Chiquita Brands Inc - Analysis and Alternatives - Essay Example

?Chiquita Brands – A Case Study Analysis Background Chiquita brands Inc. is a US-based producer and distributor of banana and other produce, all collectively under the brand name Chiquita. It is the biggest supplier of bananas in the whole of Europe and shares top ranking with the world’s largest banana producers. It accounts for about 40% share of the US market, more than half of which represents banana sales. In 2007, the last year covered by this study, it generated $4.7 Billion in revenues from its operation in more than 70 countries worldwide (Chiquita Brands website). The company operates in three divisions or segments – Bananas, Salads and Healthy Snacks, and Other Produce. The Bananas segment originates, transports and distributes bananas to retailers, wholesalers and chain stores; it also cultivates and produces its own bananas through its plantations. The Salads and Healthy Snacks segment carries snacks under the Fresh Express labels, aside from distributing fresh vegetables and food ingredients. It distributes fresh vegetables to food retailers, foodservice distributors and restaurants. The Other Produce sources and distributes fresh fruits, other than bananas, in Europe and North America (Chiquita Brands website). Chiquita is the company that succeeded United Fruit Company, then the leader in banana production and transport operations throughout the Caribbean and Latin America, in 1984 and moved its headquarters to Ohio after it was bought by Cincinnati billionaire Carl Lindner Jr. who named himself the CEO. The company adopted the name Chiquita Brands in 2002 after the company exited from a prepackaged Chapter 11 debt structuring plan and acquiring several fruit processing companies and distributors and expanded outside of banana sales to marketing and distributing other fresh and processed fruits and vegetables (Chiquita Brands website). Chiquita Brands has two main business units: Chiquita Fresh and Chiquita Global Logistics. Chiquita Fresh is responsible for the production, distribution and marketing of fresh fruits and vegetables around the globe, with Chiquita bananas as the signature product symbolizing its commitment for fresh and nutritious food. Chiquita Fresh’s website offers these data about the company: $1.5 Billion in revenues; 23,000 employees; 130 Million boxes of bananas sold annually representing 67% of total mother company’s revenues. Chiquita Fresh also operates 115 banana plantations in Latin America and one farm in Africa that produce half of all bananas sold, the other half coming from independent producers in Latin America and the Philippines (Chiquita Brands website). Chiquita Global Logistics handles the supply flow of products and information in 19 countries via their network of cargo ships and other supplier facilities. Global Logistics has 11 modern ships and contracts 13 more to complement its Great White Fleet to undertake the delivery of bananas and other produce to Europe and North America. Aside from this, Global Logistics is also involved in commercial cargo operation in the US, Europe and Latin America. The website has the following information about Global Logistics: 430 employees;$160 Million in assets; 40,000 cargo containers moved annually; 2.9 Million nautical miles covered per year (SourceWatch website). In its 2010 annual report, Chiquita Brands cited the following data: 21,000 employees in nearly 70 countries; $3.2 Billion in net sales, generating $57 Million net income. The annual report boasted of a consistently positive operating net income from operation for the last three years from 2008 despite that the period covered the height of the recession. Issues Besetting Chiquita Brands In that annual report, the chief executive officer Fernando Aguirre reported on the progress relating to several issues from past operations that have affected Chiquita Brands in some ways. Violations of EC Competition Laws One of these issues pertained to some reported past violations of European competition laws by former employees of the company. Apparently, some former executives had shared data, as in pricing and inventory information, with competition in Europe over a considerable period of time, from 2002 – 2004 (Annual Report 2010). This act of sharing sensitive information to competition is almost like establishing a cartel, where competitors agree the pricing among themselves (IP/IT-Update website). The unethical conduct has been promptly nipped, as reported by Aguirre, and consequently reported to the European Commission, the body that investigates and prosecutes such violators. The EC ruled that such a violation of the EC’s ban on cartels had been committed, but in view of the company’s voluntary offer of the information, the company was granted immunity from fines (Annual Report 2010). Notwithstanding that decision, the EC continued and expanded its investigation and now seemed to have discovered other instances of such infringement of EU laws which were not covered by the previous resolution. Because of this, the EC has even questioned the validity of the grant of leniency or immunity on the previous cases. If the EC would decide to finally overrule itself and not grant the company any immunity from fines, the fines could be substantial and could go as high as 10% of the company’s worldwide revenues from all products in the years that the infringements were uncovered (Annual Report 2010). Analysis and Alternatives The issue involved here is ethics, an item under corporate social responsibility which