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When a Global Giant failed to understand Local Litigations: 2-minute Nestlé Noodle Case*

CASE STUDY, STRATEGY
ET Cases - FLAME, 11 Pages
AUTHOR(S) : Dr. Dipasha Sharma- Assistant Professor, Dr. Aradhna Gandhi- Associate Professor, Dr. Pooja Sharma- Assistant Professor - Symbiosis International University, Pune

Case Preview

When a Global Giant failed to understand Local Litigations: 2-minute Nestlé Noodle Case

 

It was almost a month since Prof. Joshi and many more like him were missing Maggi noodles due to the ban on all variants of its noodles, citing the presence of excessive lead by Food Safety and Standards Authority of India (FSSAI) and by the Maharashtra Food and Drug Authority (FDA). Prof. Joshi who holds a PhD in Strategic Management and teaches Strategy in a Top B-school of India was not only thrilled due to this ban but also inquisitive on how Nestlé India was handling this situation. Nestlé’s Maggi noodles were under scanner due to the seven times more levels of lead than the permissible limit of 0.01ppm and violation of labelling regulations on taste enhancer monosodium glutamate (MSG) set by FDA. This resulted in a legal suit under the unethical trade practices and violations of labelling and packaging norms.

Surprisingly, Nestlé India had reacted on this whole fiasco in a very passive manner, in spite of it being an important product portfolio for the organization. Maggi held 63% of India’s instant noodle market before the ban and thus resulted into a loss amounting to INR3.2 billion worth of inventory withdrawn from shelves, distributors and manufacturers.

All these facts and figures triggered Prof. Joshi’s mind to discuss the whole issue in his next Strategy class. But before taking this to his class, he wanted to track the events of Nestlé India, the whole Maggi Fiasco and how the organization could have reacted in a much better manner by learning from previous incidents of product recalls....................

Nestlé India

Nestlé SA was the second largest health and wellness company globally in 2014, with health and wellness sales of $31.7 billion. Nestlé SA was also the world leader in many product categories like coffee, mineral water, snack foods, beverages and chocolates. Nestlé India, a subsidiary of the global FMCG major Nestlé SA, Switzerland, entered India in 1959. Initially, it imported and sold condensed milk and infant food. Manufacturing operations began in 1962 with a condensed milk brand – Milk maid.

Nestlé India Ltd. had over eight manufacturing units and four branch offices in India by the year end, 2015. Targeting various segments, Nestlé owned around 2,000 brands and marketed more than 30,000 products.............

Maggi Noodles Fiasco

Nestlé 2 minutes Maggi fiasco started in March 2014, when Food Safety Regulators from Uttar Pradesh, a state in Northern India found the level of MSG, 7 times more than the prescribed limits. The broad sequences of events are:

March 2014

• Authorities in the State of Uttar Pradesh inform Nestlé India that MSG was detected in a sample of Maggi noodles that carried a “No added MSG” claim on the pack.

January 2015

• Another sample of noodles was received by the referral laboratory for testing MSG traces.

April 2015

• The referral government laboratory in Kolkata says it has detected lead levels above permissible limits and tested positive for MSG in its sample of Maggi noodles.

.........................

Nestlé India Response

The whole squabble of lead and MSG was unpalatable for Nestlé India. During the whole debacle Nestlé India responded in following way to the whole Maggi fiasco:

March 2014

• Nestlé India stated that it never added MSG to Maggi noodles and requested a second sample to be sent to a referral government laboratory in Kolkata.

April 2015

• Nestlé India tested Maggi noodles samples- representing 16.5 billion packets - by its own accredited laboratories and independent accredited laboratories both the results showed lead levels to be within the limits set by the Indian food safety authorities.

May 2015

• Media picked up the issue. Nestlé blocked all lines of communications with customers, non- response to individuals’ queries for more than 15 days. While, automated replies were given on social media on Maggi queries, Nestlé global site did not even acknowledge the controversy in India.
• ...............

Prof. Joshi’s Discussion in his Class

Prof. Joshi (The Instructor): Good morning Class, hope you all enjoyed your long weekend and did not forget to read my emails and attachments.

Avinash(Participant 1): Prof. Joshi, so are we going to study Maggi debacle in our today’s strategy class? We already had discussion on Maggi fiasco in our marketing class. Is it on the same lines or we need to discuss it from the different perspective?

