Welcome back to Communication Breakdown, a new podcast from the Observatory on Corporate
Reputation.
Thanks for joining us.
I'm Steve Dowling in Silicon Valley.
And I'm Craig Carroll in New York City.
Each week Steve and I take the look at the strategies companies are using to shape headlines
and sometimes save their skins.
It's a post game show for PR Proves.
This week, the trade war takes hold and companies dig in for economic uncertainty.
Those on-again, off-again tariffs against Canada and Mexico were on-again this week and
then perhaps predictably off-again once the markets and critics weighed in.
Now it's not in my habit to agree with the Wall Street Journal, but Donald, they point
out that even though you're a very smart guy, this is a very dumb thing to do.
Canadian Prime Minister Justin Trudeau on Tuesday morning talking Trump's language and pushing
his buttons once the tariffs kicked in, 25% on nearly all imports from Canada and Mexico
prompting both countries to retaliate.
Hours later, as markets suffer to second day if Steve declines, the Trump administration
appeared to be looking for an off-ramp.
With Commerce Secretary Howard Lutnik already talking about ways the U.S. might grant
some temporary relief for certain products.
Trump and Kim have been talking with American car makers in the run-up to the tariff deadline.
On the day the tariffs went into effect, the CEO is a four general motors and Stanlantis
got on a phone call with the president to make the repeal directly.
That night, in his address to Congress, Trump vowed that more tariffs on more countries,
including China, would begin in April 2nd.
Tariffs are about making America rich again and making America great again and it's happening
and it will happen rather quickly.
There'll be a little disturbance, but we're okay with that.
It won't be much.
No, you're not all.
But by Wednesday, the tariffs were on pause, at least for automakers, at least for a month,
and Trump seemed to invite other industries to let them know if they should be exempt
as well.
On Thursday, Trump delayed the broader Mexico tariffs as well.
That climbed down came after a call with Mexican president Claudius Shinebop.
So over the past month, Trump has twice threatened and twice delayed tariffs, allowing them to
go into effect once, while signaling more delays and exemptions may be there for the asking.
Greg, we've made much out of Ford CEO's Jim Farley's comments in February that Trump's
trade policy is sowing what he called costs and chaos.
For shadowing that little disturbance, Trump says he's okay with, though his actions
may say otherwise.
We don't know what Farley said on their call or what Mary Barra or Stellantis chairman John
El-Con said for that matter.
But the outcome on Wednesday seems to reinforce the conventional wisdom about this White House,
that private appeals from business leaders are more effective than public ones.
Now that we have a few weeks to reprieve, how are you thinking about the ways big business
is talking about this trade war?
Well, Steve, what we're seeing isn't just a trade war.
It's a chaos management war.
For CCO's, this isn't just about messaging, it's about critical business decisions that
will shape their companies for years.
Right now, companies aren't just asking, you know, how do we talk about this?
They're asking, how do we survive this?
And so far, as of this morning, I've counted up to like several different strategies they
are in play.
Number one, supply chain diversification is, you know, the question, can we stay the course?
Are we going to shift suppliers to avoid future risk?
You've got, you know, lobbying and corporate diplomacy, you know, the question of whether
we're going to fight this publicly or privately.
The third is pricing and consumer strategy.
Do we pass the cost of consumers or eat the hit to stay competitive?
Others are talking about how they're engaging in strategic stockpiling, such as, you know,
do we buy inventory now before things get worse?
The fifth is the trade route optimization.
The question of whether they rejoulder logistics maps to avoid any tariff heavy zones.
Investing in automation technology, obviously that's not surprising, you know, the question
of whether we double down on automation, does that labor costs?
And then also not surprising given that, you know, this is CCOs, how are we thinking about
communication, reputation management?
How do we control the story before it controls us?
So, yeah, they're communicating, but I think the, the big thing is they're also making
high-stakes bets about where this is all going ahead.
And the company to get it wrong, I think it's just not just that they're losing the messaging
or they're going to lose market share.
Interesting list of strategies there.
I think some of them, the pricing strategy, at least I think, is kind of a no brainer, though.
I don't think there's a lot of taking a hit to profits on this one.
Everything I've heard is that these costs are going to be passed along to consumers one
way or another.
That's how it works.
And that strategic stockpiling sounds like some of that has already been going on and that
may be exacerbating the trade deficit in places.
