Shifting Sands: Using Corporate Responsibility to Protect Corporate Reputation in China

August 6, 2013

By: Rachel Catanach

When sales at KFC stores in China collapsed by nearly a third earlier this year, experts wondered if the company, which is owned by Yum! Brands, was losing its touch in the market. Many argued that the company that delighted the nation twenty-five years ago needed a dramatic change in its China strategy in order to keep up with the increasing sophistication of Chinese diners and the fast growth of local rivals. KFC needed to stay current with a rapidly changing China, they said, or it would ultimately face its own demise.

KFC’s experience mirrors that of other companies in China, including giants like Apple. While such companies enter the market with big aspirations, they eventually come to realize that the market can often feel like it is built on shifting sands. Just when you think your footing is sure, Chinese attitudes, wants and desires suddenly shift, and all too quickly your company’s position in the market is in doubt. Trying to keep ahead of the game can feel like a losing battle.

Driving Reputation through Corporate Responsibility

Many companies assume that if their corporate reputation is fairly strong globally, then this will also be the case in China. However, as FleishmanHillard’s new authenticity research shows, there is no such thing as a globally consistent reputation because what drives consumers’ hierarchy of needs can be quite different from one country to the next.

In a world where scandals can break before there’s time to catch a breath, companies must appreciate that authenticity and transparency are especially important pillars of strong corporate reputation. One of the key mistakes that companies make in China is not understanding the importance of corporate responsibility. In both traditional and social media, public scrutiny of corporate practices in China is on the rise.

Not appreciating the value of corporate reputation can quickly put foreign companies at a disadvantage when doing business in China. It is therefore vital that companies understand the concept that what people say about you is just as important as what you say about yourself. With consumers demanding more attention, more conversation and more feedback every day, understanding and protecting your brand and reputation is critical.

Narrowing the Authenticity Gap

FleishmanHillard’s authenticity research underscores this by identifying the nine drivers that shape people’s perception of a company and measuring users’ actual experience with a brand. The more narrow the ‘authenticity gap’ is, the more likely a company is successful at managing its corporate reputation and maintaining its market leadership in China. For most of the top market leaders, we found that they either met or exceeded our nine drivers. In other words, the gap between how people perceived the brand and their actual experience was fairly close.

Companies with a wider authenticity gap in the key drivers are those companies that would do well to rethink their strategy in China. Despite consumer benefits still being the most important driver of consumer perceptions in China, our evidence suggests that consumers are increasingly putting more weight on the combination of management behavior and the company’s impact on society. This implies that the Chinese consumer is moving gradually towards a more nuanced relationship with brands, developing higher expectations that must be met in order for the relationship to continue.

This is why CSR is also important in China. It is central to what the new Chinese leadership today views as essential to a harmonious and balanced society. China is increasingly moving away from an investment and export-driven model of development and more toward a sustainable, internally robust one. Historically, many companies in China assumed that corporate gift giving would be enough to secure a favorable narrative; today, however, companies must realize this is a market with few silent stakeholders. Being a successful business in the mainland is as much about what you do you in terms of people and communities as it is about making those tangible investments.

Promoting Long-Term Success in China

As the Chinese government pushes for a more balanced society and consumer expectations continue to mature, the relationship between consumers and companies will become even more complex. People’s attitudes will change and so will basic tenents of the corporate world. Being aware of your authenticity gap and ensuring that the concept of shared corporate value is at the heart of your business strategy will be imperative to treading China’s shifting sands and to building long-term success.

Rachel Catanach is FleishmanHillard’s Reputation Practice Leader for China. You can reach her at rachel.catanach@fleishman.com.