1 Liz Keena Crisis Communication: Tu./Thur. 9:30-‐10:45 Case Paper Carrefo

Liz Keena Crisis Communication: Tu./Thur. 9:30-10:45 Case Paper

Carrefour and Its Struggles In China

Carrefour was founded in 1958 and since then has become the second largest grossing hypermarket in the world. A hypermarket is a store that provides department and market amenities in one location. Carrefour is a French based company that has grown to have stores in Europe, Argentina, Brazil, Taiwan, Colombia, Dominican Republic, Saudi

Arabia, and most importantly China. This is the setting of the Olympic Torch Relay –

Carrefour situation. China and its citizens become very upset after French protesters tried to put the Olympic torch out. French protesters were working to bring awareness about

China’s poor record in human rights and their occupation of Tibet (Coombs, 2014). In response, the Chinese people chose to target French based companies in retaliation against the French protesters that disrespected them. This paper will explain how this situation turned into a crisis for Carrefour in its China based stores.

The Carrefour-China Olympic Torch Relay situation was difficult for me to define at first. I was not sure if this was a full-blown crisis, or just a para crisis. The final conclusion I came to was that this was indeed a crisis for Carrefour. The reason for this is because a crisis is defined as, “The perception of an unpredictable event that threatens important expectancies of stakeholders and can seriously impact an organizations performance and generate negative outcomes” (Coombs, 2012). The reason I think that this could be considered a crisis based on this definition is because Carrefour could have done little to predict this type of situation occurring, and the reverberations of the protesting that took 2 place in China had a negative impact on the way the organization preformed. This situation could be specifically defined as a rumor crisis because of tactics Chinese stakeholders took to boycott Carrefour.

Carrefour is the second-largest hypermarket in the world, falling second to the all- mighty Wal-Mart. Carrefour first entered the Chinese market in 2008, they currently have

122 stores operating in China which employ about 40,000 people (“China protests French retailer Carrefour”, 2008). Carrefour has been very strategic in their approach to growing their brand in the Chinese market. Carrefour employs locals and also buys locally made products. They have also made it a point to not treat the market as a single whole, but as individual parts. This has helped them appeal to a more costumers because of the regional approach Carrefour has taken. Carrefour sees their place in the Chinese market as absolutely vital. That is why this situation is considered a crisis for them. The population of

China is growing more massive each year, meaning Carrefour grows in the number of stakeholders it has. Violating the expectancies of even a minor stakeholder group could cause major problems. That is exactly was happened too, the expectancies of a stakeholder group was violated. The rumors that were spread over the Internet and mobile devices caused a large number of Chinese stakeholders to boycott Carrefour stores. This in turn lead to a negative outcome for the company, which was cutting their sales by about 20% during a large holiday in China (“Carrefour China reiterates support for Beijing Olympics”,

2008). These two negative outcomes help to demonstrate how this fits the definition of a crisis.

The definition of a rumor crisis is, “ When false or misleading information is purposefully circulated about an organization or its products in order to harm the organization” (Coombs, 2012). This situation started to turn towards a crisis after citizens of China went online to vent their outrage. The citizens of China were unsure of how to make their voices heard after the attack on 27 year-old Paralympic fencer, Jin Jing by

French citizens. The only way Chinese citizens felt they could make France pay for their disrespect was to boycott French companies in China. Carrefour had no way of predicting that the actions of some French protesters would impact their functioning in China as much as it did. This is another reason that this situation fits the definition of a crisis; it was unpredictable in the eyes of Carrefour. It became a rumor crisis after stakeholders started to use online tactics to attack Carrefour. The stakeholders attacking Carrefour did not have fact to prove their allegations, but they were effective in calling the people of China to boycott nonetheless.

