By Carsten Barth, Elcoteq
At this time of economic downturn and with reduced consumer confidence, the equity of a brand can be one critical factor in ensuring that sales and margins are maintained while lesser brands get squeezed. Brand equity can be a function of many things — image, price, innovation, tradition — but at the end of the day, they all boil down to reputation.
As profit margins across electronics and personal communications industries become tighter, the pressure is on to protect and enhance the major global brands to avoid competing entirely on price. Indeed, some of the world’s blue-chip consumer electronics brands, such as Bose or TAG McLaren, have invested heavily in deliberately positioning themselves above price-sensitive markets by creating huge equity in their brands; protecting their reputation and positioning is vital to their continued success.
Companies can invest millions in developing a positive reputation over the years, but it can be destroyed in a matter of moments in this age of instant communication. When companies get it wrong, the consequences can be far-reaching. Just look at the impact Mattel’s production problems involving lead paint have had, not just on their brand or the US toy industry, but also on the reputation of China as a provider of top quality consumer goods.
Outsourcing
Maintaining brand reputation is at the heart of generating repeat business. For the protection of business margins, it has become increasingly common to move design and manufacturing to locations with lower capital and operating costs. This has been especially true of the telecommunications industries. With the additional challenge of increased demand from the emerging economies of countries like India and China, it becomes evident why many global IT and telecommunications brands have started to depend more heavily on outsourcing as a means of enabling them to improve their economies-of-scale, while concentrating on business and brand development. Much of the growth attributed to the major telecoms’ infrastructure providers towards the end of 2006 came from their involvement in these emerging markets. However, with outsourcing, it is even more essential that sufficient control be exercised by the brand owner to ensure that the hard-won equity in their brand is not at risk from a devolved production process.
Benefits and Risks
Outsourcing may help an organization to focus on its core competencies, but it also places the brand’s reputation partly in the hands of outsiders. The more partners that are involved, the more vigilant the company must be. John Beckett of Menlo Logistics spoke of a “cascading effect” that results from mistakes by one or more participants in the chain.
It is therefore vital that companies keep a close watch on outsourcing partners. These suppliers must be equal exemplars of best practice if the companies’ brands or reputations are to avoid potential or actual damage. By 2009, the worldwide revenue from EMS is expected to exceed $320 billion. As the world’s 4th largest EMS provider to communications technology companies, Elcoteq regards its brand protection practices as a significant factor in retaining clients in an increasingly competitive market.
Corporate Responsibility
Corporate responsibility has expanded to encompass social, environmental, and economic aspects, with community relations as an example of one of those. Customer and consumer pressure have resulted in a need for more reporting. Working in tandem with this is a steady rise in ethical consumerism. There has been increasing consumer awareness of CR issues and these are now beginning to influence purchasing decisions.
Indeed, there are now websites that in effect transfer control of a brand’s image to the consumer through encouragement of personal reviews. Amazon is a good example. End users are not only reviewing the quality of their purchase, but are also commenting on wider issues associated with the brand or the sector. With such sites growing in number and influence, brand values are being placed under the microscope by both consumers and special interest groups. The brand owner has to ensure that the highest social, environmental and quality standards are maintained in design, manufacturing, and logistics to mitigate any risk to their brand’s reputation.
A brand owner can invest millions in earning a reputation for excellence, but it can be lost in minutes through one piece of negative comment. Helping customers to protect their brands from reputation risk is an important part of the EMS function, and it can be achieved through the quality of their operational processes and safeguards.
For a global EMS, operating in many different countries and cultures in a socially responsible manner presents a great challenge. Adopting the SA8000 standard in every territory in which the company operates, compliance with OHSAS 18001 and ISO 14001 standards, and maintaining additional workplace guidance provide a good foundation. Internal audits of regulatory and legislative compliance must be regularly undertaken. The same compliance standards are expected of the entire supply chain. An important element in brand protection is balancing issues of corporate responsibility with supply chain and manufacturing efficiency.
The EMS can use local knowledge in each territory to provide information to process design and supply chain management and ensure that the work undertaken on behalf of global brand owners is delivered to the highest standards. By engaging the EMS fully in the OEMs design and manufacturing processes, problems of component specification and production, such as those experienced by Microsoft that led to the product recall of the Xbox 360, are more easily avoided.
Local and regional knowledge should also be used to keep ahead of the game. By being aware of planned legislative changes, additional compliance obligations and similar potential constraints on the manufacturing process, the EMS can help provide customers with a competitive advantage.
Legislative Compliance
The requirements of Europe’s WEEE directive concerning extended product life and ease of recycling, along with the RoHS directive, have been in effect for several years and have had a significant impact on the IT, electronics, electrical goods, and communications industries. These EU initiatives set the standard worldwide. 2007 saw China enact its own RoHS legislation. REACH is another on-going initiative that must be monitored. Design for environment has become an important consideration along with design for tear-down, reuse, and end of life. These developments must be followed closely so the EMS can ensure compliance for its customers.
Companies like Research in Motion and Nokia, which have used organizations like Elcoteq in the development of production techniques, design, or supply chain management, have reaped the rewards of such foresight and continue to trade freely in some of the most competitive markets. Manufacturers that failed to take notice are now in catch-up mode trying to comply with regulations, while losing valuable time and money in the process. The impact of failing to anticipate and adapt can have a profound effect, as can be witnessed in the photographic industry where the best lenses used lead in solder and in glass coatings. When lead-free compliance was put into effect, some manufacturers had to abandon many of their most popular models.
For Elcoteq, simple compliance is not enough. Differentiation from the competition is based on exceeding the obligations of the law and doing so in a way that bestows competitive advantage on its customers. Efficiencies in manufacturing and logistics can be modelled in advance of legislative changes, allowing us to work with brand owners to fine-tune the design and manufacturing processes to improve speed to market.
The impact of laws aimed at environmental best practice is straightforward to handle: reduced component redundancy; the use of safer, cleaner materials; and built-in capability for ease of recycling. Of course, corporate responsibility (CR) is not limited to these aspects.
Labor Issues
With increasing pressure from shareholders on corporate social responsibility issues and continuing moves towards ethical investment, one of the major issues that will define good companies or brands is labor practices. As mentioned, SA8000 lies at the heart of processes in this area. Even the most respected brands can get caught by labor problems in their supply chains. Witness the report published in December 2007 by the UK’s Ethical Consumer Research Association on digital camera makers, which criticized a number of top brands for failing to meet minimum standards in working conditions, supply chain policy, and environmental reporting.
With emerging economies such as China and India and newly developed production facilities across much of Asia, where labor costs are low and regulation is lax, finding a partner with market-by-market knowledge and understanding becomes important to ensure long-term returns on investment while protecting corporate and brand reputation.
CR policies need to be integrated into design and production criteria and form part of the company’s transparency in its supply chain operations. The company’s strength lies in part as a result of its close ties with the communities in which it operates. Local management ensures that supply chain management is in keeping with best practice. This approach helps to safeguard the brand and corporate reputations of the company’s customers.
The EMS must treat its customers’ reputation with as much respect as its own. Repeat business shows that this practice works. The ability to marry this approach with conventional EMS activities and deliver the entire, enhanced package helps build strong relationships with great global brands. It’s a simple recipe for success!
Carsten Barth, director of corporate communications, may be contacted at Elcoteq Network S.A., L