Chiquitas Global Turnaround Essay

Executive Summary This report details several international management problems that Chiquita has been faced with over the past two decades. Many of these problems are to do with the company’s previously poor image when it came to Corporate and Social responsibility. Over the years Chiquita faced many accusations about the conditions workers were faced with at many of their facilities in Latin America and have also had their environmental policies questioned many times in the press. The company has made great strides in recent years in improving their public image with regards to corporate and social responsibility. In particular Chiquita’s commitment to the Better Bananas Project has helped improve their public image along with the continued work they are doing with the South American communities who farm their bananas. The Company also faced a significant legal and regulation of trade problem when the EU’s 1993 integration program saw tariffs on the company imports to Europe gre atly increased and their market share halved almost overnight. This report recommends that instead of going through a costly legal battle to gain re-entry to the European Banana market the company instead focuses on newer emerging markets such as Asia. Introduction Chiquita Brands International is a multinational producer, distributor and marketer of bananas, sourcing many of its produce from developing countries in Latin America. Banana industries have long been tarnished as having unethical business standards forcing companies such as Chiquita to take on ‘Corporate Social Responsibility’ (CSR). CSR has been an essential element for Chiquita to take into consideration for a global turnaround. Vital aspects Chiquita had to consider were commitment to legal, ethical, environmental and social standards. These factors are at the most forefront to resolving CSR issues. Another key issue affecting the organisation was its struggles with access to a free market in the EU. The trade regulations the company faced through quotas and tariffs not only cut the company’s market share by over 50 percent but also negatively affected their ability to compete in the EU. These issues are seen as critical for the firm as it weakened its compet itive edge considerably. Chiquita has taken actions against these issues in the past several years however there are several solutions that could strengthen the company even further so that they remain the worlds leading supplier of bananas. Key Issues Issue #1: Corporate Social Responsibly After analysing the case in full depth it has come to our knowledge that corporate social responsibility (CSR) is a major international business issue affecting Chiquita. CSR is becoming a huge business venture in today’s corporate world. People are becoming more aware of business ethics and practices that don’t coincide with what they agree is morally correct and right. (Anglo American, 2012) Business practices have therefore moved from being profit maximisation focused to having social, cultural, technological and political focal points; or a ‘quadruple bottom line’ approach in order to create a company that is socially correct with a positive image. (LGAM, 2013) In 2003 Chiquita had 19,000 workers in its banana division with over 100 farms across Latin America. These countries are typically developing countries that have struggled with poverty, literacy and access to health care. The banana industry has long been for its support of child labour, unsafe w orking conditions, sexual discrimination and low wages leading to Human rights groups organising campaigns against all banana companies to improve social conditions on their plantations. (Luthans, F., & P. Doh, J. 2012). CSR is stated as â€Å"the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large†. (Business Respects, no date) Therefore Chiquita’s image in the 1990’s of being a company that was â€Å"cold, uncaring, and indifferent, frustrated with mediocre returns, a lack of innovation, and a demoralized workforce† lead to the company becoming considerably unpopular with the public and business partners, which contributed to a decrease in growth rates. For example, in 1998 Chiquita fell a victim of an undercover investigation into dangerous and illegal business practices. The Cincinnati Enquirer, a paper based in Kentucky, accused the company guilty of â€Å"labour, human rights, environmental and political violations† in central America, leaving an â€Å"unsavoury impression of our company† according to Jeff Zalla, current corporate responsibility officer at Chiquita. (Luthans, F., & P. Doh, J. 2012). The centre of the debate about the CSR is the nature and extent of corporate obligations that extend beyond the economic and legal responsibilities of the firm. â€Å"The idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations† (McGuire, 1963: 144). The issue is therefore critical for the firm as it