International Business Ethics in Coca-Cola and Pepsico - Case Study Example

International Business Ethics – The cases of Coca-Cola and Pepsico – Analysis of article [Donohue, A., 2007, Coca-Cola’s ethics put to the test in European – wide study] 1. Find a recent article (or series of articles) that deal with an ethical issue with which a company has had to struggle. It can be one of the examples in the textbook, but can also be something that is different or more recent. Describe what the problem is, in your view. 2. Frame the issue: find the relevant laws, regulations, or practices are in the country in which the issue occured, find the laws, regulations, or practices are for the same issue in the United States or another relevant country of your choice, define why it is considered an ethical issue. 3. Analyze the ethical situation: determine its links to the prevaling “strawman” arguments (Friedman Doctrine, cultural relativism, righteous moralism, naive immoralism) as well as to the Utilitarian Theory, Rights Theory and Justice Theory. 1. The introduction of firms within the global market has to be followed by the restructuring of their practices in order to meet the requirements of the global commercial rules. In most cases, a firm that enters a foreign market is obliged to follow the commercial ethics of the specific market; however quite often the firms that operate within the international market do not align their practices in accordance with the relevant commercial rules either because they do not have the appropriate mechanisms or because such an initiative would be costly for the firm – either in the short or the long term. The above phenomenon has been often criticized by theorists around the world; the strengths and the weaknesses of the practices followed by firms operating in the global market are identified and evaluated based on the effects of these firms’ operation in countries internationally. In this study, the application of business ethics is examined and evaluated using the view of a specific researcher: Donohue A. (2007). His article related with the respect of European business ethics by Coca Cola is analyzed in comparison with the relevant practices of this firm in USA. Also, the behaviour of another firm operating in the same market, Pepsico, is explored at the level that it could offer adequate explanations for the business practices of Coca Cola in both Europe and USA – especially referring to the alignment of these practices with the business ethics applied on both the above regions. It should be noticed that using the above article we can come to the conclusion that the activity of Coca Cola in Europe comes into opposition with the region’s business ethics – in fact many aspects of European business ethics seem to be violated by the business practices of Coca Cola in the specific region – the study of the relevant practices of the firm in USA also lead to similar assumptions (these assumptions are going to be explained through the material presented in the sections that follow). In order to understand the reasons for this phenomenon, it is necessary that the various aspects of business ethics held in both the above regions are clearly explained – being compared with the business practices of Coca Cola in both these areas – and evaluated. This task will be completed in the section that follows. The reference to the business practices of a firm that operates in the same market – Pepsico – is considered to help further to the development of the issue under examination. 2. The article under discussion (this of Donohue, 2007) presents the response of consumers across Europe to a survey through which the business practices of Coca-Cola firm in the specific region are examined. In accordance with the results of the above survey, ‘over two-thirds of respondents questioned whether the company makes a positive contribution to society’ (Donohue, 2007, online article). Moreover, it is suggested that the firm’s practices cause damages to the environment – it is noticed that in general the firm avoid using ethical methods of production; the customers would prefer to switch to products that would be produced through ethical methods of production. In order to understand the response of consumers to the above survey, it would be necessary to refer to the laws and ethics held in Europe regarding the specific industry – soft drinks. The soft drinks industry is well developed in Europe. In accordance with a relevant report of 2006 ‘more than 1,500 soft drinks containing sodium benzoate and ascorbic acid or citric acid have been launched across Europe, North America and Latin America since January 2002’ (Mercer, 2006, online article). The quality of these products has been often questioned; in many cases, the ingredients of soft drinks have been found to violate the rules related with public health. In the above article it is noticed that Coca-Cola had to review the level of benzene in its products after a relevant report of FDA (Food and Drug Association of USA) in which it is revealed that some soft drinks – being sold across USA – have been found to contain benzene over above the limit – benzene is an ingredient related with severe problems of health, even with cancer. Because of the importance of the specific products – soft drinks – for the public health, strict rules have been developed regarding their ingredients and the procedure followed throughout their production. In USA, the Food and Drugs Association (FDA) defines (through relevant regulations) the ingredients of food of all types available to consumers across the country. The ingredients of soft drinks are mentioned in the website of the American Beverage Association (2008). As