Marketing Coca-Cola in Honduras: Corporate Social Responsibility Issues

By Mary Anne Doty, Texas A&M University - Commerce

Mission Trip Recap

"I know we're doing a lot of good here, but I'm getting tired of holding children down while we pull their teeth," Alexa blurted. The group of 30 adult missioners visiting rural Honduras was conducting the nightly "reflections" session as they looked back on the high and low points of their day. "I'm glad we can relieve their pain, but it is so hard to come back year after year and see these kids drinking heavily sugared soft drinks and continuing the cycle".

Most of the volunteers had made the trip to Honduras in previous years, so they knew what to expect. To keep from getting intestinal diseases, the missioners took prescription anti-biotics every day of the trip. They washed their hands frequently and after drying, used hand sanitizer. Twice a day they took Pepto-Bismol to protect themselves, and avoided any food that was washed with water, including salads, vegetables and fruit that wasn't peeled. The sponsoring church purchased cases of bottled water to keep the team members hydrated and healthy during their visit.

As Americans, the team members were accustomed to having an ample supply of clean, safe water, because for longer than their lifetimes, public water in the US was universally disinfected. There was no familiarity with the radical improvement in public health when chlorination of pubic, semi-public and even private water supplies occurred. For example, death rates from typhoid, a waterborne disease, dropped from 36 per 100,00 in 1900 to fewer than 20 people in the entire US in 1960. Even without industrial pollution, fresh water may be contaminated by naturally-occurring micro-organisms. Aside from drinking untreated water, people can become sick from bathing, preparing food, or washing with contaminated water. Additionally, in the US, fluoride is an additive during the treatment process, reducing tooth decay for millions.

The team included two physicians, a nurse-practitioner, two oral surgeons, an RN, and many volunteers to set up a makeshift clinic and pharmacy in the basement of a church. Sheets suspended by wires served as walls to separate the dental clinic from medical examining rooms. Local bilingual high school students were hired to supplement the Spanish-speaking skills in the clinic. The week-long clinic helped a medically underserved village, and the pharmacy was stocked with the recognition that many patients would not see a doctor or dentist until the next mission trip in a year. Almost 700 villagers were treated in the course of a week. Children were often treated for intestinal parasites or worms, and were given a six-month supply of vitamins to combat inadequate diets.

Pulling rotting teeth was the most common treatment in the dental clinic. Even young children and teens lost permanent teeth to avoid the pain of severe cavities. A few toddlers had baby teeth turning black from drinking cola drinks in their bottles after weaning. A two-year old girl prompted Alexa's worry about holding down screaming children. Sadly, the volunteers were coming back to the same problems they had dealt with in previous years. Is there nothing that can be done?

Living Conditions in Rural Honduras

Honduras is frequently cited as the second poorest country in the Western Hemisphere (after Haiti), and it has the highest murder rate in the world. Only about 22% of the country's population live in the major cities, with the majority residing in rural areas and villages. Most of the population lives in the mountainous region in the Western half of the country.

The impact of poverty is considerable. Most Hondurans live in bahareques, which are huts with dirt floors that are generally one or two rooms. The roofs are frequently made of corrugated metal, although wealthier homes have tile roofs and electricity. If running water is available, it is often contaminated with the microscopic parasite, Giardia, which can cause fatigue, diarrhea, cramping and weight loss. Upscale hotels serve ice made with purified water and warn patrons to use bottled water to brush their teeth and for other needs.

Because there is little electricity, the average Honduran has no way to refrigerate food and must cook over a wood fire. Hotels, businesses and wealthier homes have windows, and electricity provides air conditioning, refrigeration and other appliances usually seen in more developed countries; they also have generators. The government cannot produce enough electrical power to reach every region, so planned blackouts occur once or twice every week. Hotels, some businesses, and upscale homes rely on generators to power their appliances and lights during blackouts.

While agriculture is the main source of income, many people are malnourished, or don't have sufficient food. What they can afford is purchased from street vendors daily, as well as local shops and restaurants. The average family subsists on corn, beans, rice and occasionally, meat. Along the major highways, there are food stands painted with the colors and logos of Coca-Cola or Pepsi about every mile. These two companies enjoy deep market penetration in the rural regions and urban settings alike. Doctors and public health officials complain that soda consumption contributes to malnutrition, dental disease and soaring rates of diabetes and obesity as soda replaces water and other beverages. In some places, soda is cheaper than pure water. Even in Mexico, a comparatively prosperous neighbor, studies estimate that one in six diabetes cases is directly linked to soda consumption and diabetes is the leading cause of death in Mexico, affecting 13 million people.

