It is a detailed assignment on renowned multinational corporation Nestlé and a South Asian country featuring Sri Lanka. Various ethical issues like employees' rights, conflicts, responsibilities, marketing, professionalism, freedom of action, censorship on the internet, security etc. are discussed in the assignment. Detailed discussion of the legal system, sources of law, different forms of business allowed, and intellectual property related acts of Sri Lanka etc are given. Effects of globalization, developments in ICT, culture, and politics etc. on Nestlé are described in this assignment also
Nestlé is the world's largest food company with sales in almost every country of the world. It is a Swiss company. It has own 456 factories in 84 countries in year 2008. (Source: Nestlé management report, p.30)It owns different food, pharmaceutical, toiletries brand all over the world. Nestlé, Nescafe, Nespresso, Maggi, Nido, Kit Kat, Milo, Alcon, L'Oréal are some world famous brands of Nestlé. This company was established by Henri Nestlé in 1866. It is a sale of $ 101.389 billion in the year 2008. (Source: Nestlé management report 2008, p.59)
Various Ethical Issues Relating To Nestlé
Rights, Conflicts and Responsibilities
Nestlé is a renowned employee friendly company worldwide. The word “Employee” is meant by the company all employees, associates, officers, and directors. There were 283,000 employees of Nestlé worldwide. (Source: Nestlé management report 2008, p.14)There are different aspects of employees' rights. They are as follows:
- Half of all employees are from developing countries.
- Company updates the Nestlé Policy on Safety and Healthy at Work.
- Company is working on reduction of accidents up to Zero percentage.
- It helped the Danish Institute for Human Rights (DIHR) to conduct the Human Rights Assessment in 2008.
- It has a well defined policy of working hours, compensation, and non-discrimination.
- The leadership ratio between men and women is 3:1 which is quite good in case of a multinational company. (Source: Nestlé management report 2008) Company is trying to increase the portion of women in top position.
- Company provides formal classroom training.
- It has separate program for educating workers about quality and safety.
- There is a UNDP-Nestlé partnership for giving education about water management.
- E-learning involves 260,000 employees every year. (Source: Nestlé management report 2008, p.33)
- Leadership training is arranged in London Business School for key employees.
Nestlé has various operations to ensure employee right. It has cooperation with local and international organizations for improving employee right condition.
Conflicts are mainly conflicts of interest. It may be in between employees and Nestlé. It may be in between a third party and Nestlé. In these cases the interest of Nestlé should be ensured. In case of inter department conflicts there are specific rules to resolve.
Company has different departments which have separate duties and responsibilities. The overall performance is depended on inter department cooperation.
Responsibility of Production Department
Nestlé has 456 factories all over the world. It is tough but company ensures a global standard in all its production sites. The main duty and responsibility of the production department is to produce quality and eco friendly products by ensuring the preservation of environment. Efficient production systems ensured.
Responsibility of Distribution Section
Company has a complex but strong distribution network all over the world. The large part of the distribution system is managed locally. Nestlé uses information technology highly in its distribution process. Company uses different hardware and software technologies in its distribution task like use of automated ordering system.
Responsibility of Branding Department
Nestlé itself is a renowned brand. It also has many globally renowned brands. It is the prime responsibility of the brand related people to increase the popularity of brands although company has a powerful brand portfolio.
Responsibility of Finance Department
It is a gigantic corporation in any sense such as financial condition. The main motto of the finance department is to maximize the wealth. It has a prime duty of increasing profit for the respective investors.
Responsibility of Employees
Employees have to follow the code of conducts properly. The interest of the firm must be get priority in case of any conflict of interest. Employees have to conscious about the image of the organization.
Nestlé is the global food leader. Its slogan is “Good Food, Good Life”. Company always tries to provide quality foods to the consumers. This policy is reflected in its marketing strategies. As the largest food company, it follows ethical marketing strategies.
There are two main marketing policies of the company called Whenever, Wherever, However and Consumer Communication.
Whenever, Wherever, However
The concept is that the products are available anywhere. Availability increases more and more consumers. This increases the sales and increasing sales increases profit & growth. To do so company uses multiple channel strategy consisting almost all types of channel members.
