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Asia Insider: Brand Lessons

By: T. Joseph Lin, PhD
Posted: August 27, 2008, from the May 2007 issue of GCI Magazine.

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But, again, why did an American company became a target and not other famous Japanese brands? Another variation of the “two birds, one stone” theory heard in Japan was that China was also unhappy with the U.S. government for pushing for a revaluation of the yuan, and the selection of P&G’s SK-II was a convenient way to send a message to both Japan and the U.S.

The current green wall scuffles are strikingly reminiscent of the complex and nontransparent rules enforced by the Japanese Ministry of Health and Welfare (MHW) in the 1970s and 80s, which plagued foreign cosmetic manufacturers trying to export products to Japan. In those days, the use of cosmetic ingredients was strictly regulated by MHW, and a time-consuming pre-approval process was required in order to use a new ingredient in cosmetics. Before 1982, only 431 ingredients were publicly listed as officially approved by MHW—although many in the industry suspected that there were about 2,000 previously approved ingredients that were kept secret by MHW. Under pressure from the U.S. and Europe, the Japanese government finally handed over a list of about 1,300 ingredients to the U.S. Embassy in Tokyo in 1983.

An Inconvenient Truth

On my flight back to Los Angeles, I saw An Inconvenient Truth, a documentary film on global warming. While watching the movie, I thought about the SK-II problem in China, and realized that P&G’s problem might have involved an inconvenient truth of its own. P&G did not violate any Chinese regulation in manufacturing the SK-II products, and the products were completely safe. Had the company been able to convey the truth to the public quickly, I believe that many customers would have understood the political issue and remained calm.

Unfortunately, this truth was an inconvenient one to handle because it conflicted with the Chinese government’s position. If the same situation were to happen in the U.S. under the order of the FDA, I am sure P&G would have immediately responded with a strong public campaign to defend its products. Likely, the company would consider taking legal action against the government agency. The problem P&G faced in China was that the incident took place in a foreign country where even a powerful multinational company must be very careful in telling the public something that contradicts the government’s position.

P&G took steps to protect its reputation by initially offering cash refunds to consumers, but this goodwill gesture apparently backfired as many consumers mistakenly thought that the company’s willingness to refund the money proved that the products were indeed defective or unsafe. The company probably hoped that the problem would go away or at least quiet down after the closing of all SK-II sales counters. However, SK-II products are very expensive in China—a bottle of lotion can go for $100 U.S. dollars, the equivalent of one month’s wages for many Chinese. One cannot blame a customer for becoming angry if she thought she paid a month’s salary for a bottle of defective lotion, and the company discontinued issuing refunds. In retrospect, P&G may have also underestimated the power of the Internet in China. Its inability to convey the truth, due to government restrictions, plus the adverse publicity fanned by angry customers denied a refund, generated a tsunami of bad-mouthing and strong public criticism of the company in the media, especially on the Internet.