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Business ethics and its own influence in the food industry


In the later of 2008, Sanlu Group, one of the greatest dairy makers in China, was alleged of producing contaminated baby milk natural powder, which affected about 53, 000 children within the country. Infants were reported to develop kidney stones after eating the dairy for couple of days. The babies were in a negative shape with the majority of them having high fever with trouble in their urinary system.

The problem of food safe practices is not 'a ''new'' concern in itself, and there have always been

problems with adulteration and food quality' (Collins 1993; Maxwell and Slater

2003). Food security initially surfaced in China as a trade issue in the early many years of the

21st century, but it has now become an important domestic issue (Wang, Maoa,

and Gale 2008).

The incident got shown that Chinese daily industry work in lack of poor communal responsibility to consumer, poor legislation and supervision of daily products between different official departments. This record offered how poor business ethics, supply chain management, legislation and supervision triggered the occurrence.

Business ethics and its own influences

Business ethics can be explained as written and unwritten rules of key points and worth that govern decisions and activities in just a company. In the business world, the organization's culture sets standards for determining the difference between bad and the good decision making and action.

In the other words, business ethics is a way of an organization how to balance the interests of stakeholders, like NGOs, shareholders, employees, customers, because it influences business procedures of a business generally.

In the most basic terms, a description for business ethics comes down to knowing the difference between right and wrong and choosing to do what is right. The word 'business ethics' may be used to describe the actions of individuals within an company, as well as the organization as a whole. (White, 2009)

In today's modern business community, the street to success requires more than just technical skills, practical knowledge and a good product. Business ethics are achieving and sustaining the success. The public of today has high requirements of those behind the tyre of modern business. Greater accountability and transparency, up-to-the-minute market information, reliable financial and market data, etc. are essential gauges for investment decisions. Business ethics become the fundamental blocks that hyperlink up each one of these objectives. (ICAC, 2007)

Business ethics include responsibility of reasonable competition in both inner and exterior of company. For instance, provide a good staff promotion chance, not because someone self-interest. People in business are motivate to work because everyone have chance to get promote. The sensitive bidding price should not disclose to others get-togethers by received benefits and the others are willing to work with you, because of good competition between others.

Corporate are response to safeguard the natural environment, to lessen or prevent pollutions, like air, noises, water and stable waste products etc. Also, require ensure the labors are working in safety environment and correspond to countries regulation.

If the business ethics and the laws and regulations broken by businesses, they usually wrap up being fined. Many companies have destroyed anti-trust, moral and environmental laws and regulations and received fines worth millions. The thing is that the amount of money these companies are making outweighs the fines applied. Billion dollar profits blind the companies to their lack of business ethics, and the dollar indication wins.

The main goal of business ethics is to treat all employees and customers justly and pretty. It is presumed that by carrying out a moral and ethical code, business will improve. Whenever a management team adheres to management ethics, employees become motivated and a workplace environment becomes motivational.

Business ethics in food industry

Generally speaking, to ensure productions of food are protection not harmed the fitness of consumers, not underpaid to labor or suppliers etc. are some examples of the firms ethics in the food industry, otherwise, companies could become have bad reputation on the market between consumer and suppliers.

After the negative information becoming general population, the Chinese federal instructed action business lead to the neighborhood dairy collection centers halted procuring milk from the dairy products farmers and pushing them to face huge financial deficits and no income. Although scandal originated at Sanlu but it needed into its grasp on almost the entire dairy products industry in China. AS the contaminants took place at the dealer level, Mengniu and Yili were also afflicted as a result. The unsafe milk also damaged the exporting dairy abroad and broken the image of "Manufactured in China" dairy.

According to Agreement Theory, Sanlu should maintain their commitments laid down in contracts in guaranteeing their products' quality basic safety, informing its consumers of the elements within its products. However, it is stated in Theory of Reasonable Attention that the buyer and the seller share unequal status. Corporations who take the helpful position no matter in product design, production or information supply are expected to care for their consumers by guaranteeing the security of the products. Regarding to Theory of Community Cost, businesses should be accountable for all the expenses caused by their products' problems, that may lead to more effective use of interpersonal resources by internalizing each one of these costs into their product prices. (Music, 2009)

In the truth of Sanlu, the middlemen want to earn more money, they started out diluting the dairy and adding melamine to it. Also, the massive competition of industry business lead not checking on quality related issues. In addition, the majority of milking station had not been well equipped because flourishing of middlemen to make money; they aren't likely invested too much on facilities. Such inspections were conducted only at Sanlu. But as the business failed to maintain its quality standards, like HACCP, it resulted in the outbreak of the dairy scandal.

The production stoppage steered insecurities about the future potential clients of 60, 000 dairy farmers, who used to supply milk to Sanlu. Although scandal originated at Sanlu, but it also influenced other suppliers, like Mengniu and Yili of dairy products industry reputation of China.