is in the business’s long-term self-interest to be socially responsible. If Chiquita wants to have a healthy climate in which to function in the future, it must take actions now to ensure its long-term viability. Ultimately it will benefit the company by â€Å"winning the public† because the public believe firms should take on social responsibility. Issue #2: Tariff Regulations from the EU Another international business issue that had a significant effect on Chiquita’s day to day operations was the European Union’s (EU) decision to impose significantly higher tariffs and quotas on Chiquita’s imports from Latin American countries, in favour of their former colonies in the Caribbean and Africa, beginning in 1993. These new Tariff’s not only cut the company’s market share by over 50 percent but also significantly affected their ability to compete in the EU’s $6.7 Billion USD banana market. (Luthans, & P. Doh, 2012). This was a massive regulation of trade issue for Chiquita as they believed the EU’s decision to grant their former colonies preferential tariff rates was in direct violation of the fair trade principles specified in the WTO. These principles stated that countries must not discriminate against one another in their trade relations. (Luthans, & P. Doh, 2012). One of the key sub-issues that caused this issue for Chi quita was the EU’s 1992 integration program which saw the 12 member nations of the EU do away with their previously separate banana import regime’s and implement one uniform set of tariffs for the whole EU. (Patterson, 2001) This important change in international law saw Chiquita go from only having some quotas to deal with when exporting to the EU to now having to pay an extra 33% tariff than their rival importers from ACP countries. (Patterson, 2001) Although the EU’s new regime was immediately protested by the U.S.A and many Latin American countries this presented another significant legal international management problem for Chiquita. Not only had their market share been halved, drastically cutting into their profits, but they also now faced the prospect of a lengthy and expensive legal battle to be able to once again import their bananas to Europe at a fair rate. (Luthans, & P. Doh, 2012). Strategic options Corporate Social responsibility Chiquita began to initiate corporate social responsibility projects in 1992 but initiated projects aimed at implementing its CSR efforts on a global scale in 1998, (Luthans, & P. Doh, 2012). By 1999 Chiquita had adopted four key values, integrity, respect, opportunity and responsibility, which now guide all business decision-making worldwide, (Luthans, & P. Doh, 2012). In 2000 Chiquita appointed a full time officer responsible for all aspects of Chiquita’s CSR. This implementation as well as the four core values has helped drive a responsible change throughout the entire company, (Chiquita – Social Responsibility Is How We Conduct Business, 2013). It has meant all business decisions have had to be evaluated through the corporate responsibility policies, (Luthans, & P. Doh, 2012). Chiquita’s development of social responsibility efforts has developed significantly by expanding on the businesses code of conduct to outline the responsibilities and practices of the or ganisation, as well as adopting legal agreements to establish business standards, (Luthans, & P. Doh, 2012). Chiquita’s have resolved social conditions on all their plantations by using both these strategies. They expanded their code of conduct in 2000 to include Social Accountability 8000, followed by signing a worker rights agreement in 2001, (Luthans, & P. Doh, 2012). This covered areas such as food safety, labour standards, employee health and safety, environmental protection, and legal compliance, all which have been a long tarnished image in the banana industry. It has been proven to be a very effective tool for measuring and improving business practices to better serve the communities and individual consumers, (Chiquita – Social Responsibility Is How We Conduct Business, 2013). In order to adhere to the organizations core values, Chiquita routinely performs audits, to plan corrective and future actions using the firms core values and code of conduct as decision- making guides. This implementation has contributed significantly to allow Chiquita’s to maintain better CSR practices. An alternative solution for Chiquita is to contribute to local communities in an interactive way. Chiquita’s could set up programs to promote healthy living, particularly that educate children on nutrition and encourage them to lead healthier lives. Chiquita employees could do this by visiting local schools, events or other business firms in the community. To promote healthier living to people they could give out produce to the community to encourage eating healthier foods and give tips to men, women and particularly children about nutrition enforcing the idea of healthy living. Chiquita