Online stakeholders made accusations against Carrefour saying that they and their major investors supported activists against China’s occupation of Tibet. Even though

Carrefour denied any political involvement, protesters continued to post rumors about

Carrefour’s political bias and support through mobile messaging. These protests eventually escalated to the point that they became in-store protests and boycotts. Many of the protesters were youth and university students (“China protests French retailer Carrefour”,

2008). These rumors forced Carrefour to enact their Crisis Management Plan. If this had been not been a crisis then Carrefour would have not had to make a public announcement denying their involvement with the political issue. The impact of the rumors that were 4 spread lead to negative outcomes for Carrefour, including negative Chinese media coverage, a loss in revenue, and violations to important stakeholder groups, all of which define this as a rumor crisis.

I have already mentioned one stakeholder group in this crisis, Carrefour consumers.

Although they had an impact on how this crisis unfolded, they are not one of the two most important stakeholders in this case. The first major stakeholders in this case are the

Carrefour protesters. There are three characteristics to measure the impact and likelihood of impact that a stakeholder group will have on a crisis. The first is to measure the group based on their power. Power is defined as, “The ability of the stakeholder to get the organization to do something it would not do otherwise” (Coombs, 2012). In this crisis I would give Carrefour a high power rating because they may not have had the resources or skills to make Carrefour suffer greatly, but they were a large coalition that influenced the way Carrefour operated. For example, Carrefour stopped all promotions for the May Day holiday because of the number of stakeholders voicing their anger towards Carrefour. This media shut down lead to Carrefour taking a hit in the revenue they usually receive from this holiday.

A second way to measure a stakeholder group’s impact and likelihood of impact is based on legitimacy. Legitimacy is defined as, “The stakeholder and their concern, and is their concern considered legitimate by society and other stakeholders” (Coombs, 2012).

Protesters had strong political legitimacy because most of China, including the government, supported these protests. People outside the country may not have seen the Chinese 5 protesters as having a legitimate stance, but the citizens of China felt that the boycotts and protesters as righteous after France, and other humanitarian groups attacked them for their violations against human rights.

The third way to measure the impact and likelihood of impact that a stakeholder group will have is based on willingness. Willingness is defined as, “A stakeholders’ desire to confront the organization about the problem” (Coombs, 2012). The issue of disrespect was clearly important to the citizens of China because people were willing to boycott the second largest, revenue-generating, hypermarket in the world. Apart from the disrespect the China felt the French protesters showed, the people of China may also have been willing to boycott Carrefour based on past incidents. In October of 2007, the Chinese courts sentenced two former mangers of a Carrefour store to jail because of their lapses in safety procedures. These lapses lead to a stampede that ended up killing three people and injuring thirty-one others (Buckley, 2008). A majority of those injured were elderly. This is a problem for Carrefour because harming the elderly is almost as bad for ones reputation as harming children. The ineffectiveness of Carrefour’s staff in preventing this incident could have created an unfavorable relationship with Carrefour, further fueling stakeholders willingness to protest against the organization. A second reason why protesters may feel willing to boycott Carrefour is because of the developmental history of China. Postcolonial studies tries to understand the social, political, and cultural effects on countries that have been ruled and exploited by colonial powers. This is a relevant topic for China because it protested against a corporation that represents a past colonial power. Europe had a large hand in controlling China; France specifically controlled three southern regions. 6

Postcolonial studies can play a role in how countries get along; usually it ends in a negative relationship. This could be a reason why protestors want to further protest against France.

The Olympic torch situation could have just been added fuel to a fire that some protesters already had.

The high power, legitimacy and willingness scores that protesters received is what makes them so dangerous to Carrefour. The higher the power and legitimacy score a stakeholder group gets, the stronger their impact is. On the same hand, the higher legitimacy and willingness scores a group gets, the stronger their likelihood of impact gets.

Having both a strong likelihood and impact score makes the protesters a very influential stakeholder group.

The second major stakeholder group in this crisis is Carrefour. Through no fault of their own, the company was dragged into this crisis. Carrefour seemed almost powerless in this situation. Even though they had control over of a large number of resources, they took a very cautious approach to dealing with the situation. Unless Carrefour wanted to severely damage their presence in the Chinese market, they would not have been able to do much more than deny any ties to Tibetan independence groups. Taking an offensive approach to this crisis could have made things worse for Carrefour because many consumers could have further protested the company, leading to worse organizational impacts and revenue losses.

