Blood Bananas: Chiquita In Columbia - Case Study Example

BLOOD BANANAS: CHIQUITA IN COLUMBIA Introduction CHIQUITA AND WHAT LEAD TO ITS DISMISSAL For Chiquita Brands International, bananas are not only serious business but a representation of collection of social, economic, political, environmental and legal hassles. Being a pioneer in the globalization of the banana industry, the company has been operating in the fruit industry for over hundred years (Schotter and Teagarden, 1). Despite operating for that long in the business, Chiquita Brands International has been involved in paying bribes to Latin American government officials for preferential treatment. This has encouraged United States coups against smaller nations resulting to the much criticized dictatorship in Central America’s banana republics. As it is well known in economics, there is always Pareto efficiency. Therefore, the dictatorship has lead to exploitation of local workers, uprising of monopoly power and the involvement of terrorist in the business. It is always rewarding for American multinationals to do business internationally, however, the resultant risk is always something to reckon with. Colombia is a country that is just emerging from a deadly civil war and numerous terrorism activities. This has made the country the most hazardous environment for doing business. Chiquita learned about this fact the hard way. The company made millions of profit through the growth of bananas in Colombia, only for its reputation to splatter in blood after a long period of time. The company that has been involved in scandal one after the other and this has come to haunt the reputation in the past. For instance, in the year 2004, the company voluntary admitted criminal responsibility to the United States Justice Department that one of its subsidiaries in Columbia has been paying a terrorist group for protection from the year 1997-2004 (Schotter and Teagarden, 3). This was followed by a high profile investigation and legal trial. But, being a multinational the company entered into a plea agreement to help in resolving the criminal prosecution. In business, the most important thing is the future and future rewards. Therefore, Chiquita was hopeful that the future will be bright despite the contentious issue that existed between it and the Justice Department. However, this did not go well with the victim’s families, and in 2010 they compiled a court suit demanding for payment from the company. At the same time, there was a parallel investigation by Bogota investigators to investigate other U.S multinationals that were involved in similar practices, collaborating with terrorist while conducting business. THE REACTION OF THE COMPANY’S MANAGEMNET The Company’s management found itself in a very tricky situation after the revelation of the company’s collaboration with the terrorists in doing business. This left the management to choose between moral responsibility in profit management or just the act of business and making profit without considering any moral obligation. In an environment such as that of Colombia, it was difficult doing business because of the strength rebels and insurgents in the country. The insurgents had every shot when it comes to business decision making. Since the 80s, the business of bananas in this country had been characterized with gunfire. In the 1960s, the National Liberation Army (ELN) and Revolutionary Armed Forces of Columbia (FARC) were founded and subsequently lead to the beginning of the guerilla insurgency against the existing Colombian administrations. The consequent targeting of public infrastructure and civilians by different armed groups resulted to creation of private paramilitary groups and guerrillas to fight against them. After the fall of the Soviet Union, the emergence of powerful drug cartels, the spread of the illegal drug trade and the United States backed War on Drugs increased the conflict to a greater level (Schotter and Teagarden, p10). Revolutionary Armed Forces of Columbia claims to represent the rural poor in a struggle against Colombia’s wealthier classes and subsequently opposing the U.S influence in Colombia, monopolization of natural resources by multinational corporations, neo-imperialism and government violence. Its main source of funding is through ransom kidnapping and taxation of illegal drug trade. It is the largest and the oldest insurgent groups in the Americans with estimated members of 6000-8000 by the year 2008. The two main rebel groups are (ELN and FARC) controlled 40% of the Colombian territory. On its part, the National Liberation Army have been operating is numerous regions of Colombia since 1964. It has estimated members of around 1500 by 2009, down from 4000 in the year 1999. The National Liberation Army was strongly influenced by liberation theology at is founding. Their main source of income was levying of taxes on business and middle-class individuals in its area of operation. In order to collect their revenues appropriately, the National Liberation Army frequently took civilians captives to use as leverage. The United State Department and the European Union added the National Liberation Army to its list of terrorist organizations for those actions and its breaches of humanitarian laws, despite the argument by ELN that they were collecting “war terms” and “retentions” for their actions (Schotter and Teagarden, p8). To counter the effects of ELN and FARC, the military under the umbrella AUC was created in 1997. The main aim of the AUC was to protect different economic, political and social interests by fighting the rebels in their areas. The AUC comprised of more than 20,000 militants. Its number advantage made AUC the regional and national counter-insurgency force in Colombia. In the year 2000, Carlos Castano Gil-the AUC leader- claimed that 70% of the group’s operational costs were financed with cocaine-related earnings with the rest of funding coming from its sponsors. A point worth mentioning is that Chiquita made over 100 payments totaling over $1.7 million to the AUC (Schotter and Teagarden, p13). Business environment is core to the success of any business enterprise whether small or large. Business environments that are characterized with volatility and uncertainty either have small number of companies operating there or the existing companies have to part with/meet certain conditions in order to operate in successfully. Colombia was no different. Characterized with two cruel insurgents, the country was not certainly a good place to do business. The insurgents influenced the way business was done in the country and this affected the company directly. Despite the fact that there were plenty of raw materials for Chiquita to exploit in Colombia, the issue of volatility in the business environment had creep in the picture. The main goal of any business is to make profit therefore the company was justified to do business in this kind of environment for what it takes. It was not the duty of Chiquita management to tame the insurgents but it was the obligation of the government to do so. The company was there to do business and the existence of terrorist was a risk just like any risk that a business might face in the line of doing business. In dealing with business risks, a company management ensures that it develops a good business strategy in countering the risks. Therefore, in this case the most appropriate strategy in dealing with the risk posed by the insurgents was for Chiquita International to succumb to the insurgents demands in order to do business safely and appropriately. Considering the business perspectives, collaborating with the insurgents