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February25

State firm let-downs

steelWE’VE read over the last few months about the importance of managing one’s own corporate reputation – advisably with the support of experts – and what happens if this key management function is neglected. Experience has also shown that corporate reputation relying on performance by outside entities is often left at the mercy of those entities.

But there are times when, in order to deliver on brand promises, especially shareholder value, some brands have little choice but to rely heavily on good performance and conduct by others. Their links to businesses or third-party suppliers are either systemic or operational.

The frustration of not having control of what happens in those businesses while helplessly watching their negative impact on one’s brand can be debilitating. It’s almost like helplessly watching one’s child being mauled by a big cat after falling into its cage at a local zoo.

Such is the case with the challenges faced by large manufacturing brands like ArcelorMittal, Mercedes Benz and other businesses in South Africa whose operations rely heavily on inputs like consistent provision of electricity by Eskom, a reliable rail transport for goods to and from various ports by Transnet, or an efficient fuel supply by Sasol.

In the case of ArcelorMittal, Transnet moved 12 million tonnes of raw materials around the company’s production plants in South Africa in the last financial year, but “the internal infrastructure of Transnet has not been as focused on the domestic line as it is on the export line”, said ArcelorMittal CEO Paul O’Flaherty. He went on to put all of this into context, however, explaining that he and his team continued to “work in a collaborative manner with [Transnet]”.

Listening to the recent announcement of trading results by O’Flaherty, I could only feel pity for him when he unpacked his company’s list of challenges. He was clearly at pains to describe his frustrations with the negative impact of poor performance by key state-owned entities. He did this without appearing to be negative for fear, it seemed, of losing whatever gains the company has made in its ongoing discussions with government.

After all, the ArcelorMittal brand has taken its share of bashing from other quarters – some of it arguably unfair – for being unpatriotic and dragging its feet in sorting out its BBB-EE credentials. O’Flaherty explained during his results presentation that next on his priority list is to achieve a level 6 rating through other BBB-EE measures by 2016. Local ownership issues would be tackled after that.

The two other factors that negatively impacted growth are the platinum sector strikes by the Steel and Engineering Federation of South Africa and cheap Chinese imports. According to O’Flaherty, lack of import restrictions in the sector meant that China, which experienced a drop in demand in the Chinese market, could export excess steel at lower than market prices into countries like South Africa.

However, Minister of Trade and Industry Rob Davies blamed ArcelorMittal South Africa’s inefficiencies for enabling Chinese imports to flood the local market, making it hard for the steel producer to compete. He’s also known to prefer “development pricing” locally, in order to support beneficiation. But this would make ArcelorMittal globally uncompetitive.

Now, in case you’re beginning to ask how all of this is relevant to brand/corporate reputation, the answer is in every way.

A brand is a promise

Branding 101 will tell you that a brand is a promise. This is one of the most repeated definitions of brand. It is not the only definition, but let us stay with it for now. If brand is a promise, it has to be a promise to someone; primarily to customers and, increasingly, to all other stakeholders.

Shareholders expect sound returns on their investments; customers expect quality steel products delivered according to signed contracts; communities expect sound labour practices, effective community outreach and defensible environmental practices; government expects demonstrable corporate citizenship through contribution to socio-economic development, skills development and contribution to making South Africa more competitive.

South Africa and Egypt are the only producers of steel in Africa.

Clearly, ArcelorMittal cannot bring joy to all of its stakeholders if delivery on its promises relies too heavily on performance by the relevant parastatals. But since this reliance is unlikely to go away anytime soon, ArcelorMittal has to change the way it does things and create sustainable opportunities to communicate a new positioning as a strategic national asset/player.

It can do this without pointing fingers and appearing to be constantly kicking the can to someone else’s door. It can do this by taking ownership in areas where it has control and shedding light through smart, transparent communication in areas where control is held by others, while continuing to work closely with them to find lasting solutions for win-win outcomes.

So, even in tough operating environments, it is possible for brands to define robust positioning and win stakeholder goodwill.

  • Posted by donvalley
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