Case study: how to safeguard your reputation when entering new markets

In this globalised risk landscape, reputational risk spreads faster and wider than ever before.

We spoke to one senior risk professional at a multinational healthcare organisation who was tasked with managing risk management frameworks in India. Reputational risk was a crucial consideration.

“Like a number of other emerging markets, India has characteristics that provide opportunities for high growth, such as a burgeoning middle class with growing disposable income,” they say.

“In recent years, India has been increasing the percentage ownership that foreign entities can have in companies located in the country as one means of increasing foreign direct investment (FDI).”

DO YOUR HOMEWORK

It is a common assumption, the risk leader explains, that approaches that work well in your home market can be replicated in a new emerging market. But this is ill-advised.

“You need to understand the strengths and weaknesses of your products and services in your home market and then see how these will apply… You also need to consider the unique factors of the emerging market.

“Take demographics as one example. An emerging market may have a lower average age compared to the home market, and therefore a younger average consumer. This should impact your approach.”

Other variables include how liquid and sophisticated the capital markets are, the type of financing they have access to, and market accessibility. Crucially, reputational risks can be larger than in home markets as, for example, consumers may not have the same regulatory infrastructure to protect against mis-selling.

BE READY TO ACT

When it came to safeguarding reputation, the risk manager says it was vital to have a comprehensive understanding of what their company stands for, it’s stance on various issues, and the actions it is prepared to take on these topics.

“Establishing this from the outset means that if, and when, something comes up, you have a clear idea of the steps you need to take and why you’re taking them. You are not being reactive,” they said.

“What are the lines you won’t cross? When will you speak up? It helps to know, or at least have considered this before entering or expanding your presence in any market, not least in an emerging market where companies are often seeking to increase market share.”

The risk manager says that speed is a crucial factor when protecting against reputational risk, which is why preparing responses well ahead of time is so important. This approach can help you restore an organisation’s reputation before things escalate further.

“You need to comprehend many things, including the societal, political, environmental and economic makeup of that local market. Due diligence is key”

“This is especially true in the era of social media and technological advances such as AI, where the speed with which good and bad news about your organisation is transmitted is now much higher.”

If the new emerging market has a high social media penetration, and uses the same platforms as in your domestic market, transmission will be more swift.

“You need to comprehend many things, including the societal, political, environmental and economic makeup of that local market. Due diligence is key,” they said.

As the company began to expand its presence in India, ensuring marketing and sales practices were robust was a key area of focus for the risk manager.

“We perform stress and scenario testing exercises that cover reputational contagion”

They explain: “In more established markets, there are tighter regimes around the treatment of customers, that have been in place for a long time. Therefore it was important to understand and adhere to the local regulatory and legal requirements, and ensure policies and procedures adequately protected the customer.

“We perform stress and scenario testing exercises that cover reputational contagion. This means assessing the likelihood and impact that a negative event happening in one part of the business may have on other areas.

“Branding is an important consideration here. Does the business use the same branding internationally? Some companies use different brand names for the same product in different countries – in this instance reputational contagion is likely to be more contained.”

HAVE PEOPLE ON THE GROUND

The risk manager says having a specific country risk manager can help the business to understand the cultural elements in the country. But it can also pose a resourcing challenge for many organisations.

“If you operate a cryptocurrency exchange, which is highly digitised, it may not be as necessary. However, if you are a fast-moving consumer goods company with a direct relationship with consumers, it is far more important.”

“It is preferable to have that local presence in the country, but if that is not an option you need to build relationships instead. Have regular engagement calls with people within the country and gather as much local feedback and data as possible. Also, keep a close eye on what regulators and policymakers within that country are focusing on.”

Once established, maintaining regular engagements with people in the market is essential. It is important to be proactive so your reaction to any reputational risk event is managed in a targeted and thoughtful way.

“Thinking through different scenarios can often give insights you might not see by focusing broadly on reputational risks within your industry.”

“Have a stakeholder engagement map,” the risk leader advises. “It helps to outline all your key stakeholders, be they customers, employees, regulators, suppliers, policymakers, interest groups and so on.

“Be very systematic and for each stakeholder clearly define: What are these stakeholders incentivised by? What do they want? The customer is going to want something very different from an employee and it will be different again for regulators.”

“Asking questions about how the reputational risks your organisation is exposed to might play out in another industry is also a valuable exercise. How an airline company manages reputational risks will be very different from a telecommunications company or a food manufacturer.

“Thinking through different scenarios can often give insights you might not see by focusing broadly on reputational risks within your industry.”