was justified because even the legally established group like AUC was still extorting money from the company. This tells how the business environment was eroded with a lot of malpractices (Schotter and Teagarden, p11). However, in the social responsibility part, the company was not justified in their deeds because by collaborating with the insurgents it was simple admission that they were behind and supported the in-humanitarian activities undertaken by the insurgents. As in many other places where they have operated, the company found itself trying to undertake business in an uncertain environment, one in which the army and the local government offered little or no help at all. Fernando Aguirre, who became Chiquita Brands International Chief Executive Officer long after these scandals, described the situation: “These lands were lands where there was no law. It was impossible for the government to protect Chiquita Brands International employees (Schotter and Teagarden, p8).” He reflected the Chiquita Brands International was forced to pay taxes to the insurgents when they took full control of the territory in the late 80s and early 90s. Even after AUC took over the jungle from the insurgents, they too were of similar demands, according to Aguirre. The CEO stated that: “there was a very, very strong signal that if the company would not make payments, that things would happen. They had already killed at least 50 employees of the company, it was clear to everyone there that these guys meant business (Schotter and Teagarden, p8).” Fernando’s sentiments support the above arguments that the company’s management was justified in paying the insurgents in exchange of security for its employees and good business environment. HOW CAN OTHER COMPANIES LEARN FROM CHIQUITA’S EXPERIENCE? Bananas are vital cash crop for many of developing economies, where a large number of smaller grower individuals and organizations are engaged in export-oriented banana cultivation. Being one of the Latin American countries, the importance of Bananas in the economy of Colombia cannot be argued about. In Asia and Africa, the small, independent producers cannot supply large quantities of high-quality fruits on a regular basis; or rather they have to compete with the Multinational Companies in many markets fetching lower prices for their products in the process (Schotter and Teagarden, p4). However, the case is different in Colombia and Ecuador where large transnational companies and national banana corporations dominates the banana business. In the global field, Chiquita, Del Monte and Dole control over 60% of the global banana trade. The high initial capital investment required during the export and distribution processes of bananas gives these three multinational companies competitive advantage over other companies. Several local companies attempted to internationalize but there was little success that can be withdrawn from this. For instance, Comunbana, a multinational banana marketing company which was formed by the Union of Banana Exporting Countries, failed due to inadequate scale and upfront capital to enter the international banana trade. Transnational banana marketing companies was known to be behind the international market. However, in the beginning of the 21st C, the position started to change because of the numerous challenges that these companies faced (Schotter and Teagarden,p 2). The main challenge was the increase of more powerful roles that retail and supermarkets were playing. Supermarkets tended to develop long-term relation with preferred vendors in order to guarantee a continuous desired quality level. This was important in streamlining operations through eliminating non value-added transactions. In order to cope with these challenges the “big three” shifted their management attention from supply to the marketing side of the business. This shows how streamlining of management and changing strategy when it comes to be business is important. What happened to Chiquita Brands International can happen to any business that operates globally. Volatility is number one enemy of doing business. in addition to financial volatility, the banana industry was facing shifts in consumer preferences for convenient food, healthy food, such as sliced fruits, prepackaged salad and bananas that stayed ripe, but not those that overripe for quite some time (Schotter and Teagarden, p13). No company wants to find itself in a similar situation like the one Chiquita Brands International was entangled in. No company wants to be faced with legal and compensation battles the way Chiquita Brands International. Therefore, it is those moment in business cycle that the management has to decide whether to do business or whether to do business characterized by moral responsibilities. The business has look to consider the long term consequences of their actions. They have to consider how many innocent civilians will perish because of their actions. In the Chiquita Brands International, it was true that the company was protecting its employees and its business territory, but it is also true that thousands civilians lost their lives because of the ransoms that the company made to the insurgents. As argued by Fernando Aguirre; the company did not have a choice but to corporate with the insurgents. But it will be immoral for a company that finds itself in a similar situation to do the same thing if it has a choice. Therefore, social responsibility must come first when arguing from the social responsibility perspective. Doing business abroad The advancement in technology has opened many business opportunities globally. Factors such as increased local competition, lowering of trading tariffs, convergence of consumers’ tastes and preferences, improved communication and transport systems and formation of trading blocks are increased to the globalization. Most firms have realized that to maximize their revenues they have to go global. This will spread the risk; increase their customer base and hence having greater competitive advantage over their competitive advantage. Multinational companies always have stronger competitive advantage over their local competitors because of their strong capital base. Therefore, the dream of most companies in this century is to pursue global market. Globalization is good business strategy but it comes with associated risk. Political, social and economic environments are very vital before adopting globalization strategy. It is very hard for a Multinational company to conduct business in an environment in an environment characterized by volatility like the case of Chiquita Brands International in Columbia. In most situations most Multinationals will not invest in environments where there is no political goodwill. However, in some situations political uncertainty might arise when already the business is already situated in that country. In this case, the way the company handle the situation will be critical in determining whether the company will survive or not. For example the revolution that happened in Middle East resulted to the collapse of many international business but at the same time others firms survived the crisis. The fact is every Multinational company will adopt different strategy when dealing with risks associated with globalization. I believe a good business global investment will overshadow the risk associated with the investment; therefore, Chiquita Brands International situations has not changed my position that globalization is the way to go for a 21st Century firm. Work cited Schotter, Andreas and Teagarden, Mary. Blood Bananas: Chiquata in Colombia. Chapman, New York, 2012, Print Read More