The controversy over a cluster of uninhabited islands northeast of Taiwan (known as Senkaku in Japanese and Diaoyu in Chinese) has not only led to an increasingly tense confrontation between the Chinese and Japanese governments. It has also had severe consequences for Japanese companies doing business in China. Compared to last year, Toyota has seen its sales drop by 49 percent, Honda by 40 percent, and Nissan by 35 percent.
We can now add “country of origin” to the ever increasing list of headaches for today’s multi-national companies. This is not an entirely new phenomenon. Other examples include the 2005 boycotts of Danish products in the Muslin world after the Danish newspaper Jyllands-Posten published satirical cartoons which depicted the prophet Mohammed. A less dramatic example includes the oil company CITGO, which is owned by Venezuela’s state-owned national oil company. Venezuela’s leader Hugo Chávez gave a highly inflammatory speech in 2006 where he called then President George W. Bush the “devil” and “sick man.” As a result, CITGO faced immediate calls for boycotts in the U.S.
These intense reactions are usually triggered by moral outrage, either because of violated national pride or firmly held religious beliefs. In the ensuing angry protests, companies may find themselves the target of popular rage. The strategic options for companies to respond are limited. They usually are well-advised to stay out of the political debate, in part because allying themselves with one government will alienate the other. Changing the company’s headquarter location is usually not an option either, at least not in the short run, and may have little effect anyway if the company is strongly associated with its country of origin.