OSI Group review

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“OSI is an entrepreneurial company. It’s not run like typical companies our size, with dictates from the top. Yes, there are rules and strategies to follow, levels of responsibility, and budgetary limits, but we operate like a family. This culture is very different. It evolved because it was the best way for us to do business, and it was worked.”

Sheldon Lavin

Chairman and CEO

OSI Group is an American company in a world leading position who provides products and customer solutions for the food industry. The company produces many private label brand foods and co-packs major brand name items for its various Foodservice and Retail customers. In 1901, OSI opened its first family meat market in Chicago. Now OSI Group has more than 60 facilities in 17 countries around the world, located in North America, Europe, and the Asia-Pacific region.

It is a giant global food processor with 19,500 employees, getting $6.125 Billion in revenue in 2013. Its products include co-manufacturing meat, bacon, beef, pork, chicken, fish, poultry and vegetable products. In addition, OSI’s vertically integrated supply chain is breeding farms, grow-out facilities, feed mills, and hatcheries

Shanghai Husi is an outpost of OSI Group, a privately held Illinois-based company that has operated in China for more than two decades. The group in China is a meat supplier to most western fast food chains, such as MacDonald, Pizza Hut and Subway.

20th July 2014, China’s Shanghai Husi Food was reported to supply rotten-meat to its clients such as McDonald, KFC and Subway.

There were tons of our-of-date chicken breast and skin mixed in the McNuggets, and the workers indicated that was every day routine to raise production and cut costs, reported by Shanghai Dragon TV. Though the commissioned inspectors of clients visit Husi factory every month, the administrative department informs their workers to conceal their rotten meat before the inspection. The inspectors never expected that the factory was full of blue bags (According to Husi, all shoddy and out-of-date products must be packed by blue bags) the day before their arrival.

Workers told journalist that manager commanded them to falsify the products' dates; in fact, some of the expired products were nearly 7 months out of date. Reporter also illustrated the stinking meat stacked around the workshop floor, and how workers added the expired meat into production line. What’s more, these scandal meats were indicated to supply Chinese market priorly. After the Dragon TV’s report, Shanghai FDA closed down Husi Factory.

21th July 2014, each local government compels the commission of Husi, including McDonald and KFC, to remove all unqualified food from their menus. Local authority cited the person in charge of production and was told the decision to use expired meat came directly from seniors managers. 29th Aug. 2014, senior manager of Shanghai Husi, Hujun and other 6 person, were arrested by the order of Shanghai People's Procuratorate. 26th July 2014, Shanghai FDA confirmed Husi's illegal acts and seized all the expired foods. OSI Group claimed to recall all the Husi's products and the company's Chinese affairs was taken over by their new international group.

In perspective of Consequentialism theory, Husi, as the second largest food industry of OSI group, has identified two basic motivations – expansion and profit.

Chinese people still have the tradition of eating native chickens which are farmed in nature, so China has a short history of fully processed chicken industry, the market of raw chicken supply and large-scale processing is just at their beginning. OSI Group has the its mature industry and custom solutions, and it has a long and profound history of cooperation with fast food magnates like McDonald and KFC in US, that makes Husi become the supplier of them instead of the local Chinese Food industry naturally. Also, the scale make Husi unrivaled among the competitors, the market is unbalance. Husi can expand their production without competition, according to the trace of production; Husi is also the supplier of part of the Japan, Hong Kong and Macao’s McDonald.

Husi’s profit is secured by the unique situation in China, and Husi only have to responsible for its commissioners instead of the greatest numbers. As the worker said, what Husi have to do is deceiving the inspectors and mixing the expired meat into products to raise production and cut costs. Without competition, the invisible hand of the market is inefficiency. Husi also have a short sight of increasing market of processed meat market, or in Chines old saying ‘lack of preparation in peace time’.

In perspective of Deontology theory,China has a history of thousands years of dictatorship, laws laid a weak foundation in Chinese society. The backward tradition of ruling by man instead of laws is still normal, which can be told by the ‘campaign-style law enforcement’, a provisional instrument applied to “special treatment’ or ‘special operation’ to rule the country, and unfortunately, this became the country’s daily routine.

Every enterprise would like to take chances to expand their interests even stand out of the line. Gray income, as long as not be found by inspectors, is unspoken wealth in Chinese business world, for example, gutter oil (swill-cooked oil) is well-known secret in China. It had been 3 years after 2008 Chinese milk scandal, Mengniu Dairy was reported to use sour milk to make products in 2011, and it was not the first time Mengniu had breached the food security laws, even in 2012, Mengniu Dairy was reported to falsify the products' dates.

Looking around the circumstance of Chinese food security, free of regulations, it’s not difficult to figure out why such a standard company like Husi, whose parent company is OSI, have ignore their consciences and duties to pursue the maximal interests even it is illegal.

In perspective of virtue theory, actors ought to rely on the standards of the relevant community to decide to do and what cannot be done. In Chinese society, people attach importance to food safety. In this case, obviously, Husi’s managers did things against what is believed in their community as moral. From the ancient times, Chinese people believe that an entrepreneur should flow the blood of morality. Using the expired meat and escaping the inspections are viewed as illegal and unethical.

Virtue theory focuses on the integrity of the actor rather than the ethicality of action. Hujun, the senior manager in Husi Shanghai, knew exactly what they did. To be frank, it was the manager who commanded the employees to do so. In this case, Hujun played an important but unethical role. Actually, in the year 2012, Hujun promised to the public in a conference held in Shanghai that all Husi products totally meet the national food safety standard. And Husi was praised by government as the company performed well in every month’s inspection. When we come back to look at the realities, it is so ironic.

