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Reputation is an important issue for business in the 21st century. Reputation is considered much more important nowadays when compared to any given point of time in human business history. In this essay, first, I will start by defining the business reputation. Second, try to theoretically explain that reputation is important to the business. Third, I will review the business environment in the 21st century. Fourth, discuss the reasons that reputation is important in this era by using the vehicles manufacturing industry in the US as an example. Fifth, identify the United Nation (UN) Sustainable Development Goals (SDGs) associated with my example. Sixth, evaluate the reputation of different vehicle manufacturers by comparing four different reputation dimensions. Finally, complete the essay by a conclusion to the importance of business reputation in the 21st century.
First, understand the nature of business reputation will help us to evaluate further on why it is important. This essay mainly considered the concept of the “Multiple Prospective” of the reputation and “Multidimensional Conceptualization of Reputation” characteristic suggested by Rindova and Martins (2012). The scholars suggested that business reputation is formed by many impressions of different stakeholders to that company’s “signals, prominence, and standing (Rindova & Martins 2012)”. These impressions about the company can be further examined with four dimensions. They are, respectively, “specificity, accumulation, breadth of appeal and codification (Rindova & Martins 2012).” Once the reputation is formed, it becomes the strategic intangible asset of the company. The example of the vehicle manufacturing industry in the US will be used to evaluate further on the four dimensions of business reputation. Before that, let us understand the importance of reputation to a business.
Second, according to Barnett and Pollock (2012), reputation is important because it provides alternative regulations to the business other than the Governmental or formal authority. A business can either be rewarded or punished according to their reputation by their relevant stakeholders. It depends on whether the business is behaving according to the stakeholder’s expectations. If a business invested in maintaining a good reputation, then, many stakeholders of the business, such as the owner, managers, employees, shareholders, suppliers, and customers will be benefited. These benefits extend on many aspects, for example, economic, social, and psychological (Barnett & Pollock, 2012). Nowadays, it is common that many corporate companies heavily invest in a department for marketing and public relationship to maintain a good reputation. However, with the intangible nature of the business reputation, it is not so straight forward to maintain a positive reputation, especially in the complicated business environment of the 21st century.
Third, the business environment in the 21st century is different from the old era in many ways. Even the most sophisticated businessperson from the past would be surprised by the high complexity, large scale, and fast-paced nature of the modern world. The business must pay attention to not only their product and service quality, but also consider the effects of political and ethical issues due to the effects of globalization, internationalization, and a long list of environmental issues in this century (Morey & Morey1992). There are many other modern characteristics worth mentioning here, which have either direct or indirect impacts to a business’s reputation, for example, advanced telecommunication, the popularity of the Internet, rise of online Key Opinion Leaders, and the popularity of handheld devices. As a result, the business must carefully interact with their stakeholders to keep up with their expectations.
Fourth, the importance of business reputation will be examined by the vehicles manufacturing industry in the US. It is because motorized vehicles are an important part of modern life. Fine et al. (1996) summarized many issues that a modern vehicle manufacturer is encountering, to name a few from the list, high product complexity, high level of globalization, a high degree of authority involvement, complicated union or labour relationship management, and last but not least, the environmental impacts. The development of the automotive industry in the US is a very good example to demonstrate the relationship between corporate reputation and the stakeholders, as well as to evaluate the business impacts on the environment.
To start the explanation on this situation, I would like to give an example of a typical American car, which is the Ford Mustang with a 5.0 Litre V8 engine. You may agree with me that the attributes of powerful and relatively large are the general impression of the US made cars. The specific term, muscle car, is widely accepted as a term for this typical American car. This impression was formed for a long time through movies, media, and customer experience. McKinney (2009) concluded that Muscle Car is one of the most iconic cars in American car manufacturing history. This phenomenon matches perfectly to the theory of Rindova and Martins (2012) that ‘Firms have reputations about specific attributes with particular stakeholder groups, based on past actions of a given type.’ This can be easily translated into ‘Ford has a powerful muscular Mustang that is highly regarded to the car enthusiast, based on their past user (driving) experience.” While there are some positive reputations, there could be some negative reputations.
Having said that, some other opinions regarding US cars can be found. A lot of people believe that US cars are generally with low fuel efficiency and low reliability when compared to their main competitors from Japan. Barber and Darrough (1996) compared the data of product recalls between 1973 – 1992 to measure the reliability of the vehicles made by US Big Three (Chrysler, Ford, General Motor) and Japanese Big Three (Honda, Nissan, Toyota). The report concluded that Japanese cars were significantly more reliable than US cars. In addition, Barber and Darrough (1996) pointed out that each recall announcement came with an effect of the share price drop of that recalling manufacture, which directly impacted the shareholder’s benefit. Furthermore, many negative effects of product recall were identified by Barber and Darrough (1996), for example, the company was suffered from the administration cost induced by the recall, labour cost of fixing the target model, and sometimes the compensation to the customers. The customer, though, suffered from the inconvenience and potential loss on the vehicle’s resell value. Clearly, the quality and reliability directly impacted on a company’s reputation and leaving a negative result on the scoreboard of many stakeholders.
