How industry competitiveness in the food production industry affects how firms respond to stakeholder's issue in the social media arena

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Master Thesis

Master of Science in Business Administration – International Management

How industry competitiveness in the food production industry affects how firms respond to stakeholder’s issue in the social media arena

Student name: Ruelle Ensermo Student ID: 6081614

Date of submission: March 24, 2017 Words count: 32,697 (including appendix) Supervisor: dr. Michelle Westermann-Behaylo Second reader: dr. Lori DiVito

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Supervisor: Michelle Westermann-Behaylo Second reader: Lori de Vito

Statement of originality

This document is written by student Ruelle Ensermo (6081614), who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business of the University of Amsterdam is responsible solely for the supervision of completion of the work, not for the contents.

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Acknowledgement

It is with great satisfaction that I write this final thesis for obtaining the master degree in Business Administration for the International Management Track at the Faculty of Business and Economics at the University of Amsterdam.

I dedicate this thesis to the loving memory of my aunt, Miss Saida Ensermo, who deceased in November 2016. She was always pushing me to finish my studies, she was my great motivator. May her soul rest in peace.

The preparation of this document would not have been possible without the support and efforts of a number of individuals. I am particularly grateful to my thesis supervisor, Mrs. Michelle Westermann-Behaylo, for the professional guidance and great insights through this thesis writing process.

Furthermore, I would like to acknowledge and extend my heartfelt gratitude to the persons who contributed and have provided me with great input for this study. They are Mr. Rik Siere, Mrs. Marci Vermeulen-Atikian, Mr. Raily Goedgedrag and Mr. Michel Farkas.

Finally, I would like to thank my family and friends for their unconditional love and support and any other person, that for one reason or another I forgot to mention here.

Ruelle Ensermo

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Table of Contents

Introduction ... 7

1.

Literature review ... 9

1.1 Development of the food industry ... 9

1.2 Stakeholders issue management ... 10

1.3 Firm’s Responsiveness... 14

1.4 Industry competiveness based on Porter’s five forces framework ... 18

1.5 Social media and reputation risk ... 23

2. Conceptual framework ... 29

3. Research Methodology ... 31

3.1 Qualitative research approach ... 32

3.2 Research strategy ... 33

3.3 Data analysis ... 37

4. Findings and analysis... 39

4.1.1: Tyson Foods Inc. ... 41

4.1.2: Kellogg ... 45

4.1.3: General Mills ... 48

4.1.4: Mars Inc. ... 50

4.1.5: The Maschhoffs ... 53

4.1.6: Lindt ... 56

4.2 Cross case analysis ... 59

4.2.1 Firm’s non-responsiveness ... 59

4.2.2. Substantive-accommodative firm’s responsiveness ... 60

4.2.3. Symbolic firm’s responsiveness ... 61

5.

Discussion ... 62

5.1 Discussion of the findings ... 62

5.2 Strengths and limitations ... 65

6.1

Conclusion ... 66

6.2 Suggestions for future research ... 67

Reference ... 68

APPENDIX 1: Case selection summary ... 73

APPENDIX 2: Social Media Engagement ... 76

APPENDIX 3: Per Capita Consumption of Poultry and Livestock, 1965 to Estimated 2016…..77

APPENDIX 4: US Cereal market share ... 79

APPENDIX 5: The main manufacturers of

chocolate

in the world ... 80

APPENDIX 6: Analytical table for cross-case analysis ... 81

APPENDIX 7: Overview of social media engagement ... 82

APPENDIX 8: Overview competitive forces per firm ... 83

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Index of Tables and Figures

Figure 1: Porter five forces model………19

Figure 2: Research model…………..………37

Figure 3: Food industry value chain……….40

Table 1: Results on working propositions………65

Table 2: Analytical table for cross-case analysis……….81

Table 3: Overview social media engagement……….82

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Abstract

The use of social media by stakeholders keeps researchers and communication experts busy with exploring how this relatively new digital way of communication does influence the way of doing business and how this translate in how firms deal with stakeholder’s issues nowadays (Albu and Etter, 2016). Corporations perceives that the use of social media by stakeholders plays a key role in (re)shaping the way firms respond to issues raised by the stakeholders in the processed food industry. Stakeholder’s issue refers to issue as the explicit concerns and requests raised by individuals or groups of stakeholders that can affect or be affected by the firm. It can be perceived as threat or opportunity for the firm. An intensified media attention on social media to specific stakeholder’s issue may heightens managerial awareness, attention and interpretation (Bundy et al, 2013). It may shape an issue’s instrumental interpretation on how the stakeholder’s issue relates to the organizational identity and strategic frame (Bundy et al, 2013). This influence how the firm responds to stakeholder’s issue. Firm’s responsiveness captures the firm’s commitment and course of action following perceptions of the issue salience. The issue salience is defined as the degree to which a stakeholder’s issue resonates with and is prioritized by management (Bundy et al, 2013). The five competitive forces provide a framework for identifying the most important industry

developments and for anticipating their impact on industry competitiveness (Porter, 1980). This multiple case study focuses to investigate if industry competitive factors moderated by social

media engagement impact how firm’s respond on stakeholder’s issue. The study is performed by using an inductive research approach. The cases are explored by using a within case study to analyze the within group similarities and the cross case study explore patterns and looking for intergroup differences.

Key words: stakeholder’s issue, issue salience, firm’s responsiveness, social media engagement, industry competiveness

Student name: Ruelle Ensermo Student ID: 6081614

Date of submission: March 24, 2017 Words count: 32,697 (including appendix) Supervisor: dr. Michelle Westermann-Behaylo Second reader: dr. Lori DiVito

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Introduction

Global food production has rapidly been consolidated in recent decades and the results of this recent developments are alarming. The takeover of the food industry by a few multinational enterprises (MNE) has radically shifted the focus of food production (Deloitte, 2015). Increased competition and the imposition of the corporate structure have led to a general preference by corporate managers for profitability (Porter & Kramer, 2011) over food quality, safety and other societal needs. It is noted that since the focus of MNEs has changed drastically recently, the lack of focus on food quality and safety is a growing concern for consumer’s health and wellbeing (Oxfam, 2015).

The news item presented on UK Independent on August 11, 2016 highlighted this growing concern for human health, as consequence of the lack of focus on food quality by KFC. Therefore, 140,000 supporters have signed an online petition on Change.org over the last 9 months to request KFC’s owner, Yum! Brands to urge KFC to stop serving chicken that has routinely been treated with medically important antibiotics, which have a factor as drug-resistant superbug. As consequence, the antibiotics are losing its effectiveness on the human health to treat illness caused by bacterial infections and the public health care sector is running out of time to protect people from superbugs (World Health Organization, 2016). As a result of this confrontation, KFC has decided to join other fast food restaurants, Pizza Hut, Papa John, Subway and McDonalds in 2017, to stop using these types of antibiotics which are crucial to human health. Instead, it will start using other types of antibiotics not to promote growth of the chickens, but to safeguard the health of the chickens under strict supervision and prescription of a licensed vet (Chapman, 2016). The supporters call this a ‘victory’. This confrontation in the fast food industry shows the power of social media. Consumers gain high voice on social media, which can shift power away from business to consumers.

