social responsibility in the management process Sebastien Vaccari and Richard Fletcher

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1 CONTEMPORARY CHALLENGES IN INTERNATIONAL MARKETING 826 go online Go online to < to find more case studies. Nestlé CASE Waters and the global STUDY issue of water supply: integrating E social responsibility in the management process Sebastien Vaccari and Richard Fletcher INTRODUCTION Nestlé Waters part of Nestlé SA is considering water supply as one of the most important issues in relation to its position in the global bottledwater market. It is aware that numerous international organisations both governmental and non-governmental strongly defend human rights and will do almost anything to protect such rights and to ensure social responsibility issues are given primary consideration. As part of their global campaigns, some organisations give the message that access to water is not a matter of choice, but a human right regarding which water should not be bought and sold. As a consequence, Nestlé is aware that the issue of putting a price on bottled water is increasingly important and its performance in the global marketplace depends on its ability to demonstrate that it is taking corporate social responsibility into account. There is also a need for manufacturers of bottled water to Image copyright Bob Randall/iStockphoto.com provide a clear message for consumers as to its safety and healthy properties to blend competitiveness on the one hand with responsibility on the other. Conforming to these requirements has created a water supply problem for all bottled water manufacturers around the world. The corporate social responsibility of multinational firms has become a crucial issue for both international relations and the international political economy. The ethics involved are viewed differently from one country to another and now the issue has expanded to cover other ethical matters such as human rights. Nestlé SA has now given its international business operation Nestlé Waters the challenge of finding solutions to the issues outlined above. NESTLÉ SA BACKGROUND Nestlé SA is a Swiss-based company launched in Nestlé produces a variety of goods and has a large portfolio including popular brands such as Vittel, Perrier, Nescafé, Sveltesse and Nestlé Ice Cream. It is the world s largest food and beverage company, employing people. The company operates 481 factories worldwide, achieving success with its aggressive strategy of acquisition and business agreements. However, the company faces tough competition, especially from Danone. In 2002, Perrier Vittel, with a portfolio of 72 brands including Acquarel and Pure Life two strategic brands covering the globe, changed its name to Nestlé Waters. Sales were US$7.8 billion, with an 19% market share. Although the company is currently strongest in developed markets, it is pushing aggressively into emerging markets with its bottled water products.

2 TABLE 1 Global bottled water market: leading countries consumption and compound annual growth rates ( ) Millions of gallons Compound annual growth rates Rank 2004 Countries United States % 2 Mexico % 3 China % 4 Brazil % 5 Italy % 6 Germany % 7 France % 8 Indonesia % 9 Spain % 10 India % Top 10 subtotal % All others % World total % 827 CASE STUDY SOURCE: Rodwan, J.G. Jr (2005) Bottled water 2004: US and international statistics and developments, < THE BOTTLED WATER MARKET The global bottled water market involved 177 billion litres in 2006, becoming the most dynamic sector of the refreshment beverage market. In developed countries, key factors in this increase in importance of the bottled water market included rising consumer concerns about health, wellbeing and natural products, along with a need for practicality as lifestyles become increasingly mobile. In developing countries, the factors are different: the demand for safe water is increasing due to weaker sanitary infrastructures and accessibility and availability of water. Disparity between countries (see Table 1) and regions (see Figure 1) remains important, creating inequality between developed and developing countries. Three common types of bottled waters are provided: natural mineral water, spring water and purified water. These sell using different materials for the packaging: glass, plastic (PVC or PET) and aluminium. In addition, although bottled waters tend to look alike on store shelves, there are significant differences regarding their chemical composition and these vary from one country to another. Although bottled water is a world market product involving global companies, 75% of the actual water is still controlled by local actors and thus multinational corporations such as Nestlé use joint ventures and acquisitions in order to facilitate their entry into foreign markets. CHALLENGES FACING NESTLÉ WATERS A company like Nestlé faces numerous human rights and ethical issues when selling its bottled waters overseas, especially to developing countries. Attracted by economic conditions in some countries, companies can incur criticism, both in their country of origin and in other countries, for their activities in developing country markets. By putting pressure on governments to stop privatisa-

