CASO Alpina Inc

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This document is authorized for use only by Emmanuel Gonzalez at Pontificia Universidad Javeriana until June 2014. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860.

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M A R C H 2 5 , 2 0 1 1

________________________________________________________________________________________________________________ This case was written by Diana Trujillo Cárdenas and Roberto Gutiérrez, both professors at the School of Administration of the Universidad de los Andes. SEKN cases are developed solely as the basis for classroom discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2011 Facultad de Administración de la Universidad de los Andes. To order copies or request permission to reproduce materials, call (800) 988-0886 or (617) 783-7500 outside the U.S. and Canada, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the permission of the above mentioned copyright holder. At the time this case was developed, the SEKN membership consisted of AVINA, EGADE, Harvard Business School, INCAE, Pontificia Universidad Católica de Chile, Universidad de Los Andes, Universidad de San Andrés, Universidade do São Paulo, IESA, ESADE and Universidad del Pacífico.

D I A N A T R U J I L L O C Á R D E N A S

R O B E R T O G U T I É R R E Z

Alpina, Inc.

Towards the end of 2006, Alpina had annual sales of nearly $275 million.1 It was one of the most

important dairy companies with processing facilities in Colombia, Ecuador and Venezuela, and

exporting to 34 different countries. Alpina was first in sales, shareholdings, earnings and net worth

among 76 dairy companies in Colombia.

Upon consolidation of its corporate model, the Executive Committee, consisting of the President,

vice-presidents and managers of the different business units, decided to tackle the issue of the

company’s social responsibility. There was consensus that the contributions of Alpina were nothing

more than “a variety of isolated initiatives” which didn’t adequately respond to the needs of the

country. María Rojas, Vice-President of Corporate Operations, felt there was a need to further those

operations that jointly created social and economic value, and to correct the aspects of the operating

model that were subject to criticism. She argued that the largest impact Alpina could create came from

concentrating on its business with an eye on opportunities to create social value at any point in its

value chain. On the other hand, other committee members felt that “it’s a given that we must be good

citizens and continue to further our accomplishments, but we need to go beyond that.” As business

leaders, they hoped to become an example by demonstrating that “we can do something for people in

the lowest socio-economic strata2 of the population, beyond giving them some houses and then saying

we’ve met our social obligations.” Their proposal was to create the Alpina Foundation for Nutrition.

The Executive Committee appointed the Vice-President of Marketing to come up with a project to

increase the company’s social impact. The maximum level of investment in social initiatives would

1 Unless noted otherwise, the sign $ stands for US dollars throughout the case.

2 In Colombia, the National Department of Statistics classified the population into six socio-economic strata. Colombians with

the lowest income belong to stratum 1.

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reach a level of 10% of net profits from the previous accounting period. Juan Pablo Fernández, who

had been in the company for three years when he was named Corporate Vice-President of Marketing

in 2006, convened a meeting with his team to discuss the two alternatives. He had less than a month to

present a project. Given resource limitations, he couldn’t propose both alternatives for the near future.

The company

Alpina was founded in 1945 as a cheese producer by Walter Göggel, who fled Switzerland,

foreseeing the outbreak of war in Europe, and settled in Ecuador. There he met an old friend, Max

Bänziger, and together they started a cheese and butter factory, which did not prosper because of an

uncertain market and unstable access to water and electricity. They decided to explore options in

Colombia and settled in the city of Sopó (see Exhibit 1). They began operations by purchasing 500

bottles of milk and making cheese daily by hand. With a bank loan they acquired approximately

45,000 square meters of land and began construction of a factory.

By 1950, about 3,000 liters of milk were processed per day in Alpina’s vats. The first retail store was

opened in a colonial-era house. Production continued to increase and national distribution was

launched. Technology imported from Canada and the United States was combined with artisan

methods of production. Growth continued until 1969, when a need for capital opened opportunities to

new investors (see Exhibit 2). Colombia’s consumer society grew rapidly; supermarket chains

consolidated and obliged a substantial improvement in packaging and conservation of food products.

Alpina responded quickly to this new stage. By 1976 it changed it’s name to “Alpina Food Products,

Inc.”

In 1990 a new plant was opened in Sopó, which expanded production capacity and allowed new

products to be developed. Between 1991 and 1992 distribution agencies were opened in the cities of

Pasto, Neiva and Cartagena and in October of 1993 a new milk collection center was opened in

Simijaca as a pilot project to modernize collection and transport of milk to plants and to assist

suppliers. In 1994 a factory in Facatativá was launched. In September of that same year Alpina began

commercializing in Venezuela and within months purchased the plant of the Favensa company,

thereby initiating industrial operations outside Colombia. In November of 1995, the company

Alpiecuador Food Products, Inc. was legally constituted, beginning commercialization in neighboring

Ecuador.

In 2003 the directors defined the strategic focus for 2010: to strengthen the core business, to

internationalize, to diversify, and to develop a corporate model. By 2006, the corporate model

proposed a higher goal, collective commitments and a new organizational structure (see Exhibit 3).

In 2006, Alpina processed over 300,000 liters of milk a day, employed nearly 4,500 people and had

the commercial infrastructure and technology to supply 167,500 clients3 throughout the Andean

region. Alpina was represented by 25 different commercial outlets, five production centers and three

3 The figure corresponds to wholesale purchasers and would therefore be much larger if the final consumer were counted.

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central offices for its production in Colombia, Ecuador and Venezuela. 4 Its line of products could be

classified into nine groups: dairy drinks, refreshments, milk, baby foods, ready-made sweet foods,

cheese, cream and butter, the Finesse line and a line of food solutions (see Alpina Inc. financial

statement in Exhibit 4).

Alpina social initiatives in 2006

Throughout the years, Alpina had carried out social initiatives in the areas of marketing,

community relations and human resources, as well as with stakeholders such as suppliers. Fernández

studied each of these initiatives and compared them with the option of creating a foundation.

