Sanlu GroupSanlu Group -------the downfall of dairy giant-------the downfall of dairy giant

IntroductionIntroduction

Sanlu Group .Ltd was a stated-own Chinese dairSanlu Group .Ltd was a stated-own Chinese dairy company based in Shijiazhuang, Hebei Proviny company based in Shijiazhuang, Hebei Province China. It used to be one of the most popular ce China. It used to be one of the most popular and the largest brands of infant formula in China.and the largest brands of infant formula in China. With a scale of more than 10,000 employees. N With a scale of more than 10,000 employees. New Zealand's Fonterra Dairy Group is the biggesew Zealand's Fonterra Dairy Group is the biggest partner, owned 43% of Sanlu.t partner, owned 43% of Sanlu.

The aim of the companyThe aim of the company

Aim and core values: To produce Aim and core values: To produce international level of products and become international level of products and become one of the world’s leading dairy group. one of the world’s leading dairy group.

Be honest (which is the basic value of the Be honest (which is the basic value of the group), Innovative, harmonious and group), Innovative, harmonious and responsible. responsible.

ObjectivesObjectives ““Sanlu group will be a corporation not only productive but Sanlu group will be a corporation not only productive but

also environmentally friendly.”also environmentally friendly.” ““We are making efforts to use our industry chain to improWe are making efforts to use our industry chain to impro

ve local employability. At the same time, employees who ve local employability. At the same time, employees who have great contribution to the company will be awarded have great contribution to the company will be awarded bonus”bonus”

From the year of 2003. Our company should reach the aFrom the year of 2003. Our company should reach the annual growth of 30%. And rank the first nationwide for sannual growth of 30%. And rank the first nationwide for sa

les volume ofles volume of infant formula as well as in dairy industry. Iinfant formula as well as in dairy industry. In 5 year we will have an international partner.n 5 year we will have an international partner.

..

to ethics to ethics

““Sanlu group will be a corporation not only productive but also environmSanlu group will be a corporation not only productive but also environmentally friendly.”entally friendly.”

Stakeholders:Stakeholders: 1. local society of Shijiazhuang: environme1. local society of Shijiazhuang: environme

nt .Ecoleannt .Ecolean 2. Pressure group of CHINA ENVIRONME2. Pressure group of CHINA ENVIRONME

NTAL PROTECTION FOUNDATION: moNTAL PROTECTION FOUNDATION: model, donation.del, donation.

3.shareholder: increase cost. Didn’t meet t3.shareholder: increase cost. Didn’t meet the need.he need.

““We are making efforts to use our industry chain to improve We are making efforts to use our industry chain to improve local employability. At the same time, employees who have local employability. At the same time, employees who have great contribution to the company will be awarded bonus”great contribution to the company will be awarded bonus”

Stakeholders:Stakeholders:1.1. Local society of Shijiazhuang: More Local society of Shijiazhuang: More

employability, be Stable, Enhance local employability, be Stable, Enhance local economyeconomy

2.2. employees: want more return,employees: want more return,

3.3. Shareholders: want more dividend, Shareholders: want more dividend, reduce cost. reduce cost.

From the year of 2003. Our company should reach the annual growth From the year of 2003. Our company should reach the annual growth of 30%. And rank the first nationwide for sales volume of infant formula of 30%. And rank the first nationwide for sales volume of infant formula

as well as in dairy industry. In 5 year we will have an international as well as in dairy industry. In 5 year we will have an international partner.partner.

Stakeholder.Stakeholder. Shareholder :New Zealand Fonterra Shareholder :New Zealand Fonterra

Group, trustworthy partner. Make sure to Group, trustworthy partner. Make sure to get valuedget valued

Government of Shijiazhuang: receive more Government of Shijiazhuang: receive more tax. Infrastructure.tax. Infrastructure.

customer: trust big brand.customer: trust big brand.

Ethical issue 1Ethical issue 1

Sanlu used to have a strict standard on the Sanlu used to have a strict standard on the quality of the milk supplier before 2006. In result quality of the milk supplier before 2006. In result to this, not many of the suppliers reached its to this, not many of the suppliers reached its standard. standard.

In 2007, due to the fierce competitionIn 2007, due to the fierce competition in dairy in dairy industries. Sanlu secretly reduce the standard of industries. Sanlu secretly reduce the standard of supplier and allow lower quality suppliers to supplier and allow lower quality suppliers to franchise with the group. franchise with the group.

That reduce a great deal of cost but cause That reduce a great deal of cost but cause serious problem of milk quality. And they told a serious problem of milk quality. And they told a lie to the public.lie to the public.

Means of Address Means of Address

Sanlu was under pressure of public opinioSanlu was under pressure of public opinion and later issued the plan to monitor the qn and later issued the plan to monitor the quality of both suppliers and milk. uality of both suppliers and milk.

In addition, Sanlu emphasized its advertisIn addition, Sanlu emphasized its advertisements on internal quality supervision, Dreements on internal quality supervision, Drew the attention of public. which regained thw the attention of public. which regained the confidence of customers. This time Sanle confidence of customers. This time Sanlu off the hook.u off the hook.

Ethical issues 2Ethical issues 2

In September, 2008. Sanlu group has involved iIn September, 2008. Sanlu group has involved in milk powder scandal. The news exposed that n milk powder scandal. The news exposed that Sanlu’s infant formula milk powder contains the Sanlu’s infant formula milk powder contains the chemical substance of melamine.chemical substance of melamine.

