CASE ANALYSIS

CASE 2.2 EXPORTING POLLUTION

As an assistant to the vice president of environmental affair at

Americhem, Rebecca Wright relishes the opportunity to apply her

training in public policy analysis to the complex and emotion-laden

issues that her company faces. Rebecca is convinced that cost

benefit-analysis, her specialty, provides a rational decision-making

tool that cuts through personal feelings and lays bare to the

economic realities. Still, she was startled by the draft of a memo

that her boss, Jim Donnelly, shared with her. The logic of Jim’s

argument seems impeccable, but the conclusions are troubling-

and Jim is preparing a memo for an upcoming decision on the

location for a new chemical plant. The main problem is that,

atmospheric pollutants from the plant although mostly harmless,

would produce a persistent haze; one of the particles that would be

released into the atmosphere is also known to cause liver cancer in

a very small portion of the people exposed. Sitting down at her

desk to write response, Rebecca reads again the section of the

memo that she had circled with her pen.

 From an environmental point of view, the case for locating the new

plant in a Third world country is overwhelming. These are the

reasons compelling in her estimation:

1. The harm of pollution, hence its cost, increases in proportion to the

amount of already existing pollution. Adding pollutant to a highly

polluted environment does more harm than the same amount

added to a relatively unpolluted environment. For this reason, much

of the Third world country is not efficiently utilized as depository of

industrial wastes, and only the high cost of transporting wastes

prevents a more efficient utilization of this resource.

2. The cost of health—impairing pollution is a function of the forgone

earnings of those who are disabled or who die as a result. The cost

of pollution will be least therefore, in the country with the lowest

wages. Any transfer of pollution from a high-wage, First World

country to a low-wage, third World country will produce bet benefit.

3. The risk of liver cancer from this plant’s emission has been

estimated at one-in-a-million in the United States, and the resulting

cancer deaths would occur mostly among elderly. The risk posed

by the new plant will obviously be much less in a cpuntr where

people die young from other causes and where few will live long

enough to incur liver cancer from any source. Overall, the people of

any Third World country might prefer a jobs that our plant will
 provide if only drawback is a form of cancer that they are very

unlikely to incur.

4. The cost of visibility- impairing pollution will be greater in a country

where people are willing to spend more for good visibility. The

demand for clear sky- which affects the aesthetics of the

environment and not people‘s health- has very high income

elasticity, and so the wealthy will pay more than the poor to live a

way from factory smoke, for example. Because the cause of

anything is determined by how much people are willing to pay in a

market, the cost of visibility-impairing pollution in a First World

country will be higher than the same amount of pollution in a Third

world country. Thus people in the United States might prefer clear

skies over the benefits of our plant, but people elsewhere might

choose differently.

CASE ANALYSIS

I. STATEMENT OF THE PROBLEM

A. MAJOR PROBLEM

a. Locating the new plant in the Third World country

b. Alarming predicted effects that the chemical plant could give

B. MINOR PROBLEM
 a. Health-risk in the Third World country

b. The cost that the company is willing to give

II. STATEMENT OF THE OBJECTIVE

A. MUST

a. To determine the cost-benefit of the company

b. To provide a credible analysis in locating the new plant

c. To provide an alternative plan

B. WANTS

a. To forecast the result that the company would produce

III. AREAS OF CONSIDERATION

The case for locating the new plant in the third world country:

i. Adding pollutants to a highly polluted environment does more harm

than the amount added to a relatively unpolluted environment

ii. The cost of pollution will be risk in a country with a lowest wage

iii. The health risk that the company would give will obviously much

less, studied that the cancer is most likely to occur among elderly

iv. Third World country might seek for the job opportunity that the plant

could give.

v. First World country might prefer clear sky rather than the benefit of

the plant could give.

IV. ALTERNATIVE COURSES OF ACTION

a. Suggest to locate the plant to the First World Country

ADVANTAGE:
 The people has the capability to consume the goods, and or has

the capability to live away from the factory

DISADVANTAGE:

Adding pollutants to a highly polluted environment does give more

harm.

b. Do not build a new plant to neither of the two World countries

ADVANTAGE:

Reduces the pollution

DISADVANTAGE:

The business will not able sustain the growth of the company

c. Accept the plan that Mr. Jim had proposed

ADVANTAGE:

Could give a job opportunity to the less fortunate country and

sustain growth

DISADVANTAGE:

 Add pollution to the less fortunate country for the sake of business.

