5/26/2018 FINAL (2)

1/19

KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

Corporate Social Responsibility

CSR of Varun Beverage

5/26/2018 FINAL (2)

2/19

Table of Contents

CHAPTER ONE ........................................................................................................................... 1

INTRODUCTION......................................................................................................................... 1

Introduction ............................................................................................................................................... 1

Corporate Social Responsibility ............................................................................................................... 2

CHAPTER TWO .......................................................................................................................... 5

ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY ................................................ 5

Analysis of CSR at Varun Beverage ......................................................................................................... 5

CSR initiatives - Responsive or Strategic ................................................................................................. 7

The Unserved Area of CSR by Varun Beverage ...................................................................................... 8

Value chain analysis of Varun Beverage and Possible CSR activities (Inside out linkages) ................... 9

Social dimensions of competitiveness analysis and possible CSR interventions (Outside in linkages) . 10

CHAPTER THREE .................................................................................................................... 12

RECOMMENDATION AND CONCLUSION ........................................................................ 12

Recommendation .................................................................................................................................... 12

Conclusion ................................................................................................................................... 13

REFERENCES .............................................................................................................................. 1

APPENDIX .................................................................................................................................... 2

Appendix 1: Reasons why the activities are placed in the respective quadrants ...................................... 2

5/26/2018 FINAL (2)

3/19

1

CHAPTER ONE

INTRODUCTION

Introduction

Varun Beverages Nepal Private Limited is a subsidiary company of RJ Corp, India. RJ Corp is

the license holder to supply beverages in India, Nepal, Sri Lanka to name a few, under PepsiCo

International, USA, the parent company. The founder of RJ Corp is Ravi Jaipuriya (RJ). RJ Corp

is running a conglomerate of various business ventures in India. Within beverage division it hasnine bottling units among which Varun Beverage Nepal Private Limited is its only bottling plant

in Nepal. RJ Corp is also running other three new ventures in Nepal namely Devayani

International Pvt. Ltd (fast food business KFC and Pizza Hut), Artic International Pvt. Ltd

(distilleries imports) and Varun Developers Pvt. Ltd (housing). Among these four subsidiaries,

Varun Beverage Nepal Pvt. Ltd is the oldest venture of RJ Corp in Nepal established in 1984.

Varun Beverage is located in the capital city of Nepal. The suburb where factory is located is

itself named on companys reputed brand name Pepsi and is called PepsiCola. The factory

does only bottling, the main ingredient concentrated syrup comes from India and R&D takes

place at PepsiCo international. The factory bottles soft beverages namely Pepsi, Mountain Dew,

Mirinda, Slice and 7up. It bottles these drinks in 250 ml reusable glass bottle and 600 ml, 1Ltr

and 2 Ltr plastic bottles. The company also produces soda on the brand name Lehar in 500 ml

plastic bottles. The annual sales on all these drinks in 2011 were around 4 million cases

amounting Rs 1.6 billion. The sales target for 2012 is 6 million cases. The company has

increased its sales target for 2012 by 50 percentage mark because of increased production

capacity in 2011 by addressing capacity constraint. The production rate of Varun Beverages is

15,000 litres per hour.

Varun Beverages holds about 20 percentage of market share of soft drinks in Nepal. Its nearest

rival Coca Cola Company (Bottlers Nepal and Bottlers Terai) holds about 40 percentage market

5/26/2018 FINAL (2)

4/19

2

shares. Coca Cola Company has two bottling units in Nepal at Kathmandu (Bottlers Nepal) and

at Bharatpur, Chitwan (Bottlers Terai). Since Coca Cola is first mover in Nepal and has two

bottling units compared to one of Varun Beverage, it has been able to obtain market leader title

since inception. Specially, due to Coca Colas bottling unit in Terai, Varun Beverage is at cost

disadvantage to compete head-on-head with Coca Cola in Terai. But market share of Varun

Beverage and Bottlers Nepal is almost equal in Kathmandu and many other hilly regions.

Varun Beverage claims itself to be one of the most ethical and socially responsible corporate

citizens in Nepal. The years long market presence and sustainable growth are cited as evidences.

