Foxconn shoots themselves, Apple in foot (Parts 1-3)

Note: This post consolidates three original posts on this topic that were published on consecutive days. It was also cross-posted on my CNET blog, published in 2006 and 2007.

Part One: Foxconn shoots themselves, Apple in foot

You may recall Foxconn, AKA Honhai Precision Manufacturing, as the company at the center of a recent PR crisis for Apple Computer, when a British newspaper published reports that they were mistreating the workforce responsible for assembling luscious (and expensive) iPods. In the last few days Apple, ever image conscious, got round to publishing their own report on the situation, and it has largely faded from the public consciousness.

But Apple isn’t the only company that was left scrambling to protect its reputation in the wake of the scandal. Foxconn too felt hard-done by, and is taking steps to assert itself. Unfortunately, rather than take constructive steps to reassure the international companies who’s own brands are propped on Foxconn’s labor practices, Foxconn has instead decided to make an example of two Chinese journalists. This looks like a move that has the potential for mighty backlash.

China’s English Language Shanghai Daily broke the story in the mainstream. Here it is reprinted by Xinhua:

BEIJING, Aug. 29 (Xinhua) – A Chinese court has frozen the personal assets of a reporter and an editor at a Shanghai newspaper after Apple iPod manufacturer Foxconn sued the pair for 30 million yuan (US$3.77 million) for allegedly damaging its reputation over reports of substandard work conditions.

Foxconn’s subsidiary in Shenzhen reportedly petitioned the city’s Intermediate People’s Court on July 10 to freeze the property of Wang You, a reporter for China Business News, and Weng Bao, an editor at the newspaper. The locked-up assets include apartments, a car and bank accounts.

The company also filed a lawsuit against the journalists, seeking 20 million yuan from Wang and 10 million yuan from Weng. The case is the biggest of its kind on the Chinese mainland in terms of the size of the compensation claim.

I am not the only one who sees Foxconn’s response as being perhaps a bit disproportionate. Sentiment seems to be gathering that the lawsuit is a blatant press intimidation tactic rather than a dispassionate seeking of legal redress. Two excellent English language China blogs have taken Foxconn to task. Non Violent Resistance writes, in a post scathingly titled “FoxConn is not dumb, but downright vicious“:

Words in the Chinese press circles are, that FoxConn, therefore Hon Hai, had deliberately picked the two journalists from China Business News to sue in a painstaking plot to harrass and intimidate media outlets and journalists. After all, China Business News was not the only newspaper that doggedly followed the iPod sweatshop story. It seems that FoxConn, before launching the much criticized lawsuit, had also considered targeting 21st Century Economic Herald, another popular business newspaper who had similarly covered the story. But FoxConn’s lawyers, after much investigation, found out that the 21st Century reporters who were involved in reporting the story had solid, formal employment contracts with the paper — therefore, unlikely to be held as legitimate defendants in a court.

Roland Soong, of EastSouthWestNorth, writes:

If I can make this case very simple.  This is not a question of whether the First Financial Reporter was right or wrong in his reports.  Either way, FoxConn is entitled to file a civil libel suit against the newspaper, which employs that reporter and his editor.  But since when does a civil libel suit involve freezing the assets of the reporter and the editor, including their bank savings accounts, stock holdings, homes and automobiles, to the tune of 10 million RMB for the editor and 20 million RMB for the reproter?  As the reporter noted, this amount is many more times than that which he can ever expect to make in his lifetime.  By comparison, how would the western media react if a prominent American newscaster such as Katie Couric were sued by a large corporation and have all her personal assets frozen for the duration of the legal proceedings?  The Chinese media workers are of the opinion that if this case were allowed to go through, it will be the end of any coverage of the doings of large corporations.

More good information from Roland here.

I can see the thought forming in your head. Dude, it’s China. Press intimidation? So what else is new? But it isn’t quite that simple. Yes, the press in China doesn’t operate with the same freedom that is does in the west, especially when it comes to political reporting. But what the government can get away with in the name of social harmony and what a Taiwanese corporation –even a connected one– can get away with are not the same.

