Stakeholder+Assignment


 * 1) ====Primary Stakeholders====
 * 2) ====Employees====
 * 3) ====Top Management====
 * 4) ====Suppliers====
 * 5) ====Customers====
 * 6) ====Retailers/Wholesalers====
 * 7) ====Consumers====
 * 8) ====Children====
 * 9) ====Shareholders====


 * 1) ====Secondary Stakeholders====
 * 2) ====Government====
 * 3) ====Chinese Government====
 * 4) ====African Government====
 * 5) ====Other Countries====
 * 6) ====Friends and families abroad====
 * 7) ====Media====

INTRODUCTION
==== In early 2008, reports of children experiencing acute urinary problems and kidney failures after consuming dairy products from the Sanlu Group, a dairy products manufacturer, began surfacing on Chinese networks. The source of the problem was discovered to be a melamine contamination of milk in Sanlu’s products and formulas. Melamine, an organic base, was added to the milk in order to cause it to appear to have higher protein content. Initially, Sanlu began compensating suffering families with reimbursements in cash and dairy product credit to hush threats of lawsuit and bad publicity. However, many families refused the offers of bribery and joined groups to lobby for governmental punishment of Sanlu’s action. Unfortunately, with the preparations for the 2008 Summer Olympics, the government instead forced the media to silence the scandal until the conclusion of the international event. Meanwhile, Sanlu began suffering the repercussions of massive recalls, shareholder write-offs, and customer complaints. In late January of 2009, Sanlu’s executives and those found responsible for the melamine contamination were finally put on trial. However, the delays in addressing the issue and cover-ups by the Chinese government have caused an international uproar. This stakeholder analysis discusses the effects of the scandal on Sanlu’s primary and secondary stakeholders, analyzes the relationship between Sanlu’s customers and the company, and describes the rise and fall of one of China’s most famous dairy product brands. ====

// Employees //
==== The Sanlu Group’s manufacturing divisions were reported to have nearly 10,000 employees and 30,000 including sales persons prior to the tainted milk scandal. After the scandal broke, Sanlu estimated that they would have to lay-off about 350,000 people across the country. However, in the wake of the accusations and pessimism surrounding the contaminated milk scandal, employees were still being paid and many had already “settled their minds” (Epoch Times, 2008), according to Sanlu's executive officers. A large number still stood with the company despite concerns of the company’s uncertain future. A young woman working at the quality control lab, who refused to be named, was quoted as having said, “What everyone here can do is wait. If it is bad news, I hope a solution for workers comes as quickly as possible so that we have time to prepare for it. But I still hope the company can pull through this crisis. I like this job. I am willing to go on working for Sanlu.” (Fu, Sun, & Cao, 2008) In February of 2009, it was decided that the prospective bidder for the Sanlu Group would guarantee to employ all present staff, which consisted of 4,332 registered active-duty staff, 455 retirees, and three employees with industrial injuries at the end of 2008 (China Daily, 2009). Employees who had signed contracts with Sanlu would also be able to join the new company. ====

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The Sanlu Group, originally known as Shijiazhuang Dairy Company (SDC), was formed in 1996 after several acquisitions in 1995. Tian Wenhua, general manager of SDC, became president and general manager of Sanlu. On December 31, 2008, Tian went on trial along with three Sanlu executives. Among the three were two deputy general managers, Wang Yuliang and Hang Zhiqi, and head of Sanlu’s milk division, Wu Jusheng. Tian pleaded guilty and was sentenced to life imprisonment while the other Sanlu executives, Wang Yuliang and Hang Zhiqi, received 15 years and 8 years in prison, respectively (Zhu, 2009). In her statement, Tian expressed her remorse, admitted her role in the scandal, and called for China to consider moving toward the European Union’s standards on melamine. =====