Nowadays, consumers are taking control of the conversation about food and health in our society. This is due to the empowerment of consumers by the democratization of information and the influence and reach of the use of social media by consumers (Albu and Etter, 2016). Scholars have just started to examine how social media impacts business organizations and how social media can shift power away from business to consumers or other stakeholders (Wiederhold, 2012). Consumers are now much more informed and concerned about food ingredients, nutritional values, food production and processing procedures, due to increased accessibility of information online (Deloitte, 2015). These elements are determinant for the food quality that consumers take as part of their daily dietary program. This has great impact on consumer’s health and wellbeing. Therefore, the consumer’s needs require to be managed strategically by the firm in order to avoid any undesirable stakeholder’s issue that can damage firm’s reputation and image. Any stakeholder’s issue can expose significant reputational risk for the firm.

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Because increased competition has been a key driver for the developments in the food industry, this study explores whether industry competiveness (Porter, 1980) affects how firms manage stakeholder’s issue. Despite the intent of the strategic-cognitive approach to issue salience (Bundy et al, 2013), extant models fail to account directly for the impact of social media on firm’s responsiveness to stakeholder issues in the processed food industry. A stakeholder issue is described by Bundy et al (2013) as the explicit concerns and requests raised by individuals or groups of consumers that can affect or be affected by the firm. Furthermore, Bundy et al (2013) describe the process that managers are interpreting, balancing and responding to these claims as the stakeholder issue management. According to Bundy et al (2013) firms will respond to certain stakeholder issue depending on how consistent this issue is with the firm’s identity and strategic frame. The processed food industry is especially suitable to explore and test the firm’s responsiveness profiles related the stakeholder’s issues, due to the rapidly changing and very dynamic character of this industry. This enables this study to explore the effect of the strengths of each competitive force for firm’s responsiveness on stakeholder’s issue in the social media arena over a specific period of time.

This study explores if there is qualitative evidence to support any effect of stakeholder’s use of social media to firm’s responsiveness on issues raised in the food industry by stakeholders on the social media platform. The impacts of the use of social media by stakeholders and the level of responsiveness of firms in the high competitive versus the low competitive sub-industry segments on stakeholder’s issues will be explored in this study. The research gap is: why and how firms respond to stakeholder’s issue in the social media arena. This study will explore whether competitive motivators influence firm’s responsiveness on stakeholder issues.

The research question guiding this study is: Does the industry competitiveness of sub-industry segments impact how firms respond to stakeholder’s issues in the social media arena?

The thesis is built up by different chapters which will address the following topics. The introduction presents the thesis topic and sets the scene for the research area. Chapter 1 presents the literature review. Chapter 2 describes the conceptual framework, presenting how the research gap will be analysed and discussed. Chapter 3 will focus on the research methodology and data analysis & collection. Chapter 4 will present the findings and analysis. Chapter 5 is the discussion phase, where the results and outcomes found in the data analysis are explained. Chapter 6 will present the conclusions for the research and will set the direction for the future research areas.

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1. Literature review

This chapter defines and discusses the characteristics of the food industry, stakeholder’s issue management, social media and industry competitiveness. It covers existing papers of scholars on what already has been studied and research that already has been done related to this research area. It will show that the central research question of this study is based on the existing literature and has not been answered yet and presents the research gap.

1.1 Development of the food industry

The developments of the food and health industry get significant attention by stakeholders nowadays, since more consumers are concerned about the claims on health issues in the food industry (Deloitte, 2015). Deloitte’s Social Media Survey 2015 explains that the food and beverage industry in the US faces new challenges as consumers’ food preferences continue to evolve. According to Deloitte’s Social Media Survey 2015, many consumers are taking control of the conversation about food and beverages, due to the empowerment of consumers by the democratization of information and the influence and reach of the use of social media by consumers. Consumer’s trust in the food industry is creating a growing concern. Consumer trust can be a difficult item to define or quantify.

However, Deloitte’s 2015 Social Media Survey in the US found that consumers are 3,4 times more likely to harbour negative sentiment about food companies than a cross-industry average.

Deloitte’s 2015 Social Media Survey describes that what consumers consider “good for you” has shifted; when considering “food and health” they now take a more holistic perspective by weighing more product attributes, qualitative product claims, and longer-term considerations compared to statistical data of five years before.

Historically, nutritional content was often the solitary consideration in purchase decisions based on ‘food and health’ and most consumers focused on a single element, such as carbohydrates, protein, or sugar. Today’s market environment presents challenges to retailers and manufacturers alike, as they attempt to meet consumers’ needs. In fact, today’s consumer considers many health attributes simultaneously. FMI’s 2015 US Grocery Shopper Trends in US report illustrates that consumers now look at many data points, such as qualitative product claims and quantitative nutritional content information related to food & health. Therefore, the consumers need in the food industry has evolved significantly. The need for more healthy and nutritional products has increased, which also makes consumers more critical and willing to raise their voice when manufacturers or retailers fail to meet consumer needs in this industry.

Food markets and systems are globalizing to meet the demand to feed a growing and more affluent world population (FAO, 2015). According to the studies in 2015 of the Food and Agriculture

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Organization of the United Nations (FAO), the demand for agricultural products will increase by 50 percent between 2015 and 2030 and by 70 percent by 2050. Advancements in technology and mass movements of people across increasingly more urbanized continents create new opportunities and challenges for regulators as international commodity. Food and beverage price indexes begin to rise again after the 2008-09 economic downturn. Food products are now produced and distributed on an unprecedented global scale, necessitating increased involvement from all stakeholders to strengthen systems that ensure safe, affordable and sustainable food supplies. Consequently, traditional regulatory and trade facilitation responsibilities are changing, and new relationships are developing between public sector agencies and private sector participants in the stakeholders system.

1.2 Stakeholders issue management

Stakeholder’s issue is described as a forthcoming development, either as an internal strength or weakness or as an external threat or opportunity of the firm, which is likely to have an important impact on the ability of the firm to meet its objectives (Ansoff, 1980). Furthermore, Bundy et al (2013) describe stakeholder’s issue as the explicit concerns and requests raised by individuals or groups of consumers that can affect or be affected by the firm. Dougall (2008) describes stakeholders issue management as facilitating communication leadership in organizations. Besides, Bundy et al (2013) explains stakeholders issue management stakeholders issue management as the process by which managers interpret, balance and respond to the claims raised by consumers or stakeholder groups.