 Might create furor to the public

d. Create a plan and suggest that building a new type of business

would do

ADVANTAGE:
 Has the ability to adapt changes in the society

DISADVANTAGE:

 Comparing sales annually

 Always dependent on the changes that might happen, resulting for

creating and innovating new and improved products and good

e. The company can exports the goods (e.g. chemical goods) to the

foreign country and import goods to lessen manufacturing

ADVANTAGE:

 Lessen manufacturing of goods because of the imported

technologies that will help the company meets the demand of public

and at the same time reduces the risk of pollutants that will be

added to the less fortunate country.

 Global markets can be captured so that country will earn foreign

exchange

 Creates huge employment opportunity

DISADVANTAGE

Exports products are subject to quality standards

DISADVANTAGE:
V. RECOMMENDATION

Importing and exporting goods are actually a good idea, it

might lessen the pollutions and the risks that the company would

produce and reduces manufacturing as well. Therefore, it is

recommended that the alternative courses of action e. be pursued.

In a globalized world, it is indeed necessary to be globally

competitive, yet the company should also consider the growth and

the benefits of the company can incur and give to the public.

VI. PLAN OF ACTION

i. Write your reply in response to the memo given by Mr. Jim

Donnelly

ii. Consider the great risk that the plant could give

iii. Site some effects that the plant would give in the future. Be

futuristic

iv. Tell Mr. Lim the advantages of importing and exporting products

VII. POTENTIAL PROBLEM

Mr. Donnelly might disregard the response of Ms. Wright, as he

thought that placing a new plant to an unpolluted environment can

sustain the company’s growth and be globally competitive.

VIII. CONTINGENT PLAN OF ACTION

Prove that importing and exporting goods could give advantages in

apply to cost benefit:

 i. Might be costly in terms of shipping but could incur net benefit

ii. To produce more goods

iii. To avoid adding pollutants, since the environment itself produces

raw material for production

iv. Importing technology might help the plant to reduce pollution

IX. GENERALIZATION

In line with the analysis of cost-benefit, the company should always

find an alternative way to make the business grow considering for

the long term aspects of the plant and the benefits they could give

in public and with a respect in nature. Since the business is as well

looking for the opportunity to sustain and grow, they must always

be futuristic, and able to adapt the demand of the market.

CASE 2.3 BEECH-NUTS BOGUS APPLE JUICE

When Lars Hoyvald joined Beech-Nut in 1981, the company

was in financial trouble. In the competitive baby food industry, the

company was a distant second behind Gerber, with 15% of the

market. After faltering under a succession of owners, Beech-Nut

was bought in 1979 by Nestle, the Swiss food giant, which hoped to

restore the luster brand name. Although he was new to Beech-Nut,

Hoyvald had wide experience in the food industry, and his aim, as
stated on his resume, was “aggressively marketing top quality

products.”

In June 1982, Hoyvald was faced with strong evidence the

Beech-Nut apple juice for babies was made from concentrate that

included no apples. Since 1977, the company had been purchasing

low-cost apple concentrate from Bronx-Based supplier, Universal

Juice Company. The price alone should have raised questions, and

John Lavery, the vice president in charge of operations, brushed

aside tests that showed the presence of corn syrup. Two

employees who investigated Universal’s “Bleding facility” found

merely a warehouse. Their report was also dismissed by Lavery. A

turning point occurred when a private investigator working for the

Processed Apple Institute discovered that the Universal plant was

producing only sugared water. After following a truck to the Beech-

Nut facility, the investigator informed Lavery and other executives

of his findings and invited Beech-Nut to join a suit against

Universal.

Although some executives urged Hoyveld to switch suppliers

and recall all apple juice on the marker, the president was hesitant.

Even if the juice was bogus, there was no evidence that is was

harmful. It tasted like apple juice, and it surely provided some

nutrition, Besides he had promised his Nestle superior that he

would return a profit $7 million for the year. Switching suppliers

would mean paying about $750,000 more each year for juice and

admitting that the company had sold an adulterated product. A

recall would cost about $3.5 million. Asked later why he had not

acted more decisively, Hoyvald said, “I could have called up

Switzerland and told them I had just closed the company down.

