Corporate Reputation Management: Looking East

Economic growth in China spells big business for the management of corporate reputation, says Rob Gray

Corporate Reputation Management: Looking East
Corporate Reputation Management: Looking East

China is in the throes of an economic boom. Exhibiting growth rates that are putting most nations in the shade, its economy shows no real sign of faltering. GDP is rising at about ten per cent a year, and every month the country attracts about £4.3bn in foreign direct investment.

By seeking capital from overseas, companies in China are inevitably opening themselves up to scrutiny. This has implications on the way they conduct their business, heightening the need for ethical behaviour and stakeholder comms - which presents ample opportunities for PR practitioners.

Western PR firms have scented growth opportunities with some setting up in the country for the first time and others building on an established presence. Brunswick and Citigate Dewe Rogerson (see panel, p28) are among those investing in new offices. They do so against a backdrop of feverish activity, with many major firms in China preparing to list on international stock markets in the next couple of years.

Stories have appeared in the region's press bemoaning the lack of enough high-flying lawyers and accountants in the area to cope with the demand.

Indeed, company reputation is turning into big business. A recent Hill and Knowlton Corporate Reputation Watch survey found that 87 per cent of CEOs in China believed corporate social responsibility initiatives provide a significant contribution towards corporate reputation - double the percentage of CEOs in Europe who felt the same way.

Sceptical investors

'Firms in China face the same reputation-related issues as companies the world over,' says CDR managing director of Greater China, Diana Footitt.

'For example, investors are often sceptical about the standards of corporate governance and transparency within companies in China because these elements have been lagging behind global standards. These issues are not specific to China but they have often weighed on the valuation that companies in China have been able to attract when they access the capital markets.'

Many companies in China are now taking more proactive steps towards protecting and enhancing their reputations and conforming to global standards. 'They now see the value of being more open in their communication with stakeholders than they did five years ago, and some are beginning to see the value of planning for unforeseen events that may have a negative impact on their reputation,' adds Footitt.

According to one survey by the China International Public Relations Association (CIPRA), PR business in China grew by more than 30 per cent last year and is expected to do the same this year. Newell Public Relations managing director Stuart Newell believes the greatest opportunities for multinationals will come from enterprises in China looking to build their brands outside and inside the country. While the IPO business is likely to grow substantially, Newell believes that demand for PR services will continue to grow across the board, including technology, consumer and travel.

'Companies in China are realising that they must be more transparent in their dealings with customers and potential investors,' says Newell.

'Many of these firms are family owned and managed by people used to making decisions without consulting others. There have been a number of high-profile scandals involving listed mainland companies - most notably the collapse of Euro-Asia Agricultural Holdings - and there is growing recognition of the importance of good corporate governance if mainland firms want to succeed internationally.'

In this climate, CSR has to be more than a cosmetic exercise that amounts to a few hackneyed paragraphs on a corporate website. A well-run CSR programme can enhance a company's reputation and the ease with which its operations run - and this is becoming as true in China as elsewhere.

'International corporations have been subjected to pressure-group activism for some time and have seen the damage that such campaigns can cause to the corporate reputation, bottom line and, ultimately, the company's share price,' says Footitt.

CDR is the investor relations adviser to China Life and steel giant Baosteel and provides both firms with investor relations services aimed at helping them enhance their disclosure, transparency, and therefore reputation, with international investors. These services include investor relations audits, perception research, peer benchmarking and results announcement support, as well as day-to-day strategic advice on IR issues, crisis management and media relations.

In the case of China Life, disclosure and transparency have become key issues. The company, whose IPO was one of the world's largest in 2003 and was 25 times oversubscribed, was criticised for accounting irregularities in a report published by China's National Audit Office (NAO) in February this year. Angered shareholders launched a US lawsuit on the grounds that China Life failed to disclose the NAO inquiry in its listing documents.

'Credibility and transparency of disclosure are the major comms issues in investor relations and the bar is that much higher in China because there's the assumption of all kinds of shady dealings,' says Ogilvy PR director of investor relations Philip Lisio. 'People want to see sincerity and commitment to creating value for shareholders.'

Ogilvy handled the £96m IPO of Mengniu Dairy in June this year and its other clients include listed technology company Netease and Yahoo! China.

It also has a brief to raise the profile of US tech exchange NASDAQ among Chinese firms considering flotation.

Lisio, who is based in Beijing, says the Chinese IPO pipeline looks healthy, with around ten IPOs of £548m or more pencilled in between now and the end of Q1 2005. The IR market remains very competitive and price sensitive, however. 'Clients are very cost-conscious here. They really will go with the lowest bidder,' he adds.

'There are lots of opportunities for China's companies to communicate better,' says PR Newswire managing director of investor relations, Mark Hynes. 'Companies are going to have to explain themselves as never before.'

The old command economy days when Chinese companies fired off a memo to central government if they required investment in plant and machinery have been largely consigned to the past to be replaced with market-economy dynamics. PR Newswire last year formed a joint venture with state-owned Chinese news agency Xinhua to distribute news and IR releases in China.

Throughout this year, Xinhua PR Newswire has been conducting a series of IR seminars in Beijing and Shanghai to educate the market on the need for communication with shareholders and the financial media.

Although these pressures are largely new to Chinese firms, they are becoming more significant as China develops into an increasingly important part of the global economy.'

MARKET PLAYERS

- Brunswick now has an office in Hong Kong headed by former Hutchison 3G UK comms chief Ray Bashford. Major Hong Kong telecoms firm PCCW is a client but Brunswick also aims to build a client base in mainland China.

- Over the past three years, Citigate Dewe Rogerson has built up the largest international financial comms specialist in China. The firm employs 22 professionals in Hong Kong and Beijing. It intends opening an office in Shanghai this year to allow it to better advise some of its Shanghai-based investor relations clients looking to enter the Chinese market.

- Hill & Knowlton was the first western PR agency to venture into China when it opened its Beijing office in 1984. It followed this with a second office in Shanghai in 1993. H&K is providing crisis comms training to some of the Chinese government's officials.

- Edelman claims to be the largest international PR firm in China with a 45-strong team.

- In February 2003 Fleishman-Hillard expanded its presence in China, adding an office in Guangzhou to its existing operations in Beijing, Shanghai and Hong Kong.

- Weber Shandwick has offices in Beijing, Shanghai and Guangzhou.

- Ruder Finn has worked on brand and reputation campaigns in China for clients including Audi, Michelin and Citibank.

- Ketchum, Burson-Marsteller and Ogilvy Public Relations Worldwide are also present in China.

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