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On January 22, 2009, a total of twenty-one Sanlu executives and middlemen were also tried and sentenced for their involvement in the case. Two middlemen in the trial, Zhang Yujun and Geng Jinping, were charged "for the crime of endangering public safety by dangerous means." According to evidence provided, Zhang was found to have produced more than 770 tons of melamine-laced protein powder, of which he sold more than 600 tons, between July 2007 and August 2008. Zhang’s workshop was allegedly China’s largest source of melamine and earned him 6.8 million Yuan. Geng, on the other hand, was convicted of producing and selling toxic food--a terrifying 900 tons of tainted milk. Both men were executed for their involvement (Blanchard & Wills, 2009). =====

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On average, every Chinese citizen consumes 30kg of dairy products annually, falling way behind the world average of 120kg and 300kg for developed nations. The entire 1.3-billion population of China was estimated to require 117 to 351 billion kg of dairy products yearly (Teo, 2009). Sanlu was China's largest producer of powdered milk with an 18% market share. “In the overall dairy market it [was] third, after Yili and Mengniu, which were both also found to have added melamine to some batches of their baby formula, along with liquid milk and ice creams.” (Flavell, 2008) Prior to the outbreak of the melamine contamination scandal, there were reported incidents of customers whose complaints were "hushed" by bribery from the Sanlu Group. One of the earlier complaints came from an online post written by someone called "78900880088" on May 21, 2008. In his post, "7890088008", a 40-year old father whose real name was Wang Yuanping, described the problems he encountered in dealing with Sanlu and the government department responsible for inspecting and handling food safety issues. His daughter had fallen ill after drinking Sanlu milk and after submitting samples of the product to Sanlu for testing Sanlu would only provide a refund or exchange but refused to reveal the test result because it was a “commercial secret.” Wang then tried the government department responsible for food safety inspection, but was told that he would need to go to a third party and that it would cost him tens of thousands of RMB. Without any other option, he was posting on Tianya for help and appealing to the media. Ten days later, on May 31, “78900880088″ asked a Tianya moderator to close his topic so no more replies could be made on his post. Afterward, it was soon forgotten. It was later discovered that Wang had been contacted by Sanlu and an agreement had been signed between them stating that Wang would agree to delete his posts in exchange for 2476.8 RMB of milk products (China Smack, 2008). According to Xinhua, a Chinese news reporting agency, some families whose children were killed by the contaminated milk accepted monetary compensation from the Sanlu dairy company in exchange for an agreement to give up their lawsuit against the company. Yi Yongsheng and Jiao Hongfang, villagers in Gangu County of northwestern Gansu Province, confirmed with Xinhua that they received 200,000 Yuan (29,247 U.S. dollars) from the company. By accepting the money from Sanlu, Yi and Jiao gave up their rights to sue the company. The report also said that about 3,000 families had also accepted the compensation package. Other families, however, reported that they rejected offers of compensation in an effort to push for lawsuits (Wang, 2009). =====

//Children//
====In early 2008, complaints began pouring in ranging from incidents of children passing abnormally-colored urine to infants suffering from kidney stones. Comprehensive tests of baby formula carried out since the scandal came to light revealed that samples 22 of China’s 109 baby formula factories were tainted with melamine (Flavell, 2008). All of the hospitalized infants who had consumed Sanlu's baby formula had difficulty urinating and the number one Hospital of the People's Liberation Army in Lanzhou city, Ganzu province, reported removing uric acid stones from eight babies. The kidney stones were nearly 1 cm in diameter, a rare size even in adults. A ten-month-old infant boy in Hubei was also sent to the hospital for emergency treatment after being unable to urinate for four days. When he was sent in, his abdomen had reportedly swollen to the size of a melon and he was diagnosed with acute renal failure (Flavell, 2008).==== ====In response, the Health Ministry dispatched medical specialists to hospitals nationwide to help treat sick babies. Medical institutions were required to provide infant patients with free treatment and report the number of tainted milk powder victims daily (Flavell, 2008). Since September of 2008, one source stated that six infant deaths were confirmed and an estimated 300,000 were children sickened from the milk contamination scandal (Teo, 2009). However, the exact number is still uncertain.====

