics and fertiliser, which has now been linked to the death of four babies.
Unfortunately for those ordinary Chinese consumers, strict propaganda controls on negative news relating to food safety and other politically sensitive issues have been in place in the two years leading up to last month’s Olympics, meaning the story stayed suppressed.
But should Fonterra _ New Zealand’s biggest company and the largest exporter of dairy products in the world _ have got to grips with the crisis sooner?
… Promoting a new image internationally was one of China’s key strategic goals in hosting the Olympics. This new image aimed to allay international fears about China’s increasing political, economic and military power, at the same time as projecting awareness of China’s renewed strength and prosperity.
The government’s efforts to promote such an image have been closely co-ordinated with Chinese firms who hoped to use the Olympics to increase international awareness and acceptance of their products. San Lu supplied milk powder to the Olympic athletes and its managers would have been well aware of the Olympic-related propaganda bans on reporting on food safety issues.
… Before the crisis San Lu products were rated highly – they are the official supplier of milk powder to Chinese astronauts – and its advertising was famous for boasting that its formula underwent “1100 tests, safeguards the health care of babies and is trusted by mothers everywhere”. Now the words “1100 tests” have become an ironic joke on the Chinese language internet. The Vice-Governor of Hebei Province has admitted that melamine was being put into San Lu milk as early as April 2005. Many netisens are now complaining bitterly about how the company which boasted of having so many checks could have ignored the obvious quality problems in the milk it was supplied.
Hosting the Olympics was supposed to improve China’s image. The two weeks of the August 2008 Olympics were indeed a sporting and PR triumph for Beijing. But what we now know about actions taken behind the scenes in the preparation for the Olympics take much of the shine off that triumph.