I gave Carrefour a low legitimacy rating as well because of one very important aspect. That is that the crisis took place in China, making the denial claims Carrefour was making irrelevant to Chinese society. People outside of the country of China may have seen

Carrefour as having legitimate claims, but because the crisis took place in China,

Carrefour’s denial claims become illegitimate to that society. If this situation had been more universal then it would have been classified as an issue and not a crisis. It was because of the fierce backlash experienced in China that Carrefour was forced to view this as a crisis and weigh the legitimacy of their claims in Chinese society.

Carrefour did get a high willingness rating because they were insistent on denying any ties to Tibet, or a political preference in general. The problem of emphasizing the

Olympic Games over the boycotts was an important issue to Carrefour. So important that

Carrefour China’s vice president Gean Luc Lhuiller reiterated the importance of the games to China’s economy many times. Carrefour had a great willingness to sympathize with stakeholders in China, and to show them that they also viewed this problem as an important one.

The low power and legitimacy rating that Carrefour got makes their impact on the crisis outcome less likely than that of other major stakeholder groups, such as protesters. A high willingness score did not do much for Carrefour either because they still had a low likelihood of controlling the outcomes of this crisis.

The response Carrefour took to this crisis was interesting. After the initial online rumors and boycotting took place, Carrefour took about a week to respond. One of their first responses was to use a diminishment strategy and completely cancel its planned marketing efforts for the May Day holiday. When using a diminishment strategy, companies attempt to reduce attributions of organizational control over the crisis or negative effects of the crisis (Coombs, 2012). The cancelation of marketing efforts for the May Day holiday falls into the diminishment category because Carrefour was trying to bring as little attention to them as possible. Having a large marketing campaign could have further stirred Chinese citizen’s anger by making the Carrefour image even more at the forefront of people’s daily media. A constant reminder would help sustain people’s anger towards the company. This strategy by itself was not an appropriate response. Had Carrefour used multiplicity and paired this diminishment strategy with a denial strategy, then the effectiveness of the response would have been better. This was an ineffective crisis response. A good crisis response should prevent the crisis from spreading to unaffected areas of the organization or the environment, limit the crisis duration, and present the

“frame” or “narrative” for the crisis (In Class Notes). This initial response by Carrefour did none of these things. If anything, the citizens of China didn’t notice that Carrefour tried to back out of the media spotlight. Carrefour also took to long to respond, so there was no way for them to frame the issue in a beneficial manner. Carrefour also did not succeed in limiting the crisis duration. The crisis duration seemed to be unaffected by their diminishment response strategy. Carrefour was semi-successful in containing the crisis. It affected their presence in the Chinese market, but it did not seem to be detrimental to their business in other countries. 9

A second response strategy Carrefour used was a rebuilding strategy. A rebuilding strategy looks to improve the organizations reputation (Coombs, 2012). Carrefour used this strategy after the online rumors and boycotts continued to occur. Carrefour China’s vice president Gean Luc Lhuillier tried to use to rebuilding strategy during his initial press conference. He stated: “We and all our employees feel regretful about what happened in

Paris and support the Beijing Olympics 100 percent” (“Carrefour China reiterates support for Beijing Olympics”, 2008). This quote demonstrates Carrefour trying to show sympathy and sound apologetic to the Chinese people. Carrefour Chairman Jose Luis Duran also said something similar to Lhuillier to reiterate the sympathy Carrefour had for China. This was an appropriate response for Carrefour to take because even a partial apology can help stakeholders forgive the company, close perception gaps, and work towards favoring the company again. Partial apologies are not always as successful as a full apology, but in this situation this was the best Carrefour could do because they were not responsible for the actions of citizens in France. Even though Carrefour was consistent with their message, this was still not an effective strategy. Stakeholders continued to attack Carrefour online and boycotting stores. Carrefour was not successful in limiting the duration of the crisis time.