for the European Union, a series of opinions have been published regarding specific issues related with soft drinks (see for example the case of taurine as an ingredient of the so-called energy drinks, 1999); however, there are no clear rules imposing restrictions on the ingredients of soft drinks – perhaps because this issue is also regulated by the member states. Common failures seem to exist among USA and Europe regarding the protection of consumers from dangerous ingredients in the soft drinks available within the specific markets. Ethics referring to the ingredients of soft drinks, their advertising and their packaging are being violated with no clear consequences for the firms involved in this violation. On the other hand, specific emphasis has been given also to the package of soft drinks – i.e. to the material used for the specific purpose. It should be noticed here that specific rules have been developed regulating the particular problem. In most cases, PET – a material described below – is preferred for the packaging of soft drinks. In accordance with a relevant report ‘PET (PolyEthylene Terephthalate) is a strong but lightweight form of clear polyester; it is used to make containers for soft drinks, juices, alcoholic drinks, water, edible oils, household cleaners, and other food and non-food applications’ (PetCore, 2008, online article). The above described material is recyclable, so it is preferred by firms operating in the specific industry. Different legal framework has been developed by the member states of European Union regarding the use of this material by firms in the soft drinks industry. As an example, we could refer to the case of Britain where the following legislation is – either directly or indirectly – related with the use of the specific material by the firms in the soft drinks industry: ‘Producer Responsibility Obligations (Packaging Waste) Regulations n. 648 (1997) - amended 1999 n. 1361 and n. 3447 (implementing Directive 94/62/EC on packaging and packaging waste); Waste Minimisation Act (1998); Packaging Regulations (Essential Requirements) n. 1165 (1998)’ (PetCore, 2008, online article). On the other hand, there are member states where the relevant legislation is rather limited. A characteristic example is that of Germany where the legal framework referring to the packaging of soft drinks across the country is limited to the ‘Töpfer Packaging Ordinance (1991), amended 1998’ (PetCore, 2008, online article). All the above restrictions have been significantly limited – now they could be accepted only regarding the material of packaging used in soft drinks industry. More specifically, it was in May 2007 that the European Union decided to abolish all restrictions related with the size of packaging of foods (including soft drinks) (see relevant report of ElAmin, 2007). The number of the relevant directive is the following one: 2007/45/EC and it will come in force on the 11th of April 2009 (see also the report published in the European Union website, Europa, 2008). In USA the situation is different. It seems that there is no specific legal framework referring to the material used for packaging in the soft drinks in USA. A series of legal rules have been developed instead regarding other aspects of packaging of food and pharmaceutical material in USA – including bar coding and convenience. Two specific issues regulated by law – regarding packaging of food and other material in USA – are the following ones: environmental awareness and intelligent packaging. The first support the use in packaging of material that is recyclable while the second promotes the use of material that saves cost and space during the transportation (see relevant report of Hauffe, N., 2007). However, no specific penalty or other form of penalization of the firm involved is mentioned for those firms that violate the above rules (referring to the USA law on packaging – specifically the material used). No specific suggestion is made on the material appropriate for packaging of food and the relevant decision belongs exclusively in the firms operating in the specific industry. It should be noticed that no differentiation seems to exist between firms in the soft drinks industry regarding their obligations towards the state (or the international community); they should all align their practices with the current ethical and legal rules no matter of the cost required for the specific initiative. In this context, both Coca Cola and Pepsico should align their practices in accordance with the relevant legal and ethical framework taking into consideration the effects of these practices on the local societies. In the article under examination, the specific issue is highlighted; most of participants seem to agree that Coca Cola does not fulfill the market’s ethical standards and it should proceed to the restructuring/ change of its practices in order to support the environment and the local community. There is no differentiation in this article regarding the relevant practices of Pepsico. It could be assumed that the views of the participants/ consumers on the products and the practices of Pepsico are the same with those of Coca Cola. 3. The above phenomena should be evaluated as of their opposition with the values and the ethics held in societies worldwide. A link could be found to exist between the behaviour of firms operating in the soft drinks industry in Europe/ USA and the theories held in the area of modern sociology. In this context, it could be stated that the violation of ethical standards related with the ingredients/ packaging of soft drinks is a form of ‘naïve immoralism’; firms could expect that the violations of ethics regarding the ingredients or