Yeah, I think what's different about it here is that some companies I've talked to,
their traditional approach, is just in time management, right?
And this is saying just in time is not going to work in this case.
Right.
And they're trying to get ahead of that, the tariffs taking effect.
I found it interesting.
The companies do seem to just be finding their voices on this one like this week.
You saw a target, best buy, hasbro and others, and it's earning season.
So some of that is just because the topic has become unavoidable.
But to your point about lobbying and corporate diplomacy, you know, private versus public,
it's something that we've talked about on this podcast.
My question is where was the anti-tariff campaign before this took effect?
Think about all the regulatory and legislative issues we see ads for in newsletters like
Politico and Axios stuff that's important to one industry sure but completely irrelevant
to a lot of other readers.
But things like who's creating jobs, who's protecting teens, where were the explainers
on tariffs for as broad a swath of the US economy that knew it would be in the path
of the tariffs if they became real.
Even if you were banking on it just being a bluff, I'm surprised no one bothered to at
least try to rally the public.
I've got a great answer from that just actually coming out one of one of my calls this morning
with one of the senior leaders who was actually spent the past couple of days on the hill talking
about this.
And the issue was that look, there's a lot of smart people out there in this role of corporate
affairs, both on the side of companies and both on the side of legislators.
So many people thought that of the tariffs was just figurative language that Trump was
not serious, that it was just a metaphor and maybe his typical path of exaggerating.
So there's surprisingly a few people who thought, "Ah, we'll just kind of wait it out, maybe
it's a matter of which is going to happen first."
tariffs or, "Ooo, donut."
Well, I can totally see there's so many reasons not to take it seriously, right?
First, and we're seeing this play out again this week.
We may see it play out again in a month.
Trump always seems to find a way to back down.
So why worry?
The second thing I think is big companies seem to be getting exemptions when they ask for
them and Trump has now signaled that they will continue to.
So why worry?
Third, if you endure this and you get an extension, let's say on the corporate tax cuts that
a lot of business want, why worry?
From my point of view, the reputation concern is not necessarily on the government side here.
I think it's on the consumer side because prices will go up.
In categories, people don't expect, as you offset, other cost increases because of the tariffs.
But I think the reputation risks on the consumer side, the potential risks are longer reaching,
because it's going to be hard to bring consumers back if they feel like your prices are too
high.
And as we'll talk about later, in countries whose consumers are becoming more loyal to local
brands as a result of this trade war, they may find alternatives locally that they like
better and stick with them.
So I think in the meantime, I would rather be known for fighting for lower prices.
That's one way, but humanize the tariffs.
I was really disappointed to see there wasn't much of an effort to do that.
They were just so abstract for so long and now here they are.
Yeah, yeah, yeah.
You know, look, tariffs, they don't just tax goods, they're testing companies.
And the best ones aren't panicking when resources become constrained.
They pivot and that's where good leadership comes into play.
The expression I use is when you lack resources, you've got to lean in on your capacity and
that is your capacity to adapt, your capacity to innovate and you've got to be able to outthink
the challenge and to be able to respond.
The companies right now that are thriving in a tariff heavy world aren't just the ones that
are the biggest, they're the ones that are the most adaptive.
And when supply chains get hit, what costs are spiking and the market shifting, resilience
isn't just about having more, it's also about using what you have better.
Yeah, understanding how to make the pivot, understanding how to bounce back as you put it.
I think the thing is though, at least most of the companies that we've been talking about
in this, they're not lacking for resources, but it is certainly, it's testing their resilience.
Hold on, I want to hit on that really quick because yeah, you're right.
A lot of them do have resources and this is just beyond the sideline.
But what I think about some of the conversations I have is like, oh yeah, we've got budget
for that or we've got an answer for that, right?
The thing I see about resources is it doesn't give you the opportunity to look at your resourcefulness
and understand your capacity.
If you could just store resources at it, right?
You still have to have imagination in ingenuity.
Yeah, those resources, they're not self-directing.
So no, I think to that point about whether this should play out behind the scenes or whether
it's played out in public, I really feel that transparency should be business's friend in
this moment, especially in this moment because those sweeping tariffs seem like a really
bad idea for pretty much everyone.
I know that the behind the scenes approach is effective.
We've seen that.
