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CASE STUDY B
Crisis management in international markets: ‘least said, soonest mended?’
John Knight, Department of Marketing, University of Otago and Bradley Mitchell, Inveratek Group Ltd
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BACKGROUND
An inevitable reality of doing business in the modern world is that crises recognise no boundaries (Fink 1986). A crisis management strategy needs to be part of the overall corporate strategy of any company operating internationally. Our chaotic times have led to some spectacular commercial crises. Sometimes these have been of companies’ own making through carelessness. A well-known example is the action of McDonald’s in promoting its sponsorship of the 1994 football World Cup by printing the flags of all competing nations on disposable packaging: the name of Allah is on the Saudi flag, and deep offence was caused by the fact that this was to be thrown away with the packaging (Starrett 1995). At other times crises have been caused by events completely outside of the control of the company. Examples of the latter include the deliberate product tampering of Tylenol products, leading to deaths by poisoning in the USA, and the massive product recall of Coca-Cola products in Belgium resulting from what appears to be a case of mass hysteria (Johnson and Peppas 2003). Furthermore, companies in the midst of a crisis may not be able to
control the behaviour of others, but with proper planning and management the negative effects of a crisis can be mitigated, or even turned to one’s advantage (Meyers 1986, Burnett 1998). This case provides a very interesting demonstration of how world events, seemingly completely unrelated to the international marketing environment that a company is operating in, can very quickly do enormous damage to that company’s fortunes. In addition, the case demonstrates how adequate crisis management plans can be used to defuse a highly volatile situation. Bad choices by politicians and/or company executives can have consequences of unthinkable proportions in the volatile age we live in! Formed in October 2001, Fonterra is one of the top six dairy companies in the world by turnover according to Rabobank ratings (Fonterra 2007). It is New Zealand’s largest company, cooperatively owned by more than 11 600 New Zealand dairy farmers. Fonterra is the world’s leading international trader of dairy products, accounting for more than a third of all international dairy trade. New Zealand dairy farmers have long been renowned for producing quality milk more efficiently than anyone else in the world, due in part to climatic conditions favouring year-round grass growth, but also to development over many decades of innovative production and processing methods. According to Fonterra’s website ():
Fonterra’s global supply chain stretches from 13 000 farms in New Zealand to customers and consumers in 140 countries, with some of the best known dairy brands, world leading manufacturing sites, quality and cost marketing and distribution with seamless integration from cow to customer.
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Fonterra has extended its international reach with manufacturing at 29 sites in New Zealand and also at 35 sites in other countries throughout the Americas, Asia (particularly China), Europe, and Australia. The company has pursued an aggressive policy of acquisitions and joint ventures, including among its partners such giant dairy companies as Arla of Denmark, Bonlac Foods of Australia, Dairy America, Dairy Farmers of America, and Swiss-based Nestlé, with whom Fonterra has a joint venture operating in Ecuador, Colombia, Brazil, Argentina and Venezuela. Fonterra has wholly-owned subsidiaries operating in important dairy markets such as Mexico, where it has the largest share of the $1.3 billion cheese market. In Chile, Fonterra has a 50% market share of the liquid milk and yoghurt market through its Soprole brand, which has been a market leader in Chile for 50 years. In the Middle East, also, Fonterra has developed important markets— particularly in Saudi Arabia, Algeria, Egypt, the United Arab Emirates, Iran, Jordan and Syria. By 2006 these Middle Eastern markets were accounting for more than NZ$1 billion of its total turnover of approximately NZ$12.3 billion, and were viewed by the company as a very significant and lucrative part of its global business. New Zealand exports to the Middle East have ballooned over the past decade as the United Arab Emirates in particular experience spectacular economic growth, which has significantly boosted its trade profile with New Zealand. Fonterra’s dairy products make up approximately 90% of this export effort in the Middle East. How quickly this could all be put at risk by events completely outside the control of this company! The simple mechanism by which this threat arose was a decision by the editors of three foreign-owned newspapers in New Zealand to publish material to demonstrate the strength of the editors’ views about the importance of ‘freedom of the press’.
