Corporate halal reputation needs to be on the top agenda for companies operating in Muslim Markets
The Reputation Institute reported in November 2018 that nearly 84% of a company’s value is now based on reputational factors. They estimate that a 1-point increase in your reputation yields 2.6% increase in your market cap. Apparently reputation has never been more important. A series of high profile halal crises in recent years with top brands have shaken public confidence in the ability of brand owners to assure the halal integrity of halal certified products. Muslims today are less prepared to tolerate risks, whether real or perceived, and demand a near zero-risk halal environment. Furthermore, Muslims are intrinsically motivated to actively boycott brands that seem to be in violation of some of the teaching of Islam. As a result, there is a high chance that a halal issue is snowballed into a global halal crisis.
The value of a good halal reputation
Due to a large, young and fast growing Muslim demographics in combination with a substantial and fast expanding global Islamic economy, Muslim countries in the Middle East and Asia are one of the leading consumer markets today. However, it is critical for industries operating in or exporting to Muslim countries to recognize the importance of halal compliance and the danger that halal reputational risks pose for a company.
Corporate halal reputation is pivotal in protecting your licence to operate in Muslim markets. Muslim countries are introducing new halal regulations and existing halal certification bodies (HCBs) are continuously upgrading their halal standards. HCBs allow very little time for industries to comply with their new halal requirements. It is therefore paramount to be pro-active on emerging halal requirements. As a result, halal is not static but continuously in development. Evidence supports that halal is going through an evolution from a product approach, towards a halal supply chain (where similar to food safety halal is addressed throughout a supply chain) and halal value chain (addressing also aspects such as Islamic branding, finance, and insurance).
Corporate halal reputation is key in search for sustainable competitive advantage in Muslim markets. It is hereby important to choose the right halal certificate, or combination of halal certificates, based on your export goals. Alignment of your halal supply chain with the market requirements of the Muslim markets you are serving is hereby becoming necessary. Alignment is about earning respect from the Muslim consumer with the ultimate goal of increasing value to the consumer in terms of Islamic resources, Muslim obligations and Muslim lifestyle.
Halal issues in Muslim markets
A halal issue is a gap between the stakeholders’ expected and perceived halal practices of a brand owner. A halal issue can be related to contamination, non-compliance, or pure perception. Halal supply chains today are complex global halal networks that produce halal issues. The halal industry is expanding fast in width (new categories of halal certifiable products are introduced such as cosmetics, pharmaceuticals, paint, toilet paper, etc.) as well as depth (more brands within a product category are halal certified), leading to an evident scaling up of halal issues.
In search for economies of scale and scope multinationals have been acquiring other brands. They have created global integrated systems and a coupling of brands. Muslim markets today are supplied by global supply networks of multinationals, originating from different production locations with a different halal context. The halal context of a country is linked to a different Islamic school of thought, religious rulings (fatwas), and local customs; which comes with different halal standards. In a single production location multiple brands are produced. It is also very easy to find out online which organisation owns which brands. Although these global supply networks might be efficient, there are also risks from a halal reputation point of view. As seen over the past years with big food companies, when a brand is faced with a halal crisis it easily spreads to other brands of the company and other geographical markets.
Second, there is a danger of correlation, where halal issues from outside (your supply network) could infect your brand. One of the reasons is the practice of co-branding by multinationals. For example fast food chains like to co-brand with a big beverage brand. When there is a halal issue with the beverage company it could have major consequences for the fast-food chain, and vice versa. Also consumer product manufacturers co-brand with special ingredients (e.g.: stevia, vitamin), halal certificate from HCB (with a good or bad track record), or social cause (e.g.: fairtrade, water fund). Halal issues with a co-brand could hereby damage your brand as well. Correlation also happens when a halal issue is discovered with a competitor, but infecting the entire industry. This could be related to (a perceived) non-compliance or perception of an industry practice.
Currently procedures designed to mitigate and distribute supply chain and corporate reputation risks may instead increase corporate halal reputation risks. The current disregard for halal reputation risks by large players in the halal industry is an evident moral hazard. It is timely to put corporate halal reputation on the top agenda for companies operating in and exporting to Muslim countries.
This article was published in Halal Focus on Wednesday 30 January 2019.