We continue to see it play out both between governments and especially between industries
and the Trump administration.
But managing this behind the scenes alone also gives the administration an advantage in a
moment when their working theory is not in the interest of business.
They don't want this discussion taking place out in the open because when it does, you end
up with interviews with car dealers in Pennsylvania saying people aren't going to buy that ram
truck when it's 25% more expensive.
And if you're not making your case in public or at least making clear to the public where
you stand, I think you're letting the White House not only frame the debate, but redefine
your position in some cases.
Look at what Trump said in front of Congress.
He said, "Car makers are so excited."
Well, clearly they're not because they pushed for an exemption faster than you could say,
sign and drive.
I think this idea of resources is pretty important, right?
I mean, because that right there gives companies a lot of opportunity for responding in particular
ways.
What are the talks that gave with the conference board we were looking at?
All the different ways that we're talking about reputation.
And I realized, really, what we need here is a checklist of all the things that from a reputation
management perspective so that you can start thinking ahead and getting ahead of things.
I came up with the idea of these contracts and one of the contracts is capital versus
capacity, right?
If you can think about financial capital, cash investments, political capital, the ability
to influence, engage in policy or navigate regulations, reputation capital, operational
capital is one that's certainly playing out a lot here, but we could also think about,
human capital and social relationship capital as well, which is your trust with suppliers,
partners, customers, governments and so on.
But here's the thing, right?
At some point, when capital runs low, capacity is going to have to take over.
These are burning through capital to survive the tariff storm, but capital is finite.
Capacity, I think, is going to be one of the things that keeps companies in the game to
start going back.
When you like capital, you got to lean in on capacity.
Change gears here for a second.
In a trade war, how are companies going to navigate this new, quite nationalism that's
currently driving consumers?
Yeah, I think this is the most remarkable short term result of the tariffs, at least
so far, and it's playing out, we see it in Canada.
The Canadians are ticked off, and they are not quiet about it at all.
Yeah, yeah.
I watched a Vancouver conucks hockey game last night, and the Vancouver fans, as Canadian fans
have been doing for the past month, they booed the US national anthem loudly and throughout
the anthem, and they were cheering and singing along loudly with O Canada.
It's still, by the way, unsettling to hear the star-spangled banner get spontaneously booed,
it's jarring.
But so is this flexing of the economic muscle that's going on in Canada.
The premiere of Ontario canceled a $100 million contract with SpaceX for Starlink terminals,
sort of a two-fer against Trump and Elon, whose CEO of Starlink, let's be forget.
But I think the biggest PR challenge for American companies, I would say, as you're getting
out here is this galvanization of Canadian consumers against American goods.
This new buy Canadian movement that's taking hold.
This market research firm La Jair, they said 70% of Canadians report increasing their purchases
of locally made Canadian goods, and almost as many, they say, have actively reduced their
purchases of American made products.
And Craig, I know you don't spend as much time on TikTok, I think, as I do, but there
are Canadian influencers out there giving advice on where to find Canadian alternatives.
Starting in the grocery store.
You supporting Canada?
Here's a way to do it.
Instead of getting Fuji apples from the United States, you can get galvan apples from Ontario.
Instead of blue water fish burgers made in the US, you can get highlander fish burgers, which
are very Canadian.
The battle for the produce and the frozen sections looks quaint in comparison to the battle
for the liquor store.
The liquor control board of Ontario has pulled American liquor off the shelves.
It's really something to see.
Yeah, I think the question isn't just, do we acknowledge nationalism?
How do we acknowledge it without boxing ourselves in?
Since the salt started, I've heard a few themes, and then I've seen a few from news coverage.
I picked up on five different ways that companies are responding right now.
One is the localized branding.
We're one with you strategy.
We're companies are repositioning themselves as deeply embedded to the local economy, even
if they are global.
Some are highlighting heritage and domestic job creation or committee investments.
You could think, for example, Black McDonald's in different markets.
I'm not saying that this is the one that they're using, but this phrasing of 100% locally
sourced beef or proudly Canadian and Canada are examples there of that category.
Yeah, this is the playbook.
Second is reframing globalization to be the good corporate citizen approach.
It's one that I've seen a few companies set.
That's where companies are embracing their global footprint strategically and trying to
show how their presence benefits the local economy, right?
