IBUS 201 Individual Assignment 2 Cover Sheet

Fonterra Incident in the International Business Environment

Abstract:
Currently, increasing number of firms get a powerful influence by the dynamic
international business environment. Fonterra 2013 incident will be analysed in
order to identify the key factors of failure. Firstly, the importance of international
business environment for Fonterra will be illustrated briefly. Next, the report is
focus on the crucial problems and mention about clostridium botulinum, which
mainly refer to corporation social responsibility and ethnic behaviour aspects.
Then the article will describe and evaluate the methods by the company to solve
the issues. In addition, better ways for settle the problems and reasons for that will
be involved as well. Last but not least, there will be some implications for
companies and managers if they suffer from a similar condition in international
business activities. Overall, the report will indicates the failure of Fonterra
associated with contamination and primarily analysis how to deal with such issues
in international business environment.

Name: Hanyu Li
Student ID: 300347238
Course Coordinator: Dr. Yang Yu
Word Count:
Date Submitted: 05/02/2015
1. Introduction
International business environment contains various kinds of aspects such as society,
economy, politics, regulations and technology. The significance of international
business environment for firms is obviously that the environment can affect how a

business operates, can have prominent effects on a firm's success and productivity
(The Environmental Factors That Affect a Business). Trading across national
boundaries creates jobs, increases sales, balances periodic fluctuations and provides
products and services at the same time (The Importance of the International Business
Environment). As for the case of Fonterra incident happened in 2013 because of the
clostridium botulinum, which had a seriously negative impact on Fonterra.
The intended learning outcomes of the report from Fonterra we can obtain the
importance of corporation social responsibility and ethnic behaviour and ready to
know how to deal with such problems in the similar situation. Additionally, other
implications for the firms will be mentioned about in this report.
2. Case presentation
2-1. Fonterra and the case for analysis
Fonterra is a global, co-operatively-owned company with its roots firmly planted in
headquarters Auckland, New Zealands rich land, which annual sales up to 8 billion
dollars. It is the biggest company in New Zealand, the sixth dairy producer all over
the world as well (Company Overview). In August 2, 2013, Fonterra said that one
factory detected clostridium botulinum in the dairy products, which affected many
companies over the world. On that night, State Quality Inspection Administration
requested that all importers recall contaminated products immediately. It had an
enormous splash in dairy industry by globalization countries and even around the
world. But finally Fonterra products were proved to be safe (2013 Fonterra recall,
2014).
2-2. Reasons of case is IB related
The reason why the case is international business related is because there is a close
connection between international business and national enterprises. Fonterra is a
famous multinational corporation of dairy industry, it is the biggest dairy exporter
over the world and hold 1/3 in the global dairy trade. Moreover, there are
approximately 85% of dairy products export to other countries such as China,
America and Japan. In 2006, Fonterra Co-operative Group was capital injection Sanlu
Group 8.64 billion RMB, which subscribed to Sanlus 43% share and began to operate
joint venture company.
Fonterra Cooperative Group markets and distributes milk products not only for

industrial, but consumer use as well. The firm principally operates Auckland
headquarters in New Zealand and employing about 15,600 staffs over the world.
Therefore, on account of the New Zealand markets limited potential and the firms
character, it is necessary to promote international activities (Coulthard & Dooley,
2010, p.32).
Under the impact of rapid growth in trade and investment, Fonterra, it has a long
business development about 30 years in China, which provides all kinds of nutritious
dairy products for Chinese consumers. On account of high-speed development of
dairy industry, now China has become the biggest market of Fonterra (Fonterra Cooperative Group). Definitely the world is seen as becoming increasingly
interconnected as a consequence of political, economic, political, sociological and
cultural forces (Wall & Rees, 2001, p.9). Multinational enterprise as Fonterra play a
very critical role in international business activity. Fonterra may promote New
Zealands economic development and also can interactions the relationship between
countries and people. For instance, Fonterra bring their high quality dairy products
and advanced technology to many countries, so it make a great contribution for the
world economic development.

3. Case Analysis
3-1. The key problems in Fonterra
The key problems are how to ensure the quality of Fonterras dairy products and how
to rebuild the consumer confidence. Although it was just a false alarm, there still
existed potential quality hazard in Fonterra. However, Fonterra have paid a heavy
price for this incident. For instance, some executives resigned, the criteria for food
quality has risen and they have had a crisis of confidence (Fonterra Clostridium
Botulinum Incident).