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invited cartoonists to contribute cartoons that depicted the Islamic prophet, Muhammad. The newspaper announced that the reason for this publication was to contribute to an ongoing debate regarding news media criticism of matters concerning Islam. Twelve editorial cartoons were printed on 30 September 2005 (they can be viewed at ). Perhaps the most inflammatory was a depiction of Muhammad with a bomb in his turban. Danish Muslim organisations, who objected to the depictions, rapidly organised public protests to raise awareness of the issue. Critics of the cartoons argued that they were blasphemous of the Muslim faith and were intended to humiliate a Danish minority. Within Muslim communities, there have been varying views regarding depiction of Muhammad. Shiite Muslims have been generally tolerant of pictorial representations, whereas Sunni Muslims have generally forbidden any pictorial representation of Muhammad, believing that this constitutes blasphemy. In Muslim societies generally, insulting the prophet Muhammad is regarded as the gravest of all crimes, even warranting a death sentence in some communities. Flemming Rose, the culture editor of JyllandsPosten, claimed:
The modern, secular society is rejected by some Muslims. They demand a special position, insisting on special consideration of their own religious feelings. It is incompatible with contemporary democracy and freedom of speech, where you must be ready to put up with insults, mockery and ridicule. It is certainly not always attractive and nice to look at, and it does not mean that religious feelings should be made fun of at any price, but that is of minor importance in the present context. We are on our way to a slippery slope where no-one can tell how selfcensorship will end.
Jyllands-Posten, 30 September 2005
THE MUHAMMAD CARTOONS CRISIS
Initially, the crisis had nothing whatever to do with New Zealand, nor with Fonterra. It began when a Danish newspaper, the Jyllands-Posten,
Having received petitions from Danish Imams, ambassadors from 11 Islamic countries complained to the Danish prime minister, Anders Fogh Rasmussen, requesting a meeting with him and urging him to:
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Take all those responsible to task under law of the land.
The Danish prime minister declined to meet them, and replied that the Danish government had no means by which it could influence the press. However, Danish law prohibits blasphemous or discriminatory actions. So it was up to the aggrieved party to take the matter to court if it so wished. The refusal of the prime minister to meet the ambassadors has been criticised subsequently by the Danish Opposition and 22 Danish former ambassadors. The Muhammad cartoons controversy received only minor media attention outside of Denmark during 2005. Egyptian newspaper El Fagr reprinted six of the cartoons on 17 October 2005, together with an article strongly condemning them. However, towards the end of 2005 and in January 2006 major European newspapers in Norway, the Netherlands, Germany, Belgium and France reprinted them, and as the controversy spread newspapers in other countries followed suit. Notable for not printing them were newspapers in the USA, UK and Australia where the stories were covered without the pictures. (Of possible relevance is that these three countries were all involved in the war against Iraq). In interesting contrast to the consistent refusal of the Danish government to give in to demands that it apologise for the publication of the cartoons and introduce censorship, Norwegian foreign minister Jonas Gahr Støre, a leading member of prime minister Jens Stoltenberg’s Workers’ Party, wrote the following e-mail to Norwegian embassies that had a security problem during the controversy to use in their external communications:
I am sorry that the publication of a few cartoons in the Norwegian paper Magazinet has caused unrest among Muslims. I fully understand that these drawings are seen to give offence by Muslims worldwide. Islam is a spiritual reference point for a large part of the world. Your faith has the right to be respected by us. The cartoons in the Christian paper Magazinet are not constructive in building the bridges which are necessary between people with different religious and ethnic backgrounds. Instead
they contribute to suspicion and unnecessary conflict. Let it be clear that the Norwegian government condemns every expression or act which expresses contempt for people on the basis of their religion or ethnic origin. Norway has always supported UN efforts to combat religious intolerance, and we consider these efforts to be essential for preventing distrust and conflicts between people. Tolerance, mutual respect and dialogue are fundamental values both in Norwegian society and in our foreign policy. Freedom of expression is a universally recognised human right and one of the mainstays of Norwegian society. This also entails tolerance for views that are not shared by everyone. ()
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In late January a consumer boycott of Danish products was organised in Saudi Arabia, Kuwait and other Middle Eastern countries, in particular targeting products of Danish dairy giant, Arla. Supermarkets began displaying signs saying that Danish goods had been taken off the shelves, such as (translated from Arabic):
To our dear customers: As a result of mockery towards The Prophet (Peace Be Upon Him), Al Tamimi Markets announces its boycott of all kinds of Danish Products. Guaranteed! You will not find Danish products on our shelves!