Marketing

In the area of marketing, one way to contribute to social causes was through alliances with the

World Food Programme, the Colombian Society of Pediatricians and with Johnson & Johnson. There

were also a variety of marketing campaigns directed at particular causes, such as the Campaign for

Reuniting Families, and a variety of sponsorships.

Some of these projects were considered consumer education campaigns and reached a considerable

number of beneficiary-consumers. For example, since 2000, the alliance with Johnson & Johnson had

reached 297,000 women of all socio-economic strata from five cities throughout Colombia to educate

them about the best nutritional care of babies. Under the slogan “Johnson & Johnson cares for you,

Baby Alpina nourishes you,” J&J representatives visited clinics to train doctors, nurses, nutritionists

and mothers about the benefits of the products of the two companies, important nutritional aspects of

newborns and other related issues such as allergies. According to Director of Strategic Marketing,

Carlos Fernando Romero, the alliance emerged because, “when one is going to have a baby, one feels a

lot of doubt. The social responsibility of Alpina is to provide answers to consumer’s doubts. The

program intends to generate value for consumers, through innovation and differentiation. By

launching our baby food line, we were interested in providing something more to our consumers, not

just in selling them products.” Another alliance, with the Colombian Society of Pediatrics, targeted

this through communications media, particularly radio, to provide nutritional assistance. Interested

consumers could call in live to ask an expert about nutritional issues.

Given its strong image in the market, the association of its brand with health issues and its position

as a reliable company, Alpina received many requests for sponsorship of social activities. The general

criterion for distributing funds was that the activity be consistent with the brand. According to Sandra

Gerlein, Brand Manager,

Events must be congruent with our branding strategy. To support an event with the

Association of Cardiologists, we used low-fat and low cholesterol products. We also take into

4 In Colombia, the commercial outlets were located in Barranquilla, Bucaramanga, Cartagena, Duitama, Medellín, Pasto, Bogotá

II, III y IV, Cali, Cúcuta, Ibagué, Neiva, Villavicencio and Pereira, and the production centers in Simijaca, Sopó and Facatativá. In

Venezuela, the commercial outlets were in Barcelona, Ciudad Bolívar, Maracay, San Cristóbal, Barquisimento, Maracaibo,

Porlamar and Valencia, and there was a production center in Villa de Cura. In Ecuador the commercial outlets were in

Guayaquil and Quito, and the production center in Machachi.

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account the target population: we aren’t going to sponsor an event with the elderly using

flavored milk. I consult with the director about the budget to be assigned to these activities.

Though there’s no specific budget for event sponsorship, we do have a budget for medical

visits, so we attend talks that deal with the elderly or with obesity. The budget is allotted

according to the different opportunities that arise.

These activities depended on the Vice-President of Marketing (see Table 1 of Exhibit 5). For Cristina

Muñoz, Manager of Trade Marketing: “anything that we do, positive or negative, has an impact on the

brand, it is constructive or destructive to the brand and creates affinity with the consumer. These days,

products are not sold as a response to a basic need; value is added by the message to the consumer.

Top of heart5 builds on this idea.”

In this regard, Carlos Fernando Romero affirmed that, “whatever is done with any other brand,

strengthens the Alpina brand; there is synergy between the social and the strategic actions. For

example, because of our initiatives with clients in the baby food line, we are the number two best seller

of baby food after Heinz, with a 17% market share. In terms of brand awareness, we hold 32% in the

category of baby foods. We are the second most recognized brand of baby food in Colombia after

Gerber, even though we’ve been in the market for less than two years. In top of mind, we’re above the

rest.”

Other executives had different opinions about the social and business connection, as well as the

commercial effect of these initiatives. One brand manager said: “I wouldn’t carry out a social activity

for commercial reasons. Social deeds are not done to receive something in return. Maybe in developed

countries that would be legitimate, but I would venture to say that here, if you overexploit a social

activity it becomes counterproductive; people don’t like it when a company profits from doing such

things.”

In the area of sales, Luis Fernando Rondón, Sales Director, gave the following opinion: “social

efforts have an emotional value; it’s possible that the final consumer thinks, ‘I like Alpina, it’s

wonderful what they do for people.’ But the consumer must face a reality in terms of his or her

income,6 and is confronted with goods offered by others besides Alpina. In the last five years, we have

faced very aggressive competition, with prices up to 30% less in products of acceptable quality.

Emotionally, social actions help us, but as a decision-making factor, I don’t think they tip the scale.”

Juan Pablo Fernández knew these arguments well. He also knew who were Alpina’s customers. Of

all sales in 2005, 94.11% were in Colombia, 4.12% in Venezuela, 0.57% in Ecuador, and 1.2% in other

countries. Of all sales in Colombia, it was estimated that approximately 70% were to people in the

highest socio-economic strata (4, 5 and 6).

5 Top of heart is a relatively new concept that measures market position, not in the mind of the consumer (top of mind), but in the

relationship that the consumer desires. According to this definition, top of heart demonstrates the consumer’s real decision to

purchase since the brand assures security, a sense of belonging and status.

6 According to the study Poverty and Inequality in Colombia, carried out by the Department of National Planning in September 2005, Colombia had a population of 44 million people, of which 20.3 million were poor and 6 million lived in extreme poverty. Of the total population, 28.9% were considered neither poor nor vulnerable. From www.dnp.gov.co/paginas_detalle consulted on May 14, 2007.

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Supply Chain

Two social initiatives were carried out with stakeholders in the supply chain: support to

distributors7, and training and assistance to suppliers and peasants.

A program for the development of distributors was conceived in the 1980s to create an exclusive

commercial model. This allowed for the greater part of the company’s geographic expansion between

1980 and 2000. One of the objectives was to get distributors to identify with the philosophy and the

emotional culture of the company so that they would in turn nurture the brand in the same way that

the company did.