could also allow schools to visit their farms on an education basis. This gives the opportunity for Chiquita employees to get involved in supporting the community and has the added benefit of portraying a great social responsibility effort for Chiquita. Furthermore on the idea of allowing people to visit their farms, Chiquita could alternatively charge people a small dona tion, where a percentage of the profit could be given to charity or an ongoing event in the community. Tariff Regulations from the EU From the time that the new regime was put in place in 1993, Chiquita, along with the United States, filed complaints to both the General Agreement of Trade and Tariffs (GATT) and the World Trade Organization (WTO) implying that there were violations of free trade from the EU (Doh & Luthans, 2012). There were two complaints made to GATT the first, issued in February 1993, outlined that the new regime (Mark II) was ‘protectionist, discriminatory and restrictive’. While the second; was initiated by five Latin American plaintiffs on the first of July, 1993 (Read, 2005). While the GATT panel ruled that the Mark II regime violated GATT commitments, the EU refused to adapt the ruling made by GATT. In May 1997, the WTO ruled that the EU’s Mark II regime violated WTO obligations under the GATT on trade and services and the agreement on import licensing procedures (Doh & Luthans, 2012). Some of these licensing procedures included: Operator categories, activity functions, ex port certificates and hurricane licenses (Read, 2001). The EU was then required by the WTO, to bring its banana regime compliance by January 1999. This was brought about by the various amounts of import licenses that the EU used in which the WTO panel found that these licenses breached the GATT and the General Agreement on Trade in Services as it prevented competition in the EU (Read, 2005). However, the EU did not comply and so, the United States was allowed to enforce regulatory tariffs onto specific EU imports as a response towards the EU’s failure to implement the WTO rulings as well as the violations of the GATT trade rules (Read, 2005) It was not until April, 2001 that the United States and the EU announced that they had resolved their dispute but reaching an agreement. The agreement took effect on the first of July, 2001 during which the United States suspended retaliatory sanctions and the import of bananas from Latin America returned to the levels it was at before the 1993 regime change (Doh & Luthans, 2012). Final Recommendation An alternate option that Chiquita could have undertaken is that rather than focusing on regaining the European market, they could have looked towards expanding to a new regional market such as Asia. Evidence from the Chiquita’s website shows that they have yet to expand to the Asian market (Chiquita Homepage, 2013). Four out of the top five countries for banana consumption in the world come from Asia; these countries being: India, China, Indonesia and the Philippines (WolframAlpha: Banana Consumption, 2007). Upon entering the Asian market, Chiquita should approach with either a polycentric or regiocentric predisposition. Polycentric and regiocentric predisposition is, respectively; â€Å"a philosophy of management whereby strategic decisions are tailored to suit the cultures of the countries where the multinational corporation operates† and â€Å"the philosophy of management whereby the firm tries to blend its own interests with those of its subsidiaries on a regional basis† (Doh & Luthans, 2012). These two approaches would be good for entering into the Asian market as Asian cultures tend to be high context cultures in which negotiations are slow and ritualistic; whereas for and American-based company such as Chiquita, are used to low context cultures where negotiations are made efficiently as possible (Cavusgil, Freeman, Knight, Ranmal & Risenberger, 2012). These two approaches will allow for Chiquita to become more compatible with the Asian market. Implications of this however, is that the time and money spent on developing and researching strategies on entering the Asian market could cost either the same, or more than the legal costs that Chiquita faced while regaining the rights to exporting to the EU. However, if Chiquita looked towards expanding into the Asian market while dealing with legal issues regarding the EU quotas and everything went well, Chiquita would then be exporting to both Europe and Asia which would bring them more profit than if they were just shipping to one or the other. References Anglo American, (2012), Business Ethics and Corporate Social Responsibility, Retrieved from: http://businesscasestudies.co.uk/anglo-american/business-ethics-and-corporate-social-responsibility/introduction.html#axzz2cMnSxmvE, Accessed 17/9/13 Business Respect, (no date), Corporate Social Responsibility- what does it mean? 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