A COMMUNICATION STRATEGY FOR OFFSET AFFECTED SMALL AND MEDIUM ENTERPRISES: AVOIDING A NEGATIVE REPUTATION

Heinz-Axel Kirchwehm
Turiba University, Latvia

Introduction

Globalization is a source of opportunities as well as a source of threats. Specific advantages derived from operating in a global market seem to be exploitable only by large organizations unless SMEs can find an organizational solution allowing them to cope with global business opportunities without suffering from limited resources and without exposing themselves to the risk of direct investment.

Today it is a common practice that procurement projects are associated with offset obligations. Based on this more and more, Original Equipment Manufacturers (OEMs) in the affected industries are handing over these obligations in lower stages of their supply chain (Europe Economics, 2009). This approach of risk sharing and value saving can be realized by the OEMs through their market power. The result is that SMEs, therefore, usually less experienced companies are facing with offset demands. The affected SMEs accept these new tasks; then they slide into a business sector whose reputation is seen very critically in the public. Reasons for this are corruption and non-transparent business practices which sometimes occur in cases of offset (TI, 2010). The two following headlines are intended to illustrate the problem:

• Investigations against EADS – Austria is considering to cancel the “Euro Fighter Deal”– 16.11.2012 – SPIEGEL ONLINE;
• Corruption scandal: Ferrostaal escapes into new strategy, from 26.11.2010 – Financial Times Germany.

Defence and security is one of the most corruption-prone sectors, after the construction as well as the oil and gas sectors. The defence industry and governments are increasingly aware of corruption risks and begin to tackle these problems. However, one area of the arms trade remains disturbingly non-transparent, carrying high corruption risks that are not being adequately addressed: defence offsets. (TI, 2010)

Offsets often appear in the form of compensation packages, industrial benefit programs, cooperative agreements, and countertrade policy. The arrangement, at its most fundamental level, is straightforward: a purchasing government obliges a foreign seller to include extra benefits with the sale of the base good. The foreign firm may then sign individual offset contracts with local firms in the purchasing government’s economy. Brauer and Dunne (2007) summarized offsets as agreements in arms trade that “obligate the seller to reinvest arms sales proceeds in the purchasing country”. Besides the buyer-seller relationship, offsets vary considerably in form. Offset transactions may take (but are not limited to) any of the following forms: subcontracting, technology transfer, countertrade, foreign investment, marketing assistance, training, co-production and licensed production.

In this examination, special attention has to be paid to SMEs. The reason for this lies in the fact that SMEs are of crucial importance for the supply chain of large defence firms. Nevertheless, even the SMEs suffer from the fact that the business sector offset is often equated with a negative reputation. Due to the fact that SMEs are usually not experienced in dealing with a negative reputation, they miss the necessary communication strategies to respond adequately. This situation is a problem because the reputation works in two directions: internally to the employees and externally to the public.

The approach of a deep examination of the guerilla marketing is derived from the fact, that guerilla marketing is in general an appropriate approach for SMEs.The original approach of guerrilla marketing is an alternative marketing strategy that suits SMEs to act like the guerrilla fighters have in the past: hit vulnerable targets of larger enemies by taking them by surprise. The unexpected and unusual guerrilla marketing campaigns helped smaller companies to successfully reach their target group, even though their bigger market competitors had a larger marketing budget, more experience, and a better spread to advance the market by using traditional marketing strategies.

The aim of this paper is to examine the guerrilla marketing under the aspect of including approaches for Business Communication Strategies which enable SMEs to avoid or change a compromised reputation in a required direction. The idea on which this aim is based is as follows: In the context of knowledge transfer for the companies that are not so experienced, the communication strategy should be effective and efficient but simple. For achieving the research aim, the following tasks must be accomplished:

• create an understanding of the context of Communication Strategy, Guerilla Marketing, SMEs and Offset;
• develop a communication strategy which considers the two-dimensional aspects of a negative reputation (internal and external);
• take into account the special requirements of SMEs.

1. Theoretical Framework

The theoretical framework of this examination has a breakdown structure of the context: Business Communication, Communication Strategy, Guerrilla Marketing, SMEs and Offset.

Business Communication

Communication is fundamental in business because business is a collaborative activity. Today’s challenging global markets pose the necessity of coping with both local and international competitors. In such a scenario, the competitive capability of SMEs is under pressure in particular, if problems with the reputation are added to general problems. For SMEs, a good reputation is one of their most important assets. First, we will examine the reputation of the company in connection with the ability to conduct business activities; secondly, we must look at the company’s staff. After all, who wants to work for a firm with a negative reputation looking after its staff?

