Fonterra and MFAT’s role as ambassadors
As I’ve said before I think the Sanlu milk scandal is health story rather than a business story or a ‘Brand New Zealand- 100% Pure’ story. Nonetheless much of the coverage here has been about what dead and ill babies in China means for Fonterra as a company. Has it hurt them/us or not?
There’s an overseas story from the China correspondent of the Australian newspaper yesterday, which notes:
[T]he role of New Zealand dairy giant Fonterra — which has $2 billion investments in Australia — as the 43 per cent shareholder of the biggest culprit in the poisoning so far, dairy company Sanlu, also raises important questions about how foreign companies should behave in China.
Its conclusion is similar to the one I came to here. Companies cannot be ‘passively’ operating in countries they do understand culturally, purely to make more profit:
What is a foreign investor to do in such a situation? The answer of Fonterra chief executive Andrew Ferrier was to operate “inside the system”. But he was entrusting the Chinese consumers — who were buying the Sanlu products in part because of their confidence in the “clean, green” Kiwi connection — to a system that it is clear he inadequately comprehended, a system in which the politics is always paramount.
It’s too late for Fonterra, but Alistair Nicholas, who founded and runs the Beijing-based corporate public relations firm AC Capital, offers this advice to others caught in the Kiwis’ plight.
He says: “Foreign companies taking ‘passive’ stakes in local companies need to reconsider that strategy. They have to have a majority shareholding, or at least ensure they have some control on key management decisions such as how a crisis is to be handled, especially when it comes to recalling a product.
I’d go further than that. Fonterra needed to understand the culture and ethical responsibilities it owed to the country that was hosting it. Likewise our Ministry of Foriegn Affairs and Trade (MFAT) needs to move on from viewing countries primarily as places to do trade deals and start viewing them primarily as places to share cultural understandings and build strong, peaceful friendships.
September 23rd, 2008 at 8:04 pm
Fonterra (and NZ farmers) have moved on from wanting to consider the “culture and ethical responsibilities it owed to the country”, and instead are now only focused on business.
Business measures outcomes in bottom line dollars, and not in ethical responsibilities. That is why dairy products now cost more in NZ than they should.
However, we have no right to expect anything else from our farmers and their representatives.
Unless we are prepared to absorb ALL of the product from our farming sector (which we clearly cannot do) and pay them equal global prices then we have to accept that they are NOT our cultural representatives, they are simply businessmen.
As they say…”when in Rome, do as the romans do…” When in China, do as the Chinese do.
Having “cultural and ethical” approaches to doing business generally costs a lot more, and severely reduces profit.
That is why any New Zealander who really cares about such things has to be prepared to put up with a cheaper, more frugal lifestyle. It is a worthy aim, but we should not expect the concept to gain much traction overseas.
How many of us are prepared to sacrifice money for ethics?? I don’t see much of that going on where I work.
September 23rd, 2008 at 9:20 pm
I think that framing the debate as something to do with culture is missing the point. Since the San Lu poisoning came to light, it has been revealed that a great many other dairy companies in China, including Nestle have been tainting their milk.
It is not about culture, it is what happens when companies are given free rein to make profit at all costs, with no regulatory oversight. By their own lights, San Lu and Fonterra did no wrong. Their mistake was in being caught.
It is the job of companies in the present capitalist structure to make as much money for their shareholders as possible. In fact they are encouraged to do so, and can be taken to court by their shareholders if they do not. It is the job of regulators to stop them.
In China, the regulators are not as strong as the companies. In New Zealand we still have some regulation of the worst aspects of capitalism, though when you see the way the animal abuse industry have got MAF and NAWAC by the privates, and the way ERMA capitulate to the GM industry it makes you wonder how long this state of affairs will last.
September 24th, 2008 at 1:16 am
kiore1, You may have that argument back to front. Fontera owns 49% of SanLu, the owner of the controlling 51% is in all probability the Chinese government. When the regulator is also the capitalist-communist controlling shareholder you essentially have industry self-regulation. In a country with a long history of making up statistics to “meet the targets in the five year plan” and of human rights attrocities on a scale second only to Stalin’s USSR we shouldn’t be surprised that China’s peasant farmers and chemical companies are behaving in the same way as Russia’s robber barons.
Even General Motors has been unable to stop a Chinese company from pirating one of the cars GM makes in a joint venture with one of the state car companies. Which should give you some idea of just how deeply the Chinese business ethic differs from that of the west. The fact that the state is the profiteer rather than corporate investors doesn’t change the ethics one iota, IMHO.
September 24th, 2008 at 9:22 pm
True, big state capitalist is no better than big corporate capitalist.