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Academic Paper, 2013, 52 Pages
Chapter 1 - Introduction 1
1. 2. Aims
1. 3. Objectives
1. 4. Methodology
1. 5. Limitations
Chapter 2 - Company Introduction 4
2. 2.Nestlé SA
2.3.Kraft Foods Inc
Chapter 3 - Theoretical framework and literature review 6
3.2.Drivers of Sustainability in Business
3.3.Triple bottom line
3. 5. 1. Shareholders and Investors
3. 5. 2. Managers
3. 5. 3. Employees
3. 5. 4. Suppliers
3. 5. 5. Consumers
3. 5. 6. Non Government Organisations
3. 5. 7. Government
3. 5. 8. Miscellaneous
3.8.Conclusion of Chapter
Chapter 4 - Methodology
4. 1. Introduction
4. 2. Methodology Requirements
4. 3. Case Study Methodology
Chapter 5 - Analysis and discussion
5. 1. Introduction
5. 2. Sustainability Issues
5. 2. 1. Nestlé's Focus on Sustainability Issues
5. 2. 2. Kraft Foods' Focus on Sustainability Issues
5. 2. 3. Discussion
5. 3. Sustainable Development Approaches
5. 3. 1. Nestlé's Approach
5. 4. 2. Kraft Foods' Approach
5. 5. Evaluation of the Sustainable Development Results
5. 6. Conclusion of Chapter
Chapter 6 - Conclusion
The human body requires food and drinking to maintain health and provide essential biological functions for life. In the past, people organised their own food and beverage supply within their families and communities to survive with agriculture. The development of the last centuries led to the need to transfer the business of producing food and beverage on specialised companies. A global food and beverage industry was developed to meet the demands of several million people. These days food and beverage are produced and traded in the whole world. Consequently, both positive and negative economic, social, and environmental impacts are created by the food and beverage industry's business operations (Steger 2004). These impacts attract growing attention of civil society, governments, and not least business itself across the globe (Crane et al. 2008). For example, a majority of consumers concern about environmental issues because they believe it significantly affects their health (Elkington 2001) or interests in provenance and societal embeddedness (Goodman 2008). Steger states that companies' responsibility for social and environmental impacts of business are expected by consumers to a greater level (2004). In this way, a variety of sub disciplines such as accounting, marketing, operations management, strategy, and organisational behaviour are increasingly forced by consumers, civil society, government, economics, development studies sociology etc. to develop approaches for exercising the growing responsibility of companies in environmental and social issues (Crane et al. 2008). This leads to the question how the food and beverage industry approaches sustainability within their business. According to the so called Brundtland Commission sustainability is the goal of the 'development that meets the needs of the present without compromising the ability of future generations to meet their own needs' (World Commission On Environment And Development, 1987: 54). Similar to Laszlo's (2003, 2008) and Hopkins's (2003) comprehension of the term 'sustainability', the dissertation's definition of sustainability comprises corporate social responsibility, environmental management, green management, and other theoretical concepts which describe how companies take responsibility for environmental and social impacts of their business. The sustainable development approaches of one of the fundamental industries are evaluated in this dissertation to answer the question how the food and beverage industry achieves sustainability in their business.
This dissertation is organised as follows. In chapter one the aims, objectives, methodology, and limitations are outlined. Chapter two sets the context of the food and beverage industry, focusing on Nestlé SA and Kraft Foods Inc. Chapter three examines the theoretical framework by reviewing the current literature. Especially the drivers are identified, triple bottom line is presented, the shareholder and stakeholder theories are analysed, and stakeholders are presented. Chapter four is concerned with the methodology to examine Nestlé's and Kraft Food's sustainable development approach. Subsequently, chapter five is occupied with the analysis and discussion of their sustainable development approaches, focusing on their sustainability issues and the results of their strategy. Finally, chapter six concludes the paper.
This dissertation pursues to understand the idea of sustainable development in business, focusing on the food and beverage industry. The necessity of sustainability in business should be recognised. To build the basis for the subsequent analysis and evaluation the theoretical framework are examined. After it, Nestlé's and Kraft Foods' sustainability implementation and the consequential results are analysed, evaluated, and compared to complete the comprehension for sustainability in business.
The objective of chapter two is to familiarise the reader with the food and beverage industry by presenting the companies Nestlé SA and Kraft Food Inc. Chapter three pursues the objective to present the drivers of sustainability in business, triple bottom line approach, shareholder and stakeholder theories, in the existing literature on this topic. Chapter four outlines the methodology. Based on the previous chapters, chapter five attempts to analyse and evaluate the sustainability issues, approaches, and overall results of Nestlé's and Kraft Foods' sustainability development. Finally, conclusions are given in chapter six.