Cultural Considerations

In addition to radically different economic environments, the cultures of the two countries vary considerably. Before the mission began, some volunteers researched Honduran cultural norms to better understand the people they were helping. Psychologist Geert Hofstede identified descriptors for cultures around the world, allowing relative contrasts between cultures. Only four of Hofstede's six factors have been studied in Honduras, but the differences between Honduran cultural norms and American ones are relevant.

Hofstede's Dimensions Scaled 1 to 100

Power Distance

Individualism

Masculinity

Uncertainty Avoidance

Honduras

80

20

40

50

United States

40

91

62

46

Power Distance describes attitudes about the inequality of power in a society. Honduras, with a score of 80, shows a culture that accepts inequality as a way of ife. Individuals expect that the powerful (political and corporate) make the rules and there is little the individual can do to change the status quo. Americans, on the other hand, are judged to have a low power distance, meaning that American culture expects a more equal treatment of all groups.

Individualism describes the degree of interdependence that members of a society have with each other. American society has a score of 91, indicating that the freedom of individuals is very important in the culture. Hondurans, with a score of 20, would be rated a collectivistic society, where long-term commitment to the group (family, extended family, village) is more important than individual success.

The contrast between the two cultures on the scale of masculinity is less intense but still notable. A score above 50 (such as the US at 62) indicates a society driven by achievement, competition and success. A score below 50 (such as Honduras at 40) describes a more feminine society characterized by enjoying consensus, solidarity and quality of life free from conflict.

Finally, comparison between the two cultures on the concept of uncertainty avoidance shows little difference between the two cultures. Grappling with the inability to know what will happen in the future, both Hondurans and Americans are willing to plan, take risks, and be flexible. Neither culture feels overly threatened by new ideas or ways of doing things like those in a culture with a very high uncertainty avoidance.

Coca-Cola and Pepsi Sales in Honduras

As the demand for cola beverages and other carbonated sodas matured in the United States, both Coca-Cola and Pepsi-Cola sought out international markets to become global corporations. By 2014, Brian Smith, President of Coca-Cola's Latin American Group, commented that nearly one-third of the company's global volume in sales came from his territory. The Latin American Group covers Mexico, Brazil, Central America (including Honduras and neighboring Guatemala), South America and the Caribbean. Smith cites huge growth in sales since 2000, in spite of challenges with infrastructure, bureaucracy and economic conditions.

Producing and distributing beverages requires large amounts of drinkable water, leading to criticism that the leading manufacturers are depleting the watershed in countries where they produce sodas and other beverages. In 2007, Coca-Cola set a goal of replenishing the water it uses by the year 2020. In 2016, Coca-Cola announced they had met this goal five years ahead of schedule, although outside auditors concluded that the 191.9 billion liters of water they returned were not necessarily in the same locations where the water had been removed. Complaints about Coca-Cola's water depletion were reported in Chiapas, Mexico, where residents had to purchase water when the wells ran dry near the FEMSA plant (the large Mexican Coca-Cola bottling affiliate).

Pepsi-Cola has responded by pledging to protect and restore watersheds in Latin American countries where it operates. Beginning in early 2017, Pepsi has initiatives to replace the water at the source from where it was taken, along with planting native trees and other plants to reduce soil erosion, and putting up fences to keep cattle out of environmentally fragile areas.

In spite of these efforts, both companies face charges of greenwashing, or diverting attention from other environmentally dangerous practices by highlighting other improvements.

Coca-Cola's Corporate Social Responsibility (CSR) Programs

Coca-Cola and Pepsi-Cola have both found ways to prosper in an impoverished country. They have overcome challenges with pure water to manufacture large amounts of beverages locally, providing a safe source of liquid and calories. They have provided jobs for local citizens through the manufacture and distribution of their products. The firms have extensive distribution networks that deliver products to the most remote villages in a country with poor and sometimes inaccessible roads.