According to Burt (2009), business communication with a corresponding communication strategy is the starting point for avoiding or changing a compromised reputation. The term business communication is used for all messages that will be sent and received for official purposes like running a business or managing an organization. Business communication is marked by formality as opposed with personal and social communication.

In his book Communication in Business, Peter Little defines communication as the process by which information is transmitted between individuals and/ or organizations so that an understandable response results. W.H. Newman and C.F. Summer Jr. define communication in the following way, “Communication is an exchange of facts, ideas, opinions, or emotions by two or more persons”. Different communication styles vary enormously around the world, and they contribute to a staggering variety of business styles. As communication does not end in itself, behind every communication there is an appropriate strategy.

Communication Strategy

For a better understanding of the subject communication strategy, at first it is helpful to start with a definition of strategy. “For most people, strategy is generally perceived as a plan – a consciously intended course of action that is premeditated and deliberate,” (Graetz et al, 2002). Also, “strategy and management is … the way to provide a framework for planning and decision-making that control and manage influences from the environment” (Khanfar, 2007). In combination with communication, it is clear that a communication strategy contains all measures for the achievement of communication objectives. Communication strategies can be reflected in the use of individual as well as in combination of several communication tools. This strategy is based on a marketing plan which, in its turn, is based on a market analysis (recording the market situation) and the development of a strategic marketing plan (promotional planning) which respects the advertising message and purposes (Gabler, 2013). In our case, the communication strategy should not support the product promotion, etc., but they have to avoid or change a compromised reputation in a required direction. Due to the fact that conventional approaches appear to be unsuitable here, the communication strategy will be developed on the basis of guerilla marketing.

Guerilla Marketing

Guerilla marketing distinguishes itself from other promotion tools by its surprise effect and it has become a very popular marketing strategy in current times. Levinson (2006) states that it can be described as marketing form which involves the usage of untraditional activities that help companies to weaken the rivals and stay successfully on the market even with limited sources. The word “guerilla” originally describes a group that uses a violent approach to achieve the implementation of their beliefs and ideology. Their opponents are often a tremendous force consisting of more people and even of more resources such as weapons or money. The guerilla fighters’ only advantage is the fact that only they know where and when they will strike. The original approach of guerilla marketing is an alternative marketing strategy that suits small and medium-sized companies to act like the guerilla fighters have in the past: hit vulnerable targets of larger enemies by taking them by surprise. The unexpected and unusual guerilla marketing campaigns helped SMEs to successfully reach their target group, even though their bigger market competitors had a larger marketing budget, more experience, and a better spread to advance the market by using traditional marketing strategies.

SMEs

According to Thassanabanjong et al. (2009), SMEs are crucial for a sustainable, long-term growth dynamics and employment of the worldwide economy. As new technologies and globalization reduce the importance of economies of scale in many activities, the potential contribution of smaller firms is increasing. However, many of the classical problems of SMEs – such as lack of financing, difficulties in the use of technology, limited management skills, low productivity and regulatory failures – become even more acute in a global, technology-driven environment. SMEs are the backbone of economic growth in all countries (Singh et al., 2008; Garengo et al., 2005; McAdam et al., 2000). However, to preserve their status, SMEs must search for their chances in globalization.

Globalization is a source of opportunities as well as a source of threats. Specific advantages derived from operating in a global market seem to be exploitable only by large organizations unless SMEs can find an organizational solution allowing them to cope with global business opportunities without suffering from limited resources and without exposing themselves to the risk of direct investment. It is also possible to presume that SMEs will have an important role in the expanded international supply chain. It has occurred since large organizations with direct foreign investments are interested in using local suppliers in certain situations. The solution is in outsourcing all those production aspects that are considered not strategic, not very valuable, or too risky to be internalized. In the defence industry, this is the reason for the use of some second (or lower) tier suppliers (usually SMEs).

The European Commission’s (EC) definitions for SME are categorized thus: companies employing less than 10 workers are very small-sized or micro companies, between 10–50 worker-employing companies are small-sized, companies with 50–250 workers are medium-sized, and companies employing more than 250 workers are accepted as large-sized companies. In the definitions of EU for SME, micro companies have a sales volume less than 2 million Euros per year, small-sized companies – less than 10 million Euros, and medium-sized companies have a sales volume less than 50 million Euros (EC, 2005).