This dissertation is based on secondary data provided by primary and secondary publications about sustainable development in business and economics, corporate social responsibility, environmental management, and green management. Consulted sources for the data were provided by the library of Edinburgh Napier University such as books and subscribed database with e-journals, and own book purchases. Regarding the analysis and evaluation of Nestlé`s and Kraft Foods` sustainable development approach the dissertation relies primarily on annual company reports, sustainability reports, and corporate responsibility reports.
The limited availability and focus heterogeneity of secondary data in the field of sustainability reduce the quantity of the provided information. Along with it, the focus on the food and beverage industry aggravates the unconditional transferability of the conclusions between the food and beverage industry and other industries. In addition, the sustainable development approaches of Nestlé and Kraft Foods differs and do not permit transferability on other companies due to the uniqueness of every company.
The food and beverage industry is defined by Baas et al. as the world food market provider of basic and special foods including fresh and long life products, packed and unpacked foods, bulk and added value products for low, middle, and high income populations (1999). Therefore, it is a large and important global industry. In the European union with 3.8 million employees and a ratio of 13.6 % of total production this industry is the third largest employer and largest manufacturing sector (Ionescu-Somers and Steger 2008). Nevertheless, only 0.9 % are represented by multinational companies, but are accountable for over 50 % of the total turnover (Ionescu-Somers and Steger 2008). Two of these multinational companies, Nestlé SA and Kraft Foods Inc., are in focus of this dissertation.
Nestlé is a merger of the Anglo-Swiss Milk Company and Farine Lactée Henri Nestlé Company to the Nestlé and Anglo-Swiss Milk Company in Vevey, Switzerland 1905 (Nestlé c 2011). Until the end of the Second World War Nestlé provided Europe and Asia with condensed-milk, chocolate, coffee, tea, soups, and other related products with factories in the United States, Great Britain, Germany, Spain, and Latin America (Nestlé c 2011). Postwar, Nestlé strategically acquired a significant number of companies related to nutrition, cosmetics, and pharmacy accompanied by strong growth and economic success (Nestlé c 2011). This development made Nestlé to the world's leading company in nutrition, health, and wellness, generating turnover of almost GBP 75 billion with around 281,000 employees in 2010 (Nestlé a 2011).
Today, Nestlé's product segments are beverage, milk products, nutrition, ice cream, prepared dishes and cooking aids, confectionary, pet care, and pharmaceutical products. The company is managed by the board of directors with 14 members and an executive board with 14 members presided by chairman Peter Brabeck-Letmathe and chief executive officer Paul Bulcke, respectively (Nestlé a 2011). They describe their strategy as driving short-term performance whilst at the same time investing in the longer-term development which includes investments in the emerging markets (Nestlé a 2011). The overall objectives are to achieve annual organic growth between 5-6 %, EBIT margin improvement, and to be recognised as the world's leading nutrition, health, and wellness company (Nestlé a 2011). Nestlé is listed in the Dow Jones Sustainability Index (CME Group Index Services 2011). Subject of this work is Nestlé's sustainable development approach called "Creating Shared Value".
Kraft Foods company history began with James L. Kraft's wholesale cheese business in Chicago in 1903 (Kraft Foods c 2011). The company invented pasteurised processed cheese and was listed on the Chicago Stock Exchange as the Kraft Cheese Company in 1924 (Kraft Foods c 2011). In 1928, the Phenix Cheese Company was acquired by Kraft Cheese Company and the name was changed to Kraft-Phenix Cheese Company (Kraft Foods c 2011). In 1930 the company was acquired by National Diary, after the interim name change to Kraftco Corporation in 1969, the company was renamed to Kraft Inc. in 1976 (Funding Universe 2002). In 1988, the Philip Morris Corporation purchased Kraft Inc. in order to merge subsequently Kraft Inc. with Philip Morris's food unit General Foods to Kraft General Foods in 1989 (Kraft Foods c 2011). In 1995, the company was renamed to the present name Kraft Foods and went public as Kraft Foods Inc. in 2001 (Kraft Foods c 2011).
