Horse meat case - Case study PDF

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Case Study 3.1 European Horsemeat Scandal – Network in disarray Derek, Sho, Abdul, Achillis, Phoebe

The global headlines said it all: for several months during the first half of 2013, the whole of Europe was rocked with the news that unapproved horsemeat had found its way into the food chain and onto the shelves of the supermarkets. The media coverage was enormous. By July 2013, typing ‘horsemeat scandal’ into Google produced over 228,000 hits, from news organizations, government agencies, scientific authorities, food industry bodies, and not forgetting the almost obligatory Wikipedia entry. The scandal broke in Ireland on 14 January 2013, when the Food Safety Authority of Ireland announced the results of analyses of frozen beef burger samples it had tested in November 2012. The results indicated that equine DNA was present in the samples from several major food supermarkets: Tesco, Iceland, Aldi, Dunnes Stores and Lidl. The Tesco beef burgers, supplied by ABP Silvercrest in County Monaghan, revealed as much as 29 per cent horsemeat. Two other factories were cited as providing meat with lower levels of horse DNA: Dalepak in Yorkshire, UK, also owned by ABP, and Liffey Meats in County Cavan, Ireland. It’s argued that the scandal knocked almost £300 million off Tesco’s market value within 48 hours of the news breaking. This was a scandal that was going to run and run. In January 2019, two former managers of French meat-processing firm Spanghero and two Dutch meat traders were put on trial in Paris, accused of using cheap horsemeat in beef products that were sold across Europe. The four accused could face large fines and lengthy jail sentences if found guilty. Of course, horses are slaughtered for their meat in parts of Europe and horsemeat is readily available for sale in European markets. The issue wasn’t horsemeat per se. There was much confusion at first and debates raged about whether it was a food safety issue or a breach of consumer trust, or both. Products were recalled, food was taken off the shelves of the supermarkets, and food standards and safety authorities set about trying to establish what had happened. Ultimately, at issue on this occasion was the fact that the meat in the affected burgers and other products was actually intended to be beef and should not have contained traces of any other animal product. Indeed, analyses of some samples of beef indicated that pig DNA was also identifiable. The concerns became more about consumer trust than food safety. The lack of traceability, for example, meant that people seeking to avoid particular foodstuffs (for example, for religious observance reasons) found it very difficult to know what beef products they could trust.

By the time the full extent of the saga had been played out, 15 European countries had become involved. The European Union, including European agriculture ministers and the European Commissioner for Health and Consumer Policy, was involved in formulating responses at the highest levels. This included a very large programme of DNA testing of 2,250 processed beef samples across the European Union and further plans to bolster food safety legislation within the EU, including more money for food surveillance as well as stronger financial penalties for food operators that commit fraud or fail to comply with food safety laws. Along the way, a whole collection of household names in food have been affected. Horsemeat traces found their way into consumer food products either manufactured directly by, or sourced by the subcontractors of, Findus, Nestlé and Birds Eye. Own-brand beef products sold by major supermarkets were also affected. In addition to those announced at the time of the initial Irish investigation (Tesco, Aldi, Lidl, Iceland and Dunnes Stores in the UK and Ireland), Asda and the Co-operative Group in the UK, as well as Real in Germany and Ikea across Europe, also withdrew ranges of beef products in the wake of the scandal. Intermediaries such as foodservice companies and catering suppliers were not immune either. Brake Bros, a food service company which supplies the Whitbread Group of companies (which includes Premier Inn hotels, Brewers Fayre pubs, Table Table pubs and Beefeater Grill restaurants), found traces of horsemeat in its beef lasagne and burgers. Catering companies Compass and Sodexo, which supply institutional markets such as schools, hospitals and prisons, also found horsemeat present. There has been subsequent criticism of the extent to which the meat supply trade within Europe has become too complex. One example, relating to how horsemeat found its way into products such as Findus beef lasagne, shows how extended and complex the supply chain can be: ● Comigel, a French company supplying Findus, among others, asks its subsidiary, Tavola in Luxembourg, to manufacture beef products (including Findus beef lasagne). ● Tavola orders the beef from a meat processor, Spanghero, in the south of France, which sub-contracts the supply to a company in Cyprus. ● The Cypriot subcontractor uses Draap Trading Ltd in Belgium to make the order of the meat itself. ● Draap uses two slaughterhouses in Romania (Doly-Com and CarmOlimp) for the supply of the meat, and the meat is sent to Spanghero in France from where it is then sent to Tavola, which makes the products for supply to Findus and retailers across Europe. Some attribute this longer and more complex chain to the way pricing operates within the meat production industry overall, arguing that prices are squeezed more tightly over time by the powerful supermarkets, which means that animals are sourced from lower cost countries for slaughter, and this creates greater opportunities for fraudulent activity in meat substitution. There seems to have been fraudulent behaviour in knowingly relabelling horsemeat as beef, as well as