So you could think about maybe some of the foreign automakers here in the US right now,
like BMW where they're emphasizing their American workforce, but not their country of origin.
So there that would be something like we're international and we're invested in you.
A third is just simply trying to neutralize the narrative, right?
Just playing into the whole idea of price and value positioning, offering a superior price
or quality and trying to make loyalty about value rather than origin.
I don't think that one's going to work.
You don't think so?
I think that a lot of companies, there's a playbook for this laid out and it's made in America
because American companies are multi-nationals have been running this playbook in America.
For years, a lot of them stepped up in the first Trump administration, a lot of them dusted
it off more recently.
And this is to the earlier point about ads you see in Politico or Axios or wherever.
This is where a lot of companies make these points and now they may have to do it locally
in another country.
Like you say, when you're sourcing an item locally, whether it's, I think your McDonald's example
is the most convenient and direct because it's something that gets done by restaurants and
restaurant chains in other countries, you source an ingredient locally and you want people
to know about it.
I'm just thinking about, okay, there might not be very many companies playing this strategy,
but I'm going to say if tariffs hit a particular company eventuous that we have both have discussed
before, I'm still going to buy my phone from that company, right?
No matter.
So does everyone else is going to buy their phone from that particular company too?
Just recently, there are customers who are priced sensitive, unless we forget.
Yeah, yeah.
So that's what I mean.
I mean, there's a few companies that I would say are able to lean in on the value positioning
and the premium.
Okay, so that's the third.
And then I think the last two, one is supply chain transparency, which is showing the domestic
contribution.
And then, you know, I would say, I don't know what a good word for it is, but playing
both sides without taking a side, maybe silent adaptation, possibly.
Does you mean just sort of like standing still and hoping nobody notices that you're an
American brand?
Yeah, that could be it, right?
You know, kind of adjusting their strategy quietly without making any public statements or
tweaking the marketing language and trying to avoid it.
It's just really interesting to watch it play out in Canada because it does seem authentically
organic and it does seem to really have momentum.
Tick-tock is just the most convenient window that we have into it, at least from my vantage
point.
But I do think that some of this consumer behavior might stick, you know, maybe you end
up as a Canadian consumer, really liking high-liner fishburgers.
And that's a problem for blue water fishburgers, if in fact, that is a US brand.
So I think companies are going to do what they can to emphasize their support for the local
market, whether it's one of the ways that you outlined.
I think that job creation is a tried and true one.
And localizing and calling attention to your local sourcing, but it's just really interesting
to watch how quickly this has taken hold and that by Canadian movement does feel real.
Yeah.
And made in Canada is becoming a popular slogan so much so I saw that was really interesting
that Canadian advertising industry, their self-regulatory organization.
They issued new guidance because then they say if you're not Canadian owned, you shouldn't
say truly Canadian or proudly Canadian was one of the slogans that they called out, but
made in Canada apparently only requires 51% Canadian content.
And we're paying attention to that now.
But to your point earlier, you might expect to see supply chain adjustments like you described
where it's strategic or maybe just convenient.
You get those fishburgers from Nova Scotia instead of Alaska, maybe you can be proudly
Canadian or made in Canada.
I don't know, I buy fresh fish from Alaska, but last time I checked Alaska, it was a part
of the US, not Canada.
Well, that's the thing.
I think this is the issue about this new nationalism.
Yes, some of it may play out here, I guess, but I think we're mostly going to see this phenomenon
in countries where the administration is target our administration is targeting their country
with tariffs.
So right now we're looking at Canada, Mexico, Canada, I think the phenomenon is the most
pronounced probably because of the interdependency of the two economies, but we could also see
China certainly would not be surprising to see something like this play out in China given
episodes in the past.
And now according to Trump, we may have tariffs on Korea, maybe the EU.
It's going to be really interesting to see this dynamic if the trade war continues the
way the president says it's going to.
Yeah, so we've got Bukka, right, which is so important right now during chaos management.
You're talking about VUCA is the acronym.
Yeah, VUCA, right, volatility uncertainty, complexity and ambiguity.
The one I came up with was a vision understanding clarity and agility.
And I thought, okay, that kind of fits here, right?
So the vision is companies are going to need long term strategies that are going to go
beyond the reacting to tariffs.
You're going to need understanding, deep consumer research to track customer sentiment
before it starts showing up in sales data.
