Brief Analysis Of Coca Cola And Pepsico Business Essay
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Published: Mon, 5 Dec 2016
The interest in corporate social responsibility, sustainable business practice, corporate governance, business ethics, and integrity and compliance management has grown markedly in the past decade (Waddock et al., 2002). It is not only stakeholders who expect companies to pay greater attention to norms, values and principles; companies themselves are acknowledging the importance of responsible business practice (Waddock et al., 2002).
But what are a company’s responsibilities? It is widely recognized that we are in an environmental crisis, no doubt about that. There is nearly unanimous agreement that the earth is getting warmer, and the consensus in the scientific community is that human activity, especially through activities that emit hydrocarbons, is the chief cause of climate change.
Business ethic has become one of the strongest news stories of the past decade. Previously renowned companies such as WorldCom, Enron, Wal-Mart, Google and Starbuck have become link to a growing trend of unethical business behavior. Nevertheless the environmental issue has created a big impact on today’s business organization.
The EU has decreed that capitalism, and hence business practice within capitalism, should be environmentally sustainable. Financial success by itself is no longer sustainable therefore EU environmentally friendly business practices are considered a moral norm and consequently a moral obligation.
Although corporations are primarily business organization run for the benefits of the shareholders, they have a wide range set of responsibilities, to their own employees, to the customers and suppliers, to the communities which are located, and to the society at large. Most corporations recognize these responsibilities and make a serious effort to fulfill them.
Analysis of Coca-Cola and PepsiCo
The Coca-Cola Company’s website contains sufficient amount of information on their segments of corporate governance, ethic, environmental and sustainability issue.
Coca-cola has committed to strive and enforce the establishment of the principles of corporate governance. Corporate governance that has been adopted by them is based on the belief that maintaining and improving management efficiency and the fairness and transparency of their corporate activities is of utmost importance.
Ethic and Environmental Sustainability
Coca-cola detailed few guidelines about utilization of water on their business operation. They develop few objectives which the main aims are to return the water safely to the communities and nature as what the company consumes for their beverage production. The website also stated their roles on encountering water-scares problem around the globe.
The Company’s Website and Case Study Relation
The Coca-Cola Company and WWF had combined their strength together on preserving nature mainly on conserving water. Several ideas and projects had been stated in order to improve global water efficiency. Focusing on the river Yangtze in China, their collaboration is vital because it is in line with their partnership main objective.
“The partnership goal in the Yangtze is to inspire better governance and sustainable river management practices across the basin”. – Coca-Cola Company’s website.
The Coca-Cola Company and WWF initially planned on these three initiatives:
Supply Chain: Working with the supplier in order to sustain agriculture mainly sugarcane, oranges and corn.
Water Stewardship: A fresh water conservation relating seven river basins including Yangtze River. The aim is to develop and implement comprehensive water stewardship plans that will serve as models for the Coca-Cola system.
River Basin Conservation: To conserve the seven key freshwater basins on which our partnership is focused which include Yangtze River.
PepsiCo Company’s website contains an adequate amount of information on their segments of corporate governance, ethic, environmental and sustainability issue.
Referring to the website on corporate governance segment, PepsiCo has adopted strict corporate standards that govern their operations and ensures accountability of their actions. These corporate social responsibilities are also made as an integral part of their operations. The website of PepsiCo on corporate government segment detailed the corporate standards that have been strictly governed to guarantee the accountability of their action.
Ethic and Environmental Sustainability
“[The] successful company in 2030 will be the one that recognizes the possible outcomes of the global crises we face, and one nimble and tenacious enough to embed this recognition into their strategy and business processes.” INDRA NOOYI, PEPSICO CHAIRMAN AND CHIEF EXECUTIVE OFFICER, MAY 2009
The statement by the CEO of PepsiCo above shows the dedication on preserving the environment hence numerous efforts had been done by them for the past few years. Recently PepsiCo had released inaugural water report titled “Water Stewardship: Good for Business Good for Society” which explain the company’s commitment to safeguard and replenish water use in their operations thus provide a better environment for future generation. PepsiCo has proclaimed on their website regarding their goal and commitment to protect the Earth’s natural resources. PepsiCo state that their part as a dynamic global business operator, they will remain committed in minimizing the impact of their business on the environment.
The Company’s Website and Case Study Relation
PepsiCo and China Women’s Development Function had united their forces on one purpose, which is to provide a clean water supply and to solve drinking water shortage especially in rural areas in China. PepsiCo Foundation had donated a sum of $ 1.5 million on Mother Water Cellars Project. The objective of the project was to design pilot water supply systems in order to conceive water and at the same time the project aimed to solve the problem on the difficulties of people in rural area to obtain safe drinking water.
