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Changing years, changing China

Russell: Reputation is increasingly important in China

The rise of China’s grassroots movement of netizens is occurring at the same time as the traditional media is struggling to maintain its credibility

The year that was 2008 was certainly an Olympic year for China. There has been a number of changes in the past year that have shifted the economic and political landscapes for those multinational companies (MNC) and NGOs operating there.

Politically, it was a year of consolidation for the current administration of Chairman Hu Jintao and Premier Wen Jiabao, and embedding succession plans for fifth generation leadership.

Key priorities have been addressing income disparities between rural and urban areas, and developing social economic infrastructure, including public healthcare and social security. Such economic safety nets will allow China to progress to an economy less reliant on exports and more towards domestic consumption.

Concurrently, the tone of leadership has shifted significantly from previous leaders Deng Xiaoping and Jiang Zemin; more collectivist, less authoritarian, projecting an empathy that was considered unnecessary previously to the challenges facing the population.

“Uncle Wen” has been the public face of a caring government in touch with the people and a hit on Facebook.

The year has also been a landmark in establishing a framework for further development of the market economy. A raft of legislation covering property rights, labour contracts, mergers and acquisitions, and corporate tax were enacted or implemented and are components of an increasingly sophisticated legal framework.

Ministries and agencies had over 200 public consultations on draft legislation and regulations, a 40 percent increase over 2007. The new foreign direct investment (FDI) catalogue is an updated rulebook for investing in China and a road map of China’s industrial policy. This indicates shifts away from China’s energy and labour intensive economic model toward higher technologies and sustainable development.

Crises and more

The Year of the Rat can also be typified as the year of crises. Snowstorms in central and southern China during the Chinese New Year left millions stranded, and led to official apologies by the Chinese government.

The subsequent torch relay challenged Chinese views of their place in the world, strained ties with major bilateral partners and led to an upsurge in Chinese nationalism. The Sichuan earthquake in May, a massive natural disaster in its own right, was a PR win for the government and demonstrated positive national sentiments of solidarity.

The lead up to the Olympics saw security trumping openness, with significant restrictions on visas and an overall reversal of the opening process, with practical effects for business. The Olympics itself showcased the great success of China’s emergence on the world stage, akin to Tokyo in 1964 and Seoul in 1988.

However, the warm afterglow of the Olympics was quickly extinguished by the milk scandal and creeping encroachment of the financial crisis. The economic slowdown has slowly marched northward, initially affecting the export industries of the Pearl River delta and spreading to the chemical and auto industries in the Yangtze River delta. An economic stimulus package, announced in November, aims to stem the tide and provide adequate economic growth.

What will the Year of the Ox bring?

With the economy slowing, the resilience of the Chinese economy will be tested in coming months, giving headaches to the Chinese leadership. Large investments into infrastructure are planned, though it is contentious whether this formula will be as effective as during the 1997 financial crisis.

Whilst the central government has deep pockets, the weak links are local governments that have less flexibility to raise capital without resorting to land sales.

Additionally 2009 is a year of anniversaries. March will be the 50th anniversary of Chinese reoccupation of Tibet. Following riots in Lhasa last year, this will likely be marked by tightened security and international focus.

The 20th anniversary of the “Tiananmen incident” in June and the 60th anniversary of the founding of the People’s Republic of China in October are milestones for the government to manage domestic public opinions and international perceptions.

Reputation in China

This succession of accomplishments and tragedies — from earthquakes, Olympics and spacewalks to international outcry and national solidarity — coupled with a slowing economy in transition, provide the broader canvas on which companies chart their plans for the coming years.

Particularly, we are in a period of uncertainty. Are we to continue a period for business expansion as the past ten years or are we entering a period where cost containment and the bottom line is the prudent priority? Will an economic slowdown accelerate or slow down industrial consolidation and the move to “high tech” industries and services?  Where does this affect the positioning of MNCs in their respective sectors?

One discernable trend which we are seeing and have seen over the past year has been the growth of corporate reputation and responsibility programmes.

Integral to these are issue and crisis preparedness programmes plus more systematic methods for engaging with governments at all levels and communities. Some insights as to the motivation for these developments are gained from a recent survey on reputation by the Economist Intelligence Unit (EIU) and Weber Shandwick, to be released next month.

Surveys over the past years by Weber Shandwick and others have highlighted the distinctiveness of Asia, and China in particular, for managing corporate reputation.