Coca-Cola has an extensive list of initiatives in the area of Corporate Social Responsibility (CSR). The 2016 Sustainability Report describes efforts to protect agriculture with sustainable sourcing, improvements in human and workplace rights, water stewardship, responsible packaging and recycling, women's economic empowerment, and donations of over $106 Million dollars to help customers around the world. The company has pledged to gradually reduce sugar to meet World Health Organization recommendations that people take less than 10% of their total energy/calorie consumption from sugar. New product lines focus on alternatives to soda, including organic tea, coconut water, juices, purified water and ultra-filtered milk products that have higher protein and calcium and longer shelf life than typical milk products. They also pledge not to target children under 12 in advertising, and to make nutritional information available to consumers.

Someone should to do something - Back to the Mission group

By the end of the week-long trip missioners were unified in wanting to attack the problems of poverty, disease, tooth decay and unclean water, but the more they researched causes of the problem, the harder it became to pin responsibility on any one group. The people in a poverty-stricken nation are not in a position to solve the problem alone. Their government is not able to supply basic infrastructure needs for the whole country. Churches and nonprofit organizations are contributing help in many ways, but the problems are entrenched and hard to solve. Many global corporations are also making significant contributions to the welfare of people in Honduras and other Central American countries.

There are several questions remaining to be answered. Who is responsible for the problem? Who has the means to solve the problem? Are there unintended consequences at work? If Coca-Cola and Pepsi stopped selling soft drinks in Honduras, would the people be better off? Are children drinking soda from a bottle better off drinking unsanitary water that will make them sick? Are malnourished people better off if they still can't afford calories to fight hunger?

Alternatives

Members of the mission team brainstormed about possible interventions to reduce the impact of tooth decay, diabetes and malnutrition. Some of the suggestions included: (1) Encourage Coca-Cola to use some of the clean water produced and their intensive distribution in the country to sell fluoridated water at affordable prices; (2) Encourage Coca-Cola to partner with non-profit organizations, such as Rotary International, Water for People, Water.org, etc. to fund clean water delivery systems to rural villages; and (3) Encourage Coca-Cola to introduce healthier alternatives to soda, such as individually packaged milk products with long shelf life that do not require refrigeration (similar to the Fairlife brand sold in the United States) so that children could drink liquids safely while gaining nutrients.

Conclusion

Each recommended alternative has an opportunity to make things better for Hondurans. However, no one solution seems to address all the interconnected problems. At the end of the day, the people of Honduras will still be living with poverty, unsanitary conditions, and lack of medical care and infrastructure, regardless of efforts of global companies and visiting missionaries. Will any of these solutions have any long-term impact?

Case Instructions

Read the above case and then demonstrate understanding of the key concepts from the textbook (especially the noted chapters in some questions) in your written analysis of the case. Your paper will be written as a Word Document (Ariel 10 point, single-spaced, with double-spaces between paragraphs). Answer the questions as you follow the standard format for cases:

Your name, title and date

1. Introduction
2. Incorporating questions 1 and 2
3. Situation Analysis - Global Business Environment Factors
4. Incorporating questions 3 and 4
5. Alternatives
6. Incorporate questions 5 and 6 as you consider the corporate social responsibilities of Coca-Cola.
7. Recommendation
8. Incorporate question 7
9. Implementation
10. Incorporate question 8

Discussion Questions

1. What are the major issues the church mission group is concerned with?
2. Who are the major stakeholder groups that need to be considered when analyzing the related problems of poverty, tooth decay, lack of pure water, and obligations of global business partners in Honduras?
3. What global environmental issues does Coca-Cola need to consider for the market in Central America? How is this different from the business environment in the United States? (CH 2 and CH 3). Be sure to contrast political and legal issues, economic issues and technology issues.
4. Discuss cultural diversity when comparing consumers in the United State and those in Honduras? What cultural factors are at work that influence the problem or possible solutions for a corporation doing business in Honduras? For example, comparing Hofstede's 6D model, are there cultural differences between consumers in Honduras and the United States that need to be considered in forming plans? In what ways is the culture of Honduras similar to the United States? In what ways is it different? (CH 4)
5. Describe Coca-Cola's social responsibility in Latin American dealings. What ethical standards should they use? (CH 5)
6. Evaluate at least two feasible alternatives suggested by the mission team for eliminating the problems.
7. Recommend one of the alternatives or propose and justify your own solution. What would be the outcome of your recommendation?
8. What would Coca-Cola have to do for this to work (implementation). What resources and timeline would your solution take?