An issue may be a welcoming issue, also known as an external opportunity to be grasped in the environment or an internal strength, which can be exploited to competitive advantage of the firm compared to its competitors in the industry (Ansoff, 1980). The issue can also be an unwelcoming issue, also known as an external threat or an internal weakness, which endangers continuing success of the firm or even the survival of the firm. Frequently, external threats, because they signal significant discontinuities in the environment, can be converted into opportunities by aggressive and entrepreneurial management (Ansoff, 1980).

However, the downside of this ability to convert external threats into opportunities is that it’s an extremely costly activity. So, it’s noted that Ansoff (1980) explains stakeholders issue management as a SWOT analysis for the firm. This represents the external factors being the threats and opportunities and the internal factors being the strengths and weaknesses. While Ansoff (1980) studies the internal and external factors that influence firm’s responsiveness, Hillman and Keim (2001) take a broader and a multi-dimensional approach. Hillman and Keim (2001) explains that corporate social performance (CSP) is a multi- dimensional construct defined as having four components: economic responsibility to investors and consumers; legal responsibility to the

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government or the law; ethical responsibilities to the society and discretionary responsibility to the community.

Hillman and Keim (2001) incorporate the interaction between the principles of social responsibility, the processes of social responsiveness, the corporate policies and programs designed by corporations in the CSP to address social issue. Hillman and Keim (2001) explain that CSP is generally conceived as a broad construct comprised of stakeholder management and social issue management. Hillman and Keim (2001) classify that scholars very often define stakeholder as a narrow definition. By narrow definition is meant that scholars only consider primary stakeholders as those who bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm. These stakeholders are considered the key pillars for the existence of the corporation, without whose participation the corporation cannot survive. Primary stakeholders include capital suppliers (shareholders), employees, other resource suppliers (external investors), customers, community residents, and the natural environment.

Moreover, it is argued by Hillman and Keim (2001) that ‘primary stakeholder groups typically are comprised of shareholders and investors, employees, customers, and suppliers, together with what is defined as the public stakeholder group: the governments and communities that provide infrastructures and markets, whose laws and regulations must be obeyed, and to whom taxes and other obligations may be due’. While not all community residents are employees, suppliers, customers or investors, they do provide various forms of important infrastructure for the firm and in turn are impacted directly by tax revenues and physical environmental protection or degradation.

Hillman and Keim (2001) explain that strategy researchers have explored the firm as an institutional setting that can facilitate learning, the creation and dissemination of value-producing knowledge. This institutional context includes a history of repeat dealings with actors such as employees, customers, suppliers and local communities that generate reputational capital and trust. The emphasis made by Hillman and Keim (2001) is on the value that can be created by interactions, between firms and primary stakeholders, which are relational rather than transactional, such as market transactions. Transactional interactions can be easily duplicated and therefore offer little potential for competitive advantage.

It’s pointed out that relationships involving investments by two or multiple parties include a time dimension, therefore reputation is important, fair dealing and moral treatment by both or multiple parties enhance the value of relationships (Hillman and Keim, 2001). Because of the relational aspects that underlie these activities, the time dimension will constitute an important, intangible, path dependent quality of the relationship with that stakeholder group. In turn, these relationships will be difficult for other firms to duplicate or replicate, at least in the short run.

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Hillman and Keim (2001) emphasize that since market transactions can be easily duplicated or replicated, it offers little potential for competitive advantage. The value creation by relationship interactions have significant influence on building competitive advantage in a very competitive industry, like the food and health industry, compared to market transactions and impact the entire corporation's stakeholder system. Consequently, an organization can be viewed as a set of interdependent relationships among primary stakeholders. Managing relationships with primary stakeholders can result in much more than just their continued participation in the firm. Effective management of stakeholder’s relations with primary stakeholders to include customers, employees, suppliers, community residents and the environment can constitute intangible, socially complex resources that may enhance firm’s ability to outperform competitors in terms of long-term value creation (Hillman and Keim, 2001).

In addition, it has also been stressed out that the purpose of the corporation should be redefined as creating shared value and not only looking to make profit (Porter & Kramer, 2011). Shared value refers to creating economic value and simultaneously creating value for the entire society by addressing their needs. The focus of the study of Porter and Kramer (2011) on shared value creation is on expanding the total pool of economic and social value. Most importantly, the scholars emphasize that the focus is not on redistribution or sharing the value already created. By the theory of shared value creation, the scholars opine that companies will bring business and society back together and legitimize business again, as companies have been widely perceived to be profitable at the expense of the broader society’s needs (Porter and Kramer, 2011).

Stakeholder issue management is a process that helps organizations detect and respond appropriately to emerging trends or changes in the socio-political environment. These trends or changes may then crystallize into an ‘issue’, which is a situation that evokes the attention and concern of influential organizational publics and stakeholders. At its best, Dougall (2008) explains stakeholder issue management as stewardship for building, maintaining and repairing relationship with stakeholders. Decision-makers that actively are looking for, anticipating, and responding to shifting stakeholder expectations and perceptions are likely to have important consequences for the organizations that are engaged in stakeholders issue management (Dougall, 2008).

In addition, Bundy et al (2013) describes the stakeholders issue management as the process by which managers interpret, balance and respond to the claims of stakeholders. Many existing research focus on why or how firms respond to stakeholder issues, how to approach the question from the stakeholder’s perspective and also focuses on external drivers; such as stakeholder’s characteristics. Different streams of research examine stakeholders’ characteristics to explore which stakeholder groups receive managerial attention. In other works, researchers examine the influence

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of institutional motivation (Dunning, 1998), competitive motivation (Porter, 1980), and corporation’s motivation (Jawahar & McLaughlin, 2001) to explore which stakeholder(s) receive (most) managerial attention.

It’s argued that external characteristics of the stakeholders alone didn’t trigger firm’s increased responsiveness to stakeholder’s issue, mostly because the nature of the issue does not change, nor the power, legitimacy or urgency of the stakeholders involved (Bundy et al, 2013). When management of the firm start to interpret the issue based on strategic cognition, it considers the consistency of the issue with the firm’s identity and strategic framework; the firm’s perspective (Bundy et al, 2013). Bundy et al (2013) state that scholars investigating the concept of issue salience in several streams of organizational literature emphasize on the stakeholder’s and the firm’s perspective. Scholars taking a stakeholder’s perspective, often focus on the degree to which an issue resonates with a stakeholder group, suggesting that stakeholders mobilize on an issue because of their collective perception of the criticality as driven by identity, culture or emotional connection.