Nowadays, Kraft Foods is the second largest food and beverage company in the world in the product segments confectionary, snacks, beverages, cheese, convenient meals, and grocery (Hoovers 2011, Kraft Foods a 2010). It generates a turnover of GBP 30.4 billion, achieved with 97,000 employees in 2010 (Kraft Foods a 2010). The company is managed by the board of directors with 12 members and an executive board with 11 members presided by both chairman and chief executive officer Irene Rosenfeld (Kraft Foods d 2011) and is driven by a four priorities strategy. Focusing in growth categories, expanding presence in developing markets, expanding presence in instant consumption channels, and enhancing margins are the four strategic priorities (Kraft Foods a 2010). Kraft Foods is listed in the Dow Jones Sustainability Index and Ethibel Sustainability Index (Kraft Foods a 2010). Subject of this work is Kraft Foods sustainable development approach described as "Better World".
The introduction has already given an argument for sustainability in business. However, it was merely an explanatory approach which is not sufficient to demonstrate the drivers of sustainability in business. Furthermore, Steger rightly states that companies must have an economic reason to act sustainably (2004). Therefore, this literature review examines the drivers for sustainability in detail. Subsequently, the triple bottom line approach and the two major theories for corporate responsibility are analysed to discuss which theory promotes sustainable development in business. In focus are the shareholder and stakeholder theories, although that other theories exist, because the corporate social performance and the corporate citizenship theory are not fully developed or adopted respectively (Melé 2008) and suffer from a lack of an economic-aligned perspective for sustainability in business (Swanson 1999). Subsequently, a closer examination of major stakeholders of the food and beverage industry and their roles supports the evaluation of stakeholders in business. Finally, conclusions are given.
Companies are always concerned with managing financial value through the allocation of the factors capital, labour, technology, and location. During this process companies create external social and environmental impacts (Steger 2004). This impacts can be positive or negative. The companies' externalities during making profits are often unintentional (Laszlo 2008) and not internalised (Steger 2004). This leads to the first driver for sustainability in business. The externalities jeopardise intergenerational equity through destroying the environment and harming the societal justice (Schaltegger et al. 2003). The negative impacts are contrary to the Brundtland Commission statement because the needs of the present are met with 'compromising the ability of future generations to meet their own needs' (World Commission On Environment And Development 1987: 54). It is essential for companies to make profits nowadays, but it is likewise essential to ensure the ability to make profits tomorrow. Otherwise the future profits are jeopardised by today's business operations, e.g. devastation of fishery resources prevents future profits through fishing.
In a financial short-term view this argumentation may not be sufficient enough. However, cost and risk increases can have a negative influence on financial short-term results (Kurucz et al. 2008). Bowie and Dunfee revealed that preventing consumer boycotts, increased labour costs, liability risk, and short-term losses in market capitalisation avoid costs and risks for financial results (2002). A study by Salzmann et al. suggests that companies are incurring unnecessary costs and reductions in profitability if they go below an optimal limit of social and environmental performance (2005). Consequently, sustainability concerns reducing costs and risks.
These cost and risk are intertwined with stakeholders' such as consumers, government, employees etc. growing expectations in terms of health, safety, social well-being, and environment (Laszlo 2008). Quinn and Jones suggest instrumental stakeholder management to achieve cost and risk reductions through trading off stakeholder expectations in the companies' decisions, for example to avoid stakeholder opposition (1995). Laszlo states that the empowerment of self-organising communities are eased through the internet and its low-cost collaborative platforms (2008). Thereby, consumers gain influence on governments and local authorities which they use to assign their expectation on governmental and authorities' decisions. As a consequence, new regulations and deteriorated relationships with authorities can restrict the business, e.g. unfavourable permitting terms, prohibitions, legal requirements, which have a potential impact on cost and risk of business.
There are not only cost and risk minimisation drivers for sustainability. There are additional strong drivers which open new market opportunities and create potential profits. The competitive environment has changed and companies have the chance to gain competitive advantage over industry rivals through considering sustainability in business (Kurucz et al. 2008). Prahalad (2010) demonstrates how population growth and poverty enable organisations to capitalise this global drivers for change at the 'bottom of the pyramid'. Sustainable solutions are required to maximise profit on the base of the pyramid as a new market. Moreover, product differentiation through building in and marketing environmental and social aspects of products (Schaltegger 2003) increases customer loyalty (Andersen 2004), attracts sustainably-conscious consumers, adds new production differentiation criteria, enhances image, and/or enables higher margins.
Additionally, sustainability in company enables the assumption of cost leadership in industry through reduced cost or increased productivity (Schaltegger 2003, Lovins et al. 1999). Reduced cost are the result of increased efficiency in utilising resources and services such as logistics, e.g. no empty running, or reduced commercial cost of operation such as waste disposal charges. Furthermore, new market mechanisms such as emissions trading which attach a price on environmental and social impacts (Laszlo 2008) alter the competitive environment regarding the internalisation of externalities in price.
