Fonterra ‘effs it up

hey guys, look, melamine grass!!!

I won’t pretend to know all the details of the Chinese milk additive scandal – you know, ‘Now with 25% extra Melamine!’… Fonterra do seem to have made some pretty bad calls with how they do things in China. I am not saying they are unique, in fact I would guess just about every company in NZ who has joined the rush to China has done things the same way. They have bought shares in a local (Chinese) company.

The Chinese regime has ‘encouraged’ this by making it damn near impossible to set up by yourself. From a Chinese perspective this makes sense, they are no less nationalistic than any other country and so forcing foreign companies to becomes minority shareholders in Chinese companies was a good way to get their hands on R&G and IP from overseas while maintaining a suitable arms length from being bossed around by foreigners. Unfortunately this isn’t any good for the foreign companies when things go wrong, because it can only look bad for them, especially as the Chinese won’t hold back when it comes to heaping the blame on the nasty foreigners (and lets face it, that happens here too).

Part of the reason I think companies don’t go it alone (a much harder route) is because they are actually being PC, if they were looking at their long term interests they surely would see that long term in would be in their interests to run their businesses just like they do in their home countries, with their own governance, systems, QC etc etc, then they wouldn’t have to kowtow to politicians, shifty directors on the take, dodgy additives etc. When disaster strikes, as it did last week, if Fonterra was a stand alone foreign controlled ¬†company it would have been well placed to ‘cash in’ on the crisis as a reliable and reputable milk producer, alas, it has had it’s reputation and brand dragged through the manure instead.

Fonterra should have it’s own managers, imported if required, it’s own QC systems and checks, and it’s own brand on the line if it wants a long term business in China. It should forget being PC about ‘how the Chinese do things’ because how they do things is by spiking the milk with additives to meet short term objectives and all the key staff will be enmeshed in bribe taking and giving and this is surely not what Fonterra wants to be involved with? It will take time to build a proper brand presence in China if they go it alone, it will be expensive as well, but if Fonterra can’t afford to do this, then they shouldn’t be there in the first place. If NZ Companies continue to rely on minority shareholdings in a Chinese companies with completely different agendas, they stands a high chance of being marginalised in what will be an important market in the future.

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