By the end of 2006, Alpina had 56 distribution companies operating under this model throughout

the country, which were directly linked to nearly 1,600 people. Approximately 36% of Alpina’s sales

were made through them. These organizations served populations in the periphery of cities and had

representation in nearly 1,050 of the 1,098 towns and cities in Colombia. They were strategically

located in principal cities, but were in other cities as well and had complete infrastructure.

The majority of people who started out under this model were employees of Alpina, Inc. The policy

was for the distributor-entrepreneur to grow and get business training. Alpina, Inc. directly provided

part of this training, but also designed schemes with third parties to which the entrepreneur paid a

portion of the costs. One such case was developed in Bogotá with the Foundation for Sustainable

Development, FUNDES, in which an individual proposal and a strategic plan for 2010 was made for

each distributor, in alignment with the company’s distribution strategy.

As was the case with other initiatives, the results were not systematically evaluated. According to

Luis Fernando Rondón,

The impact of this program is not documented in any research, it seems to me. For example,

the largest distributor of Alpina is in Bogotá. The manager and owner started working sorting

products in the warehouse and washing bathrooms; he began demonstrating business aptitude,

drawing the attention of his manager, who helped him start up his business. This distributor

had about 90 employees and billed approximately $440,000 a month. There are a lot of stories in

Alpina like this. Not all of them have become big companies; half of them are businesses

moving about $150,000 a month, with around 25 employees.

One reason the impact of this initiative was not disseminated was related to the lack of security for

participants. According to Rondón, “distributors keep a low profile following instructions from top

management. In 2004, distributors became the target of illegal groups. They and their families faced

risks to such an extent that access to a list of distributors is authorized practically from the President’s

office.”

In spite of the fact that there were improvements in the security situation in Colombia in 2006

compared to previous years,8 the risks of moving around continued.9 Critics of Alpina’s distribution

7 Distributors consisted of companies that served the same type of clients Alpina had, but in periphery areas that, in general,

involved greater security risks and costs for the company.

8 Rettberg, A. (2007) Conflicto armado y sector privado en Colombia: impacto y respuestas. Unpublished research document about Building Peace.

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model claimed that rather than being a social initiative, the model transferred these risks to small

businesses.10

Another initiative incorporated into the supply chain was the model of supplier development,

which promoted industrial development throughout Colombia. Activities fell into two categories:

follow up and strengthening of suppliers, and purchasing from suppliers with a social profile.

Alpina used the latest technology, imported mostly from Europe. This led the company to develop

alternatives to this technology in Colombia and in Latin America. As the company developed, it

sought similar development for Colombian industry. This was achieved by sharing information,

transferring best practices and working jointly on projects.

In terms of the relationship with suppliers with a social profile, Alpina supported the development

of micro-enterprises for smaller activities such as packaging spoons, allowing the company to employ

people with disabilities. Sofía Gómez, Executive Director of the IDEAL Foundation11, stated, “what I

admire about [Alpina] is that, while they could have opted for mechanizing the process, they always

preferred the job to be done by people. If you looked at the numbers, it would be cheaper for them to

buy a machine, but they chose not to disconnect from the human element in production.”

To develop milk suppliers, a group of professionals and technical experts visited farms to train

operators. They translated the technical information to more accessible language. The process began

with the selection of a topic by the team that marketed milk. Material was distributed among the

coordinators and a training process was initiated, either at the company processing facilities, in local

schools or in town halls where milk was purchased. By following up in this manner, Alpina was able

to purchase milk with a quality standard comparable to that of developed countries. Over time, the

majority of Alpina’s competitors adopted similar schemes, thereby altering the commercialization of

milk products throughout the country.

Attendance and participation of farmers in this program was high. They were given quality reports

on their milk with their payments every two weeks, and a bonus scheme linked to the quality of

products was transferred to the farms as a means of employee compensation. The objective was to

install an information and communication system12 which the farmer could constantly consult to see

9 According to the Governmental Office of Communications, acts of land piracy, which surpassed 1,578 in 2003, declined to 671 in 2006, and the number of roads that were destroyed was reduced from 113 to 57 in the same time period. From www.presidencia.gov.co/resultados/2007/seguridad_07.pdf consulted on May 14, 2007.

10 According to the study Conflicto armado y sector privado en Colombia (Rettberg, 2007), the most frequently reported costs of the conflict by companies were loss of business opportunities, increased security expenses, and loss of sales as a result of damage to distribution and transportation networks. It also reported that direct costs of the conflict (threats, attacks, and extortions) tended to be lower than indirect costs (loss of opportunity, decrease in sales).

11 The Job Adaptation Institute, IDEAL (for its acronym in Spanish), was a civil society organization created in 1962 to help with

the rehabilitation of people with disabilities. Alpina started its interaction with IDEAL in 1992 when Germán Camacho,

Assistant to the President of Alpina, was invited by a friend to join the Board of Directors of the Institute.

12 This included two publications. “Alpitechniques,” issued by the milk farm coordinators, treated current issues with a certain

level of technicality and was written for the farm owner and professionals and technicians in the field. Another bulletin called

“From the Farm” was directed at administrators and milkers and was written with different language, seeking to highlight the

labor of milking; there were interviews that highlighted the positive image of the work and pictures of families.

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the standards reached in his production and make corrections when necessary. According to Nelson

Guerrero, Director of Farming Provisions, “this project marks a difference in the quality of milk at

Alpina. When we need additional volume, we find milk on the market from farms that have supplied

companies with similar models, but it’s not the same quality.”

Resources for these activities were included in the budget for Milk Marketing (see Table 2 of

Exhibit 5). Because of the general political and economic crisis in the country at the end of the 1990s,

sales growth was marginal, leading to a reduction in the budget for this program. But according to

Nelson Guerrero, the evaluation of the program was tied to performance indicators of the operation

and its continuity was guaranteed by the nature of business at Alpina:

We use indicators such as Compliance in Volume of Quality Milk. This implies that field

training is assured. While these activities are not explicit in the objectives of my work, the

results of my job depend on it being carried out in this way. The continuity of the program is a

given because of the responsibility that Alpina demonstrates to the farmer, which in turn

depends on the responsibility of the farmer to his employees. We propose a relationship based

on technological development, which means field training, paying a better price to the owner

and greater remuneration to the peasant. We assume that the majority of people who are

directly or indirectly linked to Alpina are covered by the compulsory social security, which is

not common in the countryside.