The marketing professionals of Nestlé are highly trained and capable for food marketing through this process.
This is rather a complex process consisting huge products, lot of channels etc but “Making what is complex, simple is a Nestlé skill”. They have established a global business model to make it easy or simple, whatever we say.
The main thing of the concept is that maintaining relationship between consumers and company's brands to establish “Loyalty Fortresses”. This policy helps consumers to increase brand awareness. The company communicates with the consumers through trained communicators. There are 100 advisors in 80 Consumer Service Centers in 70 Countries. They have over 10,000,000 consumer contacts per year. (Source: Nestlé management report 2008, p.48) This is a very effective way to increase brand loyalty and the growth in sales.
Nestle uses almost all media to reach the consumer. And this company is a role model of consumer focusing marketing.
It established various types of marketing techniques as Out-of-home Leadership, Popularly Positioned Products, Ethnic Products, Premiumisation etc.
Company owned many world famous brands like Nestlé, Alcon, L'Oréal, Milo, Kit Kat, Nido, Nescafé etc. Some of its brands are billionre brands which have sales of over $ 1 billion each.
A huge growth has been made by its marketing department for the company.
Company adopts different techniques in different countries because each country's local environment and culture is different.
Nestlé's corporate culture is fully professional. Its different countries' operations are also known for practicing professionalism. The Code of Conducts is the guideline to be a professional one. All employees must be gathered sufficient knowledge about the code of conduct.
Its corporate culture is helpful in making the organization professional. Company takes in account different behavioral issues like values, attitude, and culture of employees. Employees are motivated to be professional in their business.
Individual responsibilities regarding professionalism are well-defined to the employees. The main theme of professionalism is that the company's interest must be served first.
Nestle depends highly on information technology. It uses IT for various purposes. Its IT structure is well-built. They have a global virtual network.
Company uses various IT components like Hardware components and Software components to increase its service to the consumers. Different customized software are used by the company. Company does in house and external research for the betterment of information technology.
Almost all production facilities are automated. A big portion of distribution is also automated. Information technology is used in promotional activities.
Communication is a major factor in case of Nestlé. They believe in consumer communication. They uses internet, intranet, and extranet also. The official web portal of Nestlé is www.nestle.com. Communication is a two way process. Company always encourages feedback, positive or negative.
Internet gives the opportunity to communicate with many people in a cost effective manner. In case of communication company follows ethics. Company has certain ethics. Company also respects the ethics of consumers. Company has to maintain close communication with suppliers, distributors and many other parties. IT is widely used in those cases.
Freedom of Action
Freedom of action is not same for all. There is variation it in different levels. Company has defined the limit of freedom by making different rules, code of conducts etc.
Directors and other top level employees by nature enjoy more freedom than the other employees. Company is serious about every employee's rights in measuring freedom of tasks.
Generally it is said that it is a flexible organization in case autonomy. In case of freedom of action, the interest of the organization gets the priority.
Censorship on the Internet
Nestlé discloses most of its information publicly. Only some very confidential information is not disclosed. It is written rule of the company that it cannot disclose any confidential information and any personal information unrelated with the interest of the company.
Beside these various internal financial data are not shown in internet.
There is a very limited censorship on the website. Actually it should not be called censorship because they do not show some confidential information. Those types of confidential information are not shown by all companies. For some purposes membership is needed.
On the other hand Nestlé faces some difficulties in some countries where serious censorship is applied on internet. Generally high level of censorship on the access of internet is bad for business and people.
Computers and Work
For automated production system computer is must. Computer is a vital part of IT. For example, a simple salesman of Nestlé in Bangladesh, a third world developing country, uses a PDA to taking orders from a road side small shop. This example is a small picture of whole Nestlé.
Nestlé's strong database needs a sophisticate computer network. And it has a sophisticate computer network with sophisticate technology.
Nestle is incorporated in Switzerland under the Companies Act. It governs by various laws of its parent country.
As a global company it also follows the laws of all countries where it operates. Its local operations are totally controlled according to local laws like factory law, environment law, competition law, and consumer right law etc.