Factors of popular sufferings of infants

The China federal government law, does not restricted the meals production gratify international criteria, like HACCP, ISO, GMP etc. Regarding to Article 39, The Food Hygiene Law of the People's Republic of China:

Article 39: Whoever, in violation of the Laws, produces or markets food which is not

up to the hygiene standards, thus leading to a major accident of food poisoning or resulting in a disease induced by food-borne bacterias, shall be bought to stop such production or marketing; the meals leading to such food poisoning or disease will be destroyed; the illegal gains shall be confiscated and a charges of no less than one time rather than more than five times the against the law benefits shall concurrently be imposed; if there are no unlawful gains, a charges of not less than 1000 yuan and not more than 50, 000 yuan shall be imposed.

Sanlu, the farmer and the middlemen, suppose they have no illegal profits, in milk contaminants case, they only penalties for nothing equate to other affected newborns. Unlike other developed countries, have legislation to ensure food safety.

"The U. S. Team of Agriculture (USDA) and the Food and Drug Administration (FDA) require that food institutions send samples of their items for evaluation, " said Sandra Acosta, president of Biowell. This is done to ensure compliance with Hazard Analysis and Critical Control Point Key points (HACCP).

The FDA defines HACCP as "a management system where food safety is attended to through the evaluation and control of natural, chemical substance, and physical hazards from raw materials development, procurement and handling, to developing, distribution and usage of the completed product. "

If a corporation got a HACCP plan in place, it prevents the bad effect and revel in benefits that related HACCP. These included issues such as reduced consumer problems, reduced potential for illness or harm, and reduced potential for adverse publicity. These unwanted effects were not the ultimate way to "sell" the program to management. Positive benefits were those that could show cost benefits, improved efficiencies and increased profits if HACCP was applied.

The positive benefits included becoming a more desirable co-packer or company, the opportunity to mandate HACCP for a company's suppliers, enhanced product quality, reduced waste materials, improved employee morale and reduced product responsibility and other insurance. If Sanlu go after some international standard, like HACCP plan, it reduces the risks of milk contaminants and could be not too much child sufferings kidney natural stone and inactive.

The dairy contamination

Before only Sanlu possessed setup the collection centers in the Hebei, the quality of milk is easily operated. But, following the China Mengniu Journal and Inner Mongolia Yili Industrial Group they advertised everyone to enter into business by becoming dairy farmers, the scenario changed.

As industry is booming, more related farmers joined up with, like dairy farmers, milk collection place owners and dairy distributors, to meet the demand of dairy of those companies. To capture better market, these entrants started out offering dairy products farmers higher prices so that the farmers sell the entire milk to them rather than to Sanlu. Some middlemen added melamine, making milk appear to have more necessary protein, so they could sell in an increased price.

According to the nationwide standard for dairy natural powder (GB5410 - 1999) has three grades for milk resources, with protein percentage as the most crucial indicator. As a result, the milk companies pay dairy stations different prices for different grades. Using seasons and in some areas in China, anticipated to lack of fresh and healthy feed, no dairy can reach first level at all. In order to be paid more, the milk suppliers from some dairy stations have been adding Melamine to dairy to increase the protein percentage, which was not a secret by any means in the dairy industry. It is discovered that if the milk company utilizes strict testing method; their dairy suppliers would add less or even no Melamine at all. Insufficient third-party testing may also be the cause of this practice. (Chen, 2009)

The contaminated milk have seriously afflicted the babies, these were in an undesirable shape with the majority of them having high fever with trouble in their urinary system. Industrial chemical substance - melamine made the milk appear highly abundant with protein. But, the melamine was included with cyanuric and it reacted to create a crystalline acid, was also mixed with the baby natural powder.

Moreover, the majority of the milking channels were not well outfitted with the facilities had a need to check whether the milk was contaminated or not. Thus, Sanlu's product has induced severe harm to many babies and their families.

Finally, almost 300, 000 babies had suffered with urinary problems after eating milk natural powder laced with melamine, due to contaminated milk powder this season, China's health ministry has said; more than five times as many cases as previously disclosed. In addition, it raised the melamine scandal's fatality toll from 4-6 babies, underlining the impact of the country's worst protection scare in years. More than 860 babies are still hospitalised, with 154 of those classed as severe situations. (Tania, 2008)

Measures of Sanlu

After Sanlu's open declaration about the contamination issue, the company decided to recall its product. The business finally recalled about 10, 000 a great deal of the contaminated dairy powder and sealed 2, 176 lots and giving 700 tons of dairy natural powder yet to be withdrawn from the Chinese language market.