Sketch of a “water cellar”
The main idea of the “Water cellar” is to accumulate rain and reserve the water for man and farm animals. It is also a kind of water-storing facility in China’s rural areas.
In relation on the case study, the PepsiCo has provide a huge-scale effort and this has been proven by the website and a report title “Land of Love, Water Cellar for Mothers” done for PepsiCo. They also had launched the project in 2000, and since then many water cellars has been built.
PepsiCo believe that the planet is for all human kind to share and is their obligation to be a good citizen to the world. This project may have solves some environmental ethical issues that became a responsibilities among the big corporation.
Differences in Experience and Perception
China viewing Coca-Cola
Morality consists of rules of human behavior and also specifies that certain actions are wrong while others are right. Actions can be seen and evaluated from moral perspective even in business since they involve human activity (George.R. 2005).
Coca Cola has shown concern for the environment in China. The partnership between Coca Cola and WWF to protect Yangtze River is a non-profit one, which again reiterates Coca Cola’s concern about environmental issues. According to W. Michael Hoffman, a business has an obligation to keep the environment clean beyond what the law states. Companies should find methods to eradicate environmental problems caused by their production. Teleological ethics theory states that the consequence of an action will determine whether the action is good or evil. In the case of Coca Cola, if the teleological theory is applied, China will view Coca Cola as bad if the latter is polluting the environment.
Moreover, Coca Cola owns around 33% of China’s soda market. The company’s representatives have predicted that there is still the possibility to grow. Products are being tailored only for the Chinese citizens. Given that Coca Cola is planning to grow, this will create more employment in China. By operating in China, Coca Cola has a moral right towards the government and the citizens, and the company should aim should aim at improving their standard of living. (Shaw, Barry)
However, China needs to take into consideration what happened in India. The company had to close down for causing water shortages, and also for ignoring social and environmental foundations of consumer trust. A company may have different factories around the world, but its vision and mission statement should be the same. Given that we can consider Coca Cola’s actions as unethical, there’s a reason for the Chinese government and citizens to worry about the Coca Cola Company established in China. What has happened in India can again be connected to the teleological ethics theory since the problems caused by Coca Cola has led to the closure of the company. As prescribed in this theory, only the ends or consequences of an action can determine whether the latter is good or evil.
Coca-Cola viewing China
Coca-Cola has experienced thoughtless ethical troubles with its affiliation amid their stakeholders in China. It is eager to expand its business in china and one of the ways has been the partnership with WWF with intentions of creating a relationship of trust favorable in increasing its market in china. The company launched a communication program aimed at educating people along the Yangtze River about environmental concerns, river basin management and water management. This shows the company’s intention in exploring the moral responsibility to the community in situations people lack enough knowledge about. One of the principles which separate this right action from wrong is utilitarianism which emphasizes on bringing most happiness for everyone if not majority of the people through our actions ( Shaw.W, Barry.V,2010). Hence, this program is beneficial to farmers and the ongoing three Gorges dam construction which will be providing electricity to the community.
Furthermore, Coca Cola is under the broad view of corporate social responsibility which identifies this company as one pursuing profits as well as having other responsibilities to its consumers and society at large. As argued by Konosuke Matsushita ‘any business should make service to society as its objective and while serving society, profits will be generated automatically’ (George.R, 2005). For example the company has helped WWF contribute a major role in the Yangtze River Forum through uniting on a recommendation to deliver the Chinese government for implementing pollution regulations, which apparently are fairly uneven in the country.
We support the case of Coca Cola viewing China because companies are motivated to become more socially responsible to their most important stakeholders such as consumers and the community because they expect them to understand and address the social issues relevant. In this case, Coca is contributing towards the conservation of the environment through the ‘water security’ in China.
Cross Cultural Ethical Decision-Making
The business culture of a country is shaped by business practices and ways of thinking over a long period of time. Countries such as USA and China have different business cultures and ways of conducting their business partly because of their differences in history. Thus, it is absolutely vital for Coca-Cola and WWF to understand the cultures and practices of the Chinese society. In our point of view, Coca-Cola and WWF have been successful to a certain extent in cross-cultural ethical decision making. The Chinese society believes that everything should be in harmony (Kaptein, 2004). The efforts of WWF in collaboration with Coca Cola to clean the waters of the Yangtze River can be viewed as a decision based on the value of harmony within the Chinese society. This effort would thus be viewed as an ethical business conduct and improve the relationship between WWF and Coca Cola and China.
The Chinese place high importance on human relationships or “guanxi”. As a result, the Chinese strive to work in groups to accomplish a common goal (Pitta, Fung & Isberg, 1999). The groups in this scenario include a non-profit organisation, WWF, a profit making organisation, Coca-Cola, and the Chinese society. The common goal of these three groups is to ensure clean water is running through the “lifeblood” of millions Chinese, the Yangtze River. Therefore, this is seen as an informed decision by WWF and Coca Cola based on a good understanding of an important Chinese culture.
