by Kunal Rathi (Written on: 18th February 2008)
Introduction
Here I will be using Nestlé and Wal-Mart, which are two big multinational companies (MNC) acknowledged all over the world and discussing the impact of few of the different aspects of their activities upon few of the companies’ stakeholder groups. These two companies operate within the international business environment and have many offices/Stores all around the globe. To understand what stakeholders are, I will present a brief definition of stakeholder theory; given by Freeman (1984) and Morrison (2006). My arguments in the essay is with reference to different cases and case studies of; Nestlé over its unethical marketing technique and product development of baby milk and practice of Child Labour by the organization; and Wal-Mart over advertisement techniques to increase customer database and organization’s environmental friendly approach. I will also discuss their different effects on some of the stakeholders of the companies.
Stakeholder Theory
Stakeholder theory identifies and models the groups which are stakeholders of the corporation, and both describes and recommends methods by which management can give due regards to interest of those groups. In short, it attempts to address the “Principle of Who or What Really Count.” (Freeman, 1984) [11].
“Stakeholder is anyone who has an interest in a company, even indirectly; includes shareholders, employees, consumers, creditors, suppliers, local communities and the ecological environment; usually in the context of stakeholder theory of corporate governance.” (Morrison, 2006: 491) [16].
Nestlé
Nestlé is a MNC which is currently operating within the international business environment. It was founded and headquartered in Vevey, Switzerland and has various offices and industries/factories all over the globe. There are many Nestlé brands which are well-known all around the world, making company a global market leader in several product line, such as chocolate, milk, coffee, pet food, etc. [1] and is one of the world’s largest coffee company (Morrison, 2006: 462) [16]. Some of Nestlé’s business practices have been considered unethical, especially the matter in which infant formula have has been marketed in developing countries, leading to Nestlé boycott from 1977 (Sethi, 1994) [19]. Since then Nestlé has launched several fair-trade products worldwide, including Partners Blend in the United Kingdom [2]. During the period of 2004 Nestlé has also been reported in several articles for employing labour force under the legal working age i.e. child labour (Orr, 2006) [17].
Baby milk marketing & selling by Nestlé and Impact on stakeholders
Since the period of late 1970s, Nestlé has been involved in the lot of criticism for its artificial baby milk marketing policies in developing countries. This has centred on its noticeable advice for breastfeeding mothers to change to its baby formula milk products, which is believed as a reason for the caused death of 15 babies each year as the formula was being mixed with contaminated water (Sethi, 1994) [3; 19] Nestlé has supposedly violated the widely agreed-upon International Code of Marketing of Breast-milk Substitute (Lichtarowicz, 2003) [14]. To the result of which a boycott was organised and coordinated by the International Nestlé Boycott Committee, informed by observation conducted by the International Baby Food Action Network. During 1982, in developing countries Nestlé executed the International Code. The information provided by Nestlé was advanced after reviewing in 1984 in consultation with UNICEF, WHO and the International Nestlé Boycott Committee. Nestlé has continued using unethical advertisements and used pictures of babies in its advertisements in 2004 for advertising breast milk replacements [4]. Nestlé has issued directions to all its office to insure strict compliance with the International Code. Post 2004 allegations of breaches of the International Code continue to be made by campaign organisations, such as IBFAN and the Save the Children Fund (May 2007) and The Guardian Newspaper (Autonomous, 2006; Moorhead, 2007) [7; 15].
Although the intention of the company was not wrong as they launched the baby milk product in the view to help the working mothers as well as the children in the developing countries like countries in Africa where children are suffering from many diseases and illness from the birth due to lack of proper nutritious food. They launched the baby milk products including all essential minerals and vitamins in such countries to help children to gain good health. During 1982 the World Health Assembly approved the International code of Marketing of Breast-milk Substances, thereby setting a minimum standard to ensure the proper use of formula milk. A study in British Medical Journal says that manufacturers of powered baby milk substitutes including Nestlé were violating the international codes when selling their products to West Africans. Researches have also found that this code was violated by many national and international companies including Nestlé. Statement or information about the health benefits of breastfeeding, or guidelines for the appropriate storage or preparation of formula milk, or a warning against the health hazards of inappropriate use were not included by the company. There were no instructions by the company to help mothers to make up the milk. (Lichtarowicz, 2003) [14].
