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Drone maker DJI lost USD 150 Mn thanks to corruption

Enabled by employees, the giant had been paying paying inflated prices, sometimes twice or thrice, for materials. Both suppliers and purchasers have been found involved in the fraud.

Jan 23, 2019 by A. Alfaro
Drone maker DJI lost USD 150 Mn thanks to corruption

Internal corruption in the consumer drone giant DJI Technology (大疆) is estimated to have cost it CNY 1 billion (approximately USD 147.6 million) in losses. The company announced on 17 January that 45 employees from departments such as R&D, sales, administration, design and others have been investigated by it. The estimate of losses are its own.

DJI is the global leader in consumer drone market, controlling 70% of it. It controls more than 50% of the US market and 80% of its revenue comes from outside China, according to the tech portal 36Kr. The rumors of an internal corruption probe in the widely-recognised company and the eventual confession has come as a shock to the industry. It has been facing a slowdown since 2017.

The company said that most of the investigated employees work in the procurement and R&D departments, 26 in total. The remaining 19 work in sales, administration, design or in the factories. In 16 cases, the charges were serious enough to notify the authorities. The other 29 employees have been expelled from DJI.

DJI’s statement has dismissed allegations by some employees that it was trying to get rid of old employees and that the whole campaign was just an internal faction struggle. The firm has categorically denied this, going as further as saying: “We are issuing this open statement in order to communicate our corruption problem and we are showing the ugly face behind our beautiful appearance.”

This is an almost unprecedented move. Few companies are willing to openly discuss their internal problems. However, DJI said the losses due to corruption had become too big to be ignored.

Both suppliers and purchasers were allegedly involved in the corruption by agreeing to unusually high prices for transactions. DJI, on an average, inflated payment to suppliers by 20%. Some employees took kickbacks from suppliers or colluded with staff from the research department to grant favors to certain suppliers. This way, the Shenzhen-based company allegedly overspent CNY 1 billion.

According to DJI, the company had been paying inflated prices (sometimes twice or thrice as much) for cheap materials for a long while. This large-scale corruption scheme and abuse of power was discovered by DJI by accident, during an internal review to optimise functioning at the staff and management level.

Sources quoted by National Daily said the company had always attached importance to building an honest and clean structure. There had been incidents of corruption in the past and they were handled accordingly. However, faced with the scale of this systemic corruption, the company has established an anti-corruption team to conduct investigations and promote an honest corporate culture within the company.

The company was founded in 2006 and is now a global unicorn. According to research firm Tianyancha, DJI conducted five financing rounds between 2013 and 2015, raising a total of USD 75 million. There are prestigious names among its investors, such as Sequoia Capital, Lighthouse Capital, Maison Capital and Accel Partners. More than 100 investing institutions took part in its financing round in April 2018. It has a valuation of almost USD 15 billion, according to the research firm Hurun Report.

DJI is not the only Chinese company to face internal corruption. In December 2018, Meituan Group issued a statement announcing that 89 employees were facing a penal prosecution for “wrongdoings”. Yang Weidong, the chairman of Youku Video, which is backed by Alibaba, was also investigated by police for corruption.

When the Wanda Group stared at internal corruption in January last year, Wang Jianlin, its chairman and an important tycoon, said: “This is a nasty business. High salaries cannot deter corruption, only our resolute anti-corruption drive will.”

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at varofaro@gmail.com. 

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