Andersen subscribes to the improvement of employee and organisational motivation, and moral caused by sustainable development in the company (2004). Considering that it is for companies increasingly difficult to attract and retain employees, and gain access to the best people, sustainable development is also a competitive advantage. Being part of an sustainable organisation and sharing the common idea of sustainability provide a strong sense of community, belonging, feeling of doing good, and contributing to others is easily comprehensible attractive for employees and motivate them (Andersen 2004).
During the sustainable development process new knowledge, capabilities, and solutions are acquired. Laszlo emphasise that these can be used as drivers for innovation in business and reveal potential for further earnings, e.g. entering the advisory market for sustainability in a certain industry (2008).
It is recognisable that several parts of the industry and academia affirm the existence of a variety of drivers which promote sustainability in business. The most conclusive argument for leaders and shareholders may the cost and risk reduction potential in companies. In all probability, companies rather do not need to be convinced but are forced by the necessity of sustainability in business to ensure profits and business success in the new competitive environment. Stakeholders, especially consumers and government, and competitive pressure increasingly shape a competitive environment which will not accept unsustainable companies in business.
It was already considered that in this dissertation the term sustainable development comprises the economic, environmental, and social dimensions of business. This comprehension of sustainability is the consequence of John Elkington's triple bottom line approach (1998). It condensed the interrelationships of the three dimensions into one single approach for reporting organisational success in sustainability (Morrison 2009). Hopkins affirms the triple bottom line approach through assessing that making profits often occurs to the detriment of the environment and society (2003). The triple bottom line approach attempts to consider the detriment of the environment and society during the assessment process of profit trough the application of three different bottom lines. The economic bottom line is defined as the profits 'after the deduction of costs and depreciation of capital' (Elkington 2001: 25). In order to answer the question whether the profits are sustainable the environmental and social bottom lines are included (Rubenstein 1994). The environmental bottom line is to increase natural capital, which is defined as replaceable, renewable, or substitutable natural value (Elkington 2001) The social bottom line is to increase social capital, which is defined by Fukuyama as the ability of people to work together with a shared set of ethical norms in a trustful atmosphere for common purposes that decreases business costs and promotes innovations (1995).
The triple bottom line approach adds or deducts to the economic value the environmental and social value, respectively to assess companies' progresses in sustainable development (Elkington 2004). Laszlo goes further and makes the triple bottom line approach to the basis of his construct of creating "sustainable value" in business (2008). Sustainable value will be created if environmental and social values in addition to profits are created (Laszlo 2008). Schaltegger et al. also denote the integrated perspective of economic, environmental, and social components as sustainability (2003). A conformance about the new set of business objectives apart from only economic objectives that additionally considers environmental and social objectives is the achievement of Elkington's triple bottom line approach.
In contrast to the triple bottom line approach, the shareholder theory pursues the one bottom line - profits. Shareholders are private investors, organisations, institutions, and funds which expect financial return on their shares (Andersen 2004) and shareholder value maximisation in compliance with the law (Melé 2008).
Friedman theorised in his often quoted essay that the 'one and only responsibility of business is to increase its profits' (1970). Nowadays, Melé correctly extends this view by expressing business has to maximise shareholder value (2008). Friedman justified it with the specialisation of business in economic issues and government in public issues (1970). Therefore, government should address public concerns such as environmental and social needs through legislation and companies should address creating economic value within the framework of existing legislation. Accordingly, the separation of the responsibilities of the triple bottom line objectives are considered as the most effective way to achieve economic success and sustainability. This system of providing best conditions for creating economic value and at the same time avoiding negative impacts of business through legislation and sharing economic value through the tax system are supported by the experience of two centuries (Jensen 2000), e.g. industrial history of the U.S.A., United Kingdom, or Germany in the 19th and 20th centuries.
However, the last decades have shown that profits are often realised to the detriments of the environment and society. The shareholder system does not work effectively. This is the result of the exclusion of environmental and social considerations in doing business (Porter and Kramer 2011). Business does not occur without economic, environmental, and social influences because the business, environment and, society are closely intertwined. Consequently, it is not intelligent to consider economic, environmental, and social relationships separately and distinguish between public or private issues. In addition, the government is strongly influenced by business and business interests often determine governmental decisions. Therefore, government cannot fulfil its obligation within the shareholder theory and address business' environmental and social impacts through legislation effectively. Furthermore, legislation is imperfect and not convenient to regulate every issue besides strong opposition would be provoked (Melé 2008).