3-2. The approaches undertaken by Fonterra to address the issues

The approaches undertaken by the company to address the issues mainly focus on the
quality and reputation. Fonterra held a press conference on August 5 in Beijing, which
made an explanation and apologized for the incident of clostridium botulinum.

Fonterras chief executive officer Theo Spierings claimed that they will recall all the
related products in 48 hours. Fonterra indicated that the true crime culprit in this
incident is a plastic dropped into pipes. Even though the foreign matter was found, the
handling of details exposed the loopholes in Fonterra (Fonterra Apologize For Milk
Powder Contamination Incident).
In order to solve these problems, Fonterra emphasized on production quality control,
detection to ensure that every dairy product reached the standard. Additionally,
Fonterra strengthened the whole supply chain for quality and safety control, enhanced
the communication efficiency between internal and external environments. Fonterra
went on customer cooperation to reinforce product tracing and establish the recall
system. Theo Spierings said that Fonterra set up a chief inspector of global food
security and quality, which reported to the chief executive officer directly.
Furthermore, Fonterra enlarged control limit and authority of Food Security Council.
In addition, in order to save their reputation, Theo Spierings said that Fonterra will
communicate with China government sectors and Chinese consumers and will let
them knew which products still have problems. At present, Fonterra has completed
the computer system upgrade and related training (Fonterra: Series Accidental Factors
Detonate Raw Material Polluted).
3-3. Evaluate Fonterras approaches
It is clear that negative effects is hard to eliminate in a short time. Even though there
is no clostridium botulinum in Fonterra related products, consumers will still have a
bad impression of Fonterra. However, Fonterra did not detect the outcome that there
was no clostridium botulinum in Fonterra products in several months but it just took
one month for New Zealand government to find out there was no clostridium
botulinum in milk powder.
From the case we can know corporate social responsibility (CSR) has a close
relationship with corporate crisis management. The definition of crisis management is
the application of strategies designed to help an organization deal with a sudden and
significant negative event (Crisis Management). The dairy company like Fonterra
strengthened their social responsibility by themselves and had a positive teamwork
with the government to survey the incident. Meanwhile, Fonterra made proactive

initiatives to disclosure information to the public to ensure the test results were
accurate, objective and fair. As a result, Fonterra did not shut down.
Firstly, what Fonterra should pay attention is goal setting. Setting goals helps people
work towards their own targets. Fonterra provides dairy product material to wellknown dairy companies in the worldwide. Group management layer ought to adopt
appropriate routine to make a target. Therefore, the management level must recognize
how the potential issue will influence the main part. Fonterra did it. Additionally, risk
assessment can to be ignored. The definition of risk assessment is that it is not about
creating huge amounts of paperwork, but rather about identifying sensible measures to
control the risks in the workplace (Risk Assessment). Not only company should
evaluate inherent risk, but also should know the residual risk simultaneously. In this
case, Fonterra has strong sense of responsibility and moral value. When they found
the dairy products may be affected by clostridium botulinum, they announced to the
public at once, recall all the related products and compensation to the consumers.
From this point we could see Fonterra has enough assessment to the risk and prepare
of inherent risk in food industry.
However, Fonterra is too fast to publish the result but do not do a detection in the
authority organization, finally the test result make a mistake. On the basis of
possibility to recognize the analysis and rank of risk, firms should confirm highlight
the attention and priority control, then combine with risk tolerance to balance risks
and benefits. Furthermore, Fonterra did insufficient for evaluation of residual risk,
they do not put Chinas national condition, China policy and Chinese media into the
risk. After Sanlu milk powder incident happened in China, it was a similar situation
with Fonterra, from government to the public, everyone had a suspicion to the dairy
products, the report of Chinese media became the forceful pusher in the whole event.
Going forward, when they find the problem, Fonterras inner control making a
solution. There are great ideas for risk management and inner control inside, right
integrity and values in Fonterra. However, there still exist some problems in food
safety control standard and food safe mass detection, communication is crucial as well
(For Fonterra).
3-4. Suggest better solutions and reasons