As discussed above that the intensions of the company were not wrong while launching the baby milk formula, they wanted to help their customers i.e. working mothers and; children by giving them good nutritious food resulting in their good health. But unintentionally due to lack of proper measures and unethical advertisements by Nestlé, the company caused a serious impact on it’s customers as well as the local communities in developing countries which resulted in the loss of goodwill of the company not only in developing countries in Africa but globally which was a bad sign for the shareholders.
Use of forced labour by Nestlé and Impact on stakeholders
During April 2004, Nestlé was again under criticism by Forbes article on the use of forced labour in the production of their chocolate. It was estimated by the International Labour Organisation, a part of UN, that about 284,000 child labourers were employed by Nestlé to work on their cocoa farms in West Africa, mainly in the Ivory Coast (Orr, 2006) [17]. This act of Nestlé has created lots of job and provided employment and earning to poor people in the villages of developing countries which is a good sign for the local community. As the company was also able to produce goods at cheap rate as they were able to bring down the cost of production as the labour in Africa were not well educated and use to work at very low wage rate, therefore the company was easily able to exploit the workers. But providing employment to underage labour force is illegal and as a result of which the International Labour Right Fund and Global Exchange took Nestlé to the US court under the Alien Tort Claims Act and Torture Victim Protection Act. (Partos, 2005) [18]. As the US State Department reports suggested that there is no law in West Africa against trafficking, hence the companies like Nestlé were easy exploiting the loophole to escape the high cost labour in America and getting worked done by cheap labour force in countries of Africa and other developing countries. (Orr, 2006) [17]. “In addition, there are an estimated 8.4 million children involved in the worst forms of child labour, which include forced labour, trafficking, armed conflict and prostitution.” (ILO, 2002: 25; sighted in Morrison, 2006: 466) [13; 16]. After this incident Nestlé has requested to all the forced child labour who are involved in the International labour Right Fund lawsuit to reveal their names, so that necessary actions can be taken.
In this case Nestlé was able to benefit the local communities of the developing countries in West Africa, as it employed local people to work in cocoa fields as it’s employee, it resulted in earning for them and as the cost of production of the products were low because the labour was hired on low wages, the customers were also benefited as they were able to buy cheap price products. Although child labour is illegal in USA, the company was easily able to find loops, and employed cheap child labour in countries of Africa where there was no law against it. A clear practice of offshore was seen by Nestlé. This resulted in intentional exploitation of the employees by the company.
Wal-Mart
Another company which is operating under international business environment is a well known MNC and an American public corporation; Wal-mart Stores, Inc. that runs a chain of large, discount departmental stores in different countries. Founded in 1962, Wal-Mart is the world’s largest public corporation (by revenue) and largest private employer in the world. The company operates in United Kingdom as ASDA, in Japan as Seiyu and in Mexico as Walmex. It has two headquarters located in USA and UK. [5]. Wal-Mart is continuously working on the ways and technique to increase its customer database and customer satisfaction. It is changing it method of advertisement to attract different segment of customers. Company is continuously working on method to cut down the expanses and making more profit for shareholders by taking steps towards creating environmental friendly working conditions and using resources efficiently.