//Retailers/Wholesalers//
====Weeks after the melamine contamination scandal, wholesalers and retailers were still continuing to return consignments of milk powder and bags of milk to Sanlu Group headquarters. Trucks loaded with thousands of boxes of baby formula and many impatient dealers lined the courtyard in hopes of full returns and reimbursement for their purchases. Many had been waiting for days to receive an answer from the company and most were suffering losses due to transportation and storage costs (Fu, Sun, & Cao, 2008).====

//Shareholders//
====Prior to the scandal, Fonterra, a New Zealand dairy company, purchased a 43% stake in the Sanlu Group to further their business in China. However, after Sanlu had d ecided to continue adding the industrial chemical to its milk products even after the problem became known after August 1, 2008, Fonterra chose to write off it's NZ$200 million investment in the company (Oliver, 2008). ====

//Government//
====Sanlu was a big contributor to the local economy, so in the early stages of the milk contamination, local government officials ignored requests from New Zealand Company Fonterra to recall all products and tried to cover up the issue (Spencer, 2008). Their purpose was to isolate Sanlu from the scandal. In addition, these officials were more concerned about their personal interests and scared by the consequences of bad news. Once the issue came to light, they would be legally punished. As a result, no action was taken until the central Chinese government was notified about the issue by New Zealand’s government one month later (Spencer, 2008).==== ====The central Chinese government took a series of actions to deal with the issue, including giving free medical care to baby victims, investigating the problem, implementing quality tests to every brand of dairy product, and improving food safety control (Lawrence & Luo, 2008). To protect public health, the government also took emergency action and amended the Harmful Substances in Food Regulation (Cap. 132AF). Under the Regulation, milk, any food intended to be consumed principally by children under the age of 36 months, and any food intended to be consumed principally by pregnant or lactating women would not contain melamine exceeding 1 mg/kg. For other food, melamine levels were not to exceed 2.5 mg/kg. The amended regulation came into operation on September 23, 2008, subject to negative vetting of the Legislative Council in October.==== ====The regulatory standards set by the government were generally in line with those of overseas food safety authorities (including Australian and the European Union authorities) and adequate to protect public health. Currently, Chinese dairy producers are under high scrutiny for quality and hazard control in order to alleviate the tension between government and citizens. In this example, the Chinese government exercised their stakeholder power by passing more regulations, quality control restrictions, and stricter punishment for mismanaged companies endangering consumers. These actions were to punish people who were guilty, promote a healthy business environment, and protect the public. The local government eventually changed their strategies to follow the central government and adopted regulations to destroy all the tainted formula and prevent further harm.====

//General Public//
====The general public was concerned with minimizing the risk of services and products, as well as the activities of companies in the region. Following the publication and announcement of the contaminated milk in mainland China, the general public encouraged consumers, in need of baby formula and milk products, to acquire them in Hong Kong. Furthermore, through encouraging and advising consumers to purchase milk products outside of the contaminated suppliers the general public condemned three individual companies, resulting in the bankruptcy of one—the Sanlu Group.==== ====The general public almost lost complete confidence in domestic dairy products for a long time since the scandal broke (Peng, 2008). They heavily condemned Sanlu on the lack of morality and social responsibility, asked for legal protection from government, and demanded stricter law on food safety and quality control. The intensive discussion of the scandal pressed the government to take action immediately and forced Sanlu to be responsible for the issue. People wanted a healthy society and their reaction to the Sanlu scandal encouraged government and business to push for the protection of social values.====

//Community//
====Sanlu was a well-known brand that kept a good relationship with the community before the scandal. Sanlu created plenty of jobs for local residents and promoted environmental technology for manufacturing. However, when the company filed for bankruptcy, local communities fell into a hard situation. Before the scandal broke, residents of the community were consuming a large amount of local dairy products. However, after news of the contamination, many were left in disbelief. In addition, many local residents lost jobs and their lives changed suddenly. There was no longer trust in the company and investigation of the issue was heavily requested. The reaction of community also encouraged government to protect local interests.====