Vaishali (Participant 2): Yes Prof. Joshi, we need to submit a similar assignment in our marketing assessment. Thanks to your handouts and suggested reading that would help us a lot in our assignments.

Prof. Joshi: That’s really great that my handouts are helping you in your other courses but certainly our discussion point is not solely on the one aspect of marketing communication. There must be some thoughtful reason to include this discussion in our strategy class. Unquestionably, we are going to assess this debacle from many other angles. Interestingly, Nestlé had a past history of controversies attached with its name and lawsuits filed against its business lines Nestlé had issues of forced labour in its supply chain in Thailand10, controversies related to its baby food.............

Assignment Questions

I. What were the drivers of Maggi Fiasco? Was it only the failed PR or anything else?
II. As far as the Corporate Legal Strategy is considered, what is your opinion on Nestlé India’s take as more of denial rather acceptance of situation?
III. What lessons and strategy, Nestlé India should have followed from the response of earlier product recalls happened across different sectors and geographies?
IV. ...............

 Exhibits

Exhibit I: Company Shares of Noodles in India: % Value 2012-2015

Exhibit II: Nestlé India Share Price movement – NSE (May 2015-April 2016)

Exhibit III: Cost to Nestle‘ India Due to Maggi Ban

Exhibit IV: Previous Product Recalls and Firm’s Strategy to Combat

Teaching Note Preview

When a Global Giant failed to understand Local Litigations: 2-minute Nestlé Noodle Case

 

Synopsis

Through the backdrop of the Nestlé’s Maggi experience and a discussion in the setting of a classroom, this case runs through the timeline of Maggi fiasco in India and attempts to address the issues related to the overall management, understanding of local business and legal environment. This case aims to discuss the strategic issues in such scenarios and corrective measures/strategies to be opted by the concerned firm. The present case cites evidences of earlier product recalls and actions taken by the firms in those scenarios.

Learning Objectives

The pedagogical objectives of this case study are stated as below:

• To understand the various stakeholders, positions at stake and strategy during crisis situations
• To understand the various corporate legal strategy and adoption of right one in the right scenario
• To analyse the potential strategy/course of action to implement from previous cases of product recall

Case Positioning and Setting

This case study focuses on crisis management at Nestlé India, a host country legal environment and responsiveness by the parent company in such scenario. This case can be discussed in the Business Environment, Strategic Management courses in regular MBA program. In the setting of marketing communication, this case can be utilized as a study and discussion material with a group exercise on pros and cons of actions taken up by firm. This case study can also be discussed in the setting of corporate legal strategy...............

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Abstract

On a very fine morning starting my day as usual with a cup of coffee and a bowl of Noodles, yes specifically the most popular noodle of India, Maggi, I opened the front page of leading newspaper. I found that the bowl of noodle currently I am having in my hands is not safe as per central food safety regulator FSSAI. Now imagine how it is possible to finish that bowl and the same happened to almost every second household, Maggi joints, bachelor’s canteens and many more places where Maggi used to have its special place.

This whole fiasco led to the ban of Nestlé’s Maggi in India as it was found to have excessive levels of lead and violation of labelling regulations on taste enhancer monosodium glutamate (MSG). This further resulted into a reported net loss of INR64.40 crore (1 crore = 10 million) by Nestlé India for the second quarter ended in June 2015 as per the CMIE prowess database.

This whole mess created a debate on the legal regulations and on the dormant role played by Nestlé.

In the backdrop of Nestlé’s Maggi fiasco, this case study runs through the timeline of Maggi in India and attempts to address the issues related to the overall management, understating of local business and legal environment. This case study aims to discuss the relevant strategic issues in such scenarios and corrective measures to be opted by the concern firm.


Pedagogical Objectives

  • To understand the various stakeholders, positions at stake and strategy during crisis situations
  • To understand the various corporate legal strategy and adoption of right one in the right scenario
  • To analyse the potential strategy/course of action to implement from previous cases of product recall

Case Positioning and Setting
This case focuses on crisis management at Nestlé India; a host country legal environment and responsiveness by the parent company in such scenario. This case can be discussed in the Business Environment, Strategic Management courses in regular MBA program. In the setting of marketing communication, this case can be utilized as a study and discussion material with a group exercise on pros and cons of actions taken up by firm. Present case can also be discussed in the setting of corporate legal strategy.................


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