Helping Snow Brand Milk to Move out of Corporate Scandals, Regain Leadership and Consumer Trust - Case Study Example

Snow Brand Milk of the Academic Year: of the ICS Chapter ment of the Problem Snow Brand Milk Products Co. Ltd is a renowned player in the Japanese milk product industry (Mead, 2010). During the period of 2000 to 2002, brand image of the company had tarnished due to two successive scandals. First report on food poisoning of milk products of Snow Brand Milk Products Co. Ltd was published on June 27th, 2000. During 2002, Snow Brand Food (Subsidiary of Snow Brand Milk Products Co. Ltd) admitted that it had mislabelled the origin of beef in the products in order to gain profit by exploiting the beef buyback program of Japanese government (Mead, 2010). As a result of food poisoning, more than 10,000 consumers had suffered from health problems. Food poisoning of milk products of the company caused due to negligence of employees to follow the norms associated with production quality control. As a result of wide spread news of food poisoning of milk products of Snow Brand Milk Products Co. Ltd, consumers lose trust on the brand and stopped buying it (Mead, 2010). Many of the top level executives of Snow Brand Milk Products Co. Ltd resigned in order to save their position of responsible corporate citizen. As a result of 2nd scandal regarding mislabelling the origin of beef in the products, retailers stopped selling meat products of the company. Snow Brand Food was alleged with fraud charges and penalised by judicial system of the country. On both occasions of the scandals, net revenue as well as profit margin of the company was decreased at exponential rate. Along with loss of consumer trust, Snow Brand Milk Products Co. Ltd also lost its market leadership position (Shuzaihan, 2002; Shuzaihan, 2002). In such context, the company was facing major problem of reviving the brand of Snow Brand Milk and earning back the trust of the consumers who are major external stakeholder. Statement of the problem can be stated as, “helping the Snow Brand Milk (SBM) to move out of previous corporate scandals, regain the market leadership position and earn consumer trust back on the company”. According to case contexts presented by Mead (2010), SBM implemented corporate restructuring plan for subsidiaries to improve quality control and prevent the company from involving any future corporate scandal activities (Shuzaihan, 2002). On the other hand, SBM also approached Nobuko Hiwasa (one of the prominent consumer activist in the country) to join as a board of directors. Despite such protective measures, SBM was still not sure whether it can revive its brand image or earn potential consumer trust on its product offering in near future. In such case backdrop, this study will analyze the current position of SBM with respect to past or existing corporate scandals. Based on the situational analysis, set of alternative course of action will be proposed and “best fit” solution from the options will be proposed by the study.   Research Aims and Objectives Problem statement for this research paper can be stated as “helping the Snow Brand Milk (SBM) to move out of previous corporate scandals, regain the market leadership position and earn consumer trust back on the company”. Based on the problem statement, aim of the research is to propose “best fit” solution that can help SBM to regain it to move out of previous corporate scandals, regain the market leadership position and earn consumer trust back on the company. Based on such research aims, following research objectives can be derived. To analyze the current business as well as social position of SBM with respect to past or existing corporate scandals To analyze root cause of the corporate scandals being faced by SBM and assess impact of such corporate scandals on the company To identify alternate solution that can help SBM to move out of crisis situation and ensure sustainable future growth. To choose a “best fit” solution from the set of alternatives that might help SBM to address crisis situation caused due to previous or existing corporate scandals To develop an action plan in line with best fit” solution that can be implemented by SBM to move out of previous corporate scandals, regain the market leadership position and earn consumer trust back on the company. Structure This report has been structured into parts such as, 1- describing the case brief in order to assess the situation in context to SBM, 2- developing the problem statement on the basis of theories and existing literature, 3- developing the plan for analyzing the problem statement, 4- assessing the current situation and deriving the findings, 5- proposing the solution that can help the study to address problem and 6- deciding an action plan as part of recommendation. Limitations as well as future scope of the study will also be assessed in the later part of this report. Chapter 2: Case brief: Description of the Situation Prior successive corporate scandals, Snow Brand Milk Products Co. Ltd. were largest manufacturer of dairy products in Japan (ICMRINDIA, 2004). The company specialized in selling dairy products and processed meat items to customers. During the year 1925, Snow Brand Milk