Shareholder value maximisation leads to a increased short-term orientation in business (Melé 2008). Short-term orientation itself is not dangerous, but the short-term results focus supports the distraction from long-term objectives and encourage economic crisis, e.g. the financial crisis starting in 2007 (Miller 2010). The focus on short-term objectives eases the shareholder value maximisation and jeopardises the ability of future business to achieve long-term objectives through wrong short-term incentives, reduction in personnel expenses, fraudulent evasion etc. This is not sustainable in the sense of the Brundtland Commission because the external and future costs are not considered in the present.
The shareholder theory with its separation of private and public functions and the short-term orientation rather prevents the implementation of sustainability of business than supports sustainability (Schaltegger et al. 2003).
In contrast to the shareholder theory, the stakeholder theory considers not only the shareholders as stakeholders but rather different stakeholders of a company. In 1984, Freeman revived the this theory with introducing the stakeholder concept as strategic framework for management (1984). Stakeholders are defined as interest groups which can affect or are affected by business activities and with that influence the survival or success of a business (Freeman and Reed 1983). It is the logical consequence of that companies exist within a network of links to other companies, organisations, institutions, groups, and individuals which have vested interests, expectations, and claims in the companies' activities and results (Andersen 2004, Schaltegger 2003). Stakeholders are for example shareholders, employees, or customers. Their interests, expectations, claims, and influences will be examined more closely below. The stakeholder theory goes further than the shareholder theory and adds the maximisation of stakeholder value to the duty of maximising shareholder value (Melé 2008). Taking stakeholder claims into account and fulfilling certain claims avoid business-damaging opposition or negative implications (Schaltegger et al. 2003). Based on this consideration it is suggestive to collaborate and maintain good relations with stakeholders for the creation of economic, social, and ecological stakeholder value (Andersen 2004, Hopkins 2003, Wheeler et al. 2003). Thereby companies are forced to develop a strategy for considering and fulfilling the different stakeholder interests, expectations, and claims in their business activities. The stakeholder theory goes beyond normative requirements and is connected to business decision-making (Melé 2008). It ensures that business decisions are closely linked to the network of stakeholders' interests and the business itself. Jensen criticised that balancing stakeholder interests does not provide sufficient specific objective function in business (2000). It is questionable, whether the mathematical approach to business with function, algorithms, and probabilities have ever been appropriate to manage essential intangibles such as strategies, humans, or long-term success (Melé 2008). Therefore, this critique is not convincing and does not affect the stakeholder theory. Other assume that not favouring shareholder and treating all stakeholders equally destroys business accountability and leads to opportunism because the complex business relations network is not represented by stakeholders and fails to account for shareholders claims (Sternberg 2000, Marcoux 2003). These are typical fallacies of the stakeholder theory. Regarding this, Freeman et all. correctly state that the stakeholder theory is not against shareholders because creating stakeholder value implicates creating shareholder value, gives multi objective orientation in business, and shareholders, compared with stakeholders, enjoy legal protection and have a larger scope of influences (2004).
In Conclusion, the stakeholder theory is an appropriate approach for successfully implementing the demand for sustainability in business, because economic, environmental, and social interests and claims off different stakeholders are considered in business strategies and activities. A separation of private and public interests does not occur and every company can play an own part in contributing sustainability in compliance with its capabilities and opportunities. There arises the question which relevance, interests, and claims do stakeholders have.
Shareholders are also defined as stakeholders of current or potential owners and investors because the have likewise essential vested interests in business results. They invest their money in a company awaiting capital gains on their shares (Schaltegger et al. 2003). Therefore, they expect primarily shareholder value increases in compliance with the law. Shareholders are attracted by low risk of business failure and increasing profits (Schaltegger et al. 2003). Consequently, they expect timely, accurate, and reliable information about turnovers, earnings, sales, other operating numbers, executive hiring, business strategy, and other factors for assessing risk and profit (Andersen 2004). It implicates prompt payment of dues in the form of financial returns. The unjustified inflation of sales, concealment of financial problems, and stretched accounting practises to the limits of law and beyond are considered as unsustainable measures because those scare shareholder by implication of aggravated access to capital for shareholder value creation (Andersen 2004).
In terms of environmental and social value creation, an increasing number of shareholders applies sustainability standards and criteria to evaluate investments and asks critical questions about business practises in order to consider sustainable development performance (Andersen 2004, Hopkins 2003). An instance of the change from economic value oriented to sustainable value oriented shareholders are the rising importance of sustainable investment funds (Hopkins 2003) since a growing number of shareholders considers, especially the long-term, reasons for sustainability. Consequently, shareholders are attracted by sustainable companies, which create economic, environmental, and social value. However, sustainable investment funds are on the increase, but are faraway to become mainstream (Ionescu-Somers and Steger 2008).
