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OSI axes Shanghai firm that sold tainted food to KFC, McDonald’s

September 22, 2014, 8:38 AM UTC
People pass by a McDonald's fastfood restaurant in Shanghai on July 28, 2014. Some McDonald's restaurants in China have yanked their flagship burgers off the menu after a key US supplier announced a recall from products made by a Shanghai factory alleged to have sold expired meat. Shanghai authorities just over a week ago shut a plant owned by privately-held OSI Group for mixing out-of-date meat with fresh product and later detained five officials from the OSI subsidiary which operated it, Shanghai Husi Food Co. AFP PHOTO / JOHANNES EISELE (Photo credit should read JOHANNES EISELE/AFP/Getty Images)

The company at the heart of the tainted food scandal that rocked McDonald’s Corp (MCD) and KFC owner Yum Brands Inc (YUM), laid off 340 workers at the responsible operation in Shanghai, all but closing the facility down completely.

In a statement on its website Monday, Aurora, Il.-based OSI Group LLC said “it is very unlikely that production will be resumed soon” and that it is only keeping on such staff as are needed to help the authorities with their investigation into a case that has badly dented the reputation of U.S. fast-food chains in China, which is Yum’s biggest market.

“Over the past two months, Shanghai Husi has experienced significant financial and customer losses and the authorities’ investigations are still ongoing,” OSI said.

The scandal, which exploded in July, has been a harsh roughly exposed the problems for western firms in managing local units that operate far away from headquarters, in conditions where the inadequacies and, frequently, the corruption of local officials allow companies to cut corners on practical and ethical matters.

It’s a phenomenon that goes well beyond the food industry. Last week, China fined U.K. pharmaceuticals company GlaxoSmithKline Plc (GSK) a record $489 million for bribing officials in order to boost sales there. There’s no suggestion of bribery in Shanghai Husi’s case.

OSI’s Shanghai Husi Food Co’s problems started when a Chinese TV reported that staff were using expired meat, falsifying production dates and violating other hygiene-related issues.

The scandal, which spread as far as Hong Kong and Japan, sparked a Chinese probe into the firm and dragged down China sales at KFC-parent Yum and McDonald’s, which have both since cut or suspended ties with OSI.