They were also unsuccessful in presenting a favorable frame for the crisis.

A third response strategy Carrefour used was a denial strategy. A denial strategy seeks to remove any connection between the organization and the crisis (Coombs, 2012).

After the apologetic statements made by Chairman Duran were unsuccessful, he denied that any Carrefour store provided financing to pro-Tibetan independence groups. Vice 10 president Lhuillier also directly denied the Internet rumors linking Carrefour to pro-Tibet independence groups. This was an appropriate strategy to use because it helped Carrefour to defend its reputation. At this point in the attacks it was necessary for Carrefour to use a denial strategy. This would have been a very effective strategy to use had Carrefour used it right away. Pairing it with their sympathetic responses would have been one of the most effective multiplicity strategies they could have used. This denial response also failed to present the frame for the crisis, and limiting the duration of the crisis. Their message was ineffective by itself, but it was effective because it was consistent and open.

One of the best practices that Carrefour implemented was being consistent with their message. Being consistent with a message includes staying on message. Consistency in message builds a company’s credibility, which is a long-term, and necessary organizational asset (In Class Notes). Having credibility as a company leads to building a reservoir of goodwill for the company. This is important to a company because it helps them in the future to have their stakeholders trust them and eventually help them frame the situation in a favorable manner. Inconsistency in message leads to stakeholders not believing what the company is telling them, even if the facts are accurate. This then turns into a perception gap for stakeholders, which can take a very long time for an organization to repair. When both the Chairman and vice president of Carrefour China were apologetic in their messages, it helped stakeholders trust their message. Carrefour also did a good job in being consistent with their message by not having any past or present employees fueling the rumors being spread about the company. This is not any easy task when you have 122 11 stores in China alone. Having that many employees can easily lead to having a poor unofficial spokesperson, which can hurt any future messages Carrefour tries to present.

A second best practice that Carrefour used was being open with their message.

Being open with a message is based on three criteria. The first is availability. The gold standard of this component is having the company have two-way communication between stakeholders and media. Carrefour did this with all the comments it made to the media. A second component of openness is being willing to disclose information to stakeholders.

This can be a tricky thing for companies to do sometimes because of legal obligations. For example, if Carrefour did have a branching company that supported pro-Tibet independence groups, then they could run into confidentiality issues if they disclosed any information about the supporting company. Companies may also not always want to be fully open with stakeholders because of further ramifications they could face. Carrefour never hid any information from its stakeholders. This is what helped to make their message more appropriate. The third component of openness is being honest with stakeholders in the messages a company gives to them. Honesty can have direct and indirect costs. The costs are: how much is it going to cost you if you’re caught lying, or how much is it going to cost you being honest. This was never a problem for Carrefour because they had nothing to hide from stakeholders. Openness was one of the best practices Carrefour could have used in this crisis because it helped to build their trustworthiness as a company.

A third best practice Carrefour used was being apologetic. I have already briefly touched on this topic, but it was vital that Carrefour provide an apology to its Chinese 12 stakeholders. Even though Carrefour did nothing wrong, an apology helps to show that they can sympathize with the Chinese consumers. This is a situation very similar to the

Pampers case. Both companies had done nothing wrong, but rumors were still being spread about them. Both companies acknowledged the frustrations consumers were feeling, but did not take responsibility for something they did not do. A full apology would have meant that Carrefour accepted responsibility of the actions of a few French protesters. It also would have meant that Carrefour would have had to have some type of control over those people’s actions. This is simply not possible. That is why providing a partial apology helped to make Carrefour’s messages more appropriate. A partial apology simply expresses concern and regret, which is all the Carrefour could provide to stakeholders. This type of response is often tricky, but Carrefour handled it well by acknowledging its stakeholders, but at the same time, denying the rumors being spread about them.