or popularly known SBM was founded in Hokkaido, Japan. During the 80 years of business, SBM done its business following vision statement of “Healthy Earth and Healthy People” designed by Hokkaido Cooperative. At the end of year 1999, prior to the first corporate scandal, SBM reported net sales of more than USD 12 billion (Mead, 2010). During market survey, almost 90% of respondents stated that they had consumed at least one or more products being offered by SBM. Prior to the first corporate scandal, SBM had enjoyed great amount of customer loyalty and consumer trust or shin. Prior to the scandal regarding food poisoning of milk products of Snow Brand Milk Products Co. Ltd, consumer perception of the SBM brand was embedded with idea of sincerity and veracity. Since June 2000, the brand image as well as consumer trust associated with product offerings of SBM were started getting tarnished due to successive corporate scandals. During the period of 2000 to 2002, Snow Brand Milk Products faced problems such as food poisoning caused by contamination milk products, misrepresentation of information to public in order to conceal wrongdoings as well as negligence of employees who are responsible for contamination milk products and violation of Japanese Food Sanitation Laws (William Reed Business Media SAS, 2002). When it comes to crisis communication, SBM failed completely which created further confusion among external as well as internal stakeholders associated with the company (Fearn-Banks, 2002; Croall, 2012). Food Poisoning: On June 27, 2000, people from different parts of Japan (Osaka, Nara, Wakayama, Hiroshima, Hyogo, Kyoto and others) complained illness caused due to consumption of low fat milk products Snow Brand Milk Products Co. Ltd (ICMRINDIA, 2004). Victims of contaminated milk products of SBM faced problems like diarrhoea, vomiting and stomach pain. Many of the victims were hospitalized and some of them died due to food poisoning. Immediately after such incidents, investigation was done by government agencies and they found the evidence of contamination milk products produced in Osaka factory of SBM (ICMRINDIA, 2004). On July 1st, 2000, top level management of the company apologized to the public for the health hazards caused by contaminated milk products of SBM. During 1st week of July, 200, more than 10,000 cases of food poisoning caused by milk products SBM was reported. Osaka City Hall ordered the company to shut down plant operation and recall products causing contamination (Ota & Kikuchi, 2006). During that period, president and other top officials of the company resigned. At the initial period, SBM misrepresented information regarding the cause of food poisoning (wrong information served by company officials regarding size and frequency of contained valve used during milk production), in order to avoid media charges and public concerns. However, later on, it was found that the contamination of milk caused due to staphylococcus aureus bacteria proliferation as well as interference of enterotoxin. In March, 2000, electric outage in Taiki plant caused the staphylococcus aureus bacteria proliferation and enterotoxin contamination. During the electric outage, raw material of powdered granule of skim milk remained open under the sun for more than 3 hours (Ota & Kikuchi, 2006). As a result of public refusal of milk products of SBM and shut down of manufacturing units, net revenue earned by the milk products of the company was reduced by more than 50% (Mead, 2010). The Beef Scam: During September 2001, mad cow diseases or Bovine Spongiform Encephalopathy (BSE) was spread across certain proportion of cows in Japan. People in Japan were scared of getting contracted to human form of BSE while eating beef food items. Driven by fear, people in Japan started rejecting beef items and thus, sales of beef across the country gone down. In order to prevent losses, government initiated buyback assistance program. In buyback assistance program, cheap foreign beef products were fraudulently relabelled as mad cow diseases, free Japanese beef products and such relabelled products were sold in high price to customers. In order to earn profit by using fraudulent buyback program of government, Snow Brand Food (Subsidiary of Snow Brand Milk Products Co. Ltd) repacked Australian beef and relabelled as high priced Japanese origin beef (ICMRINDIA, 2004). On January 23, 2002, president of Nishinomiya Reizo warehouse (subcontractor of Snow Brand Food) admitted that it had mislabelled the origin of beef in the products in order to gain profit by exploiting the beef buyback program of Japanese government (Mead, 2010). Due to such fraudulent activities, consumers as well as retailers started rejecting food items of Snow Brand Food. Not only the company but also distributors (particular distributor is contracted with one particular brand) incurred huge amount of financial loss due to mass rejection of food items of Snow Brand Food. Due to the beef scam, SBM lost more than USD1.5 billion while 5 senior officials of the company were pled guilty for fraudulent activities. These two scams had decreased consumer trust on SBM brand massively and due to decrease in sales, the company lost its market leadership