This social identity and emotional perspective explain why certain stakeholders advocate for radical issues (Bundy et al, 2013). Issues are salient to stakeholders to the degree that they connect with deeper meanings of what defines the group and makes it unique (Bundy et al, 2013). On the other hand, Bundy et al (2013) explains that while stakeholder’s view of issue salience emphasize expressive logic from an identity perspective, strategic views of issue salience focus on firm-level interpretations of how an issue significantly affects the firm in its attempt to achieve its goals. Bundy et al (2013) emphasize that issue salience perceptions are a function of how the firms strategically frames the issue. Management will prioritize issues based on perceptions of how the issue relates to strategic frames and managerial actions will follow this prioritization.

Important conclusion in the research conducted by Bundy et al (2013) is that issues which are not framed as influential to strategic goals don’t receive attention or priority of the management. On the other hand, if management interpret and prioritize an issue as instrumentally salient for achieving firm’s long term or short term strategic goals, it will be granted greater priority and attention. Bundy et al (2013 provides an overarching framework of issue salience.

Synthesizing stakeholders issue and stakeholders issue management, Bundy et al (2013) presents the most well-articulated instrumental theory. Therefore, the theory by Bundy et al (2013) is used as the overarching framework to assess the stakeholders issue in this multiple case study. The multiple case study presented in section 4 analyzes for which cases the issue is consistent with the firm’s identity and strategic frame as explained by Bundy et al (2013), and if this influences how firms respond on specific stakeholders issue. If the consistency is confirmed with the firm’s strategic

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frame in the case study, then the issue is salient to the firm and it will receive the most firm’s attention, firm’s prioritization and management’s action.

Despite of previous research done on this topic, considerable debate persists regarding the mechanism that drives firm’s actions in response to stakeholders concerns (Bundy et al, 2013). During this literature review, the research gap was created: how and when does firm respond to stakeholder’s issue. This study focuses on the competitive motivators as the independent variable in this research model, presented in figure 2. This research model explores if competitive motivators influence firm responsiveness on stakeholder’s issue in the social media arena. The next section elaborates on the different forms and materiality of firm’s responsiveness.

1.3 Firm’s Responsiveness

Jawahar and McLaughlin (2001) base their theory on the premise that organizations face different pressures and threats at different stages in the organizational life cycle. Therefore, at different stages different stakeholders become critical for organizational survival. Consequently, depending on who the critical stakeholders are at each stage, the firm is likely to use different strategies to deal with those critical stakeholders versus other stakeholder groups. Bundy et al (2013) suggest a new perspective for understanding firm’s responsiveness to stakeholder concerns by developing a strategic cognition view of issue salience compared to Jawahar and McLaughlin (2001).

Firm’s responsiveness is defined by Bundy et al (2013) as the degree to which a firm is willing to provide a thoughtful response to stakeholder concerns by committing substantial resources, time, energy and effort to continued work on the issue. This definition is directional, meaning that this explanation connotes action but not limited to a discrete outcome. Responsiveness also doesn’t imply strict adoption or rejection of a stakeholder’s request, but rather incorporate a range of potential outcomes regarding firm behavior towards the stakeholder’s issue (Bundy et al, 2013). Early work in stakeholder theory addressed firm’s responsiveness by developing general strategies of stakeholder management, outlining broad firm’s responsibilities to stakeholders (Donaldson and Preston, 1995) and examining stakeholder’s characteristics to determine which stakeholders could command managerial attention (Bundy et al, 2013).

Jawahar and McLaughlin (2001) argue that economic and non-economic responsibilities are not separate issues, but rather are part of the firm’s corporate social responsibility (CSR). Carroll (1979) defines CSR as ‘encompassing the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time’. Wilson (1974) notes that organizations could use the strategies of reaction, defense, accommodation, and pro-action to address their economic, legal, ethical, and discretionary responsibilities. On other hand, Bundy et al (2013)

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explains that firm’s responsiveness captures the firm’s commitment and course of action following perceptions of the issue salience.

Bundy et al (2013) defines issue salience as the degree to which a stakeholder issue resonates with and is prioritized by management. In doing so, Bundy et al (2013) position issue salience as a central driver of firm’s responsiveness. However, this study positions the level of competitive force (Porter, 1980) as central driver of firm’s responsiveness on stakeholder’s issue in the social media arena. This enables the investigator to look at this phenomenon from a different perspective than existing studies and provide an unique contribution to the scientific field.

Bundy et al (2013) explains that issue salience can work both in positive and negative ways. Meaning that the influence of issue salience can be consistent or conflicting. Therefore, researchers in stakeholder’s issue management field focus on issues as both opportunities and threats (Fassin, 2009). In developing perspective of Bundy et al (2013), they recognize the value of prior research (Wilson, 1974; Carroll, 1979) on firm’s responsiveness that emphasizes various issue characteristics for example, who sponsors the issue, how much institutional attention the issue receives and the issue’s potential impact on the organization and stakeholders. However, they also suggest that an important yet missing component for understanding responsiveness is managers’ interpretation of the issue and its characteristics as salient to the firm and, thus, worthy of a response (Bundy et al, 2013). They describe a strategic cognition process used by managers to determine issue salience as an outcome of issue interpretation.

Furthermore, given that firm’s responsiveness has largely been understood as action taken against some specific request or demand, this strategic cognition process has been used to suggest a direct relationship between issue salience and a firm’s response (Bundy et al, 2013). Bundy et al (2013) consider the materiality of the response to be either symbolic or substantive. If the firm opt for a substantive response, the general form of the response can be either defensive or accommodative. The response substance refers to the material action taken in reaction to the issue, which can result in significant changes to the firm’s goals, strategies, policies, structures or processes.

Bundy et al (2013) connect the interpretation of the issue salience to the firm’s action, which leads to the materiality and form of firm’s responsiveness. However, Jawahar and McLaughlin (2001) argues that firm’s responsiveness is dependent on the threats and opportunities varying with organizational life cycle stages. Organizations are likely to have different needs, in terms of resources, in different stages of the organizational life cycle. From the perspective of prospect theory, these needs in the light of organizational resources have the potential to serve as reference points for making resource allocation decisions (Jawahar & McLaughlin, 2001). In some life cycle

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stages, certain needs are likely to be so critical that if they are not fulfilled, the organization is unlikely to survive (Jawahar & McLaughlin, 2001).

If a threat currently exists, then it will be too late for pro-action, and firms can at best use accommodative approach (Jawahar & McLaughlin, 2001). The defensive approach is likely to be used in interacting with the other stakeholders whose participation is not essential for meeting those critical needs. As described by Bundy et al (2013), they provide more attention to understanding to whom and what firms pay attention, as well as how they respond given a certain level of attention to specific issue. Bundy et al (2013) describes the issue salience as the degree to which a stakeholder issue resonates with and is prioritized by management of the firm. Bundy et al (2013) emphasizes that issue salience perceptions are a function of how the firms strategically frames the issue. Management will prioritize issues based on perceptions of how the issue relates to strategic frames and managerial actions will follow this prioritization.

