FEER - Burden of Being Japanese

The Burden of Being Japanese
Far Eastern Economic Review - April 2005

by Emily Parker

When anti-Japanese demonstrations first erupted in China earlier this month, Prime Minister Junichiro Koizumi commented that he preferred to focus his attention on enjoying the cherry blossoms in a Tokyo park. His nonchalance reflects a widely held belief in Japan that economic and political relations with China are separate matters, and that this storm would blow over with minimal economic cost.

However, there is recent precedent that suggests corporate Japan should not be so sanguine. Five years ago the Chinese media helped popularize a series of anti-Japanese campaigns against companies selling consumer products in China, hurting sales temporarily and denting corporate reputations. The parallels with today are clear: Chinese newspapers are helping to publicize a list of companies which supposedly supported the right-wing publisher of a history textbook that distorts World War II history. Some of these companies, like Asahi Breweries and Ajinomoto, are now trying to refute the accusation before their sales are hurt by planned boycotts.

The history of Toshiba Corp. suggests Japanese companies could be in for a tough year. In 2000, after an alleged defect in the company's laptops came to light, an anti-Japanese media onslaught riled up consumers, leading to a steep drop in sales in the Chinese market.

The incident originated in the U.S., when two laptop users initiated a class-action lawsuit against Toshiba in a district court. The suit was based on Toshiba's alleged mishandling of problems with its laptop's floppy disk control unit that could cause the damage to or loss of data. To avoid a potentially massive court judgment, Toshiba finalized a settlement with these American users in October of 1999, compensating each with coupons for the purchase of Toshiba products.

Problems arose when Toshiba did not offer a similar settlement to Chinese consumers. On May 8, 2000, a Beijing-based Web site received a report of the settlement from a U.S consumer, and posted it. Toshiba offered to supply Chinese customers with free software patches in order to fix the flaw, but declined to offer any monetary compensation.

On May 14, Lin Xiaobing of Toshiba China's Beijing office told the Beijing Youth Daily that the compensation was not part of a global settlement, but rather was particular to the dispute with U.S. consumers. Japanese owners of Toshiba notebooks were equally ineligible for compensation. Mr. Lin explained that according to U.S. law, if there is a possibility of loss to consumers, the manufacturer will most likely bear responsibility. Chinese law, however, does not contain a similar explicit stipulation.

While many Chinese remained unconvinced by Toshiba's claims, it was nevertheless difficult to make the case that Toshiba had legally violated their rights, and most of the criticism of the company was based on "moral grounds."

The Internet played a big role in the anti-Toshiba campaigns. In reaction to the news of the settlement, a hacker by the name of Miss Assassin infiltrated Toshiba's Chinese website and left behind the message: "Annihilate the Japanese devils! Hang their Chinese collaborators!" Hundreds of messages supporting the hacker were posted on the Web. China's popular Web site sina.com displayed further representative remarks:

Japanese have killed Chinese and stolen our wealth, from the raids of the dwarf pirates in the 14th century until the present day. Chinese should hit back against Japanese who are without shame and regret and boycott their products.

A prominent e-commerce company known as Sparkice posted a message on its Web site referring to the war with Japan in the 1930s and 1940s. The message said: "Some people are accustomed to forget history and so it is necessary for us to remind Toshiba." Sparkice pledged not to sell any more of the company's products.

Following the incident, Toshiba dropped from its position as No. 1 laptop supplier in China to No. 3, after Legend and IBM, and its market share dropped to 15% from 19% in the second quarter of 2000. In July 2002, a manager at Toshiba told me:

From the Chinese psychological perspective, there is an antipathy toward the Japanese. The Chinese have very different attitudes toward the Japanese and toward Americans. The Chinese always seem to admire Americans. As for Sino-Japanese relations, the war issue is always present. This is the context in which we are conducting business activities with China.… When the notebook computer incident occurred, it had a strong negative effect on Toshiba's sales. We have had to make a huge effort to improve our reputation. Before that incident, we had never had a single quality problem in China. Not one. In spite of that, this trouble occurred and brought up these issues of Chinese pride.

