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.

Note: Cross posted at CNET Asia.

Update: My follow-up post on what Foxconn was thinking.


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