On 5 February the Danish and Norwegian embassies in Damascus, Syria were set ablaze and in Beirut, Lebanon, the Danish embassy was set on fire, causing one death. Altogether, 139 people were killed in protests, mainly in Nigeria, Libya, Pakistan and Afghanistan. Several death threats and reward offers were made for killing the cartoonists responsible, resulting in them going into hiding. Boycotts were to prove costly for many Danish interests. Estimates for the total impact on the Danish economy are in the hundreds of millions of dollars. Danish dairy giant Arla, which had been operating in the Middle East for over 40 years and is in no way connected to Jyllands-Posten, was losing 1.3 million euros per day at the height of the boycott in early February 2006. By mid-February, the boycott had spread to include Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Yemen, Lebanon, Morocco, Egypt and Sudan. Arla had closed its
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factory in Riyadh. This was devastating for a company which, having planned to double sales to the region over the next five years, had targeted the Middle East as a valuable export market and had moved some of its production plants from Denmark to Saudi Arabia. Fonterra was placed in an interesting position as the boycott began to affect Arla. In order to distance itself from Arla, Fonterra published advertisements in Middle Eastern newspapers emphasising the New Zealand origins of its Anchor brand milk powders, but otherwise avoiding reference to the controversy. On the one hand, Fonterra saw that the misfortune befalling a major competitor in Middle Eastern markets had the potential to provide a gap for them to fill. But on the other hand, Fonterra and Arla are involved in a major joint venture, based in the UK, to co-distribute Fonterra’s Anchor butter and Arla’s Lurpak butter, which are the number one and two brands in the UK butter market. Furthermore, Arla is a significant customer for Fonterra, buying commodity ingredients from Fonterra to incorporate in some of its own products. Therefore, Fonterra did not want to be seen to be taking advantage of the situation facing its business partner. According to a Fonterra executive:
We did pick up some market share but it wasn’t something that we went out to compete for in a negative way towards Arla. We would be better off having the gap in the market and other customers wanting to buy more of Fonterra’s products.
As events unfolded, this was probably a fortunate viewpoint for Fonterra to adopt.
CONTROVERSY SPREADS TO NEW ZEALAND
On 3 February 2006 the editor of a major daily newspaper in New Zealand gave advance notice of intention of publishing the cartoons, presumably to gauge the intensity of the adverse reaction within New Zealand. Despite prime minister Helen Clark urging them not to do so, and exporting companies and organisations expressing outrage, the editor of Wellington newspaper The Dominion Post and two other newspapers (all three owned by Australian-owned company Fairfax) decided to
publish the cartoons out of solidarity with editors elsewhere in the world. (Fortunately for Australian exporters, Fairfax-owned newspapers in Australia chose not to do so.) As rumblings of a boycott of New Zealand products emanated from the Middle East region, exporters—especially Fonterra—realised they had a potential crisis on their hands. The company activated their crisis management team, comprising their most senior managers, and placed the issue at the top of the agenda. They decided at an early stage to avoid any public comment, either in New Zealand or in foreign markets. The objective was to avoid inflaming the controversy in any way, and to hope that the issue would ‘blow over’ as quickly as possible. The main emphasis was placed on reassuring business partners in the Middle East that Fonterra did not condone the publishing of the cartoons and is respectful of all religions. The long-standing personal relationships that the company (and its predecessor, the New Zealand Dairy Board) had built up with distribution channel members were seen as the key to riding out the storm. By 8 February 2006, the Iranian government had set up a committee to look at possibly annulling trade deals with countries that had published the cartoons, threatening over $100 million worth of New Zealand exports. Politicians in Jordan called for trade worth $70 million with New Zealand to be cancelled. New Zealand prime minister Helen Clark made public statements deploring the actions of the newspaper editors, and indicating that the New Zealand government did not condone publication of the cartoons in New Zealand. New Zealand-based Muslim groups began drafting letters to the governments of 52 Muslim countries urging them not to boycott New Zealand goods. By 9 February New Zealand diplomats in Muslim countries were put on high alert against a possible backlash, as a majority of members of the Jordanian parliament supported a petition to act against New Zealand. New Zealand’s annual meat trade with Jordan was worth approximately NZ$32 million. Meat and Wool New Zealand urged companies whose exports to Islamic