But whether the company is maintaining a strong ethical standard and whether its initiatives are

mutually beneficial to society and the company itself will be scrutinized through this study.

Corporate Social Responsibility

Corporate Social Responsibility (CSR) is the continuing commitment by business to contribute

to economic development while improving the quality of life of the workforce and their families

as well as the community and society at large. CSR is all about how companies manage the

business processes to produce an overall positive impact on society.

Companies need to answer to two aspects of their operations.

1. The quality of their management - both in terms of people and processes (the innercircle).

2. The nature of and quantity of their impact on society in the various areas.Outside stakeholders are taking an increasing interest in the activity of the company. Most look

to the outer circle - what the company has actually done, good or bad, in terms of its products

and services, in terms of its impact on the environment and on local communities, or in how it

treats and develops its workforce. Out of the various stakeholders, it is financial analysts who are

predominantly focused - as well as past financial performance - on quality of management as an

indicator of likely future performance.

5/26/2018 FINAL (2)

5/19

3

Fig: Corporate Social Responsibility

In 1970, just after the first major wave of the business ethics movement in the US, the Nobel-

Prize winning economist Milton Friedman published an article that has since become a classic

text, questioning the alleged social role of corporations. Under the provocative title The social

responsibility of business is to increase its profits, he vigorously protested against the notion of

social responsibilities for corporations. He based his argument on three main premises:

Only human beings have a moral responsibility for their actions It is managers responsibility to act solely in the interest of shareholders Social issues and problems are the proper province of the state rather than corporatemanagers

5/26/2018 FINAL (2)

6/19

4

It is now fairly widely accepted that businesses do indeed have responsibilities beyond simply

making a profit. Any corporation takes on social responsibilities insofar as doing so promotes its

own self-interest. For example:

Corporations perceived as being socially responsible might be rewarded with extra and/ormore satisfied customers, whilst perceived irresponsibility may result in boycotts or other

undesirable customer actions. In 2008 survey, The Economist (2008a:13) found that for more

than 50% of global business leader the prime reason to engage in CSR is having a better brand

reputation.

Employees might be attracted to work for, and even be more committed to, corporationsperceived as being socially responsible(Greening and Turban 2000)

Voluntarily committing to social actions and programmes may forestall legislation andensure greater corporate independence from government (Moon and Vogel 2008).

Making a positive contribution to society might be regarded as a long-term investment ina safer, better-educated and more equitable community, which subsequently benefits the

corporation by creating an improved and stable competitive context in which to do business

(Porter and Kramer 2006).

In addition to these business arguments for CSR, it is also important to consider further moral

arguments for CSR:

Corporations cause social problems (such as pollution), and hence have a responsibilityto solve those they have caused and to prevent further social problems arising.

As powerful social actors, with recourse to substantial resources, corporations should usetheir power and resources responsibly in society.

Corporations rely on the contribution of a much wider set of constituencies, orstakeholders in society, rather than just shareholders, and hence have a duty to take into accountthe interests and goals of these stakeholders as well as those of shareholders.

5/26/2018 FINAL (2)

7/19

5

CHAPTER TWO

ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY

Analysis of CSR at Varun Beverage

Varun Beverage is using proactive approach as CSR strategy. The company actively embraces

the need to behave in socially responsible ways, go out of their way to learn about the needs of

different stakeholder groups, and is willing to utilize organizational resources to promote the

interest not only of shareholders but of the other stakeholders.

Varun beverage believes both the economical as well as moral grounds of social responsibility

and its CSR activities can be categorically placed in four quadrants of virtue matrix as follows.

(Reasons for placing these in each quadrant are provided in Appendix 1).

Strategic

Funding cricket players, teams andtournament Drinking Water taps for locals Installing ATM at company premises Support industrial exhibition Petrol and diesel to local police Salary for full time employee is morethan standards, safety trainings and other perks

Drink N Drive marketing campaign Hoarding board for retailers whereretailers name in placed and Pepsi brand name

is advertised simultaneously

Affirmative action to employ local

Structural

Help to NGOs working to fulfil MDGgoals Tree plantation Voluntarily increase in chimney height

5/26/2018 FINAL (2)

8/19

6

women

Choice

Provide employment to locals Help to local clubs, colleges and groups Provide soft drinks in blood donationprograms and other social events

Provide refrigerator in contract to smallretailers and hotels

Use of domestically available rawmaterials like packaging and labelling

materials

Compliance

Water treatment and purification Strict quality control Maintaining minimum salary forcontract based employees

No child labour Health insurance to full time employees Abide all laws of Nepal

For a business to take responsibility for its actions, that business must be fully accountable.