Nestle is always respectful to laws because without having no respect on laws it is impossible to be a socially responsible company.
A numerous laws have to be followed by the company. So it has established a separate legal wing. It has also communication with different attorney firms and individual attorneys.
There are different forms of security. It is a burning issue now a day. Company sets its security measures according to country's condition where it operates. Security depends on situation. So the security policy is continuously revised. Modern security techniques are used by the company.
The security of employees' health is the prime concern of the company. Different safety measures are taken to reduce accidents. Company ensures completely secured working environment. For example there is arrangement of fire distinguisher, emergency exit door and other fire fighting measures in all production facilities of the company.
In case of job security company follows its principles. It depends on the local culture also. There may be any variance in principles regarding country.
Answer of Assignment Question No. 2
Sri Lanka is a South Asian Country. It is the most educated country in this region. Colombo port which situates nearby the capital, Colombo, is one of the busiest sea ports in the world. It is one of the top Tea exporting countries of the world. It has overcome the Tamil issue recently.
The Legal System
Sri Lankan legal system is a mixer of English Law, Roman-Dutch Law, Kandyan Law, Theswalamai Law, and Muslim Special Laws.
Sri Lankan legal system is highly influenced by Roman-Dutch Law. It is one of only two follower countries of Roman-Dutch Law. Another country is South Africa. It was accepted by the British also. Roman-Dutch law is a tradition of Sri Lanka. Roman-Dutch law is applied in case of general jurisdiction.
Kandyan Law is applied in case of Kandyan Sinhalese for marriage, Divorce, and interstate succession.
Theasawalamai Laws are only applicable to the Jaffna Tamils in case of only property and interstate succession relating to marriage.
Muslim Special Laws are applicable to the Muslims in case of family related cases.
English Law is followed in case of commercial matters like civil cases, criminal cases etc.
Actually Sri Lankan Law is very complex in nature. But the combination of these five laws has made a rich Legal system also which is important for that type of conflicting country.
Sources of Law
There are main five sources of law in Sri Lanka. They are:
- Roman-Dutch Law
- English Law
- Kandyan Law
- Theasawalamai Law and
- Muslim Special Laws.
Roman-Dutch Law, English Law, and Indian Law are the main sources of general law. Other laws are the sources of different ethnic groups' related laws. It is a country which has some ethnic groups. For some religious and ethnic purposes these special references are used.
Different regulations, act, and bills passed in parliament are the source of laws. There is another source of laws. It is the highest court. Various commending instructions from the Supreme Court are also treaded in laws. Various amendments are made to enrich the legal system time to time.
The court structure of Sri Lanka is hierarchal. The Supreme Court is the highest court of Sri Lanka from 1972. Below it, the other courts are the Court of Appeal, High Courts, Municipal Courts and District courts, Magistrate's courts, and Primary courts. There are some other courts and tribunals beside these.
The Supreme Court, the Court of Appeal, High courts and other courts' legislative power and action are defined by law. The Court of Appeal is the first court for appellate purpose. High courts are third highest courts of Sri Lanka. There are 16 High courts in 16 provinces.
Under high courts there are 54 District courts in 54 judicial districts. These courts deal mainly with civil cases. Sri Lanka has 74 magistrate's courts in 74 judicial divisions. There are 7 primary courts. Magistrate's courts play the role of primary courts where there is no primary court.
All these courts are established under the Judicature Act, No.2 of 1978.
There are some other courts for different ethnic groups like Kathi Court (for muslims), different administrative tribunals also. Those administrative tribunals are headed by Court of Appeal.
Different Forms of Business allowed and the Laws Governing Them
Foreign investors or companies can set up different types of business such as Partnership business, companies registered under the Companies Act 1982, Joint Ventures. In most of the cases joint ventures are get priority.
Foreign investment gets great priority in Sri Lanka. There is a board of investment established and operated under the Board of Investment Act. But its long civil war has hampered the situation.
There are various laws regarding business affairs. Such as:
- Companies Act 1982
There is an amendment of this act. This is a very powerful act regarding companies' registration, operation, ownerships and other issues.