So what might the PR implications be? Well, the story is now being picked up by various foreign media, including specialized voices such as China CSR, and wire services like AFX, AFP (here on the International Herald Tribune) and Reuters, whose headline suggests that, despite what Non Violent Resistance fears, the newspaper will vigorously defend its journalists. Reuters has actually bothered to get out and do some reportage, and their story includes a quote from one of the sued journalists and a quote lifted from a party-managed Chinese newspaper’s editorial, and written apparently without irony:

“(The case) has sent a dangerous signal to society, and means legal procedures could be used to suppress freedom of speech,” said an editorial in the official China Youth Daily.

How about that. If China Youth Daily is complaining that you’re infringing freedom of speech, you have a problem. But journalists –even at official news organizations– will look after their own. Superb China media blog Danwei thinks the story has all the right ingredients to keep titillating western editors (and I agree). The China blogosphere is also gathering heat. Yesterday mega-portal Sina, smelling a juicy story, set up a blog for the two journalists, and the posts are attracting lots of comments and lots of readers. The momentum may not last, but its got off to a good start. The net result is that Foxconn is committing one of the great PR sins by busily making itself look worse than the people it is angry at ever did. And there is no damage worse than self-inflicted damage, which suggests stupidity.
So if you’re Apple what do you think of this? Remember, this incident is descended from an Apple-related story, and MacWorld UK has also picked up the lawsuit story, so it’s creeping close to Apple’s own brand. The whole thing has now gone beyond simple libel lawsuit and in just 48 hours has spiraled into something nasty with a real whiff of media intimidation about it. Reputation damaging questions are also being asked about Foxconn’s relationship with the Shenzhen government and courts. Chinese press is rubbishing the case. Well, if I’m Apple (or their PR guy), the last thing I need is for the contract manufacturer who just gave me a mighty PR headache to give me another mighty PR headache just ten days after I’ve put the last one to bed (Apple’s report was released August 17). Despite their own recent, poorly thought out lawsuits, media intimidation is not something that resonates well with Apple’s cerebral, trendy brand. If I was Apple I’d be gently suggesting that Foxconn back off if they want to keep my business.

But, hey, that’s just me, and I’m a nice guy who likes reporters, even though I do bug them with pitch calls from time to time.

Part two: What was Foxconn thinking?

Originally published August 30, 2006.

Every now and then, Roland [Soong, of EastSouthNorthWest] dangles a PR question in front of me and, like a shark rising predictably to the bait, I pretty much always go for it. In yesterday’s post [above] about Foxconn’s fit of PR self destruction, Roland asked in a comment:

What is the matter with FoxConn? Why is this “no comment” thing? Keeping their fingers crossed and hoping that it will all go away? Can you guess what is going on?

Well, I am happy to guess. But I’d like to remind all readers that this is nothing more than speculation, innuendo and hypothesis. Of course, that’s never stopped me before.

From a PR point of view, there are a few things going on here: the original foreign and Chinese newspaper reports about Foxconn’s labor practices, the subsequent lawsuit filed against two Chinese journalists, and the current (entirely predictable) coverage explosion over the lawsuit and refusal of Foxconn to comment. This would be a complex situation for any company to manage from a PR point of view. But it’s going to be even harder for Foxconn. I am going to make a sweeping generalization here: Chinese companies (including Taiwanese ones – please keep your “one China” screeds to yourself) by and large don’t “get” PR. As an old China hand friend of mine said, “They don’t understand PR. They understand face.” Well, just like face can get you into a fistfight that never needed to happen, it can also get you into a PR disaster that never needed to happen. But I think the Foxconn situation runs deeper than simple face.

Putting the problems of Chinese companies with PR somewhat more scientifically, many of them are just learning what PR is and how to use it. As a Taiwanese company and contract manufacturer, Foxconn evolved in a somewhat more developed media market than mainland companies. It has also been around for more than thirty years, although its internationalization in earnest started in 1993. But as a contract manufacturer –and not, say, a consumer brand– Foxconn may also think that it is insulated from certain kinds of PR problems. This may have been true once, but today, when the bloom is off the outsourcing and contract manufacturing rose, and MNCs are under increasing scrutiny for the behavior of their partners, this is not the case. That lesson should have been made painfully apparent in the original Apple scandal of a couple months ago.