As Sanlu and the country's Health Regulators confirmed that the company's milk powder was contaminated, 109 stores of Walmart and 118 stores of Carrefour quit offering the merchandise of Sanlu at their stores in China.

It was doubted that the business was aware of the contamination from December 2007 as customers got began complaining about the ill effects of taking the milk by infants. But it seemed that the company was hesitant to launch an intensive in-depth inside food safety exploration about the said affair. No security alarm or caution grew up by the company to deter their consumers from buying the milk.

"For the comparatively long time, the Sanlu Group didn't report this event to the federal government, " said Health Minister Gao Qiang. "The Sanlu Group should shoulder major responsibility because of this. "

When Sanlu dairy powder was recognized contain melamine, one of Sanlu shareholder - Fornterra, suggested Sanlu to remember milk natural powder products. But, neither company professionals nor provincial health specialists took any action.

Sanlu feels that the merchandise which contain melamine not made by them, they aren't original Sanlu products. The recall action may treat as bad reports of Chinese language company; it also destroyed the trustworthiness of the company, so that why Sanlu do not remember the products immediately when it inspected have problem. The number of infants influenced could be reduced sharply.

After disclosed the milk scandal, the traders were not in a position to pull off the whole product from the market as Sanlu announced it wouldn't have the ability to reimburse them for the recalls made. Also, Sanlu experienced a finance of 800, 000, 000 yuan, out of which 700, 000, 000 yuan was approximated to be the payment amount that the company had a need to pay to its customers. To regain its goodwill, the business promised to pay a healthcare facility expenses of the newborns affected by sipping the contaminated milk powder.

Sanlu Group has paid 200, 000 yuan to the parents of the first child to perish after enjoying melamine-tainted dairy, Xinhua reported. Also, Sanlu and 21 other dairy companies offered 200, 000 yuan to families whose children have passed on, 30, 000 yuan for severe conditions such as kidney stones and kidney failure and 2, 000 yuan for less severe situations. (The China post, 2009)

Measures of China Government

According to previous regulations, any company in China could apply for the inspection-exemption if they got maintain good quality record, large market share, and implemented benchmarks up to or above countrywide or international levels.

The products that approved condition or province-level inspections on three consecutive situations were awarded the certification. While producers still must report the inspection-free products' quality status frequently, State Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) prepared spot bank checks on the products annually (Xinhua, 2008)

AQSIQ had terminated the exemption qualification of Sanlu and the other brands of its baby dairy powder, other kinds of milk natural powder and sterilized milk, after Sanlu among others producers milk contamination scandal.

To improve the quality standards of milk products targeting non-food additives, it could change its baby formulation standards to permit assessments of poisonous chemicals such as melamine. No melamine lab tests were conducted on milk products in the past. New criteria would be shared later this year, AQSIQ said.

According to the meals Hygiene Laws of the People's Republic of China, article 43:

If anyone, in violation of this Law, produces or market segments the main and supplementary foods designed specially for newborns and preschool children which do not conform to the nutritive and hygiene standards, he will be ordered to stop producing and marketing such foods, a general population announcement will be made immediately to recall the sold foods and the foods shall be damaged; the illegal gains shall be confiscated and a charges of not less than one time and not more than five times the against the law profits shall concurrently be enforced; if there are no illegitimate gains, a penalty of not less than 1000 yuan and not more than 50, 000 yuan shall be imposed; if the offence is serious, the offender's hygiene licence will be revoked.

It is not serious for criminal offense of Sanlu does not immediately to remember the sold foods and announce to the public for the defective milk natural powder, people only can sue on civil way, not legal. If have illegal gains, only penalty of not less than one time rather than more than five times of the gain or penalty not less than 1000 yuan and not more than 50, 000 yuan. It really is too minor equate to the profits. The law can't be well penalty offended people. In addition, it cannot force corporate and business to consider the public safety.

Chinese daily industry reform - Source Chain Management

The poor resource string management is one of the primary reasons triggered Sanlu milk natural powder contamination. It included too much middlemen in accumulate dairy from the farmers that provide a opportunity for businessmen who act in poor business ethics, try to gaining more by damaged public safeness.

It recommended that Sanlu and other market player try using closed supply string management and own a plantation, which is a starting place of the milk. From feeding the cows and acquire milk, all dairy source process from Sanlu private plantation, to reduce the chance of defective milk supply.

In the current global business environment, to allocate resources advantages, achieve cheaper labor and broaden its customer base, outsourcing and the relocation of making and creation have been the key top features of the emerging global current economic climate. But, the outsourcing has increased risks of companies' reputation. While it switch of responsibility towards exterior celebrations or suppliers, the company cannot know the outsourcer how they conduct the business.