Offset

Offset transactions are a special case of countertrade, increasingly occurring in the procurement of arms. Offsets are defined as an arrangement between a national government (normally the Ministry of Defence (MOD)) and a foreign arms supplier to direct some benefits of the contract back into the purchasing country as a condition of sale. A distinction must be made between direct or indirect offset, as well as a hybrid of these two types (BIS, 2007). Direct offset is directly related to the arms to be delivered or services. The different types of direct offsets include subcontracting, co-production, technology transfers, licensed production, training as well as investment and financing activities in the country of the contracting authority (buyer). Indirect offset is not directly related to the arms or services and typically includes purchasing and marketing / export assistance and investment, education, finance, and technology transfer (Ibid, p. 34).

The national-political reasons for requesting offset obligations vary from a state to state; however, the following objectives are the most important reasons (Pretoria, 2011):

• sustainable economic growth;
• establishment of new trading partners;
• foreign investment;
• exports of value-added goods and services;
• Research & Development collaboration;
• job creation;
• human resource development;
• technology transfer;
• economic advantages for previously disadvantaged communities.

According to Transparency International (2010), defence contracts involve great expenditure, and thus the offset arrangements are similarly large in value. They are also highly susceptible to corruption. Offsets are under much less scrutiny during their negotiation than the main arms deal. This holds true for both governmental scrutiny and for public awareness of such contracts. Worse, in many countries, there is almost no due diligence on potential improper beneficiaries from the offsets, no monitoring of performance on offset contracts, no audits of what was delivered compared to the pledges, and no publication of offset results, benefits or performance at all. This makes the offset an ideal playground for corruption and provides a negative image in the public. The lack of surveillance of offset contracts is amplified by their complexity. Offset processes involve a range of complicated and detailed contracts and often include investments into a variety of companies and subsidiaries, making monitoring even more difficult. There are three main categories of corruption risk from offset:

• improperly influencing the need for a particular defence acquisition in the first place;
• influencing the competitive decision for the main contract in non-transparent ways;
• allowing favors to be repaid to corrupt government officials via offset contracts.

With the increasing pace of economic development, the companies and governments are faced with more complex issues of corruption. The atmosphere of negativity and pessimism created over the issue of corruption is not good for either side. Especially for the companies, we have a two dimensional problem; on the one hand, we have the public and the group of interest (external side) and, on the other hand, the employees (internal side).

2. Method and Materials

Research Questions

The research questions for this examination are derived from the research aim and are as follows:

1. Why are the traditional communication strategies not applicable in this case?
2. Does the guerrilla marketing possess approaches for such a communication strategy which will meet the specific needs of SMEs?

Research Framework

This examination is triggered through an overall research project on the impact of offset to the business processes of SMEs. During the necessary Pre-Study for this research project, the first indications show that SMEs do not have adequate communication strategies, enabling them in the business sector of offset to influence the associated negative reputation in the public. The Pre-Study was conducted in February 2012 and included 7 visits to two key companies in the German defense industry. In both cases, OEMs were selected to gather information and data for the Offset-Impact-Measurement-System (OIMS) on the problems of offset in general and on the specific problems concerning their suppliers when they have accepted offset obligations. During these visits, a total of 9 expert-interviews were conducted. Interview partners were managers, in total covering the know-how from 13 different business process areas. Through the informal character of these interviews, which also applies to the other used forms of data collection such as OIMS and a questionnaire, the companies and interview partners are not named in this examination. Background: the whole research project is aimed to the core competencies of the companies. Only a few of them are ready for sharing such valuable information and data.

Research Method and Approach

The necessary data for this examination were collected through an intensive literature research and review which were structured as follows: The first step was the definition of the necessary keywords. They are: Communication Strategy, Guerilla Marketing, SMEs, Offset, Reputation and a combination of all of them. The seconded step was an analysis of the literature for relevant papers. This part was mainly done via the internet with a keyword research on GOOGLE^© and METASEARCH^©; it took place in the period from November 2012 to January 2013 and ended with 40 selected scientific articles, papers as well as master and doctoral thesis for a more detailed analysis. This analysis was performed through a simple filter which checked whether there is a reference to offset, SMEs and a compromised reputation; and then whether there is a reference to communication strategies and guerrilla marketing. In parallel, this analysis was used for the theoretical framework of this examination. As the next step, a root cause analysis was conducted on the selected data which were led by the research questions and had to analyze the following subjects:

• analyze the difference between traditional marketing and guerilla marketing;
• analyze why the conventional strategies and instruments are not applicable;
• analyze the general requirements of SMEs in the context of a communication strategy;
• analyze the target audience for whom the new communication strategy is developed;
• analyze the integration of the communications strategy in the superordinate O-E-M.