But there is another complexity operating here: this isn’t just a PR crisis (yes, its an official crisis now). It’s a legal PR crisis. And legal situations are always particularly difficult. With all due respect to my good friends at China Law Blog (who may wish to comment upon some of the legal aspects of this case), lawyers and PR people often rub along poorly. A sound legal approach and a sound PR approach to a given situation do not always agree. I am perhaps nursing a bit of resentment here. Put a CEO, a head of PR and a general counsel in a lifeboat together and maroon them at sea until they begin to starve and see who gets eaten first. Nine times out of ten the CEO and general counsel will eat the PR guy. The CEO’s calculation may be that he’ll need a lawyer to keep him out of jail for cannibalism. Personally, I think that’s misguided. After all, who’s going to do a better job of explaining cannibalism to the public and protecting his reputation?

My personal issues aside, the upshot is that legal decisions are often considered to trump PR decisions, and are thus taken without regard for the PR consequences. This is especially true in companies with an unsophisticated approach to PR, but it can happen to anyone. In China we see this with things like IPR lawsuits by MNCs against local companies, which make perfect legal sense but can sometimes have PR consequences far more damaging than the actual infringement. But somehow legal problems are considered “real” while PR is considered, well, just PR. So it’s possible that even if someone within Foxconn explained to the management that suing journalists directly was a stupendously bad idea PR-wise, it’s possible that they were simply dismissed as a touchy-feely PR type without the spine to face up to hard-boiled business issues.

To which that PR person, if he exists, should be saying who’s laughing now, dumbass? Of course, now this poor flack is busy trying to deal with the PR crisis upon which he will probably be judged, so he has no time to gloat. It’s a hard life in the spin doctors.

So that brings us to the “‘no comment’ thing” mentioned by Roland. Regardless of whether PR people were consulted prior to the lawsuit or not, it’s pretty standard practice for companies to refuse to comment on pending or ongoing litigation. Doing so can often create further legal problems, anger judges, etc. Unfortunately, this can also evolve into a sort of programmed, knee jerk response that is automatically given even in situations where companies really ought to comment. Personally, I think this is a situation that increasingly merits comment. Furthermore, my advice to clients is that you always return a journalist’s phone call, even if it’s just to tell them that you can’t comment, and even if you expect to get roasted for that. It’s a basic courtesy and “could not comment” or even “refused to comment” generally looks better in print than “could not be reached for comment” or “did not return phone calls”, both of which make it sound like you’re hiding and amplify the appearance of guilt. Next to the image of you cowering in a smoke-filled crisis room while unanswered phones ring away, the blandest of holding statements can seem like pure gold. In this case, Foxconn is apparently not returning any calls, so, true or not, they look like they’re hiding. It also makes it hard to know if they’re playing the “don’t comment on litigation” card or if they’re just being obtuse. I’m betting on obtuse.

Ultimately the question of motivation looms here. Is Foxconn motivated by a sincere desire to address a slight to its reputation by seeking legal redress? Or is it seeking to intimidate the Chinese press as a way of buying future insurance against bad coverage? If it is taking the first course it has committed some serious PR mistakes. It is almost always a bad idea for corporations (or governments) to sue individuals who were working on behalf of an organization, such as a newspaper. For examples, see Apple’s lawsuits against leakers and the RIAA lawsuits against file sharers, both of which were PR disasters even if they were legally sound. Suing an organization looks like seeking redress. Suing an individual looks like petty vindictiveness. David v. Goliath. It’s not that difficult an equation. (Mind you, I am speaking strictly from a PR point of view, not a legal one.) Foxconn has sued the journalists rather than their newspaper. Not only that, it has sued them for far more money than either of them is ever likely to possess, and has had their assets frozen. This not only looks petty and vindictive, it also looks sleazy since they have somehow managed to engineer a presumption of guilt and, without the benefit of a judgment, inflict considerable misery on…a journalist and an editor. And we all know how much Chinese journalists are paid. So if Foxconn was seeking to address a slight to its reputation, it has failed monumentally and is now doing even more damage to its reputation.

On the other hand, if Foxconn was seeking to intimidate journalists…it has also failed monumentally since the Chinese (and International press and, um, bloggers) are now going crazy.  Nice work guys. It’s Miller time.

