The Power of Reputation for Small and Medium Enterprises (SMEs)
More than 99% of Spain’s business landscape is composed not of large corporations, but of small and medium-sized enterprises (SMEs) like the local bakery, a friend’s innovative startup, or a trusted family workshop. These SMEs generate around 60% of the nation’s wealth.
In a globalized market dominated by large companies capable of spending hundreds of thousands on marketing, how can these SMEs compete? The answer lies in an intangible yet immensely powerful asset: their reputation.
Reputation as a Strategic Advantage
Business reputation should not be viewed as a luxury exclusive to large multinationals, but rather as a crucial and fundamental tool for the survival and growth of SMEs.
In recent years, there has been a surge in research on the topic. This boom is not coincidental; in a digital environment where a customer’s opinion can go viral within seconds, managing what is said and thought about a business has never been more critical.
Researchers from the Universities of Jaén and Córdoba analyzed over 260 academic articles on business reputation in SMEs. Their goal was to understand what is known, identify gaps for further research, and find ways to assist SMEs in harnessing this “superpower.”
Theories on Corporate Reputation
Academic research is grounded in several theories explaining the importance of business reputation. One widely-used theory is the resource-based view, which considers reputation as a strategic asset difficult for competitors to replicate.
The signaling theory is also crucial, as a good reputation functions as a signal of reliability for clients, suppliers, and investors. Another theory, the legitimacy theory, posits that reputation ensures societal acceptance of a business.
For family-owned SMEs, it’s especially important that the founder or family reputation directly transfers to the company. This creates a personal trust bond that large corporations cannot replicate.
Reputation is linked to two concepts:
- Corporate identity: How the company is perceived internally by its employees.
- Brand image: How the company is perceived externally.
When corporate identity and brand image align, reputation strengthens, and benefits typically grow.
The Economic Impact
A recent study by the Center for Sustainable and Responsible Finance in Spain, in collaboration with the Confederation of Spanish Small and Medium Enterprises, reveals that 3 out of 4 SMEs believe implementing Environmental, Social, and Governance (ESG) actions provides benefits. The primary benefit is improved reputation.
A good reputation has tangible economic effects: customers are willing to pay more for products and services from businesses they trust. Investors and financial entities also value reputation as an indicator of trustworthiness.
A solid reputation translates to lower borrowing costs and easier access to investors, even in stock markets. For larger SMEs going public, reputation is crucial during initial public offerings where investors lack a track record of stock market performance.
Stakeholders: The Key to Building Reputation
Reputation is not built in a vacuum. Employees, customers, suppliers, local communities—known as stakeholders—influence how a business is perceived. Reputation isn’t something a company owns but rather a perception in the minds of its stakeholders.
A proud employee is a company’s best ambassador. A good employer reputation attracts and retains talent, reduces absenteeism, and increases worker productivity. Customer trust generates brand loyalty.
Investing in Reputation: Investing in the Future
Ultimately, consumers value transparency, commitment, and a company’s ability to deliver. This is why SMEs cannot overlook the importance of their reputation.
While large companies invest in extensive marketing campaigns, SMEs have a more accessible and authentic “superpower”: the personal involvement of owners, their connection to the community, and their ability to build trust-based relationships.
It’s not about spending more but managing better. Understanding that reputation is a necessity, not a luxury, is the first step.
Key Questions and Answers
- Q: Why is reputation important for SMEs? A: Reputation is a strategic advantage that helps SMEs compete against larger corporations by building trust with customers, suppliers, and investors.
- Q: What theories support the importance of business reputation? A: Theories such as resource-based view, signaling theory, and legitimacy theory all highlight the strategic value of reputation for businesses.
- Q: How does a good reputation impact the economic performance of SMEs? A: Customers are willing to pay more for products and services from businesses they trust, and investors value reputation as an indicator of trustworthiness.
- Q: Who are the stakeholders that influence a company’s reputation? A: Stakeholders include employees, customers, suppliers, and local communities. Their perceptions shape a company’s reputation.
- Q: How can SMEs effectively invest in and manage their reputation? A: SMEs can leverage the personal involvement of owners, community connections, and trust-based relationship building to create a strong reputation.
