Fonterra Case Study

Topics: 2008 Chinese milk scandal, Milk, Melamine Pages: 6 (2451 words) Published: May 8, 2015
1.0 Introduction
As the world’s development continues the global market continues to thrive through trade and global business interactions. A major commodity traded globally is food. This has led to a persistent concern about food safety and regulating food quality throughout all stages of production in recent years (Iyengar, 2013). When this doesn’t occur it raises questions regarding government policies, corporate social responsibility (CSR) and multiple ethics issues. Recently this occurred in China with the adulteration of milk products. The company at the centre of this scandal was baby milk formula producer Sanlu, who were responsible for the death of six babies and the illnesses of a further 300,000 babies (China dairy products found tainted with melamine, 2010). As the new international marketing manager for Fonterra who had a 43% stake hold in Sanlu this report will analyse the ethical and CSR issues now facing Fonterra and provide insight into how Fonterra should approach rebuilding their image after this scandal. 2.0 Identification of Issues and Problems

As Fonterra attempts to move past this ethical dilemma of the milk scandal in China it is important to take note of CSR and the socially conscious consumer. In recent years CSR has become almost essential for global success as it strengthens public relations and improves reputations, creating a stronger brand image (Jhunjhunwala, 2014). These aspects of a company are now essential as the number of socially conscious consumers continues to grow. Mohr, Webb and Harris (2001) say companies are being pressured to be socially responsible by consumers. This is supported by Webster (1975) who found consumers now take into account the public consequences of their own consumption. Since Fonterra has been directly linked to the Sanlu scandal through their joint venture, consumers are now questioning the ethics Fonterra holds and whether purchasing Fonterra products is socially and ethically acceptable. The biggest issue in this scandal for Fonterra was only being a minority partner with 43% ownership. By not being the majority owner of the company Fonterra had little to no control. BBC Reporter Vaudine England (2008) reported “if you’re a minority partner in a joint venture and something goes wrong, you are always told late. Then if it's serious and you need the co-operation of your local partner the local government will stall you.” It appears this happened to Fonterra who were notified August 2nd 2008 however it took the use of the New Zealand government contacting officials in Beijing for a public announcement to be made which didn’t occur until September 10th (O’Sullivan, 2009). By not having control of events Fonterra was restricted in how they could approach the problem bringing their brand into disrepute. This then raises the problem of whether Fonterra as minority partner is morally obligated to take any blame since they wouldn’t have had control and therefore weren’t able to put CSR practices into place. One of the clear problems which can be concluded from the timeframe of events discussed above is the local government was corrupt and the central Chinese government had little control. Degategno (2008) says it’s the local officials who control food and product security. He then goes on to suggest as long as the business has a good relationship with these officials, conducting business can be made very easy. Part of this reason is because the Chinese government has failed to build effective systems to enforce ethical standards for officials and so unless the corruption is reported to the central government there is no control (Degategno, 2008). It is therefore clear there were no effective systems in place nationwide promoting and instilling ethical CSR or safe food production for businesses and officials in China. Although it is not clear as to where the melamine was put into the baby milk formula there is information about why it was added. Keck (2009)...

References: Degategno, P. (2008, September 29). China, Land of tainted milk and honey. New Atlanticist. Retrieved from
Dellios, R., Yang, X., & Yilmaz, N
D 'Eon, J. (2013). Respond quickly when crisis strikes. Bottom Line, 29(11), 11-11,15. Retrieved from
Enderwick, P
England, V. (2008, September 29). Why China’s milk industry went sour. BBC News. Retrieved from
Greyser, S
Iyengar, V. (2013). Food Safety Measurement Issues: way forward. Journal of Radioanalytical and Nuclear Chemistry. Retrieved from
Jhunjhunwala, S
Keck, F. (2009). The contaminated milk affair. China Perspectives, (1), 88-93. Retrieved from
Lau, F
O’Sullivan, F. (2009, January 7). Sanlu scandal still tripping up Fonterra. The New Zealand Herald. Retrieved from
Rashid, M
Webster, F. (1975). Determining the Characteristics of the Socially Conscious Consumer. Journal of Consumer Research, pp. 188
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