Considering the food and beverage industry, investments are less glamorous but provide stable profits for shareholders (Steger 2004). Especially for this industry the equation 'no resource equals no business' is the strongest argument for sustainability and emphasises that the industry's approach to sustainable development rather intended by ensuring profits than voluntary protection of environment and society (Steger 2004). Unfortunately, the majority of shareholders still focus on short-term results and demand sustainable development insufficiently (Ionescu-Somers and Steger 2008).
Every company is driven by managers, who are responsible for corporate activities and results. Their apprehension of tensions between the three bottom lines and the responsibility for economic bottom line results leads often to their spontaneous rejection of the idea of sustainable development in business. Accordingly, managers are competent in achieving economic objectives but less competent in managing stakeholder claims (Lazlo 2008). However, short and long-term success enhancement, risk minimisation, efficiency increase, new business opportunities, customer attraction, prestige, and sustainability awareness in society lead often to the conclusion for managers to approach sustainability (Hopkins 2004). In addition, it is their business to act proactive and build strategies addressing issues and problems before they arise (Schaltegger et al. 2003). The same applies to environmental and social issues whereas they are in the position for a sustainable change in business. Their commitment is a prerequisite for sustainable development. Without it, a shift in business towards sustainability is not achievable. They have the scope of influences, access to information and capital, management capabilities, contacts, and power. The minimal requirements of the role of management in implementing sustainable development comprise winning shareholder and board support, understanding sustainable value creation, setting objectives, building the strategy, leading the initiative, developing the business case, installing accountability, monitoring progress, and building organisational capacity for sustainability (Hopkins 2004, Lazlo 2008).
Employees are the central component in the process of value creation and are denoted as the human capital of an company. For business success good-quality staff is essential (Hopkins 2004). Especially knowledge intensive and service-based industries are reliant on the commitment and contribution of employees (Simmons 2008). Thereto, Hopkins correctly mentions that human capital is not always well maintained like tangible capital whereas it is very bit as important as physical capital (2004). It is questionable, to maintain this circumstance because a few arguments suggest a consideration of employee claims. First, the attraction of highly skilled employees is described as an increasingly major challenge for companies and often paraphrased as the war for talent (Tansley, 2008). Second, retaining employees is required in order to decrease employee turnover and increase returns on personnel investment. Third, enabling employees to achieve their best performance is essential for success.
Sustainable development approaches these considerations and addresses employees‘ concerns about working climate, economic security, health and safety in the workplace, labour condition, compensation, and personal development (Schaltegger et al. 2003). Improvements in social and environmental labour conditions, compensations, career development, flexible work practises, training, profit sharing, incentives schemes, and employee participation are potential measures to take employees as stakeholder into account (Hopkins 2004). Additionally, introducing sustainability in business produces a feeling of doing good and contributing something to others that creates a strong motivational effect on employees and acts as a multiplier across the entire organisation (Andersen 2004). Attracting, retaining, and developing employees are powerfully supported by sustainable development and becomes increasingly important as a competitive advantage (PricewaterhouseCoopers 2007). Several researches show that a company‘s financial performance and productivity is linked to the company‘s ability to attract and retain employees (Galbreath 2010, Hopkins 2004). These are results of the diminished employee turnover and higher returns on personnel. Additionally, Bae et al. reveal that employee treatment is an important determinant of the company's capital structure (2011). Employee-friendly companies have a lower degree of leverage (Bae et al. 2011). Altogether, it is obvious that employees not only play a central role in the process of value creation but also are essential for the success of sustainable development in business. The food and beverage industry is not necessarily as attractive as other industries and requires a wide range of qualifications from farmer through to food scientist, and thus are required to attract, retain, and develop employees successfully.
