NESTLE PHILIPPINES: MONSTER MNC

"MONSTER MNC IS 100"
by Ducky Paredes
MALAYA, Business Insight, 05 September 2011
(Original article available here)

"PEOPLE and multinational corporations both have birthdays but with a big difference. Humans tend to become kinder as they approach the end of their time on earth; multinationals get to be more powerful and, as their reach expands, more dominant, exploitative and even criminally abusive. Not all, of course; as with humans, there are good and bad multinationals.

One multinational celebrated its hundredth year recently by bullying and throwing its weight around to the detriment, not just of its competitors, but also even of its own business partners.

At last, the multinational is getting its comeuppance. For starters, the force of the law, imperfect as it is in this country, seems to be working against the multinational. A judge is looking them over and entertaining complaints filed by Pinoys who were abused by the MNC and forced into a state of near-bankruptcy.

There is even more trouble due the MNC in the form of bills pending in the Senate and the House of Representatives intended to improve current laws against monopolistic behavior, predatory pricing and restraint of trade, sponsored by Senate President Juan Ponce Enrile, Senator Sergio Osmeña and Representative Rufus Rodriguez. .

The giant multinational, which is Nestle Philippines, Inc. (NPI), just turned 100 recently. Nestle, as with most other MNCs, celebrated its longevity by launching corporate social responsibility (CSR) projects backed up by lavish advertisements in print, radio, television and cinema showing how the multinational has been a good corporate citizen. In the case of Nestle in the Philippines, one wonders whether this the true picture of the company.

NPI’s festivities were somewhat rained on when the Office of the City Prosecutor of Quezon City issued a resolution on August 15 finding sufficient evidence to hold NPI for trial for violation of Article 186 of the Revised Penal Code.

This article penalizes any person "who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, which results in restraint of trade or commerce and prevents, by artificial means, free competition in the market."

The resolution found merit in the complaint filed by Nestle distributors FDI Forefront II Trading Corporation and Service Edge Distributors, Inc. that their agreements with Nestle were anti-competitive since they were obligated to sell Nestle products at the price fixed by NPI, regardless of the fact that the set price provided too thin a margin for the distributors to make a profit. Failure by the distributors to sell under these terms would result in the unilateral termination of their agreement with NPI. Their complaint pointed to a situation when NPI forced them to sell to a set of customers at a loss because of the fixed price set by NPI.

According to the QC Prosecutor’s resolution, "the act of Nestle in fixing the resale price maintenance for its products, imposing it on complainant is illegal, a per se violation of paragraph 1 of Article 186, Revised Penal Code which means that price fixing is automatically illegal and there will be no valid justification to legitimate price fixing agreement."

The resolution further stated that an analysis of the agreement shows that the act is also unlawful "because of its harmful anti-competitive effects against consumers and complainants, with no competitive economic benefits. Harmful to the consumers because Nestle exercised monopoly power of price fixing, the resale of its goods which means that consumers cannot buy the product at a lower price than that fixed by Nestle."

High ranking NPI executives, former Chief Executive Officer Doreswamy Nandkishore, current CEO John Martin Miller, Shahab Bahcani and Peter Noszek were impleaded for conspiring to commit anti-competitive acts as they were found to have knowingly committed the crime or to have permitted or failed to prevent the commission of the crime, and will stand trial before a Regional Trial Court of Quezon City.

The resolution is a welcome development, not only to the complainants, but to those who support the passage of an Anti-Trust Law, coming as it does on the heels of President Noynoy Aquino’s signing of Executive Order No. 45 giving full jurisdiction to the Department of Justice over matters related to competition and fair trade practices.

Lawyer Lorna P. Kapunan recalled the president’s assurance that the matter of monopolies and corporate bullying tactics was one of the first issues that he would look into. "His signing that E.O. shows that he is taking active steps to back up his promise," Kapunan said.

Nestle insiders say that the top honchos in the company’s main office in Switzerland are closely monitoring the woes that the local hundred-year-old outfit is experiencing. The rift between NPI and its distributors was reportedly on the agenda when the mother company’s chief executive Paul Burke and executive vice president Frits Van Dijk came all the way from Switzerland to meet with NPI officials (and also incidentally, to participate in the company’s centennial celebration).

Will the mother company in Switzerland do anything to convert the image of the centenarian company into a more grandfatherly one in its dealings with its business partners or will Nestle continue to exhibit the worst traits of a MNC monster?"