Taipei Times: Diageo advertisements in UK subways last year showed a half-wrapped Christmas gift bearing a label that said: "Warning: This gift will break down on Christmas morning. Replacement parts available from service center. Box No. 260, Taiwan. Allow 365 working days for delivery." How much damage did this do to your company here in Taiwan and how have you recovered since?
William Li (李其英): This is the first time a reporter has asked me that question. It appears to me that the average person did not see that as an issue. It was for politicians. I have to tell you that of course business was impacted, but not in terms of profit. The impact was on morale and also on the time management spent on the crisis. In terms of volume the impact was only before Chinese New Year during the gifting season. What we found is that people still bought our products. It was no problem for them to use our products for their own consumption, but the gifting business was hurt. I guess they didn't want to buy the products and be questioned by their friends.
After Chinese New Year things went back to normal. The year's business actually grew against last year, although maybe the percentage was not as high as I would have liked, so I can't measure exactly what the impact was.
PHOTO: CHIANG YING-YING, TAIPEI TIMES
In terms of management time, you can imagine how much time the top team spent dealing with media requests, going to see the government, diverting our attention, and developing and making up a campaign in London.
TT: I believe you ran ads the same size as the original offending ad in the same places in the UK, is that right?
Li: That's right, and also ads in local papers here. Also at that point in time we had just launched Smirnoff Ice in Taiwan, so naturally we had to drop all the advertising and all the activities until things settled down. That hurts, right? But after we re-launched the product in April, it was fantastic. Our stock went like this [hand sweeps off table], so I think the impact was very short-term. Some of our employees were also questioned by their friends, by their family, why are you working for this company? So there was some kind of morale issue there.
TT: Have policies regarding advertising campaigns changed so that Diageo's head office now consults more with regional offices around the world?
Li: What happened was that immediately after the incident they were notified by us. It was actually over the Christmas period. Immediately the top communications guy, the director of external communications, formed a team with us to work together to resolve the issue. They were very active in dealing with Taiwan's government representatives in the UK.
They also established a study group at the same time to review the whole situation. What happened, what went wrong, what in the process went wrong working with the advertising agency? Of course we submitted our input, and the result of that was that our core marketing policy -- I guess there were loopholes there -- was totally re-written. I think starting from April, every [Diageo] country [representative] in the world had to go through workshops to understand the process and why. Now all advertising material has to go through the process.
TT: Often Taiwan does a poor job of promoting its successes in technology, and advertising executives in London may not be totally to blame for not having a strong impression of the nation's achievements. Do you think the government needs to do more to promote its image overseas, and how much help did you have in drawing up your damage-repair campaign?
Li: I think you are exactly right. The government doesn't totally understand the situation. When we went to see different ministries in January, they jut asked us to rectify the situation. They were co-operative. We came up with the idea of using the same space over more time to advertise Taiwan, and we asked them to provide materials. We didn't want to provide materials, otherwise they might be upset by us. The trade office in the UK provided the materials.
The Ministry of Foreign Affairs people are very helpful. I guess that they have been working in various parts of the world and have seen this before. They were not that surprised, but they were very pleased that we acted quickly and tried to rectify the situation. They said they realized that Taiwan's image is not as good as what they expected, and therefore they asked to get some kind of international exposure for Taiwan.
TT: You set up the Keep Walking Fund in Taiwan to promote entrepreneurs here. Was this in any way connected to improving your image after the negative ads in London?
Li: Not at all. In 1999, when the 921 earthquake came, we had planned the Johnnie Walker Classic [golf tournament] in Taiwan just 51 days after that. So the big question was should we have the classic or not. Within the 51 days we had to turn the thing around and turn it into a charity event. We donated all the proceeds [to charity] and asked the golfers to donate their equipment for auction. In the end we donated US$1.2 million to the fund.
We told consumers that, despite all the difficulties, Taiwan has to go forward, so that's how we started. And the response was unbelievable -- a fantastic response. People were really touched and supportive. Because of that we learned that we as a company, because our business is local, we have to do something for the local people. At the same time the company was looking at Johnnie Walker. What does Johnnie Walker represent? So, after a lot of consumer research and after taking the key from Taiwan, we decided it should represent progression. That's why "keep walking" -- despite all the difficulties, you have to move on.
So we made available US$10 million for ten innovative projects, and we asked a Cambridge professor to design a six-week course that incorporates basic marketing skills, accounting, etc. and we will send five of the winners there with everything paid for to improve their skills and get exposure and then come back here with the chance for success. The other five or those whose English language skills are not good enough will just get the money. We do not ask anything in return.What I hope to see by doing this is that we set an example for other local companies.
TT: What benefits has Taiwan's WTO membership brought for foreign alcohol companies like Diageo working in Taiwan, and what problems do you still face?
Li: The first benefit not only for us but Taiwan as well is tax harmonization. Now it is a level playing field. Local products now pay the same tax as we do. That means the consumer has more choices and the market is not twisted by artificially high prices. Increased competition will also force the evolution of local production. They are now forced to be more efficient and produce better products for consumers.
The problem is that the government has no experience of managing [the alcohol market]. The administration is poor as it used to be managed by a monopoly. Now it has been passed to the Ministry of Finance. They do not have the people, they do not have the skill. They need to understand the policies fully so that they can implement them properly. They have very good intentions, they just do not have the expertise.
TT: Whiskey is very often ripped off in Taiwan. Is counterfeiting a problem for you and do you feel the government is doing enough to enforce anti-counterfeit laws?
Li: Before last summer, I don't think the government realized the seriousness of counterfeiting. Until local rice wine was counterfeited and people died, then they woke up to the fact that it is not only hurting imported products, it is also hurting local products and consumers. Then they started to beef up enforcement. They did ask us for help. We brought people over from the UK to help the police identify counterfeit products. The government has been very co-operative and realizes the seriousness of the problem now, they just did not have the manpower or expertise before.
TT: How important is the Taiwan market for you and how has the market changed?
Li: The Taiwan market is very important for two reasons: profit and organization. Taiwan is the second biggest market in the world for Johnnie Walker after the US. Taiwan is important because Hong Kong and Taiwan are venture markets. Taiwan will provide the people and expertise - what Taiwan has done in the past 10 years can be copied and modified for China. Right now 80 percent of the nightclubs in China are owned and run by Taiwanese, and 70 percent of the customers are Taiwanese.
Ten years ago it used to be the gan bei culture ? if you don't drink you don't give me face. Middle management and the newer generation coming up are more health conscious.
People drink less, more for enjoyment and less for business. Frequency is more, but the amount drunk each time is less. There are also a lot more females drinking as there are a lot more choices - wine, champagne, Smirnoff Ice and other ready-to-drink beverages.
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