The School of Management & Entrepreneurship Master of Business Administration

CASE STUDY ANALYSIS Coke - Ethical Issues: The Recall

BUSINESS ETHICS
Prepared by: Paras Savasiya, Nil Kher & Chirag Vasani (0120117)(01201124)(01201117) Sem III (Block I)

Submitted to: Dr. Kamlesh Misra, Vice Chancellor and Provost, AURO UNIVERSITY, SURAT
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Table of Contents Introduction to the case .......................................................................................................... 3 Facts and figures for the case ............................................................................................... 3 Ethical issues in the case ......................................................................................................... 4 The stake holders involved
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Analysis of the case ................................................................................................................... 5 Recommendations for the company ................................................................................... 6 Conclusion...... 6

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Introduction to the case

The case which is given us to do critical and ethical analysis of issues that has been created during the operations of the Coca-Cola as a company. Case contains the details how company has established their operations, their brand across the world. The case also discusses about some unethical practices which they have carried out to fulfill the objectives of company. The time has come when coke has to stop production of their products at some plants because of the identification of pesticides in their soft drinks products. Company has to face the legal obligations by Governments of some countries by banned out their products in the particular countries. The main reason for this is errors at some of the plant of the company which affected the overall brand image of the company. The case also contains the total journey of coca cola from beginning as a drink, which relieved mental and physical exhaustion, and cured headache. At a later part it has been converted into the refreshment drink and then it gets image of soft drink soda. They have invented many products like fresh juice, mineral water, and other carbonated soft drinks. One of the major issues which arose by the actions of the company which analysts have proved unethical was exclusive school contracts. They have established their market very well across the world but the path which they have approached initially was ethically wrong. The initial target of company to enhance the sales of company was school children by exclusive school contracts. This strategy of the company is most criticized by the analysts in the world. They should not target the school children as their target audience because the drink is developed to cater world market as per the case. The analysts said till the level that they were already known to the fact that the fungicide problem will happen in some projects of the company. According to the analysts at that time, coca cola had done it by conscience. They have to do many settlements in their journey till date for recovering the ethical issues aroused during their operations in the wide spectrum. Sometimes they also had to pay compensation to the consumers affected by their substandard products. If we analyze the case in depth, we can found that company always struggled to maintain their market share in world market. They have always bared the strokes from various ethical issues that discussed in the case. This is the brief summary of the case.

Facts and figures for the case

On May 8 1988, Dr. Pemberton has launched the coca cola in the drug store. The first Coke advertisement appeared in 'The Atlanta Journal' on May 29, 1886. By 1891, Candler had complete control of Coke for $2,300. In 1892, Candler formed 'The Coca-Cola Company' and, a year later, registered 'Coca-Cola' as a trademark. A case was registered against Coke and the trial, which opened in March 1911, attracted widespread attention. Coke, eventually, won the case. The decision, however, was
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reversed in the Supreme Court. Finally, the case was settled out of court in 1917 with Coke agreeing to reduce the caffeine content by 50%. By 1927, Coke's sales climbed to nearly 23 million gallons. In 1962, Paul Austin (Austin) became Coke's tenth president and four years later, became the chairman and CEO of the company. By 1965, soft drink sales in the US had risen to the level of 200 drinks per capita and Coke's market share had risen to 41% against Pepsi's 24%. In 1964, Coke also acquired a coffee business. In 1978, figures also revealed that Pepsi had beaten Coke in terms of supermarket sales with its dominance of the vending machine and fountain outlets. On June 13, 1999, Coca-Cola (Coke) recalled over 15 million cans and bottles after the Belgian Health Ministry announced a ban on Coke's drinks, which were suspected of making more than 100 school children ill in the preceding six days.