A government petition13 caused concern for those who executed this program. As part of a

reinsertion program of demobilized participants in the armed conflict into civil society, in June 2006, a

presidential agency contacted the largest businesses in the country that had development models for

suppliers. More than 11,000 demobilized actors needed to be placed in productive projects that would

allow them to rebuild their lives. Because of the success of its model, Alpina was pressured by

members of government and the public to include these people, who began with metal shops and

small workers’ associations, in its supply chain.

Relations with Neighboring Communities

Other initiatives, such as the Alpina Rural School,14 had an impact on the community but were not

directly linked to the primary activities of the company. The school was founded to provide an

educational service to families of factory workers, and worked with children up to six years old. The

school had its own budget, designated by the general budget of Human Resources.

13 Part of the Democratic Defense and Security Policy of President Alvaro Uribe Vélez’s administration beginning in 2003 was to promote the demobilization of members of armed groups. More than 35,000 demobilized paramilitary actors who were engaged in a peace process with the government, as well as about 8,600 deserters of guerrilla groups, made up some 44,000 demobilized actors in the country in 2006. The program gave formerly armed actors support and technical training for 12 months with the goal of bringing them into productive projects to ease their reinsertion into civilian life. During 2006, public opinion strongly questioned the role of private business in this process.

14 The Alpina Rural School is an educational institution created in 1980 by the General Manager. It was a response to research

that determined that some children in Sopó had language development difficulties. The school grew to eventually offer primary

education by 1988. Subsequently, when the scope of the program was questioned, it was reduced to offer education to those

without access to public education.

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According to the school principal, Rosario Almeida, “some people may not see the relationship of

the school to the company; they may say, ‘Alpina is about production and the school is an expense.’

People who benefit from it appreciate the service; the plant operator attests to its importance.

Nevertheless, someone who is more oriented to production could think that it would be better to do

without this service, to separate it from the company, to receive company donations, but operate it

independently.” For his part, Leonardo González, head of Human Resources in Sopó, pointed out the

contribution of the School to the municipality for its academic achievement and innovation. In his

opinion, the school was a bridge to construct strong ties with the community and an elevated sense of

belonging to the company.

In 2001, Alpina pre-selected 30 young people, 18 of who were former students of the Rural School,

for an internship. When they were tested for selection, they all demonstrated very poor results. A

possible explanation, according to Rosario Almeida, “is that our children leave with very good skills to

compete in a private school; they graduate reading and writing. But then, the majority goes into the

public school system and they have to start all over again learning vowels, and they lose a lot of

ground and enthusiasm.”

Alpina helped the Secretary of Education of Sopó and the Governor’s Office of the Department of

Cundinamarca to reach an agreement, in spite of opposition by the City Council, to open a public

school on concession in the city.15 According to Germán Camacho, Assistant to the President, “the

Secretary of Education of Sopó told me that his dream was to have a new school administered by

concession, like in Bogotá. I made the commitment to make this dream happen and we began working

together. The city provided some money, the Governor’s Office provided the rest and the project took

off. Today we have a school for 1,300 students under a concession with Colsubsidio.”

The new school changed the dynamic of education in the city. It brought in organization and

experience to compete with the other seven educational institutions that already existed. It also

neutralized the political power that some council members who owned schools wielded. The

incorporation of education into the company’s employee requirements constituted a pilot project to

articulate industrial demands and labor force supply by educational institutions. According to

Camacho, “the idea that we discussed with the Mayor’s office and with other actors was to help

coordinate the educational project; we looked for an educational development plan for the city that

would take into account the needs of the region and of the companies that operated there; the

educational model of Sopó would be a model of municipal education for the rest of the country.”

Other activities in the Sopó community were derived from Alpina’s participation in the

Corporation for the Development of the Northern Savannah, PRODENSA. This organization was

created in 1988 to channel social investments from local companies and to prioritize petitions of

mayors in the area. The head of Human Resources of the plant was on the Executive Committee of the

Corporation. Prodensa carried out employment generation projects and cooperative development with

nearly 200 people, and the income that it generated contributed to the sustainability of the

organization with contributions totaling almost 53% of its total budget. Other programs included

Visible Candidates, a school program to promote citizen participation, music schools, high school

15 Concession schools were a model introduced by Bogota Mayor Enrique Peñalosa and Cecilia María Vélez, who was Secretary

and later Minister of Education. The ministry turned over in concession the direction of public schools to private entities with

experience in administration in educational institutions that demonstrated good results.

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equivalency programs and the development of an environmental park aimed at mitigating the

environmental impact of companies, with an investment of nearly $1.75 million. PRODENSA achieved

international recognition for its management model.

Alpina also involved itself in the communities through education and training, contributions to

local fairs, in-kind donations, and participation in the Local Administrative Boards and in Civil

Defense (see Table 3 of Exhibit 5).

Finally, the company worked with surrounding communities to mitigate the effects of its

operations on the environment. Independent studies showed that Alpina consumed three times less

the amount of water used to produce milk compared to other companies in the sector. According to

Germán Lopez, “today we consume less than half the amount of water per ton of milk compared to

what we consumed ten years ago: previously, we consumed around 11 cubic meters of water per ton

of production; today we consume about 5 cubic meters and we keep lowering that amount. The

company has invested $8 million in treatment of residual water in the past 12 years.” In 2000, Alpina

obtained ISO 14000 certification, which led the company to alter its purchasing policies to select

environmentally conscious suppliers.