position (Barton, 2002; Belson, 2002). As a response to food poisoning scandal, SBM took multiple measures such as, 1- recalling infected from the market, 2- top level management resigned and publicly apologized for their wrongdoing, 3- investigated as well as revealed the correct reason for contamination of milk products and 4- introduced corporate restructuring program to manage business activities of subsidiaries. As a response to beef scandal, SBM took multiple measures such as, 1- dissolving the Snow Brand Food subsidiary, 2- forming joint venture with baby food company, national financial community and agricultural association, 3- before resigning, CEO of the company initiated the corporate restructuring program and 4- approaching Nobuko Hiwasa (one of the prominent consumer activist in the country) to join as a board of directors. Despite such positive measures, SBM faced challenges in terms of regaining consumer trust, establishing market leadership position, restructuring business activities of subsidiaries, improving quality control measures in all strategic business units, in order to prevent future product related scandals and reforming the reporting structure in order to build strong corporate culture driven by ethical values. It is evident from the background case context, above key issues or challenges are the driving factors behind the problem statement depicted earlier in the report. Problem issue 1 (helping the Snow Brand Milk (SBM) to move out of previous corporate scandals): this problem issue is related to challenges regarding improvement of quality control measures, restructuring business activities of subsidiaries and developing strong corporate culture driven reporting structure across different functional groups in the company. Problem issue 2 (regaining the market leadership position): this problem issue is related to challenges regarding strengthening the brand and increasing sales revenue. Problem issue 3 (earning consumer trust back on the company): this problem issue is related to challenges regarding earning back the trust of external stakeholders and improving the ethical image of the brand. Based on such justification, it can be said that background of the study precisely as well as relevantly defines the problem/issues to be addressed in this research paper. Chapter 3: Problem Statement and Plan of Analysis Problem statement for this research paper can be stated as “helping the Snow Brand Milk (SBM) to move out of previous corporate scandals, regain the market leadership position and earn consumer trust back on the company”. The case of Snow Brand Milk Products Co. Ltd has close link to the theoretical concepts of corporate social responsibility (CSR). Research work of Hartmann (2011) shaded light on plausible relationship between corporate social responsibility (CSR) and corporate scandals regarding food safety. Hartmann (2011) and Heyder & Theuvsen (2012) defined CSR as commitment of business entities to manage and improve social, environmental and economic implications of its business activities at the local, firm, regional and transnational levels. In the context of CSR for companies operating business in food sector, research works of Jones, Comfort and Hillier (2007), Heikkurinen & Forsman-Hugg (2011) and Maloni & Brown (2006) have been considered as reference points. According to Heikkurinen & Forsman-Hugg (2011) and Maloni & Brown (2006), CSR activities by companies should mainly focus on quality control activities at each levels of food supply chain. Food companies need to maintain stringent quality control techniques for safe execution of complex set of food supply chain procedures such as raw materials handling, prevention of raw material from contamination, environment friendly disposal of wastes accumulated during food production and others. Consumers who eat the products of food companies are the external stakeholders and their health condition partially depends on quality of food that is being offered to them. In such context, Maloni & Brown (2006) stated that food companies have social as well as business responsibilities to ensure stringent quality control at every step of food supply chain to deliver high quality foods to consumers. In case of any health hazards of external stakeholders caused by consuming food of the company, then, the respective company should be hold responsible. In such context, the respective company has duty to take corrective measures to stop the spread of health hazards caused by the foods and apologize for their actions to consumers (Maloni & Brown, 2006; Hartmann, 2011). Food and dairy companies face mainly 3 types of CSR challenges such as, 1- continuously maintaining the high quality standards throughout every single process in food supply chain, 2- in case of contamination caused due to negligence, take corrective measures in immediate basis and 3- manage activities and behaviours of employees to ensure integration high degree of ethical corporate values across the different functional areas of the company (Fuchs, Kalfagianni & Havinga, 2009; Peterson, 2004; Luce, Barber & Hillman, 2001). In context to the case study of SBM, failure to address these three challenges had created the scope of previously