Alternatively, by providing higher quality and more reliable products on the market, Japanese car manufactures increased their market share, as a result, benefited to their business owners, shareholders, and consumers. Train and Winston (2007) in their article indicated that the US market share of Japanese branded vehicles increased from 3% in 1970 to 32% in 2005.
To further explore on this topic, it is not difficult to find that the US car manufactures shares the similar reputation of “fuel inefficient and unreliable” when compared to the Japanese car makers of “fuel efficient and reliable” impression. The research completed by Yue and Ingram (2012) supported this idea that the common reputation of a company can be shared among the same industry and nations.
In addition to product reliability, environmental awareness is believed to be another factor that contributed to the increase in the market share of Japanese cars in the US. The positive reputation of smaller and more fuel-efficient Japanese cars became more popular to commuters and domestic users, suggested by Barber and Darrough (1996). Ramey and Vine (2011) suggested that after permanent gasoline prices increase, in the short run, US households tend to reduce vehicle travel. In the long run, however, consumers start to replace their car with better fuel-efficiency design. This is an interesting point to note and worth to discuss further regarding the triggering point for this situation. The change in purchasing preference matched the increase in the popularity of Japanese cars in the US market. However, what exactly triggered the fuel-efficiency awareness in the US?
The “Oil Crisis”, which was defined as a sharp rise in the cruel oil price that will trigger a global economic recession (Oil Crisis 2014). The crisis greatly impacted the vehicle manufacturing industry and the public of the US in the late 20th century. McKinney (2009) suggested a few reasons to the loss of popularity of the US muscle car. One of the main reason was the sudden increase in the gasoline price in 70’s. Shinnar (1974) that clearly summarized in an article that, during the 70’s, the US Big Three vehicle manufactures, and the US consumers were not interested in an energy efficient and a smaller sized vehicle. Not until the dramatic increase in gasoline price. After that, many stakeholders of the car business began to think differently. Shinnar (1974) promoted the idea of energy efficient and smaller sized vehicles as a solution to the “Oil Crisis” in his research. However, Shinnar (1974) also expressed his concern that the reason was not because US Big Three were incapable of producing fuel efficient and smaller vehicle, it was because they believe that the US public would not interest in such vehicles.
Although the direct impact of a sharp increase in the gasoline prices towards the consumers’ tastes and choices on car purchasing is still subject to debate, it was observed that an eco-friendly lifestyle is increasingly popular in the 21st Century. Chen and Chai (2010) in an article concluded that consumers feel that it is their responsibility to protect the environment and to protect the environment and natural resources from being used up. Their research also pointed out that consumers are generally feeling more positive when choosing the green product because the environmental issues are very important to them.
A powerful muscular Ford Mustang is still a very admirable product to the car enthusiast, though, many family consumers may prefer a 2.5 Litre Toyota Camry for their daily use. Furthermore, a greenish reputation is increasingly important to a business, especially to the car industry. It is because the use of fossil fuel is the main reason for environmental issues, such as global warming, climate change and ocean acidification. Take the US as an example, the use of fossil fuel engine vehicles responsible for 30% of total carbon dioxide emission in the country (DeLuchi, 1991). It seems to me that the Japanese were doing very good in winning this fossil fuel vehicle battle, however, I also wonder how true it is.
Fifth, environmental awareness is getting more and more important to the human being. United Nation (UN) is promoting the concept of SDGs to the world. The SDG 13, “Climate Action (un.org 2020)”, is closely related to the vehicle manufacturing industry. The Greenhouse emission from fossil fuel vehicles contributes largely to the climate change. Most of the big car manufactures are either developing or developed a hybrid version car or pure electric car in response to environmental issues. This is not only to create an environmental friendly reputation from the marketing point of view but also to meet the requirement of low carbon emission regulations. A lot of opinions indicated that pure electric vehicles would become the mainstream of personal transportation. Horn and Docksai (2010) suggested that in around the year 2050, the gasoline vehicles may completely replace by electric vehicles. Another research from Brown (2013) expected to see a 200% growth in 10 years in the US electric vehicle market.
In addition, SDG 8, “Decent Work and Economic Growth (un.org 2020)”, is also related to the vehicle manufacturing industry in some level. The car industry is one of the major employers in many countries. Labour relationship is a controversial topic that needs extra effort to liaise. The car industry should work on providing a good working environment, equal opportunity to different gender and ages group employee, provide training and education to help the employee to develop their career, all these will help to promote a positive reputation to the business and would be rewarded accordingly if done properly.