In addition to the China PR problem, Foxconn is also entering into extremely risky territory with regards to its foreign customers, like Apple. Anyone who has followed the recent problems of US Internet and technology companies in China knows that freedom of speech issues are weeping dynamite for foreign companies doing business in China. The last thing a company like Apple needs is a contract manufacturer being accused of media intimidation in China. Imagine:

“Hey Apple! Your contract manufacturer was just accused of horsewhipping underage girls for sixteen hours a day and now they’re trying to intimidate Chinese journalists into silence on the issue. What’s your comment? How do you feel about the freedom of Chinese media to report on these kinds of issues?”

Despite my advice above, I’m thinking Apple doesn’t return that phone call. Or if they do, they give a non-answer about how this is an issue for the Chinese courts to settle, Apple has taken great pains to blah blah blah noise noise noise. Apple, you will recall, has had its own problems with the media, and may not want to attract charges of hypocrisy. They will also, somewhat justifiably, want to get All The Facts first.

But that’s tough for them, because this is their PR problem too and, as I wrote yesterday, if I’m Apple I’m on the phone to Foxconn right now telling them to drop the suit, save face by announcing that their point has been made and suck it up. Better yet, Apple should set a further example for MNCs using contract manufacturing in China and come out with a statement vigorously defending the right of the Chinese press to look into the practices of MNCs and contract manufacturers in China. Apple sells jack here and has essentially no market to lose in China, and can always shift its manufacturing to Vietnam or wherever, so why not retake some of the high ground it lost over the original scandal? What’s Foxconn going to do? They’re Apple’s vendor, and there are plenty of business-hungry contract manufacturers in line behind it.

And this situation has begun to touch Apple. RSF is already on the case, with an open letter to Steve Jobs.

But what if the journalists actually did libel Foxconn?

Interesting question. But from a PR point of view (not a legal one, mind you) now irrelevant. The public opinion and reputational battles have already been lost. A legal victory would be Pyrrhic at best. Foxconn absolutely has a right to defend its reputation in the courts and to respond vigorously when libeled. But legal action in defense of reputation must be considered, planned and executed with an eye on further reputational consequences (this is where PR people and lawyers often diverge). And that is something that Foxconn did not do. Furthermore, Chinese journalists will, if anything, probably be motivated to scrutinize Foxconn even more closely from now on.

So if I were Foxconn’s PR person what would I now advise them? Presumably after I got done berating them for not talking to me before they launched the lawsuit?

Drop the lawsuit. It’s too late to salvage this one. Drop it, make a face saving announcement and let it go. And if you must pursue the lawsuit, admit that you were “overzealous”, have the court unfreeze the journalists assets and allow them to go on with their lives pending a judgment. And reduce the damages sought to something symbolic. Remember, this is PR advice, not legal advice. I have no idea how possible any of this would be in Chinese courts. But, at first glance, Foxconn’s relationship with the Shenzhen courts looks pretty cozy, so it shouldn’t be too hard.

And, really, stop making life difficult for your customers. You don’t need a PR man to tell you that’s a crappy way to do business.

Notes:

  • iSuppli analyst Adam Pick recently wrote a story hailing Foxconn’s success. Among the factors he noted, “making the most of the China advantage”. It scarcely needs be remarked that one can take “the China advantage” a bit too far if not careful.
  • I should note, by way of full disclosure, that I am not a litigation support expert. That’s a specialized PR field, like financial communications, best practiced by people with a good understanding of the legal environment in which they operate. So my observations are those of a PR generalist. Litigation support experts are welcome to comment.

Updates:

  • Danwei with some more interesting background and opinions from Chinese media.
  • Sina’s tech news page (not the journalist blog) devoted to the situation, including a handy timeline graphic (Chinese).
  • One of my bosses, a very experienced Chinese PR professional, thinks that Foxconn will be forced to withdraw the litigation. He even thinks it is possible their chairman may have to apologise. We’ll see.
  • Roland’s excellent follow up on the PR war between Foxconn and the journalists includes translations of some of Weng Bao’s blogs (the sued editor). Roland also makes an excellent point that I should have, and which is key to how Foxconn needs to think about this PR battle. From a public communication point of view this PR war is assymetrical. Foxconn is an enormous, faceless corporation speaking in corporatese. The journalists are identifiable human beings able to muster emotion and personal sympathy and use press freedom (in an acceptable local context) as a rallying cry. That means that even if they are guilty, they have the upper hand in the PR battle. Foxconn needs to consider that in all of the their PR strategizing if they are to have hope of looking like anything other than relentless bullies. (Hint: get some real people front and center.) As I wrote above, whether or not libel was committed is now essentially irrelevant. Foxconn can win but still lose if they are not careful.
  • I hear that CCTV 2′s “Dialogue” program is planning a special segment on the affair.