incompetence in the network in failing to maintain product integrity throughout the whole of the chain. For companies like Tesco, it brings a salutary warning about relationships and networks. A company is only as good as the relationships it has (and this goes the whole way down the supply chain network). Other major supermarkets, such as Sainsbury and Waitrose in the UK, haven’t suffered the same negative consumer responses because their products had no meat substitution. Indeed, they have benefited at the expense of those who were implicated, by arguing that they use local beef from known sources and with supply chains that are much shorter. Relationships bring burdens that mean they will always require attention to what’s happening in the network overall. The costs of monitoring relationships and maintaining the quality and integrity of the product have to be borne somewhere in the network. The economic climate may well be a driver for reducing costs overall, but the question becomes one of where the costs are borne since they cannot be eliminated completely. Some of the typically very large companies further downstream relied heavily on the costs being borne upstream, without any real basis for trusting all the actors in the network and/or effective means of identifying and protecting the value chain from fraudulent behaviour. Given what Håkansson and Snehota (1995a) have called the unruliness and stickiness of relationships, where companies don’t have total control and are dependent on the associates of associates, in retrospect this appears to have been a risk that came back to bite them. Of course, it was possible for many of the big players to drop key suppliers quite quickly in light of the scandal as it unfolded. However, adverse consequences did occur, notably, damage to reputation, the likelihood of greater product assurance costs arising from the more stringent requirements of the food standards agencies, and the prospect of having to assume greater relationship costs in the future. Case Study Questions In addition to reading the case material, spend some time on the web trying to get a picture of the complexity of the meat supply network in Europe at the time of this scandal: 1. Using ARA concepts, compare the examples of the networks of companies that were negatively affected by the scandal and those that were less affected. Negatively affected: Meat suppliers such as ABP Silvercrest Supermarkets such as Tesco, Iceland, Aldi, Dunnes Stores and Lidl The Whitbread Group of companies such as Premier Inn hotels, Brewers Fayre pubs, Table Table pubs and Beefeater Grill restaurants

Actor

Resources

Activities

Negatively affected

-Comigel: French food producer -Findus: a frozen food brand produces beef lasagne -Tavola factory: the subsidiary of Comigel in Luxembourg -Spanghero: a meat processor in the south of France -The Cypriot subcontractor - Draap Trading Ltd: a trader in Belgium - Slaughterhouses in Romania: Doly-Com and CarmOlimp

Beef, Money, Time, Employee s

- Comigels asks Tavola to manufacture beef products (including Findus beef lasagne). -Tavola orders the beef from Spanghero -Spanghero sub-contracts the supply to Cyprus. -The Cypriot uses Draap Trading Ltd to make the order of the meat itself. -Draap uses two slaughterhouses for the supply of the meat. The meat is sent to Spanghero in France from where it is then sent to Tavola, which makes the products for supply to Findus and retailers across Europe.

Less affected

UK supermarkets: Sainsbury, Waitrose

Beef, Money, Time, Employee s

- Using local beef from known sources and with supply chains that are much shorter

2. Establish Comigel’s relative network position in light of the scandal and indicate how it may be able to improve it. Comigel should move from the periphery to a position closer to the centre of the network. The focal company should get stronger by forging stronger relationships with partners that are in stronger network positions. Besides, the company should forsake some of the relationship linkages that it already has by using beef from known sources and dropping some indirect suppliers such as Cypriot subcontractor and Draap Trading Ltd. Therefore, the supply chains become much shorter, which allows Comigel to monitor relationships and maintain the quality and integrity of the product. Besides, Comigel should apply a control-oriented model for network management. This mode allows the company to add controlling activities intended primarily to prevent

opportunistic behaviour within the network. The activities are controlling in that they rely heavily on social behaviour expectation setting and pressure as well as having a focus on sanctions to achieve network compliance.

3. As a senior executive at Tesco, who has recently read all about business-to-business interaction and networks, what strategic objectives would you set to redress the difficult network position the company now finds itself in?

As a senior executive at Tesco, in order to manage relationships, I need to have an understanding of these processes of interaction so that the consequences of relationship action can be recognized and build a relationship based on trust and cooperation. It is essential for me to consider all forms of interaction between the short -term relationship parties: financial, product, informational and social. Firstly, the relationship should be built around the nature of the product, which requires a standard product offering from other actors in the network. Secondly, the amount of money involved in the exchange is also likely to affect the interaction, so that I need to negotiate the fair price that is beneficial to suppliers to ensure their integrity. According to the case study, the prices are squeezed more tightly over time by the powerful supermarkets, which means that animals are sourced from lower cost countries for slaughter, and this creates greater opportunities for fraudulent activity in meat substitution. Thirdly, it is important to know informational contacts of other actors in the network to keep updated with planned changes within their organizations or their visions for the future of the industry. Finally, I need to know social contact between relationship participants to create bonds between the actors that cement the relationship, building the sort of trust that comes from personal experience of interaction. In the long term, I tend to build relationships with partners who know each other better and develop clear expectations of the relative roles and responsibilities of each other. This constitutes a degree of institutionalization: they do not really have to think about every step they take with each other. Furthermore, as a relationship unfolds, one or other party may make adaptations in the exchange elements or the process of exchange. 4. Using the ARA model and relationship management concepts, establish five key relationship management tasks that you feel will help achieve the strategic positioning objectives There are five key relationship management tasks that I feel will help achieve the strategic positioning objectives. Firstly, it is important to analyze the ARA model to obtain some knowledge of three important components that networks bring together: actor bonds, resource ties and activity links. Therefore, I am able to know the network position of my company to make a decision on changing its position. Secondly, it is essential to apply control-oriented mode

for network management. This mode allows the company to add controlling activities intended primarily to prevent opportunistic behaviour within the network, which allow it to monitor the changes in the activity pattern relevant for the company. The interpretation of the tendencies and trends in the activity pattern of relevance to the company and assessment of the opportunities to develop the position in the overall activity pattern is more important for the strategy development of a company. Thirdly, there is the necessity to consider the resource ties in relationships where it is a resource provider in relation to the position of the resource user. The dynamics of ties in a resource constellation are such that it always is likely to change and develop. If a company is to maintain the role of a privileged resource provider it has to follow the changes in the resource constellation and try to maintain a certain degree of flexibility in its resource ties. If not, the company needs to require different reactions to develop resource ties to new actors. Fourthly, I need to forge stronger relationships with actors in the network to move the company from the periphery to a position closer to the centre. It means that I need to consider all forms of interaction between actors to build a relationship based on trust and cooperation. Finally, it is important to improve technological innovations in the interaction process to facilitate the interorganizational relationship in the network....