In a similar way, SDG 9, “Industries, Innovation, and Infrastructure (un.org 2020)”, is also related to the vehicle manufacturing industry. Fine et al. (1996) quoted that car production is “the industry of the industries” because of its complexity, scale, and impact to the modern economy. According to SDG 9, the vehicle manufacturing industry should consider refining their production process, the use of natural resource efficiently to produce low environment friendly products. However, is this easier said than done?
Sixth, Tesla Motors Inc. (Tesla) might have found an answer. The US based electric car manufacture is one of the leading companies in producing electric vehicles. The mission of Tesla is clearly stated on their website as: ‘Tesla’s mission is to accelerate the world’s transition to sustainable energy (Tesla Inc., 2020)”. This environment friendly reputation seems to be well accepted by the public. Tesla raised over USD 225 million in 2010 in their initial public offering at USD 17 per share suggested by Hoffman (2011). As of 18th Sep 2020, it was priced at USD 423 per share (Yahoo! Finance, 2020). It seems that Tesla had found a success formula by combining the good quality product with eco-friendly features.
A lot of information and discussion regarding reputation had been shared above. A closer examination on the reputation of the US and Japanese vehicle manufacturing business is necessary to clarify the importance of reputation on different stakeholders. To simplify the process, I mainly focus on evaluating the reputation of the four dimensions suggested by Rindova and Martins (2012). The four dimensions are, first “asset specificity”, second “asset accumulation”, third “asset breadth of the appeal”, fourth “asset codification”. The US Big Three, Japanese Big Three, and Tesla were evaluated per below, respectively.
To begin with the US Big Three. First, US cars have a specific reputation of a powerful engine, muscular, and high-performance design. On the other hand, low fuel efficiency and low reliability. Second, US cars are widely covered by media, advertisement, and are popular between car enthusiasts and general consumers. There is a strong foundation for the US car in the US market. Third, all US Big Three have their flagship model that were highly appreciated. Fourth, the US Big Three dominated the US market for many years and directly created the US car culture. The measurements from different dimensions indicated that the product of US Big Three received both good and bad reputation among different stakeholders, for example, consumers, media, and environmentalist.
The following is the same analysis of the Japanese Big Three. First, Japanese Big Three vehicles are reasonable in size and performance, better fuel efficiency, and more reliable. Second, Japanese cars are also widely covered by media, advertisement and increasingly popular between car enthusiasts and consumers. Third, after the great success of models such as Toyota Corolla, Camry, its more efficient to promote Japanese cars in the US. Fourth, Japanese cars had been well accepted to the commuters and US family. All the measurements from different dimensions indicated that Japanese cars received some good reputations and some reputations that are good to a specific group of consumers, such and commuters and family users.
Apparently, Tesla is very different from the traditional vehicle manufacturing industry. Tesla created a different reputation for the company. It is worth to separately examine the reputation of Tesla by the same reputation dimensions from Rindova and Martins (2012). First, Tesla is strong in producing innovative, zero on-road emission, good quality, and with a reasonable range per charge electric vehicles. Second, Tesla’s product, company image, and even the story of the CEO (Elon Musk) are widely covered by media, or by word-of-mouth between car enthusiasts and consumers. Third, after the great success of Model S, Tesla’s Model 3 is leading the sales of electric vehicles followed by its recent release (Pontes 2020). Fourth, according to Tesla.com (2020), the company won multiple awards, such as Model S as the Motor Trend 2013 “Car of the Year”. And the company itself collected three Stevie Awards in the 9th Annual American Business Awards. All the measurements from different dimensions indicated that Tesla Motors received a good reputation among different stakeholders, for example, shareholders, consumers, and media. With regards to the above overall positive reputation, it is not difficult to predict that Tesla’s product will continue to be popular, not only in the US but very likely, on a worldwide level.
Of course, this essay is not intended to judge on the up and down of US car industry. Instead, by briefly walking through the vehicle manufacturing development history, that is, the US powerful performance car leaded the market for many years but gave way to the economic and reliable Japanese cars. Similarly, the fossil fuel vehicles are predicted to be replaced by zero-emission electrical vehicles. I realized that a successful business will certainly acquire some strong attributes that were preferred by most customers. However, as time has gone by if the business were settling too well in this fixed reputation and did not try to improve and catch up with times. Eventually, the good reputation of the business would fade away and the business might fail in the competition.
Finally, this essay concluded three major findings. First, reputation is very important to a business in the 21st century. Second, the reputation as an intangible asset of a business that good reputation will reward the business. In contrast, a bad reputation will punish the business. A business reputation can be measured in multiple aspects and dimensions. Therefore, the business needs to carefully manage the reputation. Third, in the 21st century, the business provides product or service should maintain a positive reputation on not only basic attributes of quality and price, but also considering political, ethical, and environmental attributes.
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