- Imports and Exports (Control) Act
It is an act that prohibits all sorts of illegal exporting or importing in or from the country.
- Monetary Law Act 1987
All monetary transactions are controlled by this act.
- Registered Stock and Securities (Amendment) Act 1985
Securities related this act preserves all types of matter relating to stocks and securities.
- Credit Councils (Repeal) Act 1986
It is a law relating to credit management in the country. There is a council for this purpose.
- Business Names Act 1987
Any dispute regarding business names are resolved under this act.
- Fair Trading Commission Act 1987
There is a commission under this act which monitors all types of business operations within the country for fair trading purpose.
- Securities Council Act 1987
There is a council under this act which observes the security market of the country.
- Banking Act 1988
All banks are governed by this act. Establishment of banks, operations of banks is controlled by this act.
- Business Undertakings (Acquisition) (Repeal) Act 1988
All types of business acquisitions are done under this act.
- Surcharge on Income Tax Act 2001
To impose surcharge on income tax, this special act was established.
- Surcharge on Wealth Tax Act 1989
To impose surcharge on wealth tax, this special type of act was made.
- Industrial Promotion Act 1990
To promote sound industrial growth this governing act was made.
- Consumer Protection Act
It is the prime law to protect consumers' rights. It is a very strong act regarding consumers' right.
- Finance Act 2005
All financial transactions are the topics of this act. All financial matters are examined by this act.
- Promotion of Export Agriculture Act 1992
To promote the export of agricultural goods is the prime objective of this act.
- Goods and Services Tax Act 1996
All types of product taxes are collected under the supervision of this act.
- Factories Act
It describes all related issues of factories premises, environments etc. in details.
- Inland Revenue Tax Act 2000
It is the main act relating to tax collection. This act gives all instruction regarding taxes.
- Board of Investment Act
This act was made to promote foreign investment in the country.
- Consumer Affairs Authority Act 2003
It is another act relating to consumers' rights.
These acts are strictly followed by government of Sri Lanka.
Dispute Resolution Procedures or Options Available and Their Effectiveness
In Sri Lanka, ADR or Alternative Dispute Resolution is mainly followed for dispute resolution rather than litigation process. This process is settlement type. There are two types of ADR. They are:
The latest Arbitration Act, No. 11 of 1995 is used to arbitrate. This system is mainly used in cases of commercial disputes.
There are three kinds of mediation. They are:
Community mediation is used in community disputes and in bank related disputes. There are some mediation boards under the Mediation Boards Act, No.72 of 1998.
Sri Lanka has the Commercial Mediation Centre of Sri Lanka (CMCSL) established in 2000 under the Commercial Mediation Centre of Sri Lanka Act, No. 44 of 2000. It is the main disputes settler for commercial disputes in the country. The centre conducts mediation sessions for mediation and conciliation. It formulates its own rules and fees as needed. It has code of conducts for the mediators.
Private sector is highly encouraged to go there for dispute resolution. The board of management of the centre is managed by the private sector's people, mainly by the leaders of chambers of commerce. Only one member is come from government side. There are 34 trained mediators in the centre. (Source: Alternative dispute resolution, cited in http://www.justiceministry.gov.lk/ALTERNATIVE%20DISPUTE%20RESOLUTION.htm)
There is another mediation centre concerning employees' disputes. The Employment Mediation Services Centre (EMSC) was formed in 2001. There are 84 members of it. (Source: Alternative dispute resolution, cited in http://www.justiceministry.gov.lk/ALTERNATIVE%20DISPUTE%20RESOLUTION.htm)Any employment related disputes may be taken to the centre. They have own rules in terms and they give the assurance of full confidentiality.
All these methods are used in different cases where they are needed.
Laws Related with Copyrights, Trademarks, Patents, and Designs
There is an Intellectual Property Act which provides the safety of Copyrights, Trademarks, Patents, & Designs. Different amendments have been done to improve the act. But it is yet to done a proper intellectual property act.
There is administrative tribunal for these purposes. There are several authorities for trademark, patent, and designs. Their working areas are:
- Registration of trademarks, patents, copyrights, & designs
- Examining the originality of the trademarks, designs etc.
