Although a strike by hundreds of Baidu's workers in two southern Chinese cities came to nothing, the rare incident has brought to the fore the problems that have beset the popular search engine since the false medical ad scandal surfaced last year.

Several senior executives from the company's Beijing headquarters, including the head of human resources and an assistant to Robin Li, the company's chief executive officer, met with the disgruntled workers last weekend to negotiate a settlement. No deal was struck but the management has promised to draw up a fair response to the workers' complaints.

Baidu is the largest search engine in the country with the world's largest population of Internet users. It controls around two thirds of China's search engine market, much ahead of Google, the world's largest search engine. But it is also one of the most controversial companies in the country, with its unconventional business model and practices frequently being questioned by detractors both within and outside the flamboyant company.

Hundreds of employees stopped working on May 4 protesting salary cuts and new commission policies they said were designed to force people out of their jobs. Baidu set new sales targets at the start of this month and said it would withhold commission from employees who fail to meet them. The base salaries were also reduced by about 30 percent, according to the employees.

The strike culminated in large groups of workers visiting local labor bureaus on Thursday and Friday, where workers sought to report the company for allegedly violating their rights.

A public relations staff at its headquarters in Beijing yesterday said the company had no comments to offer on the strike.

But the Wall Street Journal quoted from a Baidu statement that read: "While there are some issues with certain employees in parts of our operation, we are currently addressing the issues and expect a prompt resolution."

The incident has come about just when the NASDAQ-listed company was beginning to recover from the scandal that tarnished its image and sank its share price.

The company's stock took a beating in November 2008 after it was accused on the official China Central Television, or CCTV, of allowing the unlicensed providers of medical services to buy prominent positions on its pay-for-performance (P4P) search platform. The large number of "clicks" showed that those ads for expensive but useless therapies had indeed attracted many unwary consumers.

The CCTV report featured several patients who claimed that they had used Baidu to search for treatments and were steered to unlicensed hospitals that charged exorbitant fees for ineffective therapies. Others interviewed in the TV program said they bought drugs from sellers listed in Baidu that failed to bring any relief to their illnesses.

The CCTV program touched off a tidal wave of bad publicity against Baidu, forcing the company to make a public pledge to overhaul its operations, and remove the key words of all those mentioned in the report. Li of Baidu also told the official Xinhua News Agency that his company would exclude all unlicensed hospitals and pharmacies from its search engine.

Since then, Baidu has initiated a costly publicity campaign to give its image a makeover. It increased advertising spending during the first quarter of 2009, including buying key commercial time during the Spring Festival holidays at CCTV that had uncovered the scandal. Li was seen sitting in the front row at the Spring Festival Gala, the country's most-watched annual TV broadcast during the eve of the Spring Festival.

These efforts are seen to be producing initial results as reflected in a 24 percent increase in first-quarter earnings. Net profit rose to 181.1 million yuan, or 5.22 yuan a share, from 146.6 million yuan, or 4.22 yuan a share, a year earlier. Sales jumped 41 percent to 810.7 million yuan.

The company's first-quarter expenses for sales, marketing and administration rose 39 percent to 204.3 million yuan from 147 million yuan a year ago, it said in a statement. "Internet user growth, government stimulus plans and Baidu's brand campaign on CCTV's Spring Festival Gala are major reasons for the upside," Ming Zhao, an analyst at Susquehanna Financial Group, wrote in an April 23 report on its first quarter earnings.

Baidu, which reported revenue of $469 million last year, had about 6,200 employees as of March.

Tian Xin, an analyst with iResearch, a consultant firm, said he was not sure about details or reasons for the strike. But he said the company's change in human resources strategy could be related to its business development.

There are 400,000 to 500,000 SMEs in China with a budget for online marketing, and over 300,000 of them do business with Baidu, according to Tian.

"The company needed to develop new clients before, but now it is stable, and it does not need to attract new clients anymore. Therefore, the company may have formulated a different incentive policy and human resources strategy," he said.

(China Daily May 20, 2009)