Social accounting, a concept describing the communication of social and environmental effects

of a company's economic actions to particular interest groups within society and to society at

large, is thus an important element of CSR. Social accounting emphasizes the notion of corporate

accountability. Varun Beverage believes that there should be legal requirements for social

accounting, auditing and reporting though international or national agreement on meaningful

measurements of social and environmental performance is difficult. An integrated report includes

environmental, social and economic performance alongside financial performance information

and is expected to provide users with a more holistic overview of a company.

The triple bottom line -People, planet, and profit should be used and practiced in every move an

organization makes. People relates to fair and beneficial business practices toward labor, the

community and region where corporation conducts its business. Varun Beverage is responsible

towards its people and it conducts activities like sponsoring cricket players, teams andtournament, establishing drinking Water taps for locals, installing ATM at company premises, no

child labour, and minimum salary for employees and so on. Planet refers to sustainable

environmental practices. The company is also responsible towards the environment and

conducts activities like helping NGOs working for society, tree plantation, voluntarily increase

5/26/2018 FINAL (2)

9/19

7

in chimney height and so on. Profit is the economic value created by the organization after

deducting the cost of all inputs, including the cost of the capital tied up.

CSR initiatives - Responsive or Strategic

According to the modern approach, CSR should be strategic not mere responsive. The CSR

initiatives should be focused to create value chain social impact (inside-out linkages) and build

social dimensions of competitive context (outside-in linkages) rather than addressing generic

social issues. So the CSR activities of Varun Beverage can be categorized in three categories:

1. Generic Social Issues

Help to NGOs working to fulfil MDG goals Tree plantation Voluntarily increase in chimney height

2. Value Chain Social Impacts (inside-out linkages)

Sponsoring cricket players, teams and tournament (marketing and advertising) Use of domestically available raw materials like packaging and labelling materials(procurement)

Installing ATM at company premises (employee relations, HR) Support industrial exhibition (marketing) Petrol and diesel to local police (lobbying for security, infrastructure support) Affirmative action to employ local women (positive discrimination, HR) Salary for full time employee is more than standards, safety trainings and other perks( Compensation policy, HR)

Drink N Drive marketing campaign (marketing) Provide soft drinks in blood donation programs and other social events (marketing) Provide refrigerator in contract to small retailers and hotels (marketing and sales) Water treatment and purificationand Strict quality control (operations)

3. Competitive Context (outside-in linkages)

Drinking Water taps for locals (improving health of locals, factor input conditions)

5/26/2018 FINAL (2)

10/19

8

Use of domestically available raw materials like packaging and labelling materials(related and supporting industries)

Provide employment to locals (factor input conditions)After closely scrutinizing the CSR activities classified in above table, the company is doing

many activities that create win-win situation for both firm and society. But the three elements in

generic social issues are redundant. The involvement of the company in helping NGO in

unrelated sector of its business is not mutually beneficial. There is no interdependence and

linkage of business with society; it is just a moral obligation. The expenditure of corporate

resource in this initiative can weaken the competitive strength of the company. Similarly the

expenditure in tree plantation and self initiated uplifting of chimney without any legal and

customary requirement cannot create shared value. The expenditures made on these threeactivities could have been more wisely used in other sectors of value chain and competitive

context that help align firm strategy with social requirement. Let us discuss about some

identified unserved portion on value chain and competitive context by Varun Beverage.

The Unserved Area of CSR by Varun Beverage

According to our secondary data collection, Varun Beverage is found to be one of the culprits for

decreasing ground water level in Kathmandu. We have also found that decade old vehicles are

being used by the company that are noisy and throw much more smoke than average vehicles at

the street. Similarly, other areas of CSR are also found to be unserved, particularly companys

lack of initiative to teach and train their employees and also not providing way out for part time

employees to earn money during the off season when they are laid off.