Ethical issues in the case

There are lots of unethical practices that coca cola has carried out during their operations in process of becoming a brand name in the world market. The ethical issues which are given in the case are as follows: First and foremost problem with coca cola was the composition formula of the drink because it was originally contains of high amount of caffeine which is harmful to the health of the consumers as it is considered as brain stimulator after some time of consuming the chemical. After some time of stimulation the neurons will get deactivated again and in long term it can produce the depression of mind. According to report, caffeine content also affected the studies of the students in the schools negatively. Company has included the chemicals in the same amount at which they are used for the pharmaceutical purpose and they have launched the same product as refreshment drink which is wrong by the company. Saccharine one of the ingredient of soft drink is harmful and may produce cancer which is again not in favour of the welfare of consumers. The second issue was the exclusive school contracts in which company made contract with schools to sale the products of the company to increase the brand equity of coke. These contracts can be considered legal as per the law but if we look at the ethical point of view; it is completely unethical because it can be injurious to health of many children. There were 46 exclusive contracts between school districts and soft drink bottlers in 16 states in the US. By July 1999, it increased to 150 contracts across 29 states. Parents had also considered that the commercialization of schools is completely unethical, immoral and exploitative. According to the contract, company pressurized the schools to increase the vending machines of cold drinks in the schools.
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Philippe Lenfant, general manager of Coke Belgium, said that there had been separate errors at two plants. The products from the Antwerp plant had a strange odor due as some fungicide had accidentally fallen on the exterior of the cans. In addition, Coke had determined that the strange taste was the result of a sub-standard gas used to carbonate the products. After the crisis of Belgium and Antwerp, the company has defended the problem by saying that the product may produce some sort of sickness after consumption but it is not harmful at all.

The stake holders involved

Company management: Top management of the company had not considered the problems and issues that had come out at the surface very seriously. They always ignored the problems which occurred with the products. Children or consumers: These are the children of the schools with whim they have made the exclusive school contracts. Children are the most affected stake holders of this case because they have suffered by illness and health problems due to sub-standard products of coca cola. Government of various countries: Governments of many countries such as Antwerp, Belgium and US had stopped coca cola to practice unethically by either banning the product in respected countries or by giving the company order of changing their composition of the product.

Analysis of the case

Company has many times accepted the wrong path in order to establish the brand name of the company. Company has started developing the product with the wrong composition which is also wrong in societys point of concern. Company has introduced the product which was used for the pharmaceutical purpose as a refreshment drink which was very harmful to the society. Fungicide content which was found in products of the company was another critical issue again the welfare of the company. Though exclusive school contracts are legal and moral according to the companys point of view, company should not do this because doing it consciously is against the good health of the society so company in order to develop the brand name should not approach the negative path at all. Company did not bother about the issues that had come out in the past and they have continued to produce their products. They settled down the case in the US court by agreeing on decreasing 50% of the caffeine content from their product but they never tried to remove it completely.

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They stopped the production whenever they are being banned by the authorities. After some time of stopping the production, they again revive the production of the product by giving some changes in the product contents or the process of manufacturing but they never tried to set a standard process or the standard contents for their products. They never bother about setting quality control department for their products.

Recommendations for the company

Company should exclude the caffeine and cocaine contents from their compositions completely to exclude the risk of the health of the consumers. Company should disclose the formula so that consumers and government may decide upon the purity of the product. They should have done the exclusive contract with well-established cafes and restaurants in the market to enhance the brand equity instead of the making contracts with the schools to increase their sales. Company should develop and maintain standard operating procedure, standard formula according to food and drug administration. Company should also develop and maintain separate quality control department in the production plant to check the quality of each and every batch of products. Company should produce a report on the quality of the annual production and send it to the health department of concerned national government so that they will never facet the problem of banning. Government should have taken the initiative to check the quality of the products of the company on regular basis so that company would not have scope to produce low quality products.

Conclusion
From above discussion we can say that whatever the strategies that coke had approached to achieve a good brand name and the premium position in the market is considered as the unethical practice as the customer and social point of view. Looking at the companys point of view all the decisions that company had taken are legal enough and moral. In actual reality company should have set the Standards for the process of production, product composition and quality control in order to develop the good will and fair image in the market.

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