Customer base by Wal-Mart and Impact on stakeholders
According to statistic about 100 million customers visit Wal-Mart’s stores in USA every week (Zimmerman & Hudson, 2006) [20]. The low price offered by Wal-Mart is the most important reason for the customers to get attracted towards the stores for shopping. Main source of attraction for Wal-Mart was its advertisement slogan “Low price, always” which was used from 1962 until 2006 (Barbaro, 2007) [9]. During 2006, Wal-Mart by announcing a modification in its stores took steps to expand its customer base. The announcement was to modify the stores from a “one-size-fits-all” merchandising strategy to one designed to “reflect each of six demographic groups – African-Americans, the affluent, empty-nesters, Hispanics, suburbanites and rural residents.” (Autonomous, 2006) [8] Within the six months of this decision, the company unveiled its new slogan “Saving people money so they can live better lives” (Barbaro, 2007) [9]. This reflected the three main customer groups of the Wal-Mart, giving categories to its millions of customers as brand aspirationals, price-sensitive affluents, and value-price shoppers. (ibid) [9] In the past as an ethical business practice Wal-Mart has been taking steps to appeal to more liberal customers.
As discussed above that company offers its customers a low price, which in results attracts many customers towards the stores to buy its good. This results in more profit for the firm resulting in rise in share value and satisfied shareholders. Wal-Mart is continuously changing its advertisement technique and slogan to attract different segment of customers. With change of time Wal-Mart is making new slogan according to market need and is able to trick its customer just by modifying management techniques with unchanged prices of its product. This method is good for the shareholders of the firm as the firm is able to make more profit, but it’s also pull the wool over its customer's eyes.
Environmental issues in Wal-Mart and Impact on stakeholders
To increase energy efficiency, during October 2005 Wal-Mart announced that several environmental measures to be put into practice in the company. The main objective of the company was to invest a fund of £250 million a year to increase fuel efficiency in Wal-Mart truck fleet by 25% over the three years and plans to double the figure within ten years. Company is also looking forward to reduce the 20% of estimated greenhouse gases within seven years, reducing energy used at stores and cut solid waste from stores by 30% and 25% respectively. According to CEO Lee Scott, the aim of the company was to be a ‘good steward for the environment’ as well as producing zero waste and using only renewable energy. (Autonomous, 2005) [6]. In McKinney, Texas and Aurora, Colorado new stores were started as an experimental purpose by the company with wind photovoltaic turbines, solar panels, xeriscape gardens water-cooled refrigerators and biofuel-capable boilers. (Berner, 2005) [10]. Although Wal-Mart is many times criticised for its environmental records; few steps in positive directions were taken by the company. Wal-Mart is the biggest buyer of organic cotton and the biggest seller of organic milk in the world. The company as well was able to reduce the energy and packaging cost. (Gunther, 2006) [12] Nearly a year was spent by the company working with independent consultants to discover the impacts of company on the environment and environmental issues and finding ways to improve it. “One of their many achievements was that by getting rid of excess packing on their toy line Kid Connection, they could save about £1.2 million a year in shipping cost, millions of barrels of oil and about 3800 trees. On its fleet of about 7200 trucks the company could save about £13 million a year on fuel costs just by installing auxiliary power unit.” (ibid) [12].
One can clearly see that Wal-Mart is taking steps towards environmental friendly working techniques and condition. Company invests a large amount of money towards environmental friendly measures. As we know high cost results in less profit giving fewer returns to shareholders. But by using techniques like; “wind photovoltaic turbines, solar panels, xeriscape gardens water-cooled refrigerators and biofuel-capable boilers” (Berner, 2005) [10], marketing and selling of organic products such as cotton, milk, etc. (Gunther, 2006) [12] and others measures company is able to develop safe and healthy living ecological environment for local communities.
Conclusion
A MNC/TNC or a company operating under international business environment will always be facing the problem of different law in different countries, although it’s amazing to see that these companies are also able to take full advantage of this disadvantage by finding loops within it. As discussed with different examples above every action, decision and activity of a MNC causes both positive and negative effects to different stakeholders. The ultimate goal of the company is to satisfy its shareholders, which they sometimes do on the cost of other stakeholders. Nestlé has many times been under criticism for this act. Wal-Mart is some cases sacrifice its shareholders need for the healthy living ecological environment for local communities. The companies should know that to be successful in long run and keep all of their stakeholders satisfied they should follow the ethical business practices.