One of the biggest areas of improvement that Carrefour could have used in this crisis is adopting a better spokesperson. Based on the full interview done by Jin Jing, I would have quickly asked her to advocate for Carrefour. Jin Jing became known as the

“angel in a wheelchair” after being attacked in the French stretch of the Olympic torch relay. The Chinese media celebrated her on television chat shows, newspapers, and online music videos (Harrison, 2008). She was clearly loved and respected by the people of China;

Carrefour would have been smart to adopt her as a spokesperson. Jin Jing spoke about her attackers in an unfavorable way, but spoke at Carrefour indirectly, “We should give him

[her attacker] some moral education. But there is no need to stop buying French goods. We can handle it more rationally, most French people are very friendly” (Harrison, 2008). This 13 bolstering view towards French goods would have helped Carrefour to reach citizens on a different cultural and emotional level. Jin Jing was also very photogenic and could speak on camera, two crucial characteristics of a good spokesperson. Jin Jing could also have presented the crisis information in a much better way then either the China Carrefour vice president, or the Chairman of Carrefour could have. Using Jin Jing would have been a great little seed approach to this crisis. The little seed looks to use opinion leaders as influencers over a large amount of people. Jin Jing could have been this influence that would have helped Carrefour implement a big seed approach and share their denial messages with a now attentive audience. The company would be smart to adopt someone similar to Jin Jing if a similar situation were to occur again.

A second area of improvement for Carrefour would be to follow the three rules for online communication. The first rule of online communication is to be present. This means that a company has a social media or online presence (In Class Notes). Carrefour has an official website, but they are not a strong proponent in social media or other forms of media such as online blogs. The second rule is to be where the action is. This means a company needs to be present where their stakeholders are talking about them (In Class

Notes). In this situation stakeholders were using mobile media to spread rumors. Carrefour would have been smart to use mass text messages or tweets to reach a large amount of people, and be on the same networks that they were being attacked on. The third rule of online communication is to be present before the crisis occurs (In Class Notes). China is a very technology savvy country, having a larger social media and online presence would have helped Carrefour to frame the situation. Online and mobile media can have a huge 14 impact on how a crisis is framed. This would have helped Carrefour stop or strongly deny any of the rumors that were occurring.

A third area of improvement would have been the timing Carrefour used to deny the rumors. They waited way to long to come out and say anything. Framing a crisis is vital for companies. Had Carrefour showed sympathy for Jin Jing and the citizens of China, they could have avoided the rumors right away. Instead they let others attack them for almost a week before coming out and saying anything to the media and stakeholders. Not letting others steal your thunder is very important for companies because if people are allowed to fill in the gaps themselves, it will most likely not be beneficial to the company’s reputation.

Silence and not having a comment can also hurt a company because then they have no control over the story. This will hurt even the largest of companies. I’m not sure if

Carrefour felt that they did not have to make a comment because of the size of their company, and therefor felt invincible, but it hurt them not to make a comment that could help them control the situation. In the end had Carrefour spoken out right away they could have had more control over how the people of China viewed them.

References

Buckley, C. (2010). China Carrefour managers jailed for deadly stampede. Retrieved April

29, 2014 from http://www.reuters.com/article/idUSL555655120081106.

Carrefour China reiterates support for Beijing Olympics. (2008, April 29). Retrieved April

29, 2014 from http://www.china.org.cn/olympics/news/2008-

04/29/content_150331311.htm.

China protests French retailer Carrefour. (2008). Retrieved April 29, 2014 from

http://www.msnbc.msn.com/id/24218173/.

Coombs, T. W. (2012). Ongoing crisis communication planning, managing, and responding.

Los Angeles, CA: SAGE Publication, Inc.

Coombs, T. W. (2014). Applied crisis communication and crisis management. Los Angeles,

CA: SAGE Publications, Inc.

Graham-Harrison, E. (2008, April 11). Disabled torch bearer becomes chinese hero.

Retrieved April 29, 2014 from http://abcnews.go.com/International

/story?id=4634434&page=1.