- Collecting fees for trademarks etc.
- Giving consultation to the government about these matters.
- Collecting information about these matters.
There are separate departments for copyrights, designs, patents, and trademarks. All these issues are closely monitored by the authority.
Answer of Assignment Question No. 3
It is said that globalization is a prime opportunity for the global multinationals because they have the capability of surviving in any big environment and also in hazardous environment. Again said, as a global multinational, Nestlé has also taken the opportunity of globalization.
Opportunities of Globalization:
- Greater opportunity to expand the market
- Using the workforce from different nations
- Easy communication
- Free market economy
Threats of Globalization:
- Less price competition with small companies
- Getting threat from new companies
Company has set up 4×4×4 Roadmap to compete with the globalized world.
Figure 3: 4×4×4 Roadmap
All the elements are overlapping, interacting and complementing. There are main three issues. They are:
Company has found out four basic competitive advantages as follows:
- Unmatched Product and Brand Portfolio
Nestlé has the largest food product and brand portfolio which is called by them Unmatched Product and Brand Portfolio.
- Unmatched R&D Capability
Company owns a strong R&D department which has many research centers. Company is specialist in nutritional science and infant food research.
- Unmatched Geographic Presence
Company operates its business in around 130 countries. This is a unique global presence as a food company.
- People, Culture, Values, and Attitude
Nestlé always give priority to the people (consumers, employees), cultural pattern of a country or region, consumers' values, and peoples' attitude.
Four vital strategic pillars have been consisted in Nestlé. They are:
- Innovation and Renovation
Company believes in constant renovation and continual small improvements of products. Its innovative products give it the chance to lead the market.
- Operational Efficiency
To achieve operational efficiency company focuses on project driver and targeting specific operational areas.
- Whenever, Wherever, However
The main focus point of this policy is that company wants to ensure availability of its products in any situation.
- Consumer Communication
Company has established a strong communication network with their potential consumer which gives it a golden opportunity to know the consumers' choice.
Again four growth drivers or forces are found. They are:
- Nutrition, Health, and Wellness
Company gives emphasis on nutrition, sound health, and wellness of the consumers. To increase the nutrition facts of products is a matter of research of the company.
- Emerging Markets and Popularly Positioned Products (PPP)
Some new markets are the emerging market of the company. Around 30% of total sales in the year 2008 were in emerging market. (Source: Nestlé management report 2008, p.38) PPP are designed for lower income group.
- Out-of-home Leadership
Company's growth is increasing because of another reason which is called Out-of-home leadership. Company has taken a policy to catch the potential consumers who want to take their food out their home.
Nestlé adopts Premiumisation policy for the high income consumers.
This model is very much helpful in case of globalization. The multiple sign means lack of one item makes the result zero. So to be successful all three components are needed.
China is the best example of the positive growth and result because of globalization. China is now one of the most potential and growing market of the company. Company set the second R&D centre in Beijing of China in November 2008. (Source: Nestlé management report 2008, p.31) Another is in Shanghai. There are now 19 factories in china. (Source: Nestlé management report 2008, p.31)
Nestle introduces various customized products for different geographic locations and different segments because of globalization.
Company faces tough completion in Latin America especially in Brazil. In Latin America various local companies are emerging. This is a threat to the company.
Developments in Information, Communications, and Technology
Nestle depends greatly on information technology. It uses IT for various purposes. There is a well-built IT structure. They have a global virtual network. Its information database is continuously enriched through updates.
Company maintains Hardware components and Software components to increase its service to the consumers.
Information technology is also used in promotional activities. Nonstop up gradation of IT structure is made.
Development in communication is a major factor in case of Nestlé. They believe in consumer communication as a major strategic pillar. They use internet, telephone, and other communication Medias.
Sophisticated technological changes are made for automated production system. Nestlé is a technologically advanced company in the field of Food and Beverage Company. Nestlé's strong database needs a sophisticate computer network. And it has it. But they are not satisfied with it. So modernization is made continuously.