3 FIGURE 1 World bottled water consumption in 1999 North Africa and the near East 6% Asia 2% Latin America 7% Africa 0% North America 20% 828 Pacific 11% Western Europe 46% C O N T E M P O R A R Y C H A L L E N G E S I N I N T E R N AT I O N A L M A R K E T I N G Eastern Europe 8% SOURCE: Adapted from Belot, L. (2000) L eau en bouteille, bataille des geants de l agroalimentaire, Le Monde, 23 May. tion of water, the public, institutions and associations, as well as legal bodies and the media, force companies to take into account the ethical and environmental consequences of their actions. Price and consumption Sales of bottled water have been steadily growing in the world for the past 30 years as it is increasingly viewed as an alternative to tap water (Ferrier 2001). The current increase in bottled water consumption poses a threat to local water resources and this is one of the main factors in the overconsumption of bottled water in developed countries. This problem implies much more than environmental issues it also involves the issue of the right of human beings to access water free of charge. People have effectively no alternative to using water, even when price increases threaten their accessibility to it. The price of bottled water tends to be excessive, considering that the cost of the water itself in bottle production does not exceeded A$0.02 per bottle (Ferrier 2001). The rest of the price is attributed to bottling, packaging, labelling, marketing, retailing and other expenses. The fact that three-fifths of the population in the developing world lack access to basic sanitation and almost a third has no access to clean water means Nestlé needs to consider the issue of charging for a perceived natural resource when communicating its message in such markets, and take into account the costs and benefits of acting in a socially responsible manner. Furthermore, the political and social contexts significantly differ from one nation to another, and often companies are ignorant of cultural sensitiveness. Building a social network can positively influence the marketing leading to cooperation with nongovernmental organisations, activists and business interests. On the other hand, these issues raise the moral concern regarding multinational companies and their perceived wish to increase profits regardless of the impact on equality and damage to the environment. Packaging and transport The function of the packaging used for bottled water is important in response to criticism. First, it protects the product when transported over long distances (Ferrier 2001). The choice of materials is also increasingly important due to specific requirements, which vary from one country to another. For instance, PET is chosen instead of PVC for its environmental benefits. It can be re-manufactured into many different products and it does not release chlorine into the atmosphere when burnt, unlike PVC. However, emerging and developing countries may not have the necessary infrastruc-

4 ture to incinerate or recycle the bottles. Trading and transporting bottled water all over the world also has an important environmental impact, in particular on atmospheric pollution and climate change because of fuel combustion. This impact varies a lot depending on many factors the type of transport used, the type of fuel used and the distance travelled. It also varies according to the degree of sanitary concerns of the host country. Consequently, information on packaging and labelling remains an important issue in communication, especially regarding the firm s position on human rights and environmental issues. Regulations requiring bottled water producers to list the chemical contents and origin of the water on the label also vary from one to country to another. Companies like Nestlé are often confronted by humanitarian movements criticising their activities in the developing world. Companies receptive to human rights face a lesser problem, create a better image for their product and thus create a more sustainable competitive advantage. Integrating social responsibility into the management process can bring numerous benefits, but can also lead to a conflict of interest between key decision makers including stakeholders, governments and non-government organisations. Furthermore, taking human rights into consideration tends to be more difficult when doing business overseas due to different legal bodies, different interests and differing levels of sensitivity regarding human rights. In effect, companies have to place themselves on a continuum from capitalism to socialism as far as this issue is concerned. Moreover, key decision makers need to be aware of differences in doing business in foreign countries, especially when the level of corruption is high, as ethical behaviours generally differ from one country to another. In 2006, Nestlé continued to focus on positioning itself as a company committed to health and nutrition. However, the question facing many organisations like Nestlé selling a natural resource such as water is whether such organisations can at the same time sell their bottled water and promote themselves as social and ethical groups serving the community. By integrating social corporate responsibility and environmental considerations, Nestlé Waters is certainly hoping to overcome these barriers. 829 CASE STUDY Bibliography Belot, L. (2000) L eau en bouteille, bateille des geants de l agroalimentaire, Le Monde, 23 May. Euromonitor International (2005) Nestlé SA in Soft Drink, October. Ferrier, C. (2001) Bottled water: understanding a social phenomenon, AMBIO: A Journal of the Human Environment, Vol. 30, No. 2, p Hamprecht, J., Corsten, D., Noll, M. and Meier, E. (2005) Controlling the sustainability of food supply chain, Supply Chain Management: An International Journal, Vol. 10, No. 1, pp Nestlé official website, < Rodwan, J.G. Jr (2005) Bottled water 2004: US and international statistics and developments, < Questions 1 What are the potential advantages of using social responsibility in the marketing strategy of a company? 2 Ethical views differ between people. To what extent do these views on ethics differ? 3 What are the main factors that account for ethical differences between countries?

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