Bundy et al (2013) state that issues that are not framed as influential to strategic goals don’t receive attention or priority of the management. On the other hand, if management interpret and prioritize an issue as instrumentally salient for achieving firm’s long term strategic goals or short term objectives, it will be granted greater priority and attention (Ansoff, 1980; Bundy et al, 2013). So, reaction to an issue is according to Ansoff (1980) and Bundy et al (2013) not an automated process, but rather depends on the interpretation and perception by the managers of the firm in concern.

Since the organizational identity reflects how a firm defines itself and express its values, the strategic frame is key driver into translating these values into strategic actions. The knowledge structure is the mechanism that informs strategic decision about cognitive templates that individuals impose on the information environment to give it form and meaning. This means that strategic frames shape the interpretation and translation of an environmental context into competitive decision (Bundy et al, 2013). Managers use strategic frames to categorize an issue and determine its level of priority (Ansoff, 1980). Hence, these frames are also product of social construction and influence.

At this point, the use of social media by stakeholders plays a key role in (re)shaping the way firms respond to issues raised by the stakeholders. Since social media provides the stakeholders with accessibility to wide range of information and democratization of information. Words are spread easily and in a rapid pace with a click on the worldwide web. The user generated content (UGC) is not verified information, therefore it’s untrustworthy and unreliable information. But still it has the power for the stakeholder to gain voice and influence how firms deal with stakeholder’s issue. Since a negative word on the social media can reach hundreds of thousands of people and can damage a

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firm’s image and reputation, firms are determined to avoid this risk at any given cost. On the other hand, a firm operating in a monopoly or oligopoly market, theoretically possess great market share. This fact gives the firm the power to dictate the game rules in the business. So power comes from both sides of the model.

Additionally, Bundy et al (2013) explain that the relationship of the stakeholder with the firm is also important by determining the attention and prioritization that the issue receives from the management. If the relationship is internal or external, it’s influencing the importance the issue receives. This highlights another variable influencing the firm’s responsiveness, being the stakeholder’s relationship with the firm. Furthermore, Bundy et al (2013) stress out that an intensified media attention, like on social media, to specific stakeholder’s issue, may also heightens managerial awareness, attention and interpretation. It may shape an issue’s instrumental interpretation on how the stakeholder issue relates to the organizational identity and strategic frames. This will also influence the firm’s responsiveness on the stakeholder’s issue.

The intensity and nature of the stakeholder’s issue also influence instrumental interpretation including both strategic and moral issue considerations (Bundy et al, 2013). Summarizing, there are multiple elements of the stakeholder’s issue which may influence the firm’s responsiveness, from issue salience, competitive motivators, strategic frames, stakeholder’s relationship, social media attention, institutional environment, the intensity and nature of stakeholder’s issue. This study focuses on the issue salience framework presented by Bundy et al (2013) as the overarching framework for this study. Stakeholder’s issue interpreted as highly salient and thus having a perceived material expressive and instrumental relationship are more likely to harvest a substantive response (Bundy et al, 2013).

In contrast, responsiveness to less salient issues is likely to be more symbolic in nature. Meaning that firms may seek to signal compliance with external parties and in reality continuing in their own incumbent self-interest. Symbolic response is tended to be manipulative to external expectations. The materiality of the firm’s responsiveness can be either substantive or symbolic. In addition to the materiality of the response, Bundy et al (2013) also consider the form of the response and make a distinguish between defensive and accommodative and is dependent to consistency or conflict. Issues perceived as materially consistent with a firm’s strategic frame produce an accommodative response. Consistent response can be related to perceived opportunities by the firm. On the other hand, issues perceived as materially conflicting with the firms cognitive structure produce defensive response.

If the issue is in a negative term for the firm, it will employ a defensive response to distance itself from the issue, maintain existing cognitive structure and attempt to remove the perceived

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threat of the issue (Bundy et al, 2013). Conflicting response can be related to perceived threats by the firm. Finally, issues perceived as unrelated to strategic frame of the firm will lack salience and thus by definition unlikely to resonate with or be prioritized by management. This will lead to non-responsiveness of the firm. The next paragraph elaborates on the industry competiveness framework.

1.4 Industry competiveness based on Porter’s five forces framework

Porter’s starting point in 1980 was to account for long term variances in the economic returns of one industry versus other industry. Porter managed to come up with five explanatory or causal variables that can explain either greater or poorer performance in the industry. The five competitive forces provide a framework for identifying the most important industry developments and for anticipating

their impact on industry competitiveness. Vom Brocke & Buddendick (2007) have added to Porter’s study in 1980 by adding that the

application of the analysis derived from the Porter’s five forces framework also determines the competitiveness of a specific sub-industry segment. Regarding the strategic positioning in the food industry, the sub-industry segment has been determined: the food production/processing. Application of the analysis on the Porter’s five forces framework determines the competitiveness of a specific sub-industry segment (Vom Brocke & Buddendick 2007). Furthermore, the strength of each force can be determined by a range of influence variables (Vom Brocke & Buddendick 2007).

Moreover, Vom Brocke & Buddendick (2007) states that by analyzing the competitiveness of the sub-industry segment, the investigator can reach a comparative advantage of the firms in one specific sub-segment based on their tailored services or products and firm’s strategy implementation, in order to reach their specific target market. Porter’s five forces framework, as shown in figure 1, is used to determine the intensity of the competition in an industry (Porter, 1980) and can also be applied to study competiveness of sub-industry segment (Vom Brocke & Buddendick, 2007). The five forces of Porter are; threats of substitutes, bargaining power of buyers, threats of new entrants, bargaining powers of suppliers and industry rivalry.

However, this study will not focus on all the five mentioned forces. The competition analysis of the sub-industry segment in this study focuses on the following three forces: threat of substitute, threat of new entrant and bargaining power of buyer. Since most sub-industry segments are high vertically integrated, so the firm owns almost every piece of the supply chain, the bargaining power of suppliers is not relevant in this study. In addition, the industry rivalry is an analysis of all the other four forces combined and since I don’t delve deep into all four forces, there is no added value for the purpose of this study to look into the fifth force; industry rivalry.

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Figure 1. Porter five forces model

Threat of substitutes (products or services) refers to the availability of substitute products or services will limit the firm’s ability to raise prices. Porter (2008) explains that a substitute performs the same or a similar function as an industry’s product by a different means. For example, chicken is a substitute for beef and vegetable is a substitute for beef. We speak about a downstream or indirect substitution when a substitute replaces a buyer industry’s product. Substitutes are always present, but they are easy to overlook, because they may appear to be very different from the industry’s product. When the threat of substitutes is high, industry profitability suffers. Substitute products or services limit an industry’s profit potential by placing a ceiling on prices.