the packaging methods of soft drinks would not be observed by consumers. Immoralism is a common phenomenon in modern states. In accordance with Zijderveld (1986, 443) ‘ethos has the greatest elective affinity with the welfare state; three ideal types of ethos can be observed in this state: the moralistic, amoralist and immoralist’. Another approach is the one used within the context of Utilitarian Theory which is based on the principle that an action is justified so long that it makes the people to feel happy (an approach adopted by Bentham, 1748-1832, English philosopher). Using the specific theory, the behaviour of firms operating in the soft drinks worldwide (including Coca Cola and Pepsico) could be justified; their decision to violate the existing ethical rules was based on their desire to keep the consumers happy (a target that is not always achieved as it is proved through the results of the survey presented in the report under examination); consumers understand the specific strategy and respond accordingly protesting against the violation of their rights – where this violation is severe. In other words, under the utilitarian theory, the consequences of violations of ethics would not be considered by firms globally – unless if these consequences are likely to appear in the short term – otherwise the happiness of customers could be used by firms to proceed to any business practice – even if this one violates existing ethical framework. The above assumption is also supported by the supporters of justice theory. In accordance with John Rawls – he could be characterized as the founder of justice theory – ‘one must distinguish between justifying a practice as a system of rules to be applied and enforced, and justifying a particular action which falls under these rules; utilitarian arguments are appropriate with regard to questions about practices, while retributive arguments fit the application of particular rules to particular cases’ (Rawls, 1955, 4). Under these terms business practices could remain unpunished – even if violating ethics – in accordance with the view through which one would try to explain a particular business practice. However, the rights of people of the relevant states should be taken into consideration when the marketing plans related with the promotion of these products – in fact the Coke or the Pepsi – is attempted; the influence of the Rights Theory could be strong in this case. There is also the case that no particular nuisance by the customers’ side exists; the violation of ethics in other words may be not directly understood. In this case the effects of this violation are likely to result in the long term. It cannot be doubted that the application of ethics by firms worldwide should be initiated by their managers/ executives. The specific issue is also highlighted by Friedman who makes clear that ‘the individuals who are to be responsible are businessmen, which means in­dividual proprietors or corporate executives’ (Friedman, 1970, online article, see The New York Times magazine, September 13, 2003). The responsibility of managers/ executives for the alignment of firms’ practices with the ethics held in the market is clear within the context of the so-called ‘Friedman doctrine’. However, the control over the responsibilities of managers/ executives of firms worldwide is not appropriate – no effective mechanisms have been developed towards this direction. As a result the violation of ethics by firms within the international community is a common phenomenon in the modern market. In the case of Coca Cola – as well as of its competitor Pepsico – the violation of ethics can be identified by the consumers (see the results of the survey presented in the article under examination); the latter have the power to reduce the profits of the firm – by avoiding buying the firm’s products – especially the Coke – highlighting the need for restructuring and reviewing of the firm’s practices worldwide. References American Beverage Association (2008), available at http://www.ameribev.org/all-about-beverage-products-manufacturing-marketing--consumption/americas-beverage-products/soft-drinks/soft-drink-ingredients-whats-inside/index.aspx Donohue, A. (2007) Coca-Cola’s ethics put to the test in European – wide study. Brand Republic, available online, http://www.brandrepublic.com/News/645693/Coca-Colas-ethics-put-test-European-wide-study/ ElAmin, A. (2007) EU approves packaging size liberalization, available online at http://www.beveragedaily.com/Products/EU-approves-packaging-size-liberalisation Europa – European Union legal portal (2008) available at http://ec.europa.eu/enterprise/prepack/packsize/packsiz_en.htm Europa – European Union legal portal (1999), available at http://ec.europa.eu/food/fs/sc/scf/out22_en.html Hauffe, N. (2007) Trends and Opportunities in Packaging R&D in the USA, available at http://www.tekes.fi/julkaisut/Packaging_US.pdf Jeremy Bentham, (2008), available at http://jeromekahn123.tripod.com/utilitarianismtheethicaltheoryforalltimes/id4.html John Rawls, "Two Concepts of Rules" The Philosophical Review, Vol. 64 (1955), pp. 3-13 Mercer, C. (2006) Soft drinks industry pledges to tackle benzene in drinks, available at http://www.beveragedaily.com/Industry-Markets/Soft-drinks-industry-pledges-to-tackle-benzene-in-drinks PetCore organization (2008) available at http://www.petcore.org/Content/Default.asp?PageID=24#germany The New York Times Magazine, September 13, 1970. Copyright, 1970 by The New York Times Company [Friedman, M.] USA Food and Drugs Administration (2008) available at http://www.cfsan.fda.gov/~dms/opa-def.html Zijderveld, A. (1986) The Ethos of the Welfare State. International Sociology, 1(4): 443-457 Read More