//Activist Groups//
====In March of 2008, Zhao Lianhai, a concerned father of a three-year old diagnosed with kidney stones, created a website for parents of children hurt or killed by contaminated milk. Initially intended to be a forum for advice on medical care, the discussion turned into a list for demands and compensation. Within days, more than 4,000 families had signed up and Zhao became the spokesman, organizer, and lobbyist for thousands of parents whose children had suffered after drinking infant formula or milk that had been illegally doctored with the industrial chemical melamine. His group, also known as the Melamine Victims' Parents Alliance, has coordinated underground protests and meetings ever since the government has begun shutting down their websites and cracking down on their operations. Zhao himself has been followed wherever he goes and his phone has been tapped. He and his group, however, have been credited with pushing the central government to roll out a national compensation plan for the allocation of cash for victims of the scandal (Cha, 2009).====

//Media//
====The media was in a position to keep the public informed on all relevant issues to their health, well-being, economic status, and company actions. In the case of the Sanlu Group, the scandal was covered by media around the world, from China Daily to Wall Street Journal and all the way to New Zealand’s local gazette. They exercised their stakeholder power through announcing and publishing all facts and relevant news regarding the scandal, possible damage to the companies’ involved, and global impact.==== ====Since the beginning of the milk contamination scare and even recently when the scandal was winding down with the takeover of the Sanlu Group, the news covered everything. Recently, China Daily reported the execution of two executives responsible for the contamination of the baby formula, which led to the deaths of infants and illness of thousands throughout China. However, the scandal also played another role for the media. Rather than simply keeping the public in the loop, the media profited from the grand amounts of republications and follow-up stories throughout the last two years.====

SANLU’S MOST IMPORTANT STAKEHOLDER
====The customer stakeholder group was the most important group from the corporation’s point of view. Customers suffered the greatest damage from the incident, which made them the corporation’s greatest concern and most important stakeholder. However, the customer was not the cause of the problem. The problem was caused by middlemen who wanted to get the most for the raw milk they provided to the corporation. Due to this greed, all the milk that later ended up in the market from their possession was poisoned or tainted by melamine. The melamine might have gone unnoticed if the consumers were only adults because the adult immune system is more capable of digesting harmful substances as long as amounts are minimal; however, adults were not the only consumers of this product.==== ====Many babies were given this milk, and their immune systems were not as developed as those of adults. The babies and young children could not handle the amount of melamine in the milk, so many children became ill. They developed kidney stones from the milk and, according to one early source in September, as many as 50,000 children were sickened, almost 13,000 were hospitalized, and at least four had died (Elegant, 2008). In the wake of such a disaster to China and the harm caused to the innocent victims, customers became extremely outraged. Thus, customers felt that they needed to show a strong united front during the Olympics. However, upon conclusion, they began to make their anger and frustration more evident.==== ====In retrospect, the customers wanted to get a quality product at a reasonable price. They wanted to have a certain level of assurance that the product was safe, especially in the case of consumables. The customers had both economic and legal powers. The great size of China’s population gave customers huge economic power; however, it was very limited in this situation, because almost every milk product coming from China at this time was tainted with melamine. Some customers did use this power, however, by calling friends and relatives in other countries and asking those individuals to send them powdered milk and formula.==== ====The legal power that the customers held was limited. China, a communist country, had control over nearly every aspect of the legal system. According to an online Time article, “Within days of the story breaking, the state media was commanded by the Propaganda Department to tone down its coverage of the tainted-milk-powder scandal. Lawyers looking to file suits on behalf of aggrieved parents were ordered in no uncertain terms to drop their plans (Ramzy & Yang, 2008). Internet discussions of this and other recent disasters were swiftly deleted.” These sentences indicated that the government chose to take away the legal power of the customers, albeit if only until the conclusion of the Olympics.====