If an industry does not distance itself from substitutes through product performance, marketing, or other means, it will suffer in terms of profitability and often growth potential. Substitutes not only limit profits in normal times, they also reduce the top prize an industry can recap in good times. The threat of a substitute is high if; the substitute offers an attractive price-performance trade-off to the industry’s product; the better the relative value of the substitute, the higher is the pressure on an industry’s profit potential; the buyer’s cost of switching to the substitute is low and there are lot of market players offering the same (type) of products or services in the industry and each market player holds a small market share.

Bargaining power of buyers refers to the fact that powerful buyers have a significant impact on prices. Powerful customers can be identified as the flip side of powerful suppliers; it can capture more value by forcing down prices, demanding better quality or more service, thereby driving up costs, and generally playing industry participants off against one another, all at the expense of industry profitability. Buyers are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their power primarily to pressure price reductions. As with suppliers, there may be distinct groups of customers who differ in bargaining power. A customer group has negotiating leverage if it meets the following criteria explained by

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Porter (2008): the amount of buyers is low or each individual buyer purchases in volumes that are significant relative to the size of one single vendor; high fixed costs and low marginal costs amplify the pressure on rivals to keep capacity filled through discounting; the industry’s products are standardized or undifferentiated. If buyers believe they can always find an equivalent product at affordable price, they tend to play one vendor against another, and the buyers face low switching costs in changing vendors.

Bargaining power of suppliers refers to that powerful suppliers can demand premium prices and limit the firm’s profitability. Powerful suppliers are able to capture more of the value for themselves by charging premium prices, limiting quality or services or shifting costs to other industry participants. I don’t delve deep into this competitive forces, since there is no added value for the purpose of this study to look into this force.

Industry rivalry refers to the degree of competition among existing firms. Intense competition leads to reduced profit potential for companies in the same industry. It’s known that rivalry among existing competitors can take several forms including price discounting, new product introductions, advertising campaigns and service improvements. I don’t delve deep into this competitive force, since there is no added value for the purpose of this study to look into this force

Threat of new entrants (also known as the barriers to entry) refers to the act as a restraint against new competitor in a particular industry. According to Porter (2008) the new entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs and the rate of investment necessary. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition. The dependent variables of the threat of new entry in an industry is the level of market entry barriers, the number of market exit barriers and the reaction entrants can expect from industry participants. If market entry barriers are low and newcomers expect little revenge from the embedded competitors, the threat of entry is high for the existing industry participants. It is the threat of entry, not whether entry really takes place or not, that will hold down profitability according to Porter (2008). Entry barriers are advantages that existing industry participants have relative to new entrants.

Furthermore, Porter (2008) describes the expected revenge that may occur with the threat of new entry. How potential new entrants believe incumbents may react will also influence their decision to enter or stay out of an industry. If reaction is vigorous and protracted enough, the profit potential of participating in the industry can fall below the cost of capital. Incumbents often use public statements and responses to one entrant to send a message to other prospective entrants about their commitment to defending market share. Newcomers are likely to fear expected revenge

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if: industry participants have previously responded vigorously to new entrants. industry participants possess substantial resources to fight back, including excess cash, unused borrowing power, available productive capacity or influence power with distribution channels and customers.

Industry participants seem likely to cut prices because they are committed to retain market share at all costs or because the industry has high fixed costs, which create a strong motivation to drop prices to fill excess capacity. In this case, industry growth is slow so newcomers can gain volume only by taking it from incumbents. An analysis of barriers to entry and expected retaliation is obviously crucial for any company contemplating entry into a new industry. The challenge is to find ways to overcome the entry barriers without nullifying, through heavy investment, the profitability of participating in the industry (Porter, 2008).

As the five forces reveal what’s the industry competitiveness, it enables the food producer/processor to incorporate the sub-industry segment conditions into the firm’s strategy. The forces reveal the most significant aspects of the competitive environment and provides a baseline for categorizing the industry competitiveness (Porter, 2008). The level of sub-industry segment competitiveness will be determined for each case study in chapter 4 and for developing the working propositions for this study. Most importantly, understanding of industry structure guides managers toward fruitful possibilities for strategic action, which may include any or all of the following: positioning the company to better cope with the current competitive forces, anticipating and exploiting shifts in the forces and shaping the balance of forces to create a new industry structure that is more favorable to the company.

Given the low barriers to entry, the food production industry has historically been highly fragmented, with numerous local competitors. While rivals try to engage in long-term customer relationship management, buyers are price sensitive because food represents a large share of any household expenditure. Buyers can also choose the substitute approaches of purchasing directly from manufacturers or using retail sources, thus avoiding distributors altogether. Moreover, the issue salience approach presented by Bundy et al (2013) states that issue salience has a direct relationship with firm’s responsiveness. The approach makes a distinguish between an internal relationship (employee) and external relationship (customers). Also, Bundy et al (2013) states the issue can be consistent, which lead to an opportunity for the firm or the issue can be conflicting, which lead to a threat for the firm.

An improved industry structure is a public good because it benefits every firm in the industry, not just the company that initiated the improvement. Often, it is more in the interests of an industry leader than any other participant to invest for the common good because leaders will usually benefit the most. Certainly, improving the industry may be a leader’s most profitable

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strategic opportunity, in part because attempts to gain further market share can trigger strong reactions from rivals, customers, and even suppliers. There is also disadvantages related to shaping industry structure, that is equally important to understand. Poorly justifiable changes in competitive positioning and operating practices can undermine industry structure. Faced with pressures to gain market share or charmed with innovation for its own sake, managers may trigger new kinds of competition that no incumbent can win. Whenever manager are taking actions to improve their own company’s competitive advantage, strategists should ask whether they are setting in motion dynamics that will undermine industry structure in the long run.

Porter (2008) explains that the combination of competition and value can best be described when the competitive forces reveal the drivers of industry competition. This refers to that a company strategist who understands that competition extends well beyond existing rivals will detect wider competitive threats and be better equipped to address them. At the same time, thinking comprehensively about an industry’s structure can uncover opportunities; think about differences in customers, suppliers, substitutes, potential entrants and rivals that can become the basis for distinct strategies yielding superior performance. In a world of more open competition and relentless change, it is more important than ever for business strategists to think structurally about competition. Understanding industry structure is equally important for investors, managers and strategists.

In a perfect competition industry, characterized by a high competition level between firms, one firm’s competitive moves will have a noticeable impact on the competition; other firms will then react to counter-effect those efforts. Firms are mutually dependent in the perfect competition industry, so the pattern of action and reaction may harm all companies and the entire industry (Porter, 1998). Porter (1990) defines his five forces framework as most effective model to determine an industry competiveness and attractiveness.

