Business Custom atGlobal Marketing

Nestle’s infant formula

• Huge international conglomerate, with diversification in many products line, waived the only particular infant formula, worsen the whole company market

• Nestle Alimentana, S.A., Hq at Vevey, Switzerland. Sales of $12.5 billion.

• Product: drink, dairy product, cosmetics, frozen foods, chocolate and pharmaceutical products. Catering services to hotel and restaurant.

• Marketing at: Europe, Africa, North America, Latin America, Caribbean, Asia and Oceania

• Three top products: Dairy products, instant drinks and culinary/sundry product.

Nestle’s infant formula (2)• Ethical case: 1970s, suspicious that powdered infant formula

manufacturers contributing to the high infant mortality in developing countries by their aggressive marketing efforts directed at people unable to read the instructions or use the product properly

• In the early years, such possible link between mortality and infant formula were discussed by medical professionals, industry representatives and government officials at number of international conferences but yet surfaced at public awareness

• 1974, War on Want published 28 page pamphlet “The Baby Killer”, criticized for engaging in ill advised marketing efforts at Africa

• German version retitled to “Nestle Kills Babies”, moved the subject to “unethical and immoral behavior”

Nestle’s infant formula (3)

• Even Nestle won in the legal case, but it surely was a public-relation disarters

• A large number of consumer live in poverty, poor sanitation, receive inadequate health care and iliterate. Refrigerator is considered as luxury item, and fuel is very expensive. Water is obtained from polluted river and brought in contaminated container.

• Misused of of powdered formula, mixed with contaminated water and put into unsterilized bottles and nipples. Mothers are tempted to dilute with excess water so that will last longer.

• What can be learned?

Lessons Learned

• The public image is especially at risk for large firms

• Beware of the power of a hoatile press• A besmirched reputation is not easily overcome• Public relation efforts by themselves will

seldom improve a negative public image• Marketing efforts tend to have the strongest

impact on public image

Union Carbide Bhopal• December 3, 1984, 11:00 PM, Bhopal, India, was involved in a disarter

of monumental proportions. • Temperatur of tank 610, which stored MIC (methyl Isocyanate),was

growing dangerously high. The concrete over the tank began cracking. Suddenly, 40 tons of MIC escaped, a runaway chemical chain reaction was taking place. A dense fog of toxic gas began drifting, through railway to Bhopal. The cool air temperature and the calm wind added to the disarter. The horrifying fog, slowly made its way to the station, homes, shops, temples, up and down street, without anticipated before

• Crowds of men, women and children scurrying madly in the dark, twitching and writhing like insects for whom the poison was intended. 2500 deaths and about 300.000 injured, even 20.000 cattled killed.

Union Carbide Bhopal (2)• About $ 40 million (49.1% of shares) was spent the year followed.

Individual payment of $ 835 for 1500 families that lost their members. $125 for about 1200 families of low income.

• The cause was believe of human error, not properly operation procedures during maintenance and the operation of alarm system

• Chairman Warren Anderson, showed Carbide’s concern, by dash the next day with the company jet to Indoa. Unfortunately, his journey accomplished nothing as he was arrested, then released by $2500 bail and told to leave the country for his own good.

• What can be learned?

Lessons learned

• Expect and prepare for a worst-case scenario• Should multinationals implement safety

standards worldwide• Cost-cutting must not have the highest priority• A fully decentralization is not appropriate in

underdeveloped countries when safety and environmental degradation are at stake

Issues

• Different Cultures• Different Business Customs

– Cultural Imperatives, Adiaphora, Exclusives• Individualism/Collectivism• Power Distance• Contextual Background• M-Time (Monochronic) and P-Time (Polychronic)• Business Ethics

Issues (2)

• Corporate Social Responsibility• International cartels• Status of women managers• Piracy, Industrial spying, counterfeit• Regulation of acquisitions• Foreign Corrupt Practises

TI reports on Indonesia

2.221.91.91.91.71.7

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9

10

1999 2000 2001 2002 2003 2004 2005

Transparency International – Corruption Perception Index (2007)

• Scoring on 10 scale basis, 10 is the cleanest, no corruption and 0 is the most corrupt country

• Survey was conducted in 179 countries and Indonesia together with 3 other countries rank 143 with the score 2.3 The highest score is 9.4 is occupied by Finland, New Zealand and Denmark. The lowest is Myanmar scores 1.4

• 2003 survey result :

• Indonesia scores 1.9

• Rank 122 of 133 countries

4 Singapore 9.3

43 Malaysia 6.7

72 China 3.5

84 Thailand 3.3

123 Vietnam 2.6

124 Timor Leste 2.6

131 Philippines 2.6

143 Indonesia 2.3

Ethics & Ettique• System of moral principles• Rule of conduct

(Oxford Advanced Learner dictionary)• Ethics is the system of rules governing the

ordering values.Business Ethics comprises the moral principles and standards that guide behavior in the world of business