Public apologies, while an anathema in the litigious Anglo-Saxon markets, are viewed as essential to take the heat out of crises in China, and to begin the recovery phase.

During the dairy food crisis, we saw the CEOs of the major respected companies jointly making such an apology on national television. Social media seem to figure more prominently to other markets vis a vis traditional media in initiating, escalating issues and how they then evolve.

These trends were reinforced and further insights obtained from the results of this recent global survey of senior executives in 62 counties, “Risky Business: Reputations Online”, conducted by Weber Shandwick, in cooperation with the EIU.

Among the determinants of a company’s reputation, China follows the general pattern with some notable exceptions. While product/service quality is the top determinate for China, it is below the global average and the lowest in the Asia Pacific region.

Executive leadership

Significantly in China, executive leadership quality and credibility is viewed much lower as a reputational driver. Moreover, "word of mouth" communications are believed to be much more valuable; a full 15 per cent above global average and up to 20 per cent above other markets in the region.

Another striking result is that while China itself may have a reputation of being an economic “Wild, Wild East,” companies operating in China put much higher ranking on their social/environmental responsibility record as being valuable to their reputation — nearly 20 per cent higher than the mature markets of Europe and North America and 30 per cent higher than some other countries in the region.

China has evidently leapfrogged into Web 2.0 with regard to reputation, as whilst there is emphasis on social media, it is seen as less damaging of having a poor quality traditional company website.

In China, the internet is used more than elsewhere to search for companies’ records and to seek confirmation of activists groups, NGOs, vendors, suppliers and partners.

Consumer opinion and review sites, social-networking sites and personal blogs figure much more prominently as being useful for judging reputation. Accordingly, companies in China feel much more susceptible to a dissatisfied customer or critic launching an effecting online campaign against the company.

Overall, the quality of a companies’ online communication as a factor for reputation is highest in China. Negative stories or misinformation on new media, blogs or forums are considered much more damaging by nearly 30 percent more than other markets.

Companies also have more likelihood that an internal document will have been leaked to the internet — more likely than elsewhere. Interestingly, despite this higher sensitivity to threat in China from social media, companies presently prefer more than elsewhere to limit external communications to only official statements.

This is probably a sign that few companies have the infrastructure and processes in place to foresee, engage and address the issues and stakeholders involved, as much as the cultural specificities of China.

Changing professional norms

The rise of China’s grassroots movement of netizens is occurring at the same time as the traditional media is struggling to maintain its credibility, caught between the twin pressures of persistent government controls and increased commercialisation. Professor Xi Guang, the Dean of Tsinghua’s School of Communications has written extensively on the latter.

For some in the print and broadcast media there has been pressure to link editorial content and advertising revenues.  While there has been a discernable quality improvement in some media, some editors maintain protection lists where negative stories are filtered for their advertisers, given their advertising purchases exceed certain thresholds.

If negative stories do arise for companies that do not advertise then they can be stopped if double the threshold of advertising is committed. Other practices are still persisting; occasional approaches by journalists, particularly from tier 2 and 3 cities that have a negative story but will cease if payments or advertising commitments are made.

Conversely, some in-house corporate communications teams retain expectations that themselves or agencies can use guan xi alone, hoping that issues can be covered up locally or negative stories “pulled” is becoming ineffective progressively. Similarly, the payments of “benefits” to corporate staff or journalists by agencies or vendors are unacceptable business practices.

Even discounting the ethical issues, such behaviour s are quickly bringing too much risk. In the recent dairy scandal, the attempts by local government at cover up and the relevant PR agency and in-house professionals’ attempts to censor traditional and on-line media, provided no solutions. They themselves became intertwined in the crisis and exacerbated the problem.

Beyond the Year of the Ox

China is changing rapidly as to how politics, public policy, the media and markets operate. Companies and NGOs need also to move with the times.

Relationships remain a cornerstone as to how business and politics operate. But reliance on such relationships, or guan xi, alone is now insufficient for success.

This should be supplemented with a systematic approach to issue management and crisis preparedness, coupled with business intelligence systems and cohesive reputation programmes tied to business objectives. These are now becoming not luxuries but necessities to navigate the future. 

Otherwise, governments and those 300 million netizens of China’s social media can be very unforgiving!

John Russell is Executive Vice President of Weber Shandwick Asia Pacific and a member of the advisory board of PublicAffairsAsia

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