discussed corporate scandals that negatively affected the market reputation of SBM. While analyzing case of food poisoning caused by products of business enterprises, Dean (2004) and Ge (2013) found that concept of food supply chain CSR is highly relevant. Therefore, this study has drawn inferences from the literature regarding food supply chain CSR to analyze the current situation for SBM. Research works of Heikkurinen & Forsman-Hugg (2011), Hartmann (2011) and Fuchs, Kalfagianni & Havinga (2009) were mainly used to source data regarding CSR issues regarding food positioning caused by food offerings off dairy and food companies. As proposed plan of analysis, three steps will be undertaken such as, 1- developing the problem statement with the help of SBM case contexts being presented by Mead (2010), 2- using secondary sources and theoretical concepts defined in literature conceptualized the problem statement and 3- analyze the problem with the help of developed conceptualization and come up with set of recommendations. In this case analysis, there is hardly any scope of doing primary research. On contrary, the case as well as problem statement has been analyzed with the help of different secondary data sources such as published articles, academic peer reviewed journals, books, previous case analysis, research thesis and online articles. Chapter 4: Analysis and Findings During the period from 2000 to 2002, SBM faced two successive corporate scams such as food poisoning of people in Japan caused by contaminated low fat milk of the company and fraudulently relabeling cheap foreign country originated beef products as mad cow diseases free Japanese beef products. According to the SBM case contexts being presented by Mead (2010), the company has taken range of initiatives to improve the current corporate scandal ridden situations such as, recalling infected from the market, investigating as the correct reason for contamination of milk products, resigning of top level employees whose negligence is responsible for those scams, apologizing to external stakeholders, introducing corporate restructuring program, dissolving the Snow Brand Food subsidiary, forming joint venture with other companies, approaching Nobuko Hiwasa to join as a board of directors and work as independent auditors. Although, SBM has taken numbers of different initiatives but there is no guaranty that these measures will be sufficient for the company to restore consumer trust on the brand. Considering the current situation, it can be said that SBM has mainly 3 key issues that need to be addressed. For example, without improving quality control measures in all strategic business units, it will not be possible for the company to prevent the threat of food contamination in future context. On the other hand, without reforming the reporting structure, it will not be possible for SBM to ensure robust communication of factual business information across different functional units. In order to regain consumer trust, the company has to properly restructure business operations of its subsidiaries and ensure stringent quality control at each phase of supply chain management. In such context, the concept of food supply chain CSR can be used to assess the current situation. Problem issue regarding improvement of quality control measures can be addressed by using the food supply chain quality control concepts being discussed in the chapter named as “Problem Statement and Plan of Analysis”. Consideration of research works of Jones, Comfort and Hillier (2007), Heikkurinen & Forsman-Hugg (2011) and Hartmann (2011) reveals the fact that SBM needs to implement stringent quality control at each phase of milk supply chain such as, 1- collect milk from healthy as well as well protected sources, 2- process the milk in accordance with the standard procedures being mentioned in the food safety & quality control guideline of Japanese government, 3- follow standard procedures of packaging of the milk and clearly mention the expiry date on packet and 4- recycling the wastes in an environmental friendly manner that are being accumulated during milk processing. Using the previously discussed CSR concepts, it can be said that employees of SBM lacked in corporate citizenship that might be due to lack of sense of corporate responsibilities of employees in different subsidiaries, Snow Brand Milk Products Co. Ltd collectively failed to address the concerns of external stakeholders. Due to absence of proper CSR structures, information regarding the actual reasons of food contamination had not been shared across different business units and employees in the company. As a result, employees gave unreliable answers while responding to corporate scandals being committed by SBM. Based on such analysis, it can be said that current situation or corporate scandals of SBM were caused due to failure to follow food supply chain CST principles. During the beef scandal, Snow Brand Food (Subsidiary of Snow Brand Milk Products Co. Ltd) repacked Australian beef and fraudulently relabelled it as high priced Japanese origin beef (ICMRINDIA, 2004). This is sheer violation of business ethics and sense of social responsibility being expected from business entity. Considering