5/26/2018 FINAL (2)

11/19

9

Value chain analysis of Varun Beverage and Possible CSR activities (Inside out linkages)

Fig: Porters Value Chain

5/26/2018 FINAL (2)

12/19

10

Social dimensions of competitiveness analysis and possible CSR interventions (Outside in

linkages)

Fig: Porters Diamond Model

After the analysis of the possible CSR activities that can help in enhancing value chain and social

dimensions of competitive context, it is found that PepsiCo can do a lot of new CSR activities

which can help it grow together with society. The company has to rebound the investment in

5/26/2018 FINAL (2)

13/19

11

generic social agendas to the above mentioned CSR activities. But all the CSR activities

mentioned above cannot be initiated at once. The company has to find out the most useful that

creates high shared values. When we look at above figures, we found that some of the CSR

activities help in enhancing both value chain and social dimensions of competitive context. They

are water recharging, establishing bottling plant in terai, using new vehicles, investing in

employee training and education and emphasize in using Nepal made advertisements.

5/26/2018 FINAL (2)

14/19

12

CHAPTER THREE

RECOMMENDATION AND CONCLUSION

Recommendation

Varun Beverage has maintained considerably higher ethical standards and social responsiveness

and has helped in uplifting the civil foundation of Nepal. But there are areas for improvement.

From the analysis and gaps identified above the following are some of the recommendations:

Implement rainwater harvesting system: The Company should not depend onexcessive use of groundwater. The groundwater level is decreasing at the rate of 2.5

meter per year in the valley (source: http://www.wateraid.org). So as a responsible

corporate citizen, company should invest in rainwater harvesting. The effort will help

both the company and society. Company can itself join and also assist in helping local

people join rainwater harvesting system. By doing this, local people will be benefitted

and also be positive toward company, support it and create positive brand image. Even

during the month of drought the rain water that had been harvested and stored could beused. The company can get more groundwater at surface to use, so cost of extracting

water goes down.

Build plant on Terai: The Company need to build bottling plant in terai. It will helpcompany to create benefit to society and company itself. Society will be benefitted by

increased employment, preserved water of the valley, developed industrial infrastructure

out of valley, reduced air pollution and vehicle congestion in the valley, etc. Company

will be able to target increasing number of terai population, where half of Nepalese reside

according to census 2068. Moreover company can decrease cost of inbound and

outbound logistics and solve the problem of capacity constraint at existing plant.

Company can start new production plant at industrial zone where it can help create

opportunity for supporting industries to provide raw materials for it.

http://www.wateraid.org/http://www.wateraid.org/http://www.wateraid.org/

5/26/2018 FINAL (2)

15/19

13

Dispose old vehicles: The Company need to dispose all its decade long vehicles. Thesociety will be less polluted whereas company get supply chain efficiency and improved

reputation.

Provide safe drinking water in many parts of Nepal: According to UNDPA more that3 million people in Nepal have no choice but to get water from where ever they can. The

question here is regarding safe drinking water. Instead of just establishing water taps in

few parts, a nationwide project of supplying safe drinking water should be initiated.

Conduct awareness programs against drugs: According to thelatest data published byMinistry of Home Affairs the number of drugs user is 91,543 throughout the country.

Varun Beverage should focus on conducting awareness programs as well as rehabilitation

programs for such individuals

Conclusion

Varun Beverage as a multinational company in Nepal is found to be doing business ethically and

in socially responsible manner. However, some of its practices have still space for improvement.

The companys innumerableCSR activities show how sensitive MNCs arein uplifting the civil

foundation of the host country. The company has been helping uplift the civil foundation of

Nepal by strictly adhering to the legal compliance mainly in quality standard maintenance and

employee benefits. Some of the activities that the company has been doing in strategic quadrant

and structural quadrants like installing ATM, above industry salary, etc have also high chances

that it will come under legal requirement or some form of industry wise acceptance level as

customs. But as recommended it can do much more than what it is doing.