Because that is what would have been result of it.”

Fearful that state and federal investigators might seize

stocks of Beech-Nut apple juice, Hoyvald launched an aggressive

foreign sales campaign. On September 1, the company unloaded

thousands of cases on its distributors in Puerto Rico. Another

23,000 cases were shipped to the Dominican Republic to be sold at

half price. By the time that state and federal authorities had forced

a recall, the plan was largely complete. In November, Hoyvald

reported to his superior at Nestle, “The recall has now been

completed, and due to our many delays, we were only faced with

having to destroy approximately 20,000 cases.” Beech-Nut

continued to sell hogus apple juice until March 1983.

In 1988, Hoyvald and Lavery were tried and convicted on

charges of consumer fraud, and each received a sentence of one

year and one day and one day and fined $100,000. Previously,

Beech-Nut had settled charges by paying $2 million fined. The

company was also settled a class-action suit brought by consumers

for $7.5 million. The parent company, Nestle, kept Hoyvald and
 Lavery on the payroll and paid their legal expenses, which

amounted to several more million dollars. In issuing the sentences,

the judge rejected a proposal from Hoyvald’s lawyer that the former

president of Beech-Nut be placed on probation and required to give

lectures to business students so that they would not do the same

mistake

 STATEMENT OF THE PROBLEM

 Major Problems:

a. Beech-Nut apple juice for babies was made from concentrate that

included no apple

b. Consumer Fraud

 Minor Problems:

a. Cost of switching suppliers and recalling all apple juice on the

market

b. State and federal investigators might seize stocks of Beech-Nut

apple juice

• II. Statement of the objective

• Must:

1. To take responsibility of company’s executives negligence

2. To find another supplier immediately

3. To find another source of money

• Wants:

1. To restore the luster of the brand name

2. To regain the customers’ loyalty and trust

3. To return a profit $7 million to Nestle

III. Areas of Consideration

1. In the competitive baby food industry, the company was a distant

second behind Gerber, with 15% of the market.

2. Besides, he had promised his Westle supzAdvantage:

• The company can now buy genuine product

Disadvantage:

• Would incur about $750,000 more each more year for juice

• A recall cost would cost about 3.5 million

• The company will be put shame due its negligence

2. Drop apple juice product

Advantage

• The company can Venture into other product line

Disadvantage

• Reduction in the company’s income

• Possible decrease market share

3. Make in-house apple juice

Advantage:

• The company can ensure that they are now producing real apple

juice

Disadvantage

• Cost of producing apple juice

4. Maintain the supplier

Advantage

• The company can buy the supplies at low-cost

Disadvantage

• Bad image to company

5. Termination of president and vice president

Advantage

• The company will regain the good image

Disadvantage

• Poor morale, lack of credibility (as an employer) and broken trust.

V. Recommendation
• I highly recommend decision number 1, switching supplier and

recalling apple juice product ion the market. In the short run

financial perspective, choosing this decision would be costly but in

the long run it will be good and effective in the company as a whole.

VI. Plan of Action

1. Switching supplier.

Search all the supplier of apple juices and choose the

reputable one.

2. Recall the product on the market.

Notify the authority to recall a product. Notify the public

regarding the recall. Typically, the customer is advised to return the

apple juice regardless of the condition. Compensate the customers

for the value of the retuned apple juice

VII. Potential Problem

• Just in case if the recommendation did not work there is a

alternative plan which is the alternative courses of action number 3

make in-house apple juice. The company will be produce it owns

apple juice that the product can ensure that there is no artificial or

bogus.

VIII. Contingent Plan of Action

1. Deal the expenses will be facing of the company.

 2. Create a new operation for the new process of producing real apple

juice

3. Provide loan insurance to the bank

4. Find some potential investors and prove that the issue will be not

happen again

X. Generalization

XI. Beech-Nut producing adulterated apple juice product which the

investigator found out that the product contains apple concentrate

with corn syrup. Company executives ignore possibility of a

problem with product’s quality.

From the scenario, Beech-Nut lied to customers that the product

main ingredient is low quality of apple juice so it is unethical

behavior and also it is illegal act that against the law.

Business with ethical standard of responsible behavior. It is a

crucial element that your business may lead to success. In short

running a business ethically is good while running a business

unethically will be fall to the failure.