Volkswagen Crisis – A Lesson in Trust

By Michael Czinkota

The Volkswagen crisis, triggered by misleading emissions measurements, has reinforced the idea that truthfulness and simplicity are pillars of international marketing and integral to a business’ public face. The (formerly ?) largest car global manufacturer in terms of sales has been accused of fitting defeat devices into its diesel cars in the United States that can discern when the vehicle is undergoing emissions testing and turn on full emissions control for that duration. Once the testing is over, however, the emission controls are switched off and allow the cars to emit between ten and forty times the regulation standard of nitrogen oxide. Since this deception has come to light, Volkswagen’s stocks have crashed, with shares falling 38% in two days. This initial loss to investors and the brand alike showcases the importance of truthfulness in business operations.

Businesses are constrained by the nations and societies in which they operate. Their standards of conduct should ensure their business activities are beneficial to the people and society. Companies that are seen to violate such expectations will see their trustworthiness diminished. Reduced trust results in tangible losses for the company in terms of fines and costs of recall, and also causes the public to censure the company via strongly diminished sales. In order to regain the trust of the consumers, Volkswagen must engage with both short and long term measures.

Already, Volkswagen has taken important steps to punish those responsible (either directly or via neglect) for the violation of the emission standards and the disappointment of the public’s trust. Within five days, CEO Martin Winterkorn has resigned, although he denies having any knowledge of the wrongdoing. Additional heads will roll, with lay-offs signaling to the public that the company expects adherence to high standards of behavior, and is not lenient on those that break the social contract. Volkswagen has also set aside 6.5 billion euros ($7.3 billion) to cover the costs of recalling the cars with the defeat device, as well as any other damages. Together with future direct and indirect costs, this step curtails the company’s profits for years to come. Yet it goes a long way in indicating that Volkswagen is ready to accept responsibility and do what it must in reparation of the betrayal of the trust which customers and governments had placed in the company.

Public trust is an important determinant of a society’s willingness to allow international firms to do business in their nations. Volkswagen will have to rebuild this broken trust, and reinforce the values of truthfulness and simplicity in its workings. No longer will VW consumers allow the company’s real activities to be shrouded in complexity, or permit the lines of truthfulness to be blurred. For Volkswagen, standards will be scrutinized more and enforced more sharply. Its ways of doing business must become more transparent and understandable by the public. For a company that is at the heart of Germany’s manufacturing and export economy, and thought to reflect the social responsibility and consciousness of its home country, this active misleading of regulations and claims is a shock for supporters and customers, particularly those who bought a VW diesel to help the environment. Also affected is the general German reputation for fine workmanship and honesty – in other words all fellow firms doing business in and from Germany. The economic downdraft which results from the misstep also major collateral damage. For example, missing billions of revenue means that money targeted to help the migrants in Germany, will be much less available.

Volkswagen now will have to prove itself anew as an honest partner, and engage in curative marketing to heal the wounds. Doing so will be a very expensive uphill task, considering the magnitude of the deception and the corresponding stain on the “People’s Car”. Best wishes to the firm and its workers.

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Building Global ‘Trust Bridges’

Michael Czinkota researches international marketing issues at Georgetown University. He served in trade policy positions in the George H.W. Bush and Ronald Reagan administrations. His International Marketing text (with I. Ronkainen) is now in its 10th edition. Kimberly Boeckmann participated in drafting this work.

A powerful concept in the international marketing community today deals with how to establish honorable practices in the workplace and, most importantly, across borders. This focus on “honorable practices” is of cutting-edge importance, at this time mainly in Europe, and brings new life to old thoughts.

Building Global ?Trust Bridges?The AMA’s global marketing special interest group dedicated its annual meeting in Cancun to the task of “The Honorable Merchant in International Marketing,” with three days of papers, presentations, discussion groups and workshops addressing the topic.

Honorable practices are the rules that were established to prepare merchants for conducting international business, and an honorable merchant is one who adheres to rules that go back as far as Proverbs (11:1) where merchants are specifically addressed: “A false balance is an abomination to the Lord, but a just weight is his delight.” The New Testament, Matthew 19:23-24, cites Jesus as saying that it’s easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God. Later on, the Quran makes specific reference to the charging of interest, which is seen as inappropriate and even sinful (Quran 3:130-131). In Chinese society, the role of a merchant was seen as a necessary evil, far below the exalted societal role played by, say, imperial officials.

Another example comes from medieval Florence, where the abrogation of guild bylaws were of great concern. Debtors, tax delinquents, interest-takers, falsifiers or forgers and robbers were punished harshly. Honorable merchants in cities were in charge of guarding and protecting processes and merchandise.