(Bateman Snell)• Etiquettes are formal rules of correct and polite

behaviour in society or among members of a profession (Oxford Advanced Learner Dictionary)

Ethics TheoriesEthical Theory Qonsequentialist

Non-Qonsequentialist

EthicalEgoism

Utilitarianism

Normative EthicalRelativism

Theologism

The Golden Rule

Kantianism

Restricted Egoism

Bribery

• America, SEC Regulation, 5 years in prison• German, Dutch, French, Japanese, booked on corporate tax

deduction• Indonesia, Law no.31/1999 jo UU 20/2001 “Pemberantasan

Tindak Pidana Korupsi”• Gratifikasi = suap. Gratifikasi adalah pemberian dalam arti luas,

yakni meliputi pemberian uang, barang, rabat (diskon), komisi, pinjaman tanpa bunga, tiket perjalanan, fasilitas penginapan, perjalanan wisata, pengobatan Cuma-Cuma dan fasilitas lainnya. Gratifikasi tersebut baik yang diterima di dalam negeri maupun di luar negeri dan yang dilakukan dengan menggunakan sarana elektronik atau tanpa sarana elektronik

Gratifikasi

• Setiap gratifikasi dianggap suap. Pembuktian bukan suap :– Lebih dari Rp.10 juta pembuktian terbalik– Kurang dari Rp.10 juta oleh penuntut umum

• Pemberian harus dilaporkan dalam waktu 30 hari ke KPK, KPK akan memberikan keputusan boleh diterima atau menjadi milik negara dalam 30 hari

• Pasal 12B: Ancaman bagi penerima gratifikasi penjara min 4 th dan maks 20 th; denda min Rp. 200 juta dan maks Rp. 1 milyar

Price Fixing Conspiracy

• 1958, Tennese Valley Authority (TVA), received identical secrets bids for electrical equipment industry.

• Among others, followed a deeper investigation founds,– 24 instances of identical bids from 1956 to 1959– Some of the bids were exactly the same down to the hundredths

of a cent– At least 12 of the bids quoted the same delivery price, even

though the distances from factories varied significantly– GE and Westinghouse were responsible for more of the identical

bids than any of other electrical manufacturer– Between 1950 and 1956, GE and Westinghouse bid on power

trasformers showed almost identical price increase six timer

Price Fixing Conspiracy (2)

• 1959, TVA awarded a contract for a hydroelectric turbine generator to a British firm, C.A.Parsons & Co at $12 million. GE, Westinghouse Allis-Chalmers bid for $17.5 million

• TVA had taken enough critized by electrical industry and investigated the case. 29 companies including GE, Westinghouse, Allis Chalmers were found guilty of conspiring to fix prices in deals involving some $ 7 biilion of electric equipment such as power transformers, power switch gears, turbine generators, control equipments and circuit breakers

Price Fixing Conspiracy (3)

• The companies were fined $ 1.924.500. Particularly notable was that 52 executives were prosecuted and fined about $ 140.000, 7 of defedants received jail sentences

• What can be learned?

Lessons learned

• Price-fixing is one of the easiest cases to prosecute• Employees at all levels should have free and

confidential access to company lawyers to answer questions on possible illegalities

• Heavy pressure from top management or to meet performance goals sets up a climate for illegal (and unethical) actions

• It is difficult to avoid corrupt and unethical behavior when “everyone else is doing it” and “you have to do it to get by”

ITT Heavy Handed Interference

• ITT at 1971 was the no.8th out of fortune 500. Growth through 110 companies aquisitions, 56 of its were from outside USA. It had 250 divisions/branches in 80 countries. Total employees was 350.000 people.

• In 1923 purchased a small Puerto Rican telephone company from the dictactor of Spain, Primo de Rivera and had got to run the company

• ITT’s holding in Chile included the Chilean Telephone Company, the Standard Electric Company, two Sheraton Hotels and some smaller holdings. The telephone company worthed $ 150 million and some $ 10 million earning annually

ITT’s (2nd)

• Allende was borned in 1908, in 1933 he helped found Chile’s Socialist Party. 1937 he was elected to the Chilean Congress. Later, he was appointed to the country’s Cabinet. Allende was a Marxist.

• 1964 defeated for presidency by Christian Democrat, but in 1970 elections slighty won for 36% compare to former president who collected 35%.

• Under Chilean Constitution, as no candidate had won a moajority, the choise of President decided by Congressional election, seven weeks later. During this time ITT approached CIA to help to stop the election of Allende, but the Congress finally voted 153 to 35 in favor of Allende for President

• What can be learned?

Lessons learned

• A multinational should be wary of assuming a heavy-handed posture in foreign environments, especially in sosio-national system country

• Corporate self interest is vulnerable in third world countries

• US Multinationals’ actions in foreign markets have a direct effect (vice-versa) on the image on US itself

• Top Management’s loose ethics should be resisted by lower management, but they ussually are not