In many business cases companies are embedded in networks of suppliers which are often the real producers of goods and services behind the companies and brands. It is the result of gaining cost reductions and strategic flexibility by out-sourcing non-core activities (Millington 2008). Companies are the customers of suppliers, therefore suppliers expect timely payment for goods and services delivered, especially those with limited liquidity, predictable business relations for long-term planning, and, to a greater degree, transparency in dealings (Andersen 2004, Hopkins 2004). Companies are free to make business with suppliers who appropriately answer their needs. In this process the social and environmental obligations are devolved to those suppliers (Millington 2008). However, the focus on low cost production in many sourcing decisions may decreases the environmental and social standards in the value chain (Preuss 2001) because manufacturers in developing countries or the like cannot afford the same standards achieved by companies in industrialised countries (Hopkins 2004) and are subjected to deviating institutional, cultural, and legal environments (Millington 2008). Hall erroneously states that the purchasing companies have limited responsibility towards the supplier‘s negative impacts on the environment and society (2000). Regarding the legal responsibility it is true, but the supplier‘s impacts are associated with the purchasing company (Frenkel and Kim 2004) and are increasingly considered as a risk to the company (Rao 2004). Therefore, the implementation of sustainability in a company requires an extension of its suppliers. Indeed, suppliers usually do not come in contact with the company‘s stakeholders and are rarely forced by external stakeholders to introduce sustainability in their business. It could be argued that the suppliers are encouraged to introduce sustainability by the purchasing companies as their customers. However, the degree of encouragement of the purchasing company on suppliers depends on the considerable power-dependence relationship between them (Millington 2008). Power derives from the ratio of sales and profits from the contributing party, (Frazier et al. 1989), availability of alternatives, switching costs to alternatives (Porter 1980) and the economic dependency for a proper utilisation of capacities (Pfeffer and Salancik 1978). Consequently, four types of power-dependence relationships exist. The market dependence type includes a buyer-supplier independence with low interdependence and neither have the power to impose on the other. Two power imbalance types with either buyer or supplier power over the other unilateral depending party exist. Type four is characterised by a mutual interdependence between buyer and supplier with balanced power (Millington 2008). It is comprehensible that at least in the case of market independence the supplier perhaps acquiesce in the demand for sustainable development, in the case of buyer power the supplier probably accepts the buyer‘s demand for sustainability, or in the case of mutual interdependence both parties negotiate the implementation of sustainability in business (Millington 2008). Merely, in the case of supplier power an approach to sustainable development is unpromising. Recapitulatory, the extent on which suppliers are forced to consider sustainability in their business is limited to the power-dependency relationship.
In terms of the food and beverage industry, Ionescu-Somers and Steger analysed that the switching costs to alternatives are low for the food and beverage companies and an increased vulnerability of commodity suppliers (2008). The strong fragmented supplier networks with complex supply chains results in buyer power-dependence relationships including low supplier power (Ionescu-Somers and Steger 2008). Therefore, a eased implementation of sustainability in supply chains is possible.
Consumers are the most prominent stakeholders because, in principle, they mainly decide about the economic success of a business (Andersen 2004). The common access to information and use of those to inform, communicate, publish, and react on issues leads to an increasing awareness of consumers of sustainability issues and enhances the customer sovereignty within the stakeholder network (Andersen 2004). Consumers become more and more conscious about sustainability topic and demand sustainable products (Bhaskaran et al. 2006, Lazlo 2008). They could contribute to companies‘ sustainable development approach through showing greater loyalty, paying higher prices, or increased purchases. However, different sources suggest that consumers rather look for lower-prices, higher quality products, and their demand for sustainability is focused on product life or health issues, without directly involving the environmental and societal benefits by sustainability (Schaltegger et al. 2003, Ionescu-Somers and Steger 2008). Regarding the food and beverage industry, Ionescu-Somers and Steger assert that the mainstream consumer admittedly punishes unsustainable companies but yet are unwilling to pay for sustainability benefits, since these are non-personal benefits (2008).
Non government organisations are described as advocates for the environment and society and act as catalysts towards sustainability in business (Murphy and Bendell 1997). They have no market relationship, notwithstanding they are followers and high influential externals of business behaviour because NGOs are specialised in running effective campaigns. Consumer boycotts, direct actions, letter writing, labelling, specialist consumer guides, ethical screenings, and other campaigns are organised by NGOs (Hopkins 2004). Additionally, NGOs pursue political lobbying for sustainability in business (Ionescu-Somers and Steger 2008). Indeed NGOs increasingly pursue collaboration and partnerships with businesses (Schaltegger et al. 2003). Ionescu-Somers and Steger suggest to consider dealing with NGOs as a integral part of doing business and as the best approach in the food and beverage industry (2008). This is a result of NGOs' significant influence on the public perception of companies and the evolvement of modernised strategic and professional stakeholders (Ionescu-Somers and Steger 2008). Many multinational companies of the food and beverage industry such as Unilever, Nestle, and Sainsbury's established partnerships with NGOs in order to solve specific sustainability issues. Ionescu-Somers's and Steger's survey shows that collaborative partnerships are considered by managers as the most effective approach for stakeholders relationship management in regard to sustainable development (2008).