Chinese daily industry reform - Legal Aspects

There is not a basic legislation for food protection in China. For example, there is little or nothing on inspection, testing, and quarantine of agricultural products. Insufficient legal requirements would always suggest low priced for non-compliance. In the legal system of American and English, punitive damages/exemplary problems have made noncompliance too costly for defaulting companies.

According to the meals Hygiene Law of the People's Republic of China, article 48:

Article 48 If anyone, in violation of this Law, causes an accident of food poisoning or a disease engendered by food-borne bacteria or causes harm to someone else by other functions against this Regulation, he shall bear the civil liability for compensation according to laws.

Also, with some of articles have earlier mentioned, who neglect to obey the food safety rules, they only at the mercy of civil responsibility and claim for problems by victims. Different from American and English, they are subject to legal responsibility. Thus, China needs to modify the essential rules for food protection immediately to catch up with American and EU criteria.

Chinese daily industry reform - Food Safety Regulation

The China food security rules system has been proven in 1960s, expectations for some commodities and establishments are obsolete or inconsistent with internationally accepted ones (Dong and Jensen 2007).

Some standards established at various levels or by different departments have different or even conflicting requirements. For instance, to the same moon cakes from one maker, the Ministry of Health released conformity after sampling lab tests, while AQSIQ failed it in its test. An extreme example is the specifications set by different ministries and departments for the control of daylilies. Additionally, government not limited food production fulfill with HACCP and GMP those safety food production environment. It will only allowed manufacturers who have an HACCP documentation of management to produce.

Chinese daily industry reform - Food Basic safety Supervision

As Henk Bekedam, a representative of the World Health Business in China, said, the situation in China is complicated by poor co-ordination among 17 government agencies involved with food safe practices in the united states (Cha 2007).

There a wide range of department of Central authorities, like Ministry of Agriculture, Ministry of Health, AQSIQ (Quality guidance inspection and quarantine), their state Administration for Industry and Commerce are pointed to responsible for one section, nonetheless they are resulting in alternatively low efficiency and little co-operation. Another difficulty is the fact different departments are pursuing their own polices and standards, leading to different, even conflicting judgments. A steady conclusion can't be drawn.

Finally, different body may declare different information to the public. In fact, this has been the subject of great matter among Chinese experts, for example, in 2006, professor Li from Huazhong Agricultural University or college and his colleague have recommended the so-called societal supervision mode to combine governmental, social, and personal resources, to be able to lower the expenses and take full advantage of the social welfare (Li and Zhang 2006).

Therefore, it needs Chinese Central Administration to set up a food safety council to screen the food protection, coordinated those inspection departments and announces the steady information to the public.

Chinese daily industry reform - Awareness of Corporate Public Responsibility

Corporate Community Responsibility (CSR) may be employed to manage these reputation risk, or is in doing so considered to be a kind of this kind of supplementary risk management (Electric power 2004, 35).

Companies are advised to weave CSR to their business processes of buying and offer management, to establish an ethical supply chain in order to reduce risk, protect reputation, surpass stated values, improve the productivity of suppliers, and reduce sociable and environmental effects (Valentino 2007).

The major reason of the scandal occurs because of some middlemen and suppliers behave in poor business ethics. If Sanlu Group and the other dairy suppliers who involved in this milk natural powder scandal decided CSR effectively and proven an ethical resource string, the scandal can be prevented.

An executive appointment of the state of hawaii Council (case), presided over by Top Wen Jiabao, on Wednesday decided to kick off national comprehensive testing of dairy products and reform the dairy industry.

According to the conference, the incident relating to the tainted Sanlu milk powder reflected chaotic industry conditions, as well as loopholes in the guidance and management of the industry.

The assembly also come to six other decisions and purchased governments at all levels to apply them. These decisions include:

- providing the best and free health care to the people sickened by melamine-contaminated milk powder,

- confiscating and destroying all sub-standard products,

- purely supervising the development of dairy companies with on-site inspectors,

- revising regulations on the guidance and management of the industry,

- subsidizing dairy farmers and encouraging more production by those companies with higher-quality products and,

- finding the reason behind the occurrence and punishing those in charge. (Xinhua, 2008)

It possessed shown that Chinese government seeking to enhance the image of Chinese language dairy industry and building self-confidence of Chinese products to consumer. Chinese language people will they change in mind of buying Chinese language milk natural powder from Sanlu and other companies, time will prove it. For the reason that earn back good will from consumer is very difficult, people remain remembered the occurrence for a long time. Nowadays, Chinese buy foreign dairy powder somewhat than Chinese language, they still lost self confidence about "Made in China" products.


To conclude, the indegent business ethics, does not take social responsibilities for consumers, under rules of food safeness, administration inconsistent inspection, poor supply string management etc. are the key reasons of the Milk incident. It is necessary to study from the incident, increase the inspection and guidance system and fortify the management of the Chinese dairy products industry. (3750 words)

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