You're going to need clarity, clear messaging about brand identity across markets and they're
going to need agility, right?
Localized marketing and supply chain flexibility to adjust without alienating anyone group.
That's in case anyone has a drinking game of that Craig's framework of the week.
I don't know.
Yeah, they'll, hey, those sound like capacities to me.
Those sound like the type capacities versus capital you were making the point earlier.
Oh, yeah, yeah, yeah.
Yeah, I think these four items that you've outlined, I think those are good for any
sort of local team of a multinational to be aware of whether you're in Toronto or Tokyo.
These are things you want to understand.
Your company's connection to the local market, even if you're not using it as part of your
strategy most of the time, it cannot hurt to have that kind of insight.
So even when the product is what you're focused on, when things go sideways like this, if you
have a local backlash on something, whether it's specific to a company or as we're experiencing
now, the result of a trade policy, you've got that in your back pocket, you can understand
your connection to the local market.
I'd say the strongest brands are realizing that they can't let politics define them.
They have to know how to navigate when politics define the market.
So look, you know, some companies are actively defending their global presence.
They're lobbying against protectionist policies.
Others are working behind the scenes to influence policy.
But big question is, you know, does engaging nationalism help or hurt or won't you reputation?
Well, we think about nationalism.
I think that's as a term, it implies competition or conflict like in this trade war.
So I don't engage with nationalism, I think, is risky business.
It's not what you want to aim for.
There are times when patriotism makes sense.
And if you're a multinational, talking about your connection to a market in times of patriotism,
I think it can be good.
But I think generally you want transparency here.
You want people to understand, you don't want to put up some sort of facade.
You're a global company.
You probably source globally.
And right now the messaging around that is being tested because of these nationalist tendencies
that are stemming from the trade war.
But hopefully those will pass and we'll get back to recognizing that live in an integrated
global economy.
There's no changing that and the reality of that will hopefully be okay with everybody.
Generally, it's very clearly, this is less about waving flags and more about consumer comfort.
People are just gravitating towards brands that feel locally even if they're not explicitly
marketed that way.
Right?
Here's the risk.
But if consumers get comfortable with local alternatives, the shift might be permanent.
A tariff can be reversed, but brand loyalty, I think that's a little tougher to win back.
That's the point I was getting at earlier where when it starts to reach the consumer and
the reputational risk can be longer reaching.
And people may find a new brand loyalty that started with some sort of a nationalist inclination.
But now it's just the brand that you like and that's to your point going to be harder to
reverse.
Yeah.
This is for me another way in which this idea of capacity versus capital comes into play.
Some companies have the ability to throw money at a problem.
They can offer discounts or ad campaigns or whatever it takes.
But the companies that are really going to win here are the ones that have long term strategies
that are building deep authentic relationships with consumers so that loyalty isn't transactional.
It's emotional, it's deeply invested.
Yeah, nothing beats authenticity.
And when you have authenticity, then transparency doesn't feel very risky at all.
I thought you were going to go the direction of the George Burns quote, right?
If you have authenticity, if you can fake that, you can fake anything.
Well, that too.
Okay, just to wrap up Craig, final thoughts here from the professor on where we are and
how companies are navigating this.
You know, I didn't think we're going to land here, but I'll circle back on this VUCA2 framework,
right?
So we've all heard about VUCA volatility and certainly complexity and ambiguity.
It's sort of the corporate world's favorite way of saying things are mess and we don't know
what to do next, but just describing the chaos is certainly can make us feel better, but
that's not going to solve it.
And I honestly look, we're not going to be able to solve chaos.
That is the world that we're living in.
But I would say this idea of VUCA2 isn't just a response.
It's a countervailing force.
It's how companies can fight back against uncertainty with strategy.
You know, so just thinking about vision, understanding, clarity, and certainly right now we need
agility more than anything else.
Well put.
We certainly nailed the clarity on that last point.
And on that note, that's our show for this week.
We want to thank Shawn P Neal and the PeopleForward Network for making our podcast possible.
If you'd like to tell us what you think, have a topic you'd like to suggest for the show,
we'd love to hear from you.
Our email address is podcast@ocrnetwork.com.
Communication breakdown is a production of the observatory on corporate reputation.
I'm Steve Dowling.
And I'm Greg Carroll.
Thanks for listening.
We'll be back next week.
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