In practice, fines were reserved for the rich, whereas corporeal punishment was imposed on the poor. The harshest punishment, expulsion from the guild or exile, also had different effects on rich and poor. For the upper class, exile meant travel, the establishment of business branches abroad, perhaps even diplomatic service and the prospect of a glorious return. For the poor, exile usually meant death. In general, a person stealing or damaging merchandise would be dealt with much more harshly if he happened to be homeless or of low social status.

Cities, guilds and nations that had advanced international trade developed punishments that invoked both heaven and hell but still had their common touch. Here is a sample from a Venetian merchant code of ethics on handling cargo after a captain dies: “If you infringe on your duty or you are corrupted, let God the Father Almighty and his son Lord and the Holy Spirit be against you … and let you burn in hell with Judas the betrayer forever. In addition, you will have to compensate the executor of my will with five pounds of gold.”

If a violation of reliability and stability was caused by the ruler, then the populace broke out in anger, sometimes leading up to a revolution. For example, in 1253, the Duke (Herzog) of Munich inflated his currency by two-thirds so that 150 Munich pennies were worth only 60 Augsburg pennies. In 1284, a widely dissatisfied population destroyed the duke’s mint and killed the master of the mint, an equivalent to today’s chairman of the Federal Reserve.

In 1282, the Hanse, an association of north German merchants, felt that its members were suffering from severe injustices by Norway. On learning that one of its ships had been attacked and pillaged by the Norwegians, the Hanse called an assembly of its members and resolved on an economic blockade of Norway. The export to Norway of grain, flour, vegetables and beer was prohibited, and the penalties were fines and the confiscation of the goods.

The blockade was a complete success. Deprived of grain from Germany, the Norwegians were unable to obtain it from England or elsewhere. As a contemporary chronicler reported: “Then there broke out a famine so great that they were forced to make atonement.” Norway was forced to pay indemnities for the financial losses that had been caused and to grant the Hanse extensive trade privileges.

Honorable practices also dictated that organizations were held to account for the actions of their leaders. Early in the 15th century, creditors from abroad started to request that citizens persevere upon their nobility to pay their trade debts. If not, attacks were threatened, not only against noblemen and the cities themselves, but also against merchants from those cities, wherever they were.

A historic review summary then indicates:

1. The profession of merchants does not benefit from immediate strength and respect.

2. There are mixed emotions prevalent, since merchants can both help and hinder through their work.

3. Internationally, merchants suffer from the liability of foreignness, meaning that their backgrounds and their being different detracts from business success.

4. International merchants are attractive by bringing choice to market, but also are worrisome by displacing domestic relationships.

5. To overcome this psychic distance, merchants need to compensate for their shortcomings, both real and perceived.

Merchants have long had a variety of objections when engaging in their trade, focused both on the central players or anchors and on the path to trust. Trust is thought to provide trading partners with a means of overcoming international drawbacks because it facilitates investments in relationship assets, encourages information sharing and generally lowers transaction costs. However, the honorable practices designed millennia ago may no longer be effective today. Yet even in a time of frequent-transaction orientation, international marketers are again beginning to think of themselves as building long-term customer relationships, though they may encounter opposition by their firms’ financial managers who may prefer short-term actions.

I believe that the solution for honorable behavior remains in the construction of “trust bridges.” A reputation as the honorable merchant can be developed by highlighting commonalities and shared experiences, which allows the forging of these so-called trust bridges. The concept establishes a set of international standards for business based on a commonality of experiences. If two parties are exposed to common conditions and values, a discovery that they share these experiences will help them establish connectivity, warmth and trust more rapidly than if they had dissimilar backgrounds. Through a combination of collaboration, symposia, conferences and courses, partners can accredit and certify persons or companies into a database of trust bridges.

One interesting contextual difference that has emerged between Europe and the United States focuses on the use of honorifics that are designed to single out a person as being more special than others, both as an individual as well as through one’s role in society. In much of Europe, for example, the term used in addressing a leading government official is “excellenz,” derived from the Latin “excellere,” or “outstanding.” Whether such a special position is associated with any particular merit or simply “the protruding nail that will be hammered down” remains unresolved.