Governments and local authorities are considered as stakeholders, because they have the authority over operation licenses and regulation. However, governments and local authorities tend to be more reactive than proactive in promoting sustainability in business. Employment and economic growth or providing access to clean water and sanitation are prioritised by developed and developing countries, respectively (Morrison 2008). In addition, agricultural and fishery subsidies as well as trade barriers set the wrong incentives for the business case of sustainability (Steger 2004). Nevertheless, sustainable development is mainly related to efforts that companies make in environmental and social dimensions beyond legal obligations (Ionescu-Somers and Steger 2008). Furthermore regarding the food and beverage industry, Steger states that European legislative pressures are increased particularly on labelling efforts, but sustainable development in business is not affected by great governmental changes in the short to medium-term (2004).
It is reasonable that each company focus on its own salient stakeholders, which often play a constant role in its business. The key stakeholders for the food and beverage companies are examined above. Nevertheless, temporary stakeholders can play an crucial role in certain cases, e.g. communities, minorities, media. Local communities are interested in maintaining and improving the local economic, environmental, and societal conditions, e.g. access to clean drinking water, reducing poverty (Schaltegger et al. 2003). Therefore, jeopardising local conditions can infuriate local communities and make them to opposing stakeholders. Considering local interests can be valuable and sustainable for business activities.
Another special stakeholder group is the media as the leading force in the process of public opinion formation (Schaltegger et al. 2003). They are a willing transmission agent and amplifier of sustainability issues especially for NGOs, and can make or break a company (Andersen 2004, Ionescu-Somers and Steger 2008). In terms of the food and beverage industry, the industry is forced by media and NGO pressure to deal with certain sustainability issues such as environmental impacts and labour conditions (Steger 2004). Therefore, in order to avoid negative publicity, good relations with media and implemented sustainability in business are recommended.
The literature review analysed the theoretical framework of sustainable development approaches in business. The long-term ability of making business, ensuring the licence to operate, cost and risk minimisation, image enhancement, profit increases, gaining competitive advantage, and being a favourable employer are evaluated as essential drivers for approaching sustainable development in business. In terms of the food and beverage industry the equation 'no resource equals no business' is the strongest driver for approaching to sustainability in the industry. For that purpose, the consideration of economic, environmental, and social business impacts is enabled by John Elkington's triple bottom line approach that reflects the three intertwined dimensions of sustainability in reporting and objective setting. The shareholder theory is assessed as not appropriate to involve the environmental and social dimensions in addition to its considered economic dimension. Instead, the stakeholder theory considering stakeholder claims of shareholder, managers, employees, suppliers, consumers, NGOs, government, and others enables the simultaneously consideration of the economic, environmental, and social dimensions in business, hence to approach sustainable development in business. There arises the question how the food and beverage industry, represented by Nestlé and Kraft Foods, approach sustainability and stakeholder consideration in practise.
This chapter outlines the methodology regarding the comparison, analysis and evaluation of the sustainable development approaches of Nestlé and Kraft Foods. Specific methodology requirements are analysed. Subsequently, the reasons for the chosen research method is explained. Easterby-Smith et al. (2008) distinguish the following research methods:
- Action research
- Case method
- Collaborative research
- Cooperative inquiry
- (Quasi-)Experimental methods
- Grounded theory
- Narrative methods
This dissertation is aimed at comparing, analysing, and evaluating the sustainable development approaches of two companies. The corporate sustainability implementations and the consequential results should be presented. Therefore, reliable and valid information of the companies are required. These information must be freely accessible due to the limited ability of externals to gain company information about internal strategies, results etc. Additionally, the qualitative analysis focuses on two specific companies and both companies have unique approaches, thus empirical data of observations or surveys are inappropriate. Instead, information directly collected from the companies is required, because a sufficient level of information depth and quality is ensured.
The case study method are chosen to perform the research. A case study is defined as a study in which one case or more cases in their real life context are selected and their obtained information are analysed in a qualitative manner (Dul and Hak 2008). Case studies enable the inquiry of two specific instances and comparison of two research subjects. Accordingly, the case study methodology is appropriate to perform the comparison, analysis and evaluation of Nestlé's and Kraft Foods' sustainable development approaches. Furthermore, Starkey and Welford suggest the assessment of sustainability initiatives on case-by-case basis, thus a case study suggests itself (2001). Considering that case studies rely on different sources, such as secondary data, the companies' annual reports, sustainability reports and corporate responsibility reports which are freely accessible can be used to gain reliable and valid information about their sustainable development approaches (Gill and Johnson 2002). Thereby, the dissertation benefits from the advantages of secondary data, which are the availability, accessibility and presentation. However, the disadvantages such as a lack of definitions, low control over the content and subjective interpretation may influence the case study negatively.