All in all, the Development Model for this examination is as follows:

Figure 1. Development Model for a Specific Offset Communication Strategy

3. Findings of the Examination

1. Findings of the Root Cause Analysis

Differences between Traditional and Guerilla Marketing

In order to understand the principles of guerilla marketing performance, the significant differences between traditional marketing and guerilla marketing have to be identified. Referring to Levinson (2006), conventional advertising requires a certain capital addressed for promotion plan while time, energy, imagination and knowledge assets are a primary investment in ‘guerilla’ way. Big businesses with correspondingly substantial budgets are potential participants of traditional marketing which measures its success only by sales and the number of responses or store traffic. Traditional marketers neglect future relationships with customers since the purchase is made by concerning mostly about short-term value from marketing. In contrast, guerilla strategies are mostly oriented towards small or middle-sized firms with tiny budgets and remind that only the size of profits can measure what you are striving for.

Additionally, instead of concentration on “me” marketing and talking only about business, the guerrilla approach encourages customers to gain consent with marketing in order to build a future devotion to customer follow-up. Gallagher (2004) explains an explicit difference as: “What matters in guerilla marketing is, rather than what the firm does to be successful but what it does to differentiate itself from its rivals and its success in reaching a broader customer potential”. According to Levinson (2006), there is a summary of the main differences between two ways of marketing in Table 1 below.

Table 1

Characteristics of traditional and guerilla marketing

Source: Based on Levinson, 2006.

Why the Traditional Strategies and Instruments Are Not Applicable

With the marketing mix, marketing strategies perform concrete actions. The four classic instruments of the marketing mix are the so-called four “Ps”: Product, Price, Place, and Promotion. This classification was first proposed by Jerome McCarthy in 1960. Some authors add other “Ps” such as “People” / “Staff”, “Processes” or add “Physical Facilities” to this definition, in particular for the service marketing, which is in many ways different from the traditional product marketing.

The Largest Gap Is in the P: “Product”

In the analysis of the four Ps, it can be seen that the main limitation is in the area of Product. The usually used Unique Selling Proposition (USP) – strategy is not applicable in the case of the offset (see Figure 2). The USP is a “unique selling proposition”; and as this, it is the core of an advertising message. It refers to a strategic competitive advantage the product of a provider should have with regard to the product of competitors. The advertising emphasized by the USP should be understandable for the customer, memorable and believable. There may not be objectively demonstrable technical product features; however, there may be purely psychological additional benefits. For the company, it is crucial that the advantage is available for a long time and cannot be easily copied by competitors. Through the special focus on a specific value of a product, the product should receive a competitive advantage. But in our case, the problem is that all the essential properties of arms systems as well as their production cannot be used as part of USP strategy because in the end death and destruction are the main tasks of arms.

Figure 2. The largest gap is in the P: “Product”

Source: The author, based on a picture from business-funds, 2011

General Requirements of SMEs in the Context of Communication Strategy

According to a Study from SIS International Research, which was conducted in January 2009, SMEs have the following general requirements in the context of communication strategy:

• management – informal, motivated, simple organizational structure;
• personnel – multi skilled and will not be responsible exclusively for communication;
• documentation – lack of elaborate documentation;
• communication – direct, informal and simple;
• processes – fewer in number and easy to map.

The Involved Group of Interest and the Target Audience

For specifying the right communication strategy, it is important to know exactly who belongs to the group of interest. As shown in the figure below, in the case of offset there are several members in the inner and outer circles of the group of interest.

Figure 3. Group of interest in the case of offset

On the way to defining the right communication strategy, the next important step is to clarify who is the target audience. Only when the communication is addressed to the right people, there is a chance to change the compromised reputation of offset. However, before we can do this, we must define the INFLUENCER in different groups, so that we can try to change the negative reputation with the minimum effort:

• the target audience for the internal communication strategy is the EMPLOYEES;
• the target audience for the external communication strategy is the PUBLIC.

Integration of the Communications Strategy in the Superordinate O-E-M

The Offset-Execution-Model (O-E-M) is a model for SMEs which allows an effective and efficient handling of offset obligations. This model is based on a comprehensive analysis of the specific impact of offset on the business processes of SMEs. Based on this, the appropriate and coordinated model is developed. This approach is based on the idea of the transfer of knowledge from experienced companies to less experienced ones.

When the model is developed, it will be content for all operational business processes, process description, Key-Performance-Indicator-Metrics and a list of necessary tasks for handling offset obligations in an effective and efficient manner. In the framework of the model, there should also be included Business Communication Process (BCP) with a specific communication strategy, due to the fact that this business sector has a compromised reputation.