falls squarely on the lap of top management. The competition law of the European Union prohibits the exercise of market power by large companies that may prevent the free flow of working people, goods and services in a borderless Europe (Office of Fair Trading website). Sharing pricing and inventory or volume information is tantamount to price fixing and disadvantages both customers and other competitors as it deprives them of a free market. The effects of an anti-trust litigation on future undertakings of a company may not be felt materially by big business as in the case of Chiquita Brands, but its more serious effect is not on the revenues but on the credibility of the involved company which can impact disastrously in the long run, owing to the lessening or even loss of corporate reputation (Bizjak and Coles 436). Two alternatives are presented here to enable Chiquita Brands to wiggle itself out of the unfortunate situation and thus operate without fear of being witch-hunted. One, it should make a clean breast of everything that had the semblance of corporate responsibility and asked for leniency and compassionate treatment. Second, simultaneously Chiquita should strengthen its CSR (Keinert 89) initiatives. It is a plus factor that Chiquita Brands has been exhibiting such responsibility as evidenced by its reporting methodology in its annual report. It is also to the company’s credit which it can cite in its defense that it has in place a Code of Conduct and statement of Core Values that should serve as the foundation statement of its CSR initiatives. It is strongly recommended that these documents should be reviewed and taken into the open as part of a vigorous enculturation campaign involving all stakeholders. Moreover, the Audit Committee of the Board of Directors as well as the independent directors should be given a renewed mandate to strengthen their corporate audit work. Labor-Management Problem in PAFCO Another issue that will continue to hound management strategists is the labor relations in banana plantations owned by Chiquita Brands. This is one of the risks inherent in international operations, especially in agricultural plantations where local workers comprise the labor force. Plantations would require vast tracks of land, and these would mostly be located in developing countries where wages would be strategically minimal. The problem with such areas is the level of education of the inhabitants and the possible presence of insurgents in most such areas. One classic example of this issue presenting itself as a problem is the Chiquita subsidiary PAFCO in Panama (Chiquita Brands website). Chiquita Brands opened Puerto Armuelles Fruit Company or PAFCO in 1927 and contributed substantially to the economic development of the territory through its local employment and its infrastructures - roads, ports, schools, medical facilities and housing - within the banana farms. The division has been a top producer of the company up to 1995, but suffered production lows from 1996 to 2002. The decline was attributed to the “very poor labor-management relations” and the inability of the company to implement efficient work practices. Labor unrest topped by several strikes characterized the period 1996-2001 resulting in the deterioration of the quality of the produce (Chiquita Brands website). Analysis and Alternatives The situation in Chiquita Panama is atypical among global firms setting up ownerships of huge interests in developing countries. The costs of operation in these countries may be lower, given the underdeveloped character of the area, but this is offset by the fact that the manpower content would be predominantly local, almost 100%, creating a “workers’ power” that can threaten stability of operation (Vellema, 1999). In such situations, one of the frequently recommended options is to set up joint ventures or strategic alliances with local producers where the company can still get its desired produce and its quality by being a guaranteed buyer of local produce. In this way, the tension between local labor and foreign management is avoided and the company retains the privilege of engaging as many local producers as it can handle. In the present situation of Chiquita Brands, faced with the reality of an unprofitable subsidiary, the best alternative is to divest or sell it. The sale to the local union would be the most logical and practicable option that would work positively for all stakeholders. The workers retain their employment, the government preserves its infrastructures and facilities, and the company continues to obtain its quality produce from the new owners. Works Cited: Bizjak, J. and Coles, J., The Effect of Private Anti-Trust Litigation on the Stock Market Valuation of a Firm, The American Economic Review, Vol. 85 No.3, June 1995 Chiquita Brands website, Chiquita Brands. http://www.chiquitabrands.com/content/chiquitacr02/profile.htm IP/IT-Update website, EC Competition Law. Accessed August 1, 2011: http://www.ipit-update.com/compec.htm Keinert, C., Corporate Social Responsibility as an International Strategy, Germany, Physica-Verlag, 2008 Office of Fair Trading website, Competition Act 1998. Accessed August 1, 2011: http://www.oft.gov.uk/about-the-oft/legal-powers/legal/competition-act-1998/ Source Watch, Chiquita Brands International. Accessed July 31, 2011: http://www.sourcewatch.org/index.php?title=Chiquita_Brands_International,_Inc. Vellema, S., Agribusiness Control in Philippine Contract Farming, International Journal of Sociology of Agriculture and Food, Vol. 8 pp 95-110, 1999 Read More