Following, the paper presents the phenomenon of this age: use of social media by stakeholders, that keeps researchers and communication experts busy with exploring how this relatively new digital way of communication does influence the way of doing business and how this translate in how firms deal with stakeholder’s issues nowadays. The next paragraph of this chapter elaborates on the characteristics of the use of social media by stakeholders, while also considering how social media is implemented when managing stakeholder’s issues.

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1.5 Social media and reputation risk

Digitalization has transformed the world’s economy and people daily lives slowly but surely. The habits of consumers including how we work, travel, shop, eat and are entertained have also transformed with the development of digitisation. The development of social media has provided a great contribution on how individuals communicate and interact around the globe. The internet is a diverse source of innovation and creativity. Nearly three billion internet users are both creators of information, also known as user generated content (UGC) as well as consumers at the same time (OECD, 2016). Digital technologies and the internet offer remarkable development potential. The internet and social media have made the entire world the new marketplace for businesses. In order for firms to be competitive in today’s international market, social media must be both globally impactful and locally responsive.

As technology and business culture change, companies will have to adapt to new social media outlets and establish safe and effective social media practices. Social media is characterized by interactivity, participants are free to create, send, receive and process content for use by other users. Firstly, they are free in the way that every participant has a free willing power to decide whether or not he/she wants to create, send, receive and process content for use by others, so it’s not an obligation by anybody. Secondly, participants are free in the way that there are no additional costs involved to create, send, receive and process content for use by other, with exception of the costs for internet connection at home on or a mobile device. Social media services include social networking, content producing, the distribution of services and websites that are collectively constructed by users, like; ‘wikis’ such as Wikipedia; video and photo sharing services; such as YouTube and Flickr; virtual worlds like Second Life and diary-type websites (blogs).

From the corporate perspective, the most interesting and most popular social media services include the world’s biggest social networking service: Facebook; career-oriented social media platform: LinkedIn and the network service; Twitter, which provides members with the platform to send out short messages via computer and mobile devices to other members with the principal goal to expand one’s network by reaching more customers or potential participants/candidates with your message.

The popularity of social media makes it a forum that can’t be ignored by the corporations. According to the special report of The Economist Magazine dated January 30, 2010, if Facebook was a nation, it would be the third most populous nation on earth with 450 million inhabitants (users) after China and India. According to this same report, Facebook users post over 55 million updates a day on the site and share more than 3.5 billion items of content with other users on a weekly basis (The Economist, 2010). Social media has several implications for corporate strategic endeavors. In

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terms of corporate communication strategy, social media and other similar internet services are characterized by easy searching, open participation, a minimal publishing threshold, dialogue, community, networking, and the rapid and broad spread of information and other content via a wide range of feedback and linking systems.

Twitter has become an important avenue for online social interaction, due to a wide range of organizations and institutions use this social media tool to interact with internal and external stakeholders. Organizations have started using Twitter as a tool for stakeholder communication, because the population of Twitter is over 230 million users who create/share more than 500 million tweets per day (Albu and Etter, 2016). So, the exposure the organization can receive by the use of this tool is significant and powerful. Furthermore, the tweets are used for organizational purposes, such as informing or engaging with various stakeholders. Hashtags are used because they function to bring together multiple conversations and at the same time facilitate a multiplicity of conversations by being retweeted (Albu and Etter, 2016).

If these dynamics are evaluated carefully, it’s realized that stakeholder liaisons mean less corporate control over stakeholder relations and easy communications between stakeholder groups. In terms of strategic reputation management, it’s important to point out the fact that social media content can’t be controlled prior that the content has already been published and broadcasted; reaching a wide range of audience that may also be the target audience of the corporation. By emphasizing this, it’s observed that it’s very sensitive case if unreliable and untrustworthy information is published out there in the public. If this content doesn’t match with the reality it can expose a reputation risk and reputation damage for the firm, what will be hard to control, manage and adapt perception of the customers about the firm over time.

This highlights that the financial risk involved are high, since managing reputation damage can be a very costly and time consuming operation and the firm can lose considerable number of customers which can lead to the loss of market share, leading also to loss of the firm’s competitive position in the industry and total turnover in dollars. Moreover, it’s crucial to point out that the content can’t be managed in the same way as conventional media, such as TV or newspapers. In practice, this means that it is almost impossible for organizations to control conversations about themselves.

Scholars have realized how social media can create reputation risk (Aula, 2010) as well as legal risk (Mainiero & Jones, 2013). “Reputation risk is the possibility or danger of losing one’s reputation, this presents a threat to organizations in many ways” (Aula, 2010). The loss of reputation affects competitiveness, local positioning, the trust and loyalty of stakeholders, media relations, and the legitimacy of operations, even the license to exist (Aula, 2010).

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Recently, reputation risk has been added to the long list of several business risks that organizations must take seriously into consideration when doing business in a competitive industry, the so called operational risk. In general terms, operational risks involve non-performing to poorly performing internal operations, systems, people, or external events that cause direct or indirect losses to an organization. Several firms according to Aula (2010), identified its primary risks as ‘‘the decreasing need for space by customers, reputation risk and financial risk related to rising cost levels and the balance sheet values of properties’’ (Aula, 2010). Reputation risk doesn’t only affect individual organizations, but it can affect an entire industry. Even the existence of the risk is interpreted as a threat for the business operations of the firm. The consequences of loss of reputation and the realization of reputation risk are described by Aula (2010) as being either direct or indirect.

The consequences may be legal or financial and can significantly weaken operating conditions. Aula (2010) identifies three types of reputation risk factors: risk is increased when the gap between an organization’s reputation and its reality grows; risk is increased by a change in the expectations of consumers; and when an organization is internally unable to react to changes in the environment, a highly important source of reputational risk is poor coordination of the decisions made by different business units and functions.

It’s arguable by Aula (2010) that social media expands the spectrum of reputation risks and boosts risk dynamics. In social media services, users mostly generate unverified information, both true and false information and put forth ideas about organizations that can differ greatly from what the organization itself share with the public. On the other hand, social media services pose also advantages to the firm: social media services fuels new expectations or beliefs about organizations, to which organizations should respond. These expectations can include those created by the social media about ethical business behavior and practices or the transparency of business operations.

In addition, social media users spread their opinions about what organizations should focus on in the future. There are many social media websites that question the responsibilities and administration of organizations lately. This creates a big demand on corporations to include transparency and (social) corporate responsibility into their daily business operations, management and strategy. Furthermore, reputation risk can result from an organization’s own communication activities, including their reaction to claims presented in the social media. Organizations have been caught manipulating the facts in online encyclopedias, such as Wikipedia, for their own benefit, as well as maintaining fake company blogs (‘‘fake blogs’’ or ‘‘flogs’’) to create a fake high reputation.