Based on an American culture, business relationships can be separated from personal relationships because business transactions are bounded by legal contracts (Trevino & Brown, 2004). In negotiating contracts and business transactions, signing a contract is seen by Americans as the final stage of business association. However, from the Chinese point of view, friendships are seen as lifetime commitments and as a first step to a deeper and improving relationship. The fact that Coca-Cola has been operating in China for so many years setting up 39 bottling plants is a testimony to Coca-Cola’s true understanding of the elements of friendship and negotiations within the business conduct of the Chinese society.
Communication is seen as a way to bridge the gap that might exist between two different cultures. In their efforts to clean the Yangtze River, WWF and Coca Cola launched communication programs to educate the Chinese communities about environmental issues. According to McWilliams and Siegel, the combination of communication and persuasion can help the understanding of the two parties concerned. This presents WWF and Coca-Cola with cross-cultural benefits as they are able to earn the trust of the Chinese society by making efforts to improve the well being of China as a whole.
Recently, the Chinese press were complimenting Coca-Cola’s effort in sponsoring Project Hope, a program that aims to improve education for disadvantaged children throughout China. The company aims to build 100 Project Hope Schools by 2011. This effort is in line with the Chinese culture of valuing and strengthening relationships. The news also highlighted that Coca Cola’s partnership with WWF to conserve the Yangtze River showed significant progress by galvanizing local communities to actively participate in river basin conservation (Press Release – Coca Cola, 2010).
Certain decisions made by WWF and Coca Cola were questionable as it did not fully consider the cross cultural implications. Firstly, Coca-Cola’s US$ 2.3 billion bid for China Huiyuan Juice suggested that the company was acting in its own self interest of gaining market share and monopolising the beverage industry in China. The Chinese society views a sudden and substantial change such as the takeover as disruptive because it does not consider the notion of harmony. Coca-Cola were acting according to the theory put forward by Adam Smith who advocated the pursuit of maximum self interest or ethical egoism. According to Garrett Hardin, the “tragedy of commons” explains that each individual believes their use of commons only has its own negligible effect. However, the collective result can be of gradual damage or destruction which makes everyone worse off. The fact that Coca-Cola uses 290 billion litres of water a year for production, might indicate that the company themselves might be at fault for causing water pollution at the Yangtze River.
Multinational Companies Balance Between Profits and Environment
Multinational companies usually generate huge profits every year while they also need to contribute to the gradual improvement in the environment. One of the ways to balance those two elements, that is profits and good environment, is through sustainable development. The latter should meet the needs of the present without compromising the future generation’s ability to meet their needs. (United Nations – Brutland Report). Sustainable development needs the integration of social, environmental and economic considerations to make long term decisions. As per Milton Friedman theory, the main social responsibility of a company is to increase profits. However, Coca Cola should make sure that it is not compromising the welfare future of Chinese citizens with its current production activities.
Furthermore, there is the cliché ‘ the business of business is business’. (Business Ethics,, George). A corporation may ignore the moral demands of an individual, but it can hardly ignore the moral demands of the society it conducts its business in. This is because both parties are dependent on each other, for example in Japan, the business of large corporations recently changed, not only to produce goods and services but to also to care for the company’s stakeholder such as a guarantee of lifetime employment to employees while providing a conducive environment to the people living in the region it is operating.
Multinational Corporations today have a renewed interest towards Corporate Social Responsibility instead of prioritising profits at the apex of their pyramid. Some MNCs use the Corporate Social Responsibility perspective as a strategic tool to attain economic objectives which is ultimately wealth creation. These MNCs follow the approach of economist Milton Friedman who philosophised that the only one responsibility of business towards society is the maximisation of profits to the shareholders within the legal framework and the ethical custom of the country. However, the interests of people who have a stake in the firm also known as stakeholder must not be excluded by MNCs. Satisfying these interests will contribute in maximising the shareholder value (Odgen and Watson, 1999). An adequate level of investment in philanthropy and social activities will allow MNCs to bring in profits (McWilliams and Siegel, 2001). Stakeholders are the people who directly or indirectly affected an organisation’s actions, objectives and policies. MNCs owe a fiduciary duty towards stakeholders as they can bring profit to the company. There is a ‘social’ contract between the organisation and society. A straightforward contribution in order to balance these two elements would be by maximising the shareholder’s value as the highest priority to evaluate specific corporate social activity (Mele and Garringa, 2004). These values of shareholders may be seen from many different perspectives such as a ‘greener’ environment. However, if this method imposes a cost or hinders the company from earning profit, it should be declined according to Milton Friedman’s theory.
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