During the incident days, the biggest opposition New Zealand Labor Party made a
statement that this event serious injured New Zealand reputation of clean and green.
If New Zealand want to be the top world of exporting country of dairy, Fonterra still
has dominant in dairy industry, they have to set up a high quality detection system in
order to avoid similar things happen again (New Zealand: Fonterra Products Not
Polluted By Clostridium Botulinum). I hold an opinion of Quality Inspection
Administration should provide an examining report or multiple agencies to provide an
examining report as well.
Because different level of supervision departments lack of the talents for dairy
processing and regulation, including insufficient food security research in dairy
industry, so as for the government aspect, they should improve the ability of dairy
products, carry out more standardized recall system and modify administrative
regulation of infant formula.
With reference to Fonterra, firstly, they should guarantee justice of what Fonterra does
and how Fonterra behaves. From the case we can find that Fonterra public all the
information about this accident. To some extent, it may save their image. So it is
really necessary for information disclosure automatically. Next, Fonterra must observe
disciplines and obey laws due to the necessity of enterprise development. In addition,
Fonterra need persist in sustainable development, particularly for the relationship
between green initiative and living environment. Paying much attention on sustainable
development may promote a responsible firms efficiency, reducing environmental
impact, supporting local community simultaneously.
4.

Implications for firms/managers in a similar situation

From Fonterra case, there are some implications for other firms or managers should
know the significance of corporation social responsibility and ethical behavior. In
Fonterra case mentioned above, there is a distinct concept about international business
environment, which refer to corporation social responsibility. The definition of CSR is
adhering to principles of corporate social responsibility means operating a business
in a manner that meets or exceeds the ethical, legal and commercial expectations of all
stakeholders, including customers, shareholders, employees and the communities
where the firm does business (Cavusgil & Knight, 2014, p.134). When the enterprise

is in a crisis, firstly, firm leader should guarantee that realize the primary
responsibility to the social at a crucial time.
From the case we see CSR has a close relationship with corporate crisis management.
The dairy company like Fonterra strengthen their social responsibility by themselves
and also has a positive teamwork with government to survey the incident. Meanwhile,
Fonterra initiatives to proactive disclosure information to the public so that ensure the
test results is accurate, objective and fair, finally corporate image do not damage. That
is what other firms should learn from Fonterra.
According to the case we can know that it is important for firm to build a strong CSR
because it will helps the firm not only gets a good reputation but also enhances the
loyalty, brand and pay close attention to company goals. In addition, strong CSR can
help the firm become special, especially useful in foreign markets in order to
strengthen its position in globalization (Cavusgil & Knight, 2014, p.133). Hence, CSR
also suggests a proactive views on ethical behavior in which companies not only focus
on maximize profits, but do other good things that benefit the environment, customers
and society as well. However, many firms and industries have been adopt CSR
gradually (Cavusgil & Knight, 2014, p.133).
Additionally, being ethically is not required by law, it is simply the correct things to
do. Governments, consumers and the media also increasingly demand that managers
behave ethically. Companies that commit ethical blunders risk drawing unwanted
attention and developing a poor reputation. Ethical behavior is good business, leading
to an enhanced corporate image and increased selling prospects. The firm with a
reputation for high ethical standards gains advantages in hiring, motivating
employees, partnering and dealing with foreign governments (Cavusgil & Knight,
2014, p.130).
To sum up, modern firms must perform CSR and ethical behavior. The specific way
for firm to manage is that they need adequate aspirations in order to make CSR
become the firms footstone. Making suggestions for firm staffs in internal discussion
so as to let everybody make full sense of the meaning of CSR. Companies are also
supposed to put CSR idea into strategic plan, decision-making process, corporate
behavior and enterprise sustainable development. Moreover, CSR and ethical
behavior also should meet with sustainability of economic, social, environmental, and
humanitys needs without harming future generations.

5. Conclusion
Facing food safety problems, company should treat the issue with chariness,
responsibility and open to the public at the first time. There is a short-term crisis
happened in Fonterra, but it is hard to build a long-term real trust ever. Triggered by
Fonterra dairy product contamination incident has high inspiration for us. This issue
provides a sample that what firm and government should do if facing such food safely
affair (Fonterra clostridium botulinum incident).
Furthermore, Fonterra incident gives many firms a warning that firms should attach
importance to the detail about CSR, ethical behavior and risk assessment as well.
Crisis is not the key to decide the company will survival or extinction, but the way
company acted and whether they could win consumers belief are the determinatives.
Just like Fonterra, they make a commitment and have faith in customers, meanwhile,
customers also have confidence in Fonterra.

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