Mr. Suchanek, Christmas is approaching and global trade is running at full blast again. How do you know that you’re getting quality products when purchasing gifts for the holidays?
Usually I have to trust that the quality is okay—I don’t have any other choice in the matter. Supply chains nowadays are so complex that a regular person cannot gain any deeper insights into them. However, I can attempt to avoid mistakes.
How do you do that?
I become suspicious, for instance, if I a see a supposed quality product, something that should cost around 40 euros, being offered for 8 euros. I know that this cannot be done in a serious or reputable manner. Whether it’s food, clothing or electronic devices: quality has its price.
Does it matter which part of the world the products come from?
Basically the standards are becoming more harmonized. It used to be the case that people often spoke disparagingly of “Made in China.” But China noticed: to supply Europe with products, certain standards must be met; otherwise you lose the status of trusted trading partner. Because of globalization, however, I get the—justified—impression, as an end customer, that I no longer know how my product was manufactured and what the value chain is like. I feel like I can know what’s going on around the corner, but not what’s happening thousands of kilometers away.
You’ve written a book that takes up this idea and examines global trade under the aspect of trust.* You argue that international trade works particularly well when companies invest in the factor of trust. Why is that?
Of course there are a variety of factors that keep global trade running. But trust is a fundamental asset for a company in this context. Analyses have shown that the more that people trust a company, the more highly they evaluate its image—and the more likely they are to buy its products. I don’t mean gullible naivety at all when I talk about trust. Trust always means control, as well.
What do you mean?
Many end customers these days want to know that certain standards were adhered to during the production of the goods they’re buying. Companies producing worldwide have reacted to this—with processes, information, certification, and so on. This has been leading for some time to an explosion in the trust industry.
What does this mean in practice?
Globalization has opened up fantastic possibilities for us since the 1990s. Practically the entire world is cooperating: you can click a mouse in Europe and order a product from Australia. At the same time, we’re also experiencing enormous growth in the possibility of failure and of conflicts: the more complex the value chain, the more participants it has—and the greater the chance of these also including a few black sheep, who ignore standards or interpret them differently than agreed upon. Thus it can happen that a product with “produced organically” on its label has nothing organic about it. As a company, you’re always running the risk of taking a hit to your reputation.
How do companies avoid this?
Companies that explicitly focus on the trust factor are characterized by their willingness to undertake a continuous learning process and a corresponding readiness to make investments. When regional or national corporations start producing globally, they slowly learn who they can trust and who they shouldn’t touch with a ten-foot pole. They learn to more purposefully inform themselves, to better express themselves and, not least: to carry out controls in the service of trust.
Despite this, something inevitably goes wrong.
And that can have enormous consequences. For instance, a few years ago a famous toy manufacturer had to take the rap for the insufficient quality controls at one of its suppliers. A Chinese company had produced some synthetics that had a lead content that was much too high. This resulted in substantial penalties for the toy manufacturer—its stock price plummeted, as did its sales. But the company learned from the process.
What did it learn?
It realized that it had to make proactive investments in trust and control. Trust in particular had to be reestablished amongst a disappointed and unsettled clientele. The company managed to achieve this by allowing itself to be evaluated and certified by independent agencies and through improvements in monitoring production processes. All these things also send a signal to customers: look, I’m doing everything I can to keep you safe.
More trust therefore means more expenditures?
Yes, trust has its price. Still, nobody is demanding that all producers achieve the highest standards. Everyone is responsible for the number of compromises they are willing to make. But what I absolutely call for is compliance with minimum standards. People’s health should never be endangered, for example.
And he was right. Whoever pins a company’s hopes on tempting, short-term profits all while taking incalculable risks is jeopardizing the trust in its brand and thereby its success over the longer term.
Is the crisis of confidence in the automotive industry a good example of this?
This crisis surely isn’t affecting the entire sector. But the carmakers affected by the diesel scandal have squandered a lot of trust over the past few years and will have great difficulty restoring that trust—and not just among consumers. I don’t know if those involved were so clearly aware of the long-term consequences.
What do the affected carmakers have to do now?
They must make it clear that they’ve understood what they did wrong. And they must also change their processes and make them more transparent.
For instance the new, more realistic WLTP emissions testing standards?
Which brings us back to the topic of monitoring and control: carmakers allow their products to be tested by independent third parties according to much more stringent regulations than before and thereby show that they have nothing to hide. These types of measures help them to regain lost trust.
Are there crises in confidence that could shake the foundations of world trade?
In order to significantly affect global trade, there would have to be a world-spanning catastrophe like the 2008 financial crisis, which also led to a short-term decline in global trade volumes. But problems usually remain limited to individual economic processes. What applies here: if a few companies should prove to be untrustworthy, they will be penalized and replaced with others. This also proves that basic trust in global trade is very high.
This is also confirmed by indexes such as the Global Trust Barometer by Edelman, a PR agency. At the same time there is massive criticism of global trade, as we experienced during events like the G20 Summit in Hamburg this year. Do we live in an era of growing or dwindling trust in the global economy?
That’s a very interesting question, one that I don’t have a clear-cut answer for. On the one hand, global trade is very successful and lucrative. Hundred of millions of people are benefiting from it and have been lifted out of poverty because they could take part in globalization. On the other hand, many people are asking the question of whether development hasn’t reached a level of complexity that we can no longer control.
What do you mean?
There is a current trend toward regionalization. During the last World Economic Forum in Davos, Switzerland, one of the topics of discussion was: Do we have too much globalization? Is it getting out of hand? We must bear in mind that global trade also brings side effects in its wake. Digitization is exacerbating this.
In what way?
The transformation is dramatic. In my view, there is very little else that is changing trade and business so dramatically. When, for instance, production processes are increasingly being controlled by artificial intelligence and algorithms, the question arises: Who bears responsibility when something goes wrong? Thus it’s already clear: over the course of digitization, trust will remain fundamentally important.
“Global trade holds the tremendous opportunity of allowing people to work even better together and to decrease poverty,” says Professor Andreas Suchanek.
Suchanek, 56, is all the busier when consumer trust is suffering—as in the case of the emission scandals for diesel vehicles or food safety scandals. Suchanek is chair of the board at the Wittenberg Center for Global Ethics and is Professor of Economic and Business Ethics at the Leipzig Graduate School of Management. His main areas of interest include economic and business ethics, theories of corporate responsibility and trust management.
*Andreas Suchanek: Unternehmensethik: In Vertrauen investieren, (Business Ethics: Investing in Trust—German only), published by UTB GmbH. Paperback €24.99 http://amzn.to/2AwlwUB