Reference and Bibliography
1. “Nestlé”, ‘n.d.’ http://www.nestle.com/ (Viewed on: 8th February 2008)
2. “Nestlé: United Kingdom”, ‘n.d.’ http://www.nestle.co.uk/OurBrands/AboutOurBrands/Beverages/PartnersBlend (Viewed on: 8th February 2008)
3. “Nestlé Baby Milk Issue Facts”, ‘n.d.’ http://www.babymilk.nestle.com/ (Viewed on: 8th February 2008)
4. “Nestlé Advertisements 2004”, ‘n.d.’ http://www.ibfan.org/english/pdfs/btr04/btr04nestle.pdf (Viewed on: 8th February 2008)
5. “Wal-Mart”, ‘n.d.’ http://www.walmart.com/ (Viewed on: 13th February 2008)
6. Autonomous (2005) ‘Is Wal-Mart going green: CEO vows to be ‘good steward for the environment’ in announcing goals’, MSNBC News Services, 25th October 2005. (Viewed on 15th February 2008). Available at: http://www.msnbc.msn.com/id/9815727/
7. Autonomous (2006) ‘Companies violated the 25-years-old marketing code’, IBFAN, 21st May 2006. (Viewed on: 8th February 2008) Available at: http://www.ibfan.org/site2005/Pages/article.php?iui=1&art_id=420&goto_news=1
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9. Barbaro, M. (2007) ‘It’s Not only about Price at Wal-Mart’, The New York Times, 2nd March 2007. (Viewed on: 13th February 2008). Available at: http://www.nytimes.com/2007/03/02/business/02walmart.html?ex=1330491600&en=5a72ddc69030ce62&ei=5088&partner=rssnyt&emc=rss
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11. Freeman, R.E. (1984), Strategic Management: A stakeholder approach, Boston, Pitman.
12. Gunther, M. (2006) ‘Wal-Mart sees green: The retailing giant is placing bets on an environmentally friendly future’, CNN Money, 27th July 2006. (Viewed on 15th February 2008). Available at: http://money.cnn.com/2006/07/25/news/companies/wal-mart-short.fortune/
13. ILO (International Labour Organization) (2002) ‘Every Child Counts: New Global Estimates on Child Labour’, Geneva, ILO.
14. Lichtarowicz, A. (2003) ‘BBC News: Baby milk marketing ‘breaks rules’’, BBC News, 17th January 2003. (Viewed on: 8th February 2008) Available at: http://news.bbc.co.uk/1/hi/world/africa/2667401.stm
15. Moorhead, J. (2007) ‘Milking it’, Guardian, 15th May 2007. (Viewed on: 8th February 2008) Available at: http://www.guardian.co.uk/medicine/story/0,,2079757,00.html
16. Morrison, J. (2006) ‘The International Business Environment: Global and Local Marketplaces in a Changing World’, Second Edition, Hampshire/New York, Palgrave Macmillan.
17. Orr, D. (2006) ‘Nestlé: Slave Chocolate?’, 24th April 2006. (Viewed on: 9th February 2008) Available at: http://www.forbes.com/free_forbes/2006/0424/096.html
18. Partos, L. (2005) ‘Nestlé, ADM and Cargill go to court over cocoa child labour’, 26th August 2005. (Viewed on: 9th February 2008) Available at: http://www.foodanddrinkeurope.com/news/ng.asp?n=62111-nestle-cocoa-child-labour
19. Sethi, S. Prakash (1994), ‘Multinational Corporation and The Impact of Public Advocacy on Corporate Strategy: Nestlé and the Infant Formula Controversy’, Journal of International Business Studies, 25 (3): 658-660.
20. Zimmerman, A. & Hudson, K. (2006) ‘Managing Wal-Mart: How U.S.-Store Chief Hopes to Fix Wal-Mart’, Wall Street Journal: Monday Extra, 17th April 2006. (Viewed on: 13th February 2008). Available at: http://wsjclassroom.com/monday/mx_06apr17.pdf#search=%22wal-mex%20customer%20demographics%22
Source: Kunal Rathi’s University’s Assignment (2008)
