China Is Lashing Out at South Korean Brands; Here's What Marketers Should Know

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A man stands in an almost empty Lotte Mart in Shanghai on March 13, 2017.
A man stands in an almost empty Lotte Mart in Shanghai on March 13, 2017. Credit: JOHANNES EISELE/AFP/Getty Images

In a video circulating in China this week, a man attacks an LG washing machine with a sledgehammer until it crumbles and topples over. Next, he moves on to an LG TV set, smashing that too. The Chinese national anthem plays in the background, and onlookers record the destruction on their mobile phones.

For years, China has been a huge market for South Korean brands and pop culture. But with China and South Korea embroiled in a dispute over missile defense, brands like LG are facing a wave of anti-Korean fervor by people taking cues from the government. That appears to be the case of the LG-bashing video, apparently filmed outside an appliance store in Shandong province where a red banner read: "We would rather damage these than sell them." The video was shared on social app WeChat, though details couldn't be verified.

Chinese authorities banned imports of some beauty products, saying the issue was quality, and have cracked down on K-pop and Korean TV dramas for months, without ever acknowledging they were doing so.

Even U.S. chocolate maker Hershey has been caught up in the dispute, because it has a joint venture with South Korean conglomerate Lotte. After a fire inspection, authorities ordered their chocolate-making venture to stop production for a month. Lotte has been a central target because it provided land in South Korea for a U.S. missile defense system. Almost two dozen of its supermarkets were closed in China, with reports citing safety code issues.

The U.S. missile defense system is designed to protect South Korea against threats from North Korea. But China worries the technology, called the the Terminal High Altitude Area Defense system or THAAD, will threaten the region's equilibrium.

In China, flare-ups of anger against foreign brands have happened before. In 2012, a China-Japan diplomatic dispute erupted over uninhabited islands. There were calls to boycott Japanese goods, and people trashed Japanese cars and set fire to dealerships. After those riots, Toyota and Nissan posted annual sales declines in China.

Last summer, after an international court rejected China's claims in a dispute over the South China Sea, protests briefly broke out at KFC restaurants, symbols of the U.S. KFC parent company Yum Brands blamed the protests for a small dip in sales that quarter.

How much do South Korean brands have to worry? It's serious, but not a permanent disaster.

In the case of Japan, brands were affected for no more than a year and then things blew over. People in China are "pragmatic, and they're not going to completely base their buying decisions on nationalistic fervor that will extinguish sooner or later," said Tom Doctoroff, a specialist on China's consumers and the former CEO of J. Walter Thompson Asia Pacific.

South Korea has something extra going for it: "Korea is cool," Mr. Doctoroff said. "Korea does signify youthful self-expression in an Asian context." (Incidentally, he adds, "Chinese brands do not have the cache, they still don't. There's not one local brand that young people use to express their cool.")

South Korean companies without a strong brand and significant value proposition may be harder-hit by the spat. And Mr. Doctoroff thinks travel will be worse off than many industries.

"In terms of tourism, all things are directly or indirectly controlled by the government, which is giving signals to tourists about what they should or shouldn't do," Mr. Doctoroff said.

China's travel agents have been ordered to stop selling packages for travel in South Korea, according to the state-run Korea Travel Association. Some airlines have canceled flights between the countries. This weekend, over 3,000 Chinese tourists reportedly waged a patriotic protest when their cruise ship docked at South Korea's Jeju Island, for years a popular destination for Chinese tourists. They simply refused to disembark.

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