Culture is a big issue in the globalized world and in the field of Food and Beverage Companies. Cultural influence determines the food habit and consumption pattern. So company has to be conscious about culture and cultural changes in a particular area. Nestle deals with local business according to local culture. Even many local brands are made according to the local culture. For that reason, company has lot of local brands all over the world.
Company gives emphasis on the employees' strengths, talent, and energy. Long term thinking, integrity, mutual respect, and openness are getting preference in their culture. The corporate culture of it is much disciplined. They can easily transfer the vision to action. They promote challenges.
They make decisions on the basis of pragmatism and flexibility. Its employees have clear concept about individual responsibilities.
It has a diversity of employees. Different ethnic groups are matched by the firm under one shade. It gives a marvelous competitive advantage to the company to compete in global market.
Fully professional body makes the tasks easy. Multi variety people have various types of ideas. So there is no lack of new ideas and views.
The main motto of Nestlé is that, all 283,000 employees should be thought about the company in same way. There should not be any difference in perception.
Corporate governance is vital to ensure the right of investors and other stakeholders.
Nestlé believes on proper corporate governance. It publishes corporate governance report annually. It ensures the sound relationship among the parties such as different stakeholders.
All types of price sensitive information are disclosed to the investors through advertisements, annual general meetings. Company gives priority to the investors' interest. For this reason companies one most important goal is the financial improvement for wealth maximization.
It is a socially responsible company. So company does various tasks as a part of Corporate Social Responsibility.
Nestlé is the most powerful food corporation in the world. It is the largest and most renowned company of its parent country, Switzerland. It has influential power in case of any business related decision. But company never takes any undue advantage of this power. It always tries to improve the business environment by using its power. In recent decades there was no major threat to its power.
In many developing countries nestle is the most powerful food company. Actually it has influential power in many countries.
Company has a strong position in global business arena. It can change many decision relating with food market especially baby and infant milk related.
There is long history of sound political condition in Switzerland. So company always gets a favorable business environment in the country. The political powers are always in favor of business.
It gets favorable political condition in North America, EU, and a portion of Pacific region especially. As a global food company it never fall into any serious problem for political violence or problems.
Nestlé has to operate in all type of economy because there is no pure communism in any part of the world. The market of the company is growing day by day with the increasing of global population.
As a global company it also follows the laws of all countries where it operates. Its local operations are totally controlled according to local laws. Company also follows some international agreements and laws.
Nestle is always respectful to laws because without having no respect on laws it is impossible to be a socially responsible company. It has to face various consumer rights related laws, competition laws, fair trade laws, environment related laws in different countries. Local laws are always get respect from the company.
A numerous laws have to be followed by the company. So it has established a separate legal wing. It has also communication with different attorney firms and individual attorneys.
To know the consumers' choice Nestlé designs its communication strategies as “Consumer Communication”. Company is consumer focused. Products are designed according to the consumers.
Popularly Positioned Products
Nestlé has Popularly Positioned Products (PPP) which are designed for the lower income segment because there are 2.8 billion consumers who earn less than $ 10 a day. For example company sells Bear Brand fortified milk for only $ 0.20. (Source: Nestlé management report 2008, p.38) This product is for one third children who are under weight and/or under height. Company adds iron, zinc, and vitamin C. for example company sells Bear Brand fortified milk in Philippines.
Nestle has launched these products for the out-of-home segment. Around 50% of total North American consumers of food and beverages spend is out-of-home. Nescafé and Maggi are two main products of that type.
These types of products are for them who want to buy products produced in their original country. Maggi Arôme and Bouillons are imported from Africa to France for Muslim community. These products are certified halal and prepared according to Islamic Law.
There is another product called Nescafé Clasico, especially for the Hispanic people of the U.S.A.
Different premium products are launch in the market for higher income level people. Nido Excella Gold is that type of product which was launched in Mexico and Asia. It has forecasted that the premium food and beverage sector's growth will be 13% per year to 2020. (Source: Nestlé management report 2008, p.40)
In this process Nestlé deals with its consumers' choice in different manners. Company is developing different other products, strategies for the consumer choice.
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