Some community members viewed Alpina as a good neighbor. But others believed that Alpina was

doing the least that it should. In the words of one community member from Sopó, “It’s not true that

Alpina is so good; they do what they must. Their efforts to conserve water were the result of

community pressure. We’ve watched Alpina closely over the years, and it’s because of our pressure

that they’ve responded the way they have.”

Human Resources

In 2002, Adriana Rubio, Catalina Jordan and Pilar Bolivar from the human resources team

made the first attempt to consolidate Alpina’s social actions. They wanted to examine the variety of

activities in different areas, such as donations, and bring them into line with the development of social

responsibility as an organizational competence. The result was the establishment of the Corporate

Social Responsibility Program, which brought all the different programs together with the new “We

are all Alpina” program. The objectives of the program were to create an enduring change in social

responsibility towards employees and have an impact on civil society. The Human Resources team

developed the operational budget that would be needed and then began a rigorous selection process

of social organizations to which the company would contribute money and technical support. By 2003,

investment in “We are all Alpina” reached $17,511 and the project linked 311 employees who donated

their time with 12 different entities. In 2004, the investment increased to $24,954, and by 2005 it had

reached $26,267.

The Alpina Rural School and the IDEAL Foundation were two organizations that had previously

worked with the company and remained in the program. The donation of labor allowed the school to

receive 30 more students from very poor communities and to extend school hours. They further

involved the parents of these children in volunteer activities and thereby generated increased ties

between the community and the school.

Receiving support from “We are all Alpina” was very positive for the IDEAL Foundation.

According to the Foundation Director, Sofia Gomez, “every one of our workers contributes at a

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personal level, and the fact that the directors donate their time is very valuable. About 30 people

contributed their labor, with money or knowledge. For instance, the person in charge of purchasing,

who serves on the Board of Directors of the Foundation, connects us with other businesses that we can

supply.”

According to German Camacho, Assistant to the President, the result of “We are all Alpina” was

very important: “We Colombians who have a stable job and who work for a company with social

consciousness also have a responsibility. This project needs our support.” During 2005, 1,063

employees of Alpina worked in 21 different social organizations benefiting more than 6,000 people for

the community (see Tables 4 and 5 of Exhibit 5).

Employees largely supported the program, but there were critics as well. According to one

employee, who did not participate, “I think it’s fine that whoever wants to participate does so. But I

feel uncomfortable that some colleagues don’t understand why I choose not to participate. I have my

own cause, and I prefer to spend my money helping a family in need. Besides, I don’t agree when

people brag that this program is Alpina´s social contribution. In the end, the ones who contribute

resources and labor are the employees. Beyond authorizing some work hours to its employees, what’s

the contribution of the company?” Other critics voiced their concern from within the Executive

Committee: “to support so many different causes is like not supporting any; it’s like redistributing

poverty.”

An alternative course

Fernández had a clear picture of Alpina’s social initiatives with suppliers, employees, distributors

and neighboring communities. “What the committee wanted was that Alpina be identified by a single

action that is well executed,” he remembered. Some members of the Executive Committee wanted to

create something different and had pointed out certain causes that they thought the social initiatives of

Alpina should target. According to Fernández, “these causes ranged from committing ourselves to

child nutrition16 and integral development to questioning whether we should get involved in helping

displaced populations17 and identifying ourselves as a company which is sensitive to the armed

conflict.”

The variety of ideas nourished a new option that Fernández was considering: to create the Alpina

Nutrition Foundation. Among the expectations of those on the Committee who supported this idea,

the Foundation could attract resources from those interested in working on nutrition, which would

16 Between 1995 and 2002, global malnutrition in children under 5 years old was 7% in Colombia, 15% in Ecuador and 4.5% in

Venezuela. Boletín Desafíos, CEPAL – UNICEF. Number 2, April 2006. The national nutrition survey for 2005, conducted by the

Institute for Family Welfare in more than 37 million homes throughout the country covering people between the ages of 2 and

64 years of age, revealed that the following food categories are the most commonly consumed: in the first place, soda drinks,

followed by milk, potatoes, lentils, plantain, rice, beans, oranges, mangos, yogurt, alcoholic beverages, empanadas, bananas,

guava and ñame fruits.

17 Colombia holds second place among countries in terms of internally displaced populations. Between two and three million

people had to flee their homes between 1960 and 2000 due to the internal conflict. From

http://www.caracol.com.co/noticias/277527.asp?id=277527 consulted on March 2, 2007.

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complement Alpina´s budget. Besides the money, the company would contribute know-how related to

the development, production and marketing of food products.

Those who were enthusiastic about the creation of the foundation dreamed of having an impact on

public policies in nutrition, generating and distributing knowledge in the area, and creating schemes

to attend to the nutritional needs of low income populations. In this last area, one director proposed

the creation of a food production plant for the lowest socio-economic strata; Alpina would donate its

knowledge and expertise and power to raise support, free of charge. In his words, “there is no greater

cause than one in which Alpina contributes what it does better than anyone else. The key is to take

advantage of what we have learned and put it at the service of the country.”

Skeptics pointed to a number of challenges. The area of child nutrition was a topic where a variety

of actors already had a foothold. Organizations dedicated to child welfare in general, not just those

dedicated to nutrition, focused their efforts in this field. From the business sector, for example, the

Éxito Foundation had been working in child nutrition since 2000, had created the Child Nutrition

Award and was recognized as a leader in the field. Furthermore, some of the flagship programs of the

national government, such as Families in Action and Community Homes, and some local government

programs, also worked in the field of nutrition (see Exhibit 6).

Additionally, the Foundation would not be exempt from one of the greatest risks as perceived by

the Committee: criticism for benefiting from the needs of others. With the Foundation and the

company working in the same sector, it was possible that the public would think that Alpina was

taking advantage of its social activities.

Fernández went back to review different opportunities to increase Alpina’s impact within its value

chain. Several Committee members would support some of these. “Why don’t we concentrate efforts

in the areas where our business model is criticized and increase the social impact of our operations?