In the United States, by contrast, it is the election of an individual, be it a congressman, mayor or council member, that results automatically in a new term of address. The bestowment of the “honorable” title is by virtue of the election, not by any special appointment. There may be an underlying assumption of the election reflecting a special capability, but the proof is in the pudding. It appears that the term “honorable” provides a specific context in the United States. The conferral of the term indicates a process rather than a capability. Nonetheless, the use of the term helps in building a trust bridge. We cannot spend sufficient time together in order determine someone else’s capability and benevolence, but the act of a public election is taken as substitute knowledge that gives advance trust credit to a person and provides a feeling of commonality.

Key findings from the conference in Cancun were documented in a Delphi study conducted with the conference participants. The top three critical characteristics of the honorable merchant in today’s world trade are, 1.) building trust, 2.) demonstrating corporate social responsibility, and, 3.) demonstrating integrity and reliability. Global trust bridges will allow for these three key directions to be taken simultaneously, and these bridges can be facilitated in the realm of academia, business and policy.

A simple but key application of a trust bridge exists for a university’s alumni. The university’s ability to offer special experiences enables the building of a common bridge, which is anchored in the fact that many people have had similar life-shaping experiences. It is one of the most effective ways to develop a strong relationship when each party knows what the other can bring to the table. Teamwork, networking and reputation will increasingly become the key reasons why people will still choose to attend a bricks-and-mortar university, long after the Internet has substantially altered the common approach to education. For such efforts to be victorious, however, they must go beyond a mere transfer of information, and help with the collaboration and connection of interested parties.

Familiarity brings a fast track to a relationship and a database of shared experiences can be instrumental in fostering such familiarity. It therefore will be critical to select information on those new dimensions that are of common interest and form a common context. Through this better understanding of others, there will be a greater ability for trust and for shaping honorable relationships. After many decades of high variations, honorable practices would again become the expectation and the norm.

Article Source: American Marketing Association

Social Media Success Strategies in International Marketing

Creating a substantial social media presence is not simply about making a Facebook page and hoping customers will drop by. In business, successful communities are developed through the use of skillful marketing research, planning, and strategy making. Social media–based marketing succeeds best when the firm offers products and services relevant to the customer, incorporating substantial value, and provided by an organization deemed trustworthy and reliable. Below are important strategies firms should follow to maximize the effectiveness of social media in international marketing.

Monitor Your Firm’s Online Reputation

Trust plays a critical role in the success of social media marketing. In a world of 24-hour news cycles via practically unlimited news and information outlets, firms can fall victim to gossip and the rants of disgruntled consumers, activists, and others. Thus, marketers need to invest efforts every day scanning the Internet to monitor news about the firm and its brands.

Communicate Your Expertise

Sophisticated companies publicize their expertise in various ways online, such as via websites, podcasts, blogs, and social media, all emphasizing buyers’ needs. Fundamentally, more than caring about products themselves, consumers seek solutions to their specific problems.

Understand Your Markets

Marketers need to devise marketing communications only after acquiring substantive knowledge of the characteristics of intended buyers. By knowing who is using which social sites, marketers can promote their products to their targeted audience at the appropriate sites. For example, the social network site aSmallWorld targets affluent members and others who are part of the international social jet set. Care2 is a social network site that appeals to environmentalists and other interest in green living from around the world.

Manage Information about Your Company and Brands

Many firms today use Facebook and other sites to disseminate continuous news releases that provide value to consumers. Buyers respond favorably to information that appeals to their needs and concerns about products and brands they enjoy. News releases online link to the corporate website, where explanations are offered regarding emergent trends and events that interest buyers. The most successful social media sites incorporate numerous useful links to other sites and provide easy means for customers to contact company representatives. For example, Chinese computer giant Lenovo launched a site called “Voices of the Olympic Games” to collect posts from the athletes competing at the 2008 Beijing Olympics. The site allowed Lenovo to link its brand to exciting Olympics events as they developed.

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Ethical Issues in International Marketing

Corporate governance, responsibility, intellectual property rights, and corruption all fall under the ethical obligations experienced by multinational enteprises today. Whether following the most ethical route in business dealings matters in the long run is, in many ways, a difficult question. Historically, the answer has depended on the environment and outcomes. Nineteenth century textile mills in the United States, for instance, flagrantly violated today’s standards for workers’ rights (including living wages, maximum weekly working hours, and safe working conditions). However, they did much to move U.S. industrialization forward.

Today, one issue concerning corporate ethics is the divide between “first world” and less developed countries. Should emerging economies follow the same course experienced by the United States and Europe in their industrial history? Or should they be aided and, on occasion, forced by developed nations to skip the mishaps of the Western experience, and industrialize under more stringent modern-day standards?

Taken from the 9th Edition of International Marketing by Michael R. Czinkota and Ilkka A. Ronkainen.