It’s a cause of thousands of babies’ kidney stone It’s a cause of thousands of babies’ kidney stone and deaths. Sanlu denied it later and clearly statand deaths. Sanlu denied it later and clearly stated that every product it produce is quality safe.ed that every product it produce is quality safe.

Sanlu has the responsibility of monitoring the milSanlu has the responsibility of monitoring the milk quality. But they failed to take it seriously and kk quality. But they failed to take it seriously and keep hiding the bad news.eep hiding the bad news.

Why melamine?Why melamine?

The typical way to exam protein content in The typical way to exam protein content in food is to measure the proportion of nitrogfood is to measure the proportion of nitrogen element in it. en element in it.

Melamine contains a great deal of nitrogen Melamine contains a great deal of nitrogen element which can let the exam result of pelement which can let the exam result of protein look good. rotein look good.

Sanlu wants to make its products more coSanlu wants to make its products more competitive especially the nutrition fact on thmpetitive especially the nutrition fact on the label.e label.

How did Sanlu deal with its How did Sanlu deal with its stakeholder after the scandal?stakeholder after the scandal?

Sanlu didn’t actually involve in the addition of melamine. It was the local suppliSanlu didn’t actually involve in the addition of melamine. It was the local suppliers’ fault. What they responsible in is to monitor the health safety of its proders’ fault. What they responsible in is to monitor the health safety of its product. However Sanlu didn't do well in it .Look at the step it has taken:uct. However Sanlu didn't do well in it .Look at the step it has taken:

1. Give bribery to the victims and media for not exposing th1. Give bribery to the victims and media for not exposing the news and ban the news by different means. (3 million e news and ban the news by different means. (3 million Yuan to Baidu)Yuan to Baidu)

2. At first, it secretly recalled its contaminated product. (but 2. At first, it secretly recalled its contaminated product. (but later they have to do it publicly)later they have to do it publicly)

3. Sanlu planned to pass the buck to its suppliers. And plan3. Sanlu planned to pass the buck to its suppliers. And planned to give explanation to the public which doesn’t make ned to give explanation to the public which doesn’t make any sense.any sense.

Result and impactResult and impact

Sanlu fails to gain back the trust of its customers.Sanlu fails to gain back the trust of its customers.

Its action of secret recall and secretly deal with vIts action of secret recall and secretly deal with victims has been the potential threat of its public tictims has been the potential threat of its public trust.rust.

And its planned action to pass the buck to suppliAnd its planned action to pass the buck to suppliers stimulates the anger in the public. ers stimulates the anger in the public.

The The behaviour do againstbehaviour do against the social ethics and a the social ethics and also its own core value which leads the failure of tlso its own core value which leads the failure of the companyhe company

Sanlu finally went bankruptcy. Even Sanlu finally went bankruptcy. Even though once it was the pride Chinese dairy though once it was the pride Chinese dairy industry. Some of the suppliers were industry. Some of the suppliers were sentenced to death and CEO got lifetime sentenced to death and CEO got lifetime imprisonment. Unfortunately the victims imprisonment. Unfortunately the victims didn’t get any pay from it. didn’t get any pay from it.

ConclusionConclusion

Sanlu’s well planned objectives and aims Sanlu’s well planned objectives and aims once brought it success. once brought it success.

But its behavior goes against social ethics But its behavior goes against social ethics and suicide itself finally. and suicide itself finally.

From this we can see no matter how big or From this we can see no matter how big or reputable a company is, once it loses the treputable a company is, once it loses the trust of customers and society and fail to rerust of customers and society and fail to reach the goal of morality. It will collapse eveach the goal of morality. It will collapse eventually. ntually.

Reference:Reference: 1.http://www.docin.com/p-131666945.html (in Chinese)1.http://www.docin.com/p-131666945.html (in Chinese) 2.2.

http://www.chinaccm.com/12/1212/121202/news/20030821/171229.http://www.chinaccm.com/12/1212/121202/news/20030821/171229.aspasp (in Chinese) (in Chinese)

3.http://www.chinadaily.com.cn/china/2008-09/12/3.http://www.chinadaily.com.cn/china/2008-09/12/content_7020499.htmcontent_7020499.htm

4. 4. http://www.chinadaily.com.cn/china/2009-02/13/content_7472161.hthttp://www.chinadaily.com.cn/china/2009-02/13/content_7472161.htmm

5. 5. http://en.wikipedia.org/wiki/Sanlu_Grouphttp://en.wikipedia.org/wiki/Sanlu_Group 6. 6. http://english.caijing.com.cn/2008-12-31/110044281.htmlhttp://english.caijing.com.cn/2008-12-31/110044281.html 7. 7. http://tech.163.com/08/0915/10/4LSH6KSA000915BD.htmlhttp://tech.163.com/08/0915/10/4LSH6KSA000915BD.html (in (in

Chinese)Chinese) 8.http://news.qq.com/a/20070523/002297.htm8.http://news.qq.com/a/20070523/002297.htm 9. http://npc.people.com.cn/GB/28320/8635367.html (in Chinese)9. http://npc.people.com.cn/GB/28320/8635367.html (in Chinese)