From the report by Dragon TV, we can figure out that the employees know what they do exactly. They said the expired meat wouldn’t do harm to health and nobody died since they did it for years. Obviously, it was not the problem of supervision; it was the employer who told them to do so. Actually, earlier in 2014, a former quality control worker claimed that he was forced by the company to do the “unethical work” – forge meat production date. But the company won this court case because of no evidence to support the allegation. Managers in Husi Shanghai can hardly absolve themselves from the blame. They should take the responsibility. And to employees, managers are the company. So the general manager of Husi Shanghai and the quality control boss were arrested.

For its headquarter in US, managers took action immediately after the broadcast. They were “appalled by the report” and deal with the issue “directly and quickly”. And Lavin, OSI’s CEO, chairman and owner said in a statement, “On behalf of Husi and OSI, I sincerely apologize to all of our customers in China. We will bear the responsibility of these missteps, and will make sure that they never happen again. That is my personal commitment and that of our organization.” He also noted that other company facilities in China were passing inspection. The company recalled all the products produced by its Asia subsidiary, Shanghai Husi Food. They announced in their first statement regarding Shanghai Husi scandal, “We sincerely apologize to our customers for any problems this has caused and to customers who may be affected by these events. Our company management believes this to be an isolated event, but takes full responsibility for the situation and will take appropriate actions swiftly and comprehensively.”

The company has formed a team, cooperating with Chinese food safety authorities, to conduct an internal investigation. They promised to do a transparent and swift investigation. Until now, local authorities have inspected all other Chinese facilities of OSI Group and have found no unethical issues. From the 21th, July 2014, the first statement regarding Husi scandal, OSI Group has been updating the latest development in its official website.

In my opinion, there are two main kinds of human limitations and biases that resulted in this immoral action, cognitive barriers and consideration of consequences.

People who meet with cognitive barriers always have self-serving bias, which means individuals tend to serve the self's need for esteem. In this case, employers want to make profit and employees don’t want to lose job. Using the expired meat will reduce the cost of production, so the company can gain more money in this way. In the meantime, employees just do as the boss instructed, or they will lose their job. They pay attention to what they are able to gain and what serve their own needs.

Another aspect of cognitive barriers in this case is that managers are overconfident. OSI Group is an international company based in US, having a good reputation in the food industry. As its Asia subsidiary, Husi Shanghai can easily formed the cooperation relationship with the fast food chains, such as McDonalds. The company management has the desire to open and take a big part in Chinese market. They may feel confident and proud of their performance in China, which will result in less cautious and the negligence of inspection. Because of OSI’s good performance in US and other continents, the top management in headquarter may never imagine that its Chinese outpost is used to produce with the expired meat.

On the other hand, the good reputation helps it build the trust of customers. Customers tend to choose products made by big international company with reputation and experience in this field. So they will not doubt whether the product is good or whether its quality fit with its reputation.

Most people are likely to ignore consequences that are thought to affect only a few people and incline to give more weight to the consequences for themselves (or those close to them) than for others. People who have the consideration of consequences tend to underestimate potential risks. In this case, managers in Husi Shanghai only take their own benefit into consideration, ignoring the affect to others. It is acknowledged that eating unhealthy food, such as expired meat, will cause some bad consequences. People will get ill or even die because of the harmful thing in the food. However, Husi Shanghai didn’t care about it since it does harm to others. The consequences for themselves are reduction of cost of production and more profit. They didn’t see the potential risks. What if this unethical issue is exposed to public? The company’s image will be damaged and they will lose trust of consumers. What’s more, its business in Chinese market may be ruined.

The other aspects of people who have bias and limitations of consideration of consequences probably have the illusion of control. That is to say, some people (particularly managers) tend to believe that they are really in charge of all what happens. In Husi case, managers believed they can control their employees. No one would speak out the illegal way of making meat. They believed they can control the media. Because they did the unethical issue for not a short time, but no journalists realized or no media expose it. They believed they can control the consumers, because OSI has a rather good reputation and a wide network. They believed they can control the result of judiciary, like dealing with the charge from its former worker. They won the case, because the court can’t find the evidence. In this case, no one died because of the expired meat, which resulted in the more and more unbridled behaviors and decisions of Husi’s managers.

In addition, the poor supervision is a big reason. Although China is sparing no effort to establish the rule of law, the supervision for food industry is still a weak point in the chain. Not only the Husi case, have we also heard about other unethical and illegal things happened in alimentation area. In such an environment, managers may gradually ignore the rule of law and underestimate the risks of their decisions.

References

[1] OSI Group official site. http://www.osigroup.com/world_of_osi.html

[2] http://en.wikipedia.org/wiki/OSI_Group

[3] Pence, G. (1993). Virtue theory (pp. 249-258). Basil Blackwell Ltd.

[4] Ni, H. G., & Zeng, H. (2009). Law enforcement is key to China's food safety. Environmental Pollution, 157(7), 1990-1992.

[5] http://www.privco.com/private-company/osi-group

[6] RJ Whitehead. General Manager and quality control boss arrested in Husi scandal. http://www.foodnavigator-asia.com/Business/General-manager-and-quality-control-boss-arrested-in-Husi-scandal?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright

[7] Statement: Shanghai Husi Products Withdrawn from the Marketplace; Global Team Brought in to Manage Operations. http://www.osigroup.com/husiShanghai.html

[8]Statement from OSI regarding Shanghai Husi http://www.osigroup.com/downloads/OSI statement 07-26-2014.pdf

[9]Shanghai FDA statement regarding Shanghai Husi: http://www.sda.gov.cn/WS01/CL0103/103134.html

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