CSR principles, it can be said that SBM lacked the corporate culture of ethics and accountability. During the food poisoning scandals, the company never actually tried to investigate the true reasons for infections. Rather, top level management of the company deliberately tried to cover up the whole scenario by misrepresenting information. Evidences of such malpractices were available across all business subsidiaries of SBM. Such malpractices were deliberately done in order to make fool of concerns of whistleblowers and consumers. All such incidents are indicating that SBM lacked the integrating and awareness regarding CSR and corporate accountability. Chapter 5: Proposed solution to problem During the analysis of the case study, the study has identified challenges as key problem issues for SBM such as, 1- regaining consumer trust and retain the sustainability of consumer trust, 2- restructuring business activities of subsidiaries so that the scope of future corporate scandals get eliminated, 3- improving quality control measures across different supply chain phases in order to prevent future product related scandals, 4- establishing market leadership position by increasing sales volume and profitability and 5- building strong corporate culture driven by accountability and ethical values. Problem statement for this study is “helping the Snow Brand Milk (SBM) to move out of previous corporate scandals, regain the market leadership position and earn consumer trust back on the company”. Close observation reveals the fact that 3 subparts of the problem statement are actually covering the 5 key issues being depicted in the study. Now the question is, whether implementing strong food supply chain CSR codes can help the company to address all the above mentioned problems or the company needs more robust crisis management initiatives. In the case context, it can be said that implementing strong food supply chain CSR can only partially solve the problem. On due course, the study has identified three alternative solutions. These solutions can be tabulated in the following manner. Table 1: Alternative Solutions Type of Solution Description Advantage Disadvantage Implementing strong food supply chain CSR Implementing Japanese food safety and quality control norms at each stage of supply chain. Using scientific techniques at each phase of food supply chain to improve overall quality of the final output. The process will help the company to detect case of contamination during the supply chain phase. Chance future milk contamination related corporate will be reduced. The solution will only address the issues of food safety but it will not ensure development of ethical corporate culture across the company. Corporate Restructuring Shifting the roles of different subsidiaries, changing the reporting structure in order to bring more transparency and dissolving business units that are associated with unethical business practices. That process will strengthen the reporting structure across the company. Chance of better crisis management and effective public relation activities will be increased in near future. The process is time and cost intensive. Problems for the company is deep rooted to corporate culture; therefore, it will not be practical to expect that SBM can address all the problems by implementing corporate restructuring program. Implementing CSR initiatives at each verticals of business units Appointing Nobuko Hiwasa (by following all three conditions being mentioned by her) as a board of directors. Implementing strong CSR practices across all the business verticals of the company. Taking help of Nobuko Hiwasa to improve the dimensions of ethical business practices across internal stakeholders of the company. The process will cover up other two alternative solutions. As a result, corporate image of SBM will be revitalized as well as reformed. The process might take long duration to get successfully implemented in the company. Apart from such minor disadvantages, there are no major pitfalls in this solution. Therefore, this alternative has been identified as “best fit” solution. Recommendations “Implementing CSR initiatives at each vertical of business units” has been selected as “best fit” solution for SBM to improve current situation. In order to implement the recommended solution, the company needs to follow three steps, 1- Appointing Nobuko Hiwasaas a board of directors by following three valid conditions given by her, 2- conduct meeting with board of directors and decide corporate level CSR activities for coming years and 3- integrate food supply chain quality control initiatives and corporate restructuring with CSR activities being designed for key business units. Limitations of the study can be depicted in the following manner; Case contexts were almost 12 years old, therefore, the study has not the options to integrate present day business scenario of SBM while doing the analysis. Not using primary data sources while doing the case analysis has decreased justifications of the recommendations. Future research should work on these limitations and try to eradicate these shortcomings in order to come up with more robust case analysis. 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