Part Three: All’s well that ends in retreat

Originally published on August 31, 2006.

According to ESWN Foxconn has reduced the damages requested to 1 yuan. Roland is citing a very brief Netease report, and I am not sure how authoritative it is. But if it is true, then it means that Foxconn has taken one of the possible paths I outlined yesterday: reduce the damages to a symbolic level but proceed with the lawsuit. Apple also interceded in the dispute, as I suggested they should. I’d like to claim credit for remote PR genius but, a) it’s not genius, it’s common sense; b) Foxconn and Apple are probably not reading this blog and c) we’ll see how things play out for Foxconn in the Chinese press over the next few days.

Just as interesting as the Foxconn scandal itself is a sideline discussion that has broken out over the newsworthiness of the story with regard to western audiences. Roland was originally disappointed with slow uptake of the story by Western media. Do read his post above, which offers his point of view on this and lists many of the foreign news sources that eventually did carry the story. Then be sure (especially if you’re a China PR pro) to read this post from Richard Spencer, bureau chief of UK newspaper the Telegraph. Richard keeps one of the best journalist blogs in China and he explains very clearly what news value this story has and doesn’t have with regard to his (middle-England) readers. I should send this post to my clients when they ask why I don’t pitch their China business stories to general-interest Western media like the Telegraph, as opposed to specialist business media such as The Wall Street Journal, Financial Times and Business Week.

I’m a technology PR man so I think in terms of brand and reputation with regards to technology companies. I wrote the story for my CNET Asia blog, but then I have a specific China technology mandate, no editing to speak of, and write for an Asian readership specifically interested in technology. More generally, I tend to judge a story this way: “If I was that company’s PR man, would I be worried?” For me this story had potential legs overseas for one reason: Apple. Apple is a hot brand that just navigated a China PR scandal involving Foxconn. With an Apple press story as the origination of the of the lawsuit this is potentially interesting to foreign audiences and thus a PR risk for them. If was Apple’s PR man, I would have been worried.

I see that a lot of the overseas coverage was fairly narrow. Some of it is in journalist blogs (as in Barron’s and the San Francisco Chronicle) and much of it in specialist technology news (Slashdot, VNUNet, MacWorld) interested specifically in the Apple connection. I put “Apple” in my own CNET headline. Most of what might considered mainstream coverage with a broad impact is either from the wire services –which covered the story widely– or business media (The Wall Street Journal, Financial Times), many of which ran the wire coverage. That’s understandable; Foxconn is a large, listed company and a major supplier to many enormous, Western technology firms, so there are business implications.

So it was a story outside of China, but a particular kind of story. It’s interesting what crosses borders and why. When I do internal training in foreign media relations for my company I spend some time on what different kinds of foreign media consider an interesting “China story”. It always raises some eyebrows among my local colleagues.

A closing thought. I love my summer PR scandals. Last year: the Songhua River. This year Foxconn. Gotta love those crazy August days.

Disclosure: I am not Apple’s PR man.

Update: Xinhua has run a story on Foxconn’s claim reduction:

Foxconn said it lowered the compensation claim so that the public could focus on the fact that “the untrue reports had damaged the reputation of our company,” and not just on the 30 million yuan compensation claim, Sina reported, citing company spokesman Edmund Ding.

Damn straight. And the newspaper reports aren’t the only thing damaging Foxconn’s reputation now, and it’s a little late to refocus the public’s attention. Next they think they have been libeled, they can sue the newspaper. Then, if they win, the newspaper can discipline the reporters and it won’t be their problem. Hard lessons learned. Note that I have no opinion on whether the journalists did libel Foxconn or not. That’s something for an (ahem) impartial  court to work out.

FacebookTwitterSina WeiboInstapaperRead It LaterLinkedInDiggStumbleUponShare
This entry was posted in Uncategorized and tagged , , , , , , , . Bookmark the permalink.

Comments are closed.