====This milk scandal not only affected customers on mainland China but also customers in Taiwan. Customers continued to lose faith in their government standing up for them, so they rallied together and joined in the 1025 rally, a protest organized on October 25. According to an online Taiwan News article, “the rally cause was to defy against adulterated goods” and the question, “…whether China would compensate Taiwan for the toxic milk incident?” was asked (Taiwan News, 2008).====

//To Whom It May Concern//:
====The Sanlu Group Co. has always been proud of our dairy products’ quality, which we have provided to our customers for many years. As you may be aware, our company has recently come under scrutiny in regards to the contamination of our milk product. We understand that the reports are very disturbing and may cause you to change your views of our company, but we currently are doing our best to find the source of the contamination.==== ====During our investigation of this problem, we found that the contamination was present at our suppliers’ location and the product was delivered to us post-contamination. Our quality control has suffered due to our trust in our suppliers, and the contamination was missed. However, we are currently doing everything possible in order to alleviate the situation, remove the hazardous product from the public, and dispose of it properly. We assure you that such an incident will never happen again and that all parties responsible will be addressed to the full extent of the law covering food safety.==== ====We hope that you have not lost faith in our company and will continue to be our consumer in the future once this situation is resolved. We would like to prove to you that our value of quality and safety is of the utmost importance.====

//To the Sanlu Group, Co//.:
====Sanlu was once a popular milk brand in our minds. We believed that Sanlu, as a leading manufacturer of infantile milk in China, would provide high quality products and fair prices to customers. However, we were deceived. Our infants have suffered; some have even died from kidney stones derived from the contaminated milk you have provided. From your response regarding this issue, we, as the customers, are very disappointed in your dishonesty, and we have prepared some questions for you to answer:==== ====First, how can you insist that you are not at fault in the current situation and transfer all the responsibilities to the suppliers? If it is only the suppliers that added melamine in the milk as you explained, why and how did the melamine-contaminated milk get approved through quality-control tests at Sanlu? Trust in suppliers is just an excuse. If a company does not have strict quality controls, how can it be “proud of the quality of the product it has provided to customers for many years”?  ==== ====Second, it is estimated that a total of 700 tons of contaminated formula must be recalled. We can imagine that a large amount of fresh milk needs to be supplied to you, and many suppliers are involved in providing such a large amount of fresh milk. Is it possible that all of the suppliers provided melamine-contaminated milk to you? From the interviews of some suppliers we saw on television, many of them have never heard of melamine before. They have also suffered economically because they cannot sell their milk anymore and must dump the milk since the scandal has spread.==== ====Third, we are all shocked that you decided not to recall the contaminated formula until the central government was informed. Did you ever consider the possible dangers of melamine’s effect on the babies taking in the tainted formula? You did not take immediate action and even wanted to cover up proof that you even considered your own interests more than customer safety. We, as customers, are very angry about your behavior.==== ====The scandal has already happened, and now we are deeply worried about the suffering children. As customers, we strongly request that the Sanlu Group take all financial responsibilities demanded by suffering families and legal responsibilities for food safety ignorance.====

CONCLUSION
====The toxic milk incident was tragic to say the least. Many innocent children were harmed, some government officials were told to quietly resign, a couple men involved in the contamination were executed, and the Sanlu Group went out of business. The Sanlu Group failed to provide an ethically, safe product to its consumers and address concerns and issues in a responsible, open, and honest manner. They should have taken precautionary measures, since they were dealing with a food product supplied from external sources. Their actions caused great harm to many people, led them to bankruptcy, and forced their competitors to improve quality standards and win back the trust of their customers. Although the government was slow to act, and in an unethically delayed manner, the legal system was able to finally support the customer demands. Thus, customers were the most important stakeholder group in this situation, and their perseverance helped unravel one of the largest dairy product scandals in history.====

Blanchard, B. & Wills, K. (2009, November 24). //China// //executes two for tainted milk scandal//. Retrieved April 10, 2010, from
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====Lawrence, D., & Luo, J. (2008, September 13). //China// //says 432 infants have kidney stones from Sanlu formula//. Retrieved April 9, 2010 from []====