2. The Sspecific Offset Communication Strategy (SOCS) for SMEs

Based on the findings of the previous section, there can be developed a communication strategy for changing or avoiding the negative compromised reputation of offset in the public as well as for the involved employees. To meet the needs of SMEs, the SOCS is designed as a basic strategy which can be used for internal communication with the EMPLOYEES as well as external communication with the PUBLIC. The basic strategy is also modular; so that delving into different issues, an individual module can be appropriated. For the SOCS, the following modules are designed:

• security à as a substitute for defence, arms, weapons, etc.;
• jobs à our mission is to preserve jobs;
• sustainability à we are thinking “green”.

Taking into account the fact that the USP is not uesable for P: “Product”, it has to be replaced in accordance with the guerilla marketing. This replacement has been found in the form of veiling. The entire communication is managed proactively out of an Ambush (…we determine the when, the where, and also the subject), avoiding discussion concerning the whole context of weapons–killing–arms–war. Instead, only the so-called side effects will be promoted and used in the internal and external communication.

Modules

Security

Hiding the arms industry and bringing the security into focus. Following the 9/11 discussion on home security, where the protection of life is brought to the fore. Everything is nothing without security.

In the public perception, defense companies are not of great importance. What their names are and where they are located, is not part of general knowledge. Nevertheless, they are visible on the Internet. On the websites of the major European defense companies, the cases of mentioning arms and similar terms are rare, instead a lot of “defence” and “protection of life” are mentioned. Only in the lower stages of their websites, defense products are introduced, such as a new armored personnel carrier: “High tactical mobility, impressive firepower and the ability to transport quickly and safely troops”. Companies try to describe their products in a rational style.

Jobs

It is to start a broad public debate about job security to support arms sales and offset transactions. Since the topic of jobs has generally a high priority, it is also very likely that the media can lead the debate by themselves without any costs for the offset effected SMEs. In a debate about job security, one can also count on the support of the unions. To support such a discussion with the relevant facts/data, especially SMEs, they should not raise any statistical data by themselves, because the costs can be too high. Instead, studies of the EU, the government or the different industry associations should be used to support the debate with serious facts and data.

Sustainability

Sustainability in the defense industry: What may it look like? Besides the modern so called cleantech sector and the industrial development of green technologies, an environmentally friendly and sustainable practice is also essential for the defense industry. With the issue of sustainability confronted, SME can earn two values: one for protecting the environment and the other for a better corporate reputation. It is important, of course, that sustainability measures are well documented and represented medially in order to fully get the benefit from the change. A good tool for this is the sustainability report; any company can use it as a benchmark for their own efforts. A sustainability report is not a legal requirement; according to the current legislation, a business enterprise rather voluntarily commits to drafting such a document as the sustainability report should first take a look at the status quo of the company so that the ecological situation for each area can be evaluated. Based on this, one or more targets can be set, so that the issue of sustainability had a greater role in the future. Moreover, the sustainability report is also the right document to present effectively the achievements from the past in terms of ecology.

Veiling, swap, and camouflage are the heart of the offset specific communication strategy. When the others are still to lead the communication by themselves, then the new strategy works.

4. Discussion

Strategic management theory differentiates among enterprises as well as corporate, business, functional and operational strategies. Based on these strategy levels, a communication strategy is conceptualized as a functional strategy, providing the vital link between the company’s strategy and the communication function.

As a functional strategy, the SOCS provides focus and direction for an organization’s communication with external and internal influencers. The method of veiling, borrowed from the guerilla marketing, enables SMEs to avoid or change a compromised reputation. The actual new concept in this context is the combination of guerilla marketing approach with the specific circumstances of the business sector offset.

Only through pushing the discussion far from the core of the subject and under the avoiding of the compromised wording, such as arms, transparency and corruption, companies can influence a debate in a required direction. If necessary, even a discussion can be conducted as a “deputy war” in which it is possible to exploit the press or the unions as well.

Conclusion

The increasing of offset and, therefore, the concomitant involvement of SMEs promote the need for an effective communication strategy. No doubt, the strategy shown in this research might be only one of many others. The developed basic strategy SOCS will be integrated into the superordinate O-E-M so that in the case of need for the affected SMEs, there is a prepared recommendation at hand. Here, however, we must not forget that it is just a basic strategy and not more.

To summarize, there is one aspect that must not be forgotten in this context. A communication strategy which is pushing the discussion from the core of a subject to the side effects is one thing, less corruption and more transparency would be the other one.

The necessary literature search and review for this examination have led to the SOCS and in addition it has shown that, in general, the available literature is very limited in this context. Further investigations are required, in particular in terms of offset, corruption and SMEs.

Bibliography