Varun Beverages has also initiated such CSR activities that created mutual benefits to society

and company itself. Though CSR activities done at the local level are on the discretion of

Nepalese management without any objective cost-benefit analysis, almost all the activities are

benefitting company value chain or in strengthening the social dimensions of competitive context

5/26/2018 FINAL (2)

16/19

14

except few. But assessing cost and benefits of each CSR activity can help find best mix of CSR

among many possible alternatives to find optimal CSR that help link business with society.

The ethical practices are seen to follow relativism concept in marketing, finance and HR whereas

absolutism in production department. The companys code of conduct to adhere strictly to the

Nepalese law in marketing, finance and HR provides room for managerial judgement. But in

production, global code for standardization is adopted. So, company is not compromising in

quality of the product and workplace safety respecting core human values. The company has also

respected human dignity by helping community and protecting employees rights. But as

recommended, some areas have to be addressed. The company has also taken steps to be good

corporate citizen by helping address social issues. But the company need to take some steps to

communicate ethics to its low level staffs, downward supply chain members and to marketingand sales staffs on the field.

If the company take care of provided recommendations, the company can achieve its motto of

performance with purpose with no questionable arguments.

5/26/2018 FINAL (2)

17/19

REFERENCES

(n.d.). Retrieved from http://www.rjcorp.in

(n.d.). Retrieved from Pepsi Company: http://www.pepsico.com

Donaldson, T., & Regan, M. (1996, September). Values in Tension. Harvard Business Review.

Martin, R. L. (2002, March). The Virtue Matrix. Harvard Business Review.

Porter, M. E., & Kramer, M. R. (2006, December). Strategy and Society. Harvard Business Review.

5/26/2018 FINAL (2)

18/19

APPENDIX

Appendix 1: Reasons why the activities are placed in the respective quadrants

CSR Activities Quadrant Reason for placing in the given frontier

Provide employment to locals Choice It is a usual practice in Nepalese business

Provide Dasain bonus and

festival leave

Choice It is a usual practice and expected practice

Help to local clubs, colleges

and groups

Choice Almost all the company does this

Provide soft drinks in blood

donation programs and other

social events

Choice Beverage companies like Dabur Nepal (Real),

Chaudhary group (Rio), Coca Cola practice this

Provide refrigerator in

contract to small retailers and

hotels

Choice Coca Cola, its strong competitor, does this

Use of domestically available

raw materials like packaging

and labelling materials

Choice Almost all companies does this to reduce cost

and make feel it is domestic

Water treatment and

purification

Compliance This is mandatory under Consumer protection

act

Strict quality control Compliance This is mandatory under Consumer protection

act

Maintaining minimum salary

for contract based employees

Compliance This is mandatory under labor act

No child labour Compliance This is mandatory under labor act

Health insurance to full time

employees

Compliance This is mandatory under labor act

Abide all laws of Nepal Compliance MNCs are strongly scrutinized and punished

Sponsoring cricket players, Strategic It helps in promoting brand

5/26/2018 FINAL (2)

19/19

Fig: Reasons why the activities are placed in the respective quadrants

teams and tournament

Drinking Water taps for locals Strategic It helps in brand promotion, public relations and

local support

Installing ATM at company

premises

Strategic It helps in maintaining HR relations, interest

savings , reduced transaction cost, employee

satisfaction and increased productivity

Support industrial exhibition Strategic It boosts corporate branding and sales

promotion

Petrol and diesel to local

police

Strategic It helps strengthen company security and ease

of lobbying

Salary for full time employee

is more than standards, safety

trainings and other perks

Strategic Helps boots employee satisfaction and increase

productivity and employee commitment and

citizenship behaviour to MNC

Drink N Drive marketing

campaign

Strategic Helps branding through brand recall and

discourage hard drink while driving

Hoarding board for retailers

where retailers name in

placed and Pepsi brand name

is advertised simultaneously

Strategic Helps brand company and retail store,

standardize retail shop branding

Affirmative action to employ

local women

Strategic Help gain positive image and deployment in

packaging where women can do comparatively

better than men

Help to NGOs working to

fulfil MDG goals

Structural No strategic benefit to company, just giving

back to society without any expectation of gain

Tree plantation Structural No any direct benefit, just an HR initiative to

celebrate environment day

Voluntarily increase in

chimney height

Structural Not because of public pressure or government

requirement, no direct benefit, locals didnt

notice