Social media challenges conventional reputation management in three ways according to Aula (2010): First, social media should not be used by corporation as a simple channel for

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distributing corporate communications, but there is an important aspect if interactivity associated with social media services. It’s an arena for participation in which organizations interact with the public and gain publicity, brand name and name recognition. These interactions create impressions that are important for each organization. Therefore, social media venues are places where users can actively participate in the ongoing process of influencing assessments of corporations.

Second, strategic reputation management should concentrate more on long-term strategy based on business ethics, responsible business practices and ethical business behavior, rather than pursuing short-term interests. In social media, there has to be a clear line between how to behave in order to live up to expectations and how to communicate a business goal. If this is put in a different way, by the use of social media services by an organization, the message about the business goals or objectives can’t only look good; it has to be truly good.

Third, social media has the effect of presenting a collective truth. Users create and search for information, gain knowledge and make interpretations based on communication about an organization. Once they have built a picture, they share it with others and the subjective truth turns into a collective truth about what an organization is and what it should be. If undesirable opinions about an organization go unchecked or unanswered, the situation becomes difficult to correct (Aula, 2010). For this same reason, Aula (2010) recommends for a firm to start with effective reputation risk management in advance, and not after the reputation crises. This is also an effective way of reducing the reputation risk prompted by the strategic changes.

If an organization’s relationship to social media is restricted to communicating only an unilateral truth, the organization loses many opportunities to interact, act and communicate. So, if the organization is facing troublesome period, this can be also communicated in a proper, ethical, dynamic and strategic way by use of social media services. By doing this, firms are proving to be transparent and responsible for ethical business behavior and practices. Instead, that the information is afterwards leaked by any other source or way on social media, this will increase the reputation damage enormously. “Organizations always strive to control the web using reputation management in order to create favorable publicity. But by understanding ambient publicity as an environment of meaning, organizations, their stakeholders, and the public become aware of a ‘‘complex narrative web’’ that determines reputation” (Aula, 2010).

Reputation management follows the idea of multi-logging compared to dialoging. It refers to that interaction with the public is complex, overlapping and continuous. However, since reputation risks can emerge anywhere within ambient publicity, firms should be omnipresent, referring to that firms should be all over the place with a hands-on mentality to act or response immediately whenever necessary to avoid exposure to reputation risk or reputation damage. By doing this, firms

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can stay on top of their game, which is beneficial to keep a market position within a competitive industry.

When managing reputation risks it is important for leaders to be aware of and participate in the social process of creating meaning. Managing ambient publicity is both an issue of corporate communications and of economics (Aula, 2010). This demands an in-depth analysis of the conditions involving an organization as both an environment of meaning and as a traditional business environment. Business strategists have to be aware now that consideration of which kinds of concrete reputation risks are produced by social media, what the consequences are when these risks materialize, how organizations should try to manage reputation risks emerging from social media, and whether organizations should have an ambient publicity strategy.

From the strategic management point of view, a major change will likely be the shift from a world of careful planning to one of ongoing uncertainty and risks. Because of social media, everything an organization does is profoundly public, sometimes with the firms being aware and sometimes unaware of this public and sensitive environment. Management of ambient publicity plays a central role in furthering a firm’s strategic goals as it builds relationships with stakeholders, building relationship with the stakeholders is also integrated in the issue salience approach by Bundy et al (2013). It also represents their interests to produce a reputable company and ultimately creates shareholder value for the firm by enhancing and maintaining a good reputation.

The power of social media to interfere with business objectives is undeniable. Perrault et al (2000) presents the impact of social media on existing issue management models specified as six distinguishing features pertaining to; cost, accessibility, network enablement, immediacy, permanency and novelty. These features are not mutually exclusive, but when taken together they affect managers’ attention to, and interpretation of, arising issues as well as their firm’s response to activists (Perrault et al, 2000). Social media has the power to determine what’s important and what’s not, what should be discussed and what should be discarded. Social media has the power, especially to determine the state and relevance of things as one of the most important forms of using power in these times.

The power of social media is not the power of direct action, that is activism. But it’s power is certainly the power to assert pressure and power of determination. This is of particular importance when considering the role of social media in the economy and society. The world changes primarily through action and secondarily through words. Firms should not underestimate social media’s power to influence and its power of determination. Social media can raise real grievances, crystallize the anger of the masses and focus attention precisely on the products shortcomings or firm’s negligence (Aula, 2010). This can make the firm fix its mistakes and do things differently. This study

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will focus especially on how do firms respond and so how do they act as a result of the impact of the use of social media by the stakeholders.

In terms of reputation, social media is therefore, part of the project that supports the legitimacy of firms. Mostly, firms have to respond to new beliefs or expectations that are fuelled by social media. With reference to Aula (2010), these may include issues of organizational transparency or ethical business practices. Additionally, social media is a major source of ideas for the future focus of the firms. Users have been responsible for revealing corporate responsibility, calling for transparency in how firms are managed, even questioning the administration and the responsibilities of the managers. For this reason, social media has formed an avenue where negotiation and construction of reputation and reputation risk are done.

Moreover, the manner in which organization posts on social media and how it responds on posts on social media can also contribute to reputational risk. Consumers with high reliance on use of social media as well as those with higher level of manufacturer and retailer distrust, display a higher preference for evolving drivers when making purchase decisions. The evolving drivers are safety, transparency, social impact, experience and health & wellness (Deloitte, 2015). At the end, when corporations are dealing with reputation risk on social media, it is argued that transparency is of key importance for a firm to have sound and reliable business operations in today’s international business market.

After reviewing all the different existing literature on stakeholders issue management, social media and industry competitiveness, it can be identified that the scholars have not yet studied the phenomenon of the firm’s responsiveness on stakeholder’s issue impacted by the competitive level in the sub-industry food segment and moderated by the stakeholders’ use of social media. The research gap identified during this literature review will be conceptualized in the research model (see figure 2). The research gap is: why and how firms respond to stakeholder’s issue. This paper attempts to fill key gaps in the academic understanding of why and how firms deal with stakeholder’s issue and respond to stakeholders by focusing on the industry competitiveness and incorporating use of social media as the moderating variable.

The intensity of the competition in the industry will be examined based on three of the five forces of Porter’s framework: threats of substitutes, bargaining power of buyers and threats of new entrants. The central research question is the leading question during the full process of this study and will be tested using a multiple case study and which the findings and analysis will be presented in chapter 4.

The next chapter will present six working propositions according to the designed research model in figure 2 to test the relationship and impact of sub-industry segment on a high or low