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countries were affected to seek legal redress against the newspapers concerned. Trade negotiations minister Jim Sutton said that by upsetting Muslim nations, the newspaper publishers put the nation’s economy at risk. Observers noted that Australia would stand to benefit from any boycott of New Zealand exports and called for Australian publisher Fairfax to be held accountable. By 21 February, Arla was indicating that it might have to withdraw completely from the Middle East, its second-largest market. It made a public statement indicating that it considered the printing of the cartoons to be a very, very bad idea. Losses thus far amounted to US$20 million, and if the boycott were to continue throughout the year, Denmark’s economy would stand to lose US$2.6 billion. Leaders from the Muslim world were quoted as saying that Denmark had not taken enough action over the cartoons. Arla first revoked, then reinstated, its sponsorship logo on the shirts of the Danish national football team ahead of a match against the Israeli national team in Tel Aviv, reflecting the uncertainty of Danish companies as to how to respond to the public relations nightmare. The Confederation of Danish Industries urged its members to be quiet and cautious, and to avoid advertising at the time. Interestingly, Danish companies that do not have to face consumers directly, such as Maersk shipping company, appeared to escape repercussions. Conversely, the Kuwaiti Danish Dairy Company, which had severed links with Denmark some 20 years before, saw its sales plummet 95% just because of its misleading name. Fonterra’s policy of avoiding public comment, while reassuring distribution channel contacts, continued throughout this turbulent period. The company made statements available to sales staff in foreign markets, saying that Fonterra is respectful of all religions, and that it does not support the position taken by three of New Zealand’s many newspapers. However, the purpose of these statements was to inform sales staff as to how to deal with their business customers, rather than to communicate with end consumers. One part of the organisation took a somewhat independent stance, perhaps without the prior knowledge of
the crisis management team. A full-page advertisement appeared in a Saudi Arabian newspaper, emphasising that cultural sensitivity is the basis of Fonterra’s products, that the products themselves are manufactured according to Muslim practices and that Fonterra is a trustworthy company. It seems likely that this was a decision taken by a manager in the Saudi Arabian office, rather than at head office in New Zealand, reflecting the difficulty of ensuring a uniform response in a farflung operation in a time of crisis. Furthermore, the decision could well have been influenced by the fact that Arla had instigated an advertisement offensive in a number of Saudi Arabian newspapers. By April 2006 retailers across the Middle East were beginning to restock Arla’s products, although uptake was slow, with only 20% of preboycott sales being recorded by the end of May. Market recovery proved slow despite Arla investing heavily in advertising campaigns in selected markets such as Algeria. However, by March 2007 Arla Chairman Knud Erik Jensen was able to say, ‘We’re back in the Middle East and expect to return to previous levels of sales by the end of 2007’. A Fonterra executive, reflecting on the handling of the controversy after the event, made the following assessments: • Despite the potential damage that New Zealand exporters, and Fonterra in particular, were exposed to, the situation never threatened to get out of hand and develop into a full-blown crisis for Fonterra. • Fonterra’s close business relationships in Middle Eastern countries meant that staff were well-informed and able to quietly reassure business customers. Communication with gatekeepers in the distribution channel— wholesalers, distributors, retail buyers—was seen as the top priority. • Domestic media articles stating that New Zealand exporters stood to lose hundreds of millions of dollars seemed to be largely the assessment of creative journalists, rather than based on industry assessments.
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• Fonterra’s crisis management approach consisted of avoiding public comment as far as possible:
We were not going to get involved in a media stoush.