It’s capricious to invent a new project when we can make improvements on what we have,” affirmed

one of them.

As he studied the options, Fernández considered the budget that was available for 2007. He would

have to choose one of the two alternatives: create a foundation or expand the social initiatives that

were integrated with operations. His secretary came into his office and handed him an open envelope

that contained some newspaper clippings about Nestle (see Exhibit 7). No sender could be identified.

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Exhibit 1 Location of Alpina, Inc. facilities in Colombia

16

15

14

13

12

11

10

9

8

7-17

6

5

4

3

2

1

Commercial agencies

1 Barranquilla

2 Bucaramanga

3 Cartagena

4 Duitama

5 Medellín

6 Pasto

7 Bogotá II,III,IV

8 Cali

9 Cúcuta

10 Ibagué

11 Neiva

12 Villavicencio

13 Pereira

14 Simijaca

15 Planta Sopó

16 Planta Facatativa

17 Central Office

Venezuela

Ecuador

Perú

Brasil

Panamá

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Exhibit 2 Ownership structure of Alpina in 2006

Name % Name %

KASS INVESTMENT LTD 19.9 CAYAMBE ESTABLISHMENT 14.4

MAX BAENZIGER Y CIA LTDA 2.8 HANESIDE LTD 11.5

INVERSIONES EL COCUY LTDA 1.7 SNOWHILL ENTERPRISES LTD 10.7

LATIN AMERICAN INTERNATIONAL

TRADING AND FINANCE 1.6

CASTLE FRANK

INVESTMENTS LTD 4.8

AGROINDUSTRIAL LA SABANA S.A 1.2 CARACOLI LTD 4.8

PLANASILVA ANSTALT 16.1 NAMEY INVESMENT LTD 4.8

VALETTA LTD 4.8

Exhibit 3 Alpina’s Corporate Model

Higher Goal

At Alpina we are committed to nourishment. We firmly believe that life generates life. We are

an Intelligent Organization that persistently seeks Collective Prosperity.

Collective Commitment

We work to generate confidence in our food products and we do so with dedication,

keeping in mind the nutrition of our families.

We are committed to our community and we foster its well-being and development while

protecting the environment.

We have great respect for our clients, collaborators and the communities for whom we

work; we value diversity.

We believe in observing, interpreting, anticipating and responding to our clients and

consumers to earn their loyalty and preference for our products.

We believe in loving and being loved. Our brand represents us.

We believe in innovative leaders. We support ingenious and surprising solutions. We feel

passionately about learning and evolving.

We will deliver our products anywhere where there are people who want healthy food.

We construct a healthy and prosperous future for our clients, consumers, suppliers,

employees and shareholders.

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Organizational structure before implementation of Alpina’s Corporate Model (2003)

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Organizational structure after implementation of Alpina’s Corporate Model (2006)

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Exhibit 4 Financial statement of Alpina Inc. at close of 2005 (in US Dollars)18

BALANCE SHEET DEC. 31 2005 BALANCE SHEET DEC. 31 2005

Cash, Bank Accounts, Assets and Shares $ 7,690,590 Sub-Total Accounts Payable $ 47,593,927

Commercial Outstanding Invoice $ 15,885,948 Suppliers $ 25,031,739

Inventory $ 22,140,162 Accounts payable $ 2,285,682

Other debts $ 9,398,832 Deferred taxes $ 1,534,878

Other Current Assets $ 1,475,777 Other Accounts Payable $ 11,136,843

TOTAL CURRENT ASSETS $ 56,590,871 TOTAL CURRENT LIABILITIES $ 87,583,070

Fixed Assets $ 58,206,740 Long-Term debt $ 19,334,828

Inv. and Advances to. Subs. and Affiliates $ 18.283.265 TOTAL LIABILITIES $ 106,917,898

Long-Term Debtors $ 4,983,758 Capital $ 1,891,236

Deferred and Other $ 11,285,253 Revalued equity $ 29,260,754

Asset value appreciation $ 47,558,466 Reserves $ 8,975,931

Other (Intangibles) $ 1,446,883 Earning appreciation $ 47,558,466

TOTAL FIXED ASSETS $ 141,764,366 Current earnings $ 3,751,390

TOTAL ASSETS $ 198,355,675 TOTAL NET WORTH $ 91,437,340

TOTAL LIABILITIES AND NET

WORTH $ 198,355,675

Income Statement at close of 2005 (in US Dollars)

Net sales $ 274,820,289

Sales costs $ 170,516,850

Depreciation $ 4,399,751

GROSS INCOME $ 99,903,687

Administrative costs $ 33,434,608

Sales costs $ 56,342,647

OPERATING INCOME $ 10,126,433

Other income 19 $ 18,681,651

Financial expenses $ 24,855,749

Pre-tax earnings and Monetary correction $ 3,952,772

Monetary correction (+) $ 1,515,616

INCOME BEFORE TAX $ 5,468,387

Income Tax Provision $ 1,716,997

NET INCOME $ 3,750,952

18 The official exchange rate on December 31, 2005 was 2,284.22 Colombian Pesos to the US Dollar.

19 When considering Other Income, 52% stems from favorable exchange rate results; 24% from the sale of production inputs and other materials; 15% from income from previous years; and 9% from income from other sources.

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Exhibit 5 Social Initiatives in 200520

Table 1 Social Marketing Initiatives

Initiatives Investment Beneficiaries

Campaign for Reuniting

Families

Internal resources 88 people who had disappeared in Colombia

were reunited with their families

World Food Programme

Alliance

Marketing resources Colombian children

Colombian Association of

Pediatrics Alliance

$54,723 Mothers and children under two years old in

Colombia

Sponsorships Marketing resources Variety of social organizations in Colombia,

Venezuela and Ecuador

Johnson & Johnson Alliance $39,401 300,000 contacts with Colombian mothers

Table 2 Supply Chain Initiatives


Distributors Project FUNDES $37,212 21 Colombian companies

Training and advice to suppliers Internal resources 200 companies providing primary

resources

400 advertising material, industrial

parts and automobile companies in

Colombia

Advice to peasants (Milk Business) $35,023 447 milk suppliers in Colombia

Table 3 Community Initiatives


Generation of direct or indirect

employment to micro enterprises

and disabled workers

$169,423 110 individuals in Colombia

Education and training programs

for communities

Internal resources Families in the region surrounding

Sopó and Facatativá in Colombia

Support of regional fairs and

festivals

Internal resources Regional communities in Colombia

In-kind donations $263,260 Low income populations in

20 The data is from the preliminary report Alpina Social Balance for 2005. Some of the data were changed or adapted to facilitate

the learning process of the case, so there may not be exact coincidence with the definitive report.

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Colombia, Venezuela and Ecuador

ISO 14001 Environmental investment from

operational budget

Regional communities in Colombia

Participation in Local

Administration Boards

Internal resources Regional communities in Colombia

Participation in PRODENSA and

PRODEOCSA

$15,979 Regional communities in Colombia

Participation in Civil Defense Internal resources Regional communities in Colombia

Alpina Rural School $87,557 140 children / year in Colombia

Internal campaigns and activities of

Alpina in the community

$9,194 4,500 collaborators

Table 4 Donations to the “We are all Alpina” Program (2005)

Cost of the Donation ($)

CONCEPT Colombia Venezuela Ecuador

Donations by collaborators 27,029.00 - -

Donations through variety of

activities carried out by different

offices

15,438.00 - -

Product donations 207,001.00 - 12,771.00

Donation of elements - 1,021.86 -

Total 249,468.00 1,021.86 12,771.00

Table 5 Organizations supported by “We are all Alpina” during 2005

Country Organization supported

Colombia In 9 different regions, Alpina has supported 21 different nonprofit

organizations.

Ecuador Approximately 100 organizations received donations, primarily those

that work with children and the elderly.

Venezuela

Alpina Venezuela makes weekly donations. It continuously supports

schools, homes for the elderly, Corposalud, hospitals, shelters,

orphanages, and the township of Zamora in activities related to

children, with the best products available.

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Exhibit 6 Characteristics of programs dedicated to nutrition in Colombia

In Colombia the issue of nutrition has been part of the agenda of public and private

organizations.21 Among the most important initiatives in the public sector were the following:

The National System of Family Welfare

A joint effort of public and private institutions, on the national, departmental and municipal levels,

that lends partial or complete services for family well-being. The objective is the harmonious

development of the family, child protection and the guarantee of children’s rights. Work is based on

three principles: social participation, co-responsibility and decentralization. Since its creation in the

1960s, the bulk of funding for the system comes from direct fiscal support from companies, which pay

an equivalent of 3% of the value of their payrolls. The programs concentrated on programs such as:

Community Homes

Created in 1986, this program chose women with a basic education, experience working with

children, and owning their own home in poor neighborhoods to create small childcare centers where

basic nutrition and education could be provided to children between the ages of 3 months and 6 years.

By 2006, more than 80,000 Community Homes existed in Colombia, attending to approximately

1,120,000 children.

Other national and local government programs

Program Responsi

ble agency

Description and

objectives

Operation Coverage

Families in

Action

National

Government

Program to provide direct

monetary support to the

poorest families, providing a

subsidy in exchange for

compliance with a

commitment in health and

education.

The program sought to

reduce truancy and school

drop out. It also sought to

improve nutritional habits,

vaccine compliance, affection

and child development in

low income families with

children under 7 years old .

Directed at families with children

under age 18. Provided a monetary

nutritional subsidy and school

subsidy for families with children

enrolled in school and attending

classes.

To benefit from the program, the

family member who receives the

subsidy must have registered before

December 31, 1999 in the SISBEN

information system, must hold a

national identity card, and must live

in a qualifying municipality.

In 2006, there

were 600,000

families

participating in

the program

throughout the

country.

Kindergarten

Program

Local

Governments

Implemented in 2003 to

increase coverage of basic

education to the poorest

Each Kindergarten had an average

of 250 children. These spaces provided

the opportunity to socialize children

37,350 minors

between the ages

of 0 and 5 years

21 This Exhibit was Developed based on telephone interviews (Lucila Ines Porras, Director of Nutrir in Bogotá and Daniel

González of the Avina Foundation), from information from the web pages of each of the programs, and from Conexión

Colombia y Compartamos con Colombia.

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Program Responsi

ble agency

Description and

objectives

Operation Coverage

segment of the population.

The kindergartens operated

under a scheme of alliances

with local government

organizations and

compensation fund

companies to benefit the

population of children under

five years old with high rates

of risk factors in areas of

affection, emotional social

economic development,

attending to their integral

development.

by offering the necessary conditions

for them to achieve their potential

intellectual, emotional,

communicative and motor skills and

socio-affective development.

Once accepted into the program,

each child received attention between

the hours of 8:00 am to 4:00 pm nearly

every day of the year.

old were covered

in 2005.

Bogotá

Without

Hunger

District

Government

Bogotá Without Hunger

was a joint effort directed at

the right to proper nutrition,

designed under the Policy of

Food Security for Bogotá. It

proposed to guarantee the

right to food security to every

person, in particular to those

living in poor conditions or

those at risk, and sought to

include this population in

basic social services such as

health and education.

Bogotá Without Hunger not only

aimed to distribute food. The

Community Dinning Rooms were

only one of its strategies. The area of

Access to Food also sought to

guarantee inclusion into other Social

Services of the District, in particular

education and health. It also sought to

support habits in hygiene and the

construction of a social fabric. The

dining halls operated from Monday to

Saturday, giving priority to children

not attending school or working

children, pregnant women and

nursing mothers, people with

physical, sensorial, or cognitive

limitations, and displaced or single

parent families.

More than 40,000

people attended

168 community

diners in Bogotá.

In total,

411,814 people

have benefited

from a variety of

actions in food

and nutrition

offered by the

district

government.

Private Sector Initiatives

Some of the characteristics of the non-profit sector working in the area of nutrition in Colombia

were:

- Fragmentation of initiatives. According to Daniel González of the AVINA Foundation: “we spent

a whole year preparing a diagnosis and making proposals in this sector. We found that in each major

city in Colombia there was a Nutrir foundation; by some strange coincidence they were completely

different organizations that happened to have the same name. At first we proposed an alliance to act

collectively, but we realized over time that it wasn’t going to work. Finally, we realized that they had

neither the time nor the interest to attend meetings. How could an alliance possibly work?”

- Lack of information about problems, actors in the field and their projects.

- Without information, there was a perception that there were few actors in the field.

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-A number of initiatives were targeted to individuals, and had a perspective of assistance, one of

providing food without looking at the structural causes of the problem.

-Initiatives could be classified in the following areas:

1. Those dedicated to nutrition as a public health problem

2. Nutritional assistance

3. Those programs dedicated to children, education or other issues with a nutritional element.

Initiative Emphasis Area of Action Highlights

Colombian Foundation for Child

Nutrition NUTRIR

Nutrition as a public

health problem

Northern Bogotá Alliances with private

companies

Other Nutrir organizations in the

country

Food assistance Barranquilla,

Manizales,

Pereira

Éxito Foundation Nutrition and

Education

Largest cities in

the country

Éxito Foundation Award.

Investment in co-financing of

projects during 2006: more than USD

1,750,000 invested

Attention to Families Corporation Nutrition and

Community Development

Bogotá Promote management of

community diners

Foundation for the Integral Home Basic attention in food Bogotá

Other Foundations

Ex. Chile Education Foundation,

CRAN Foundation, Ana Restrepo del

Corral Foundation

Focus on education,

nutrition as reinforcement

for improving learning

capacities

Largest cities in

the country

Community Diners Neighborhood projects

to attend basic food needs

of communities

Every city in the

country

Alliance with Food Banks that

receive donations from private

companies

Community organizations Food security Projects Urban and rural

zones

Support from private companies

that promote community

development

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Exhibit 7 Framework for the creation of shared value22

Agriculture and materials

Manufacturing and

Distribution

Products and Consumers

Imp

acts

on

th

e v

alu

e ch

ain

of

the

com

pan

y

Supply practices

- sustainable and quality

inputs

- research and

development for

improved results

Environmental practices, labor

relations and security

- food security through

processing with high standards

- mutually beneficial labor

practices

- improved environmental

standards

New and renewed products for

nutrition, health and well-

being

- research to benefit

the consumer

- nutrition, health

and well-being of

the consumer

Cre

ate

a co

nte

xt

for

gro

wth

Supplier development

-knowledge transfer

and technical assistance

- alliance for sustainable

agriculture

Improvements in standards of

food security and labor force

development

-risk management in food

security

-employment opportunities in

communities

Increase of knowledge and

consciousness about nutrition

and healthy lifestyles

-knowledge and

education about

nutrition and

healthy lifestyles

Val

ue

for

the

com

pan

y Access to quality inputs at desired

prices

Producer of Premium foods

Increased earnings for

improved product benefits

So

cial

val

ue Greater food production using

fewer resources

Improvements in food

production standards

Greater access to food and

better health and nutrition

22 Adapted from “The Nestlé concept of corporate social responsibility: as implemented in Latin America”. Suiza: Public

Affaire, Nestlé S.A. 2006. Pp 5-6. www.nestle.com

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Incorporating Company Practice and Context: Nestlé’s Milk District23

Nestlé’s approach to working with small farmers exemplifies the symbiotic relationship between social

progress and competitive advantage. Ironically, while the company’s reputation remains marred by a 30-year-old

controversy surrounding sales of infant formula in Africa, the corporation’s impact in developing countries has

often been profoundly positive.

Consider the history of Nestlé’s milk business in India. In 1962, the company wanted to enter the Indian

market, and it received government permission to build a dairy in the northern district of Moga. Poverty in the

region was severe; people were without electricity, transportation, telephones, or medical care. A farmer typically

owned less than five acres of poorly irrigated and infertile soil. Many kept a single buffalo cow that produced just

enough milk for their own consumption. Sixty percent of calves died newborn. Because farmers lacked

refrigeration, transportation, or any way to test for quality, milk could not travel far and was frequently

contaminated or diluted.

Nestlé came to Moga to build a business, not to engage in CSR. But Nestlé’s value chain, derived from the

company’s origins in Switzerland, depended on establishing local sources of milk from a large, diversified base of

small farmers. Establishing that value chain in Moga required Nestlé to transform the competitive context in ways

that created tremendous shared value for both the company and the region.

Nestlé built refrigerated dairies as collection points for milk in each town and sent its trucks out to the dairies

to collect the milk. With the trucks went veterinarians, nutritionists, agronomists, and quality assurance experts.

Medicines and nutritional supplements were provided for sick animals, and monthly training sessions were held

for local farmers. Farmers learned that the milk quality depended on the cows’ diet, which in turn depended on

adequate feed crop irrigation. With financing and technical assistance from Nestlé, farmers began to dig

previously unaffordable deep-bore wells. Improved irrigation not only fed cows but increased crop yields,

producing surplus wheat and rice and raising the standard of living.

When Nestlé’s milk factory first opened, only 180 local farmers supplied milk. Today, Nestlé buys milk from

more than 75,000 farmers in the region, collecting it twice daily from more than 650 village dairies. The death rate

of calves has dropped by 75%. Milk production has increased 50-fold. As the quality has improved, Nestlé has

been able to pay higher prices to farmers than those set by the government, and its steady biweekly payments

have enabled farmers to obtain credit. Competing dairies and milk factories have opened, and an industry cluster