After the incident, Toshiba continued trying to explain to Chinese consumers the reasons why they were being treated differently. In 2001, Nobumasa Hirata, chairman of the board of Toshiba China, took part in more than 50 interviews and press conferences, meeting with more than 1,000 media representatives. When asked about these extensive efforts, Mr. Hirata explained that Japan has had to tread especially lightly in China to win the hearts of the Chinese consumers: "Whoever deals with China, coming from our country, first has this burden of the interpretation of the [Great Pacific] War between our two countries, and that means one has to deal with the sentiments of the Chinese people."

Public rage over the Toshiba incident affected other companies—soon Mitsubishi Motors found itself in the same unfortunate position. On February 9, 2001, the Chinese government imposed a ban on two models of a popular Mitsubishi vehicle, the Pajero, after drivers in Ningxia and Yunnan Provinces reported brake failures. Despite the fact that both Toshiba and Mitsubishi previously enjoyed a good reputation in China, the media was quick to group the two incidents together to make an umbrella statement about Japanese companies. The People's Daily wrote in reference to the Mitsubishi incident: "The mark, 'Made in Japan,' once seen as something 'perfect in quality,' was first marred by the Toshiba notebook event, and now it has left a bad impression in the hearts of Chinese customers."

Chinese Web sites also targeted Japan Airlines on charges of "anti-Chinese discrimination" after Chinese passengers claimed they were maltreated during a forced layover in Osaka in January 2000.

Around the same period, Matsushita Electric Industrial got into trouble. On August 31, 2000, the Chinese government banned a Matsushita plant from selling its mobile phones in China for a full year because its phone software displayed the abbreviation, roc (an acronym for the Republic of China) when calling Taiwan. Matsushita claimed that this was an inadvertent mistake, and recalled the four models of telephones with the offending software. The company published apologies in the People's Daily and 29 other newspapers. This contrition did not convince the government to remove the ban, however.

Prior to this incident, the company could legitimately claim to be an "old friend" of China. It was one of the first big Japanese companies to invest in China; its founder met with Deng Xiaoping in the 1970s and promised to help develop the China's electronics industry. Furthermore, when many foreign companies withdrew after the Tiananmen Square massacre in June 1989, Matsushita remained, allowing the government to use its tube plant as a symbol of continued foreign investment. Matsushita was hardly the only foreign company to accidentally wade into the Taiwan minefield, but the incident was exacerbated by Sino-Japanese tensions. A Japanese businessman commented:

Of course Beijing imposed the ban because it was a Japanese company. Mobile phones made by other companies also use ROC, Taiwan or Hong Kong, which the government could also consider offensive because they do not include the word China.

The timing of the punishment, around the anniversary of Japan's World War II surrender and just after a month of media coverage of Japanese war crimes, also aroused suspicion. Wang Zhile of the International Trade Institute of Foreign Trade and Economic Cooperation said:

It was discovered later that Matsushita was not the only company that committed the mistake. The vast majority of cell phones using the global system for mobile communications [GSM] had the same problem.

While Toshiba's laptop sales took a sharp plunge, according to a Toshiba spokesperson, things were back to normal several months later. But the lingering effects are harder to gauge. The incident contributed to a snowball effect of Chinese media attacks aimed at Japanese companies in general, furthering Chinese consumers' negative impression of Japanese products.

According to a survey conducted thereafter by Beijing Meilande Information, more than half of those questioned felt that those incidents affected their decisions to buy Japanese products. Of those surveyed, 76% said they were either "dissatisfied" or "very dissatisfied" with Japan's attitude as well as Japan's responses to these occurrences.

In 2002, I conducted extensive interviews in Tokyo with managers of major Japanese companies, prominent Japanese business lobbyists and academics. When asked about the current state of Sino-Japanese business relations, they all summed up the political tensions as kanjo no mondai—a problem of emotions. And most were confident that these problems would not bleed into the economic sphere.

Later I conducted similar interviews with several Chinese students at Harvard Business School. Some of these students, bringing up the usual angry complaints of Japan's failure to address history, balked at the idea of working for a Japanese corporation. If the so-called problem of emotions could cost Japanese companies the services of such well-educated potential employees, it could certainly cost them in many other ways. Unlike the Japanese, the Chinese don't draw a clear distinction between politics and business. While no foreign company is completely safe from the fury of Chinese nationalism, in the crowded and competitive Chinese marketplace Japanese companies have an extra burden to bear.

Ms. Parker is an editorial page writer at The Asian Wall Street Journal.