TABLE 2
New Zealand exports to Middle East in millions of NZ dollars
2004 2005 379 160 135 76 114 62 1186 2006 411 222 214 122 156 61 1555
Saudi Arabia
326 136 107 90 91 21 1045
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• Condemning the cartoons publicly and highlighting the independence of the news media in New Zealand would only have drawn unwanted attention. • The intensity of the crisis for Danish exporters was in large part due to the cartoons having been originally published in that country— republishing them later in other countries was not seen as quite so serious (and, as already mentioned, an Egyptian newspaper also published them). • The strident defence of the freedom of the press and right to publish in the Danish media, and the refusal of the Danish government to apologise, seems likely to have greatly intensified the crisis for Denmark and Danish companies. • In contrast, the New Zealand government publicly condemned the publishing of the cartoons, emphasising that New Zealand’s efforts to build relationships with Islamic countries and reinforce New Zealand’s
United Arab Emirates Algeria Iran Egypt Jordan Total Middle East
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reputation as a peaceful and understanding nation were starting to bear fruit. • In addition to public statements by New Zealand politicians for the benefit of the news media, it seems likely that Ministry of Foreign Affairs personnel were active behind the scenes, reassuring counterparts in Muslim countries and using relationships built up over many years. New Zealand trade statistics () indicate that exports to the Middle East region continued to increase year by year through 2005 and 2006 as shown in Table 1.
Bibliography
Burnett, J. (1998) ‘A strategic response to managing crises’, Public Relations Review, Vol. 24, No. 4, pp. 475–88. ‘Danish business feels the pain of cartoon boycotts’, MiddleEastOnline, , accessed 20 February 2006. Fink, S. (1986) Crisis Management: Planning for the Inevitable, American Management Association, New York. Fonterra (2007) . Johnson, V. and Peppas, S. (2003) ‘Crisis management in Belgium: the case of Coca-Cola’, Corporate Communications, Vol. 8, No. 1, pp. 18–22. Knight, J., Holdsworth, D. and Mather, D. (2007) ‘Countryof-origin and choice of food imports: an in-depth study
of European distribution channel gatekeepers’, Journal of International Business Studies, Vol. 38, No. 1, pp. 107–25. Meyers, G. (1986) When It hits the Fan: Managing the Nine Crises of Business, Houghton Mifflin Co, Boston. Starrett, G. (1995) ‘The political economy of religious commodities in Cairo’, American Anthropologist, Vol. 97, No. 1, pp. 51–68.
Questions
1 (a) Identify the key elements that led to the intensity of feeling expressed about the cartoons crisis from the point of view of: (i) Danish imams and the wider Danish Muslim community; (ii) Sunni Muslims and Shiite Muslims—which countries would be expected to react most
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strongly, based on differing religious perspectives? (iii) the Danish government, the Norwegian government, the New Zealand government; (iv) the Danish news media; news media in other countries, including New Zealand and Australia. (b) Where does ‘freedom of the press’ end, and what responsibility does the press have? 2 Identify the key elements of a successful crisis management response, illustrated by this case. Consider the different responses of Danish, Norwegian, and New Zealand companies and governments, and analyse the extent to which these different responses contributed to: (a) the intensity of the reaction against particular companies and embassies; (b) defusing of the situation. 3 What are the pros and cons of a company maintaining a strong country association for its brands in international
markets? Could it be that Fonterra was to some extent insulated from the crisis because New Zealand is a small country a long way away from Middle Eastern markets, and ‘slipped beneath the radar’ in terms of being a target for consumer reaction? What factors associated with country of origin seem most likely to be important in regard to exported food products? Consider this from the perspective of end-consumers, and also from the perspective of food distribution channel members who have been referred to as ‘gatekeepers of consumer choice’ (Knight et al. 2007). 4 What does the case illustrate about the interconnectedness of international companies operating in foreign markets? Competitors in some markets may be partners or business clients in another. Consider the various interrelationships between Fonterra and Arla in different countries. 5 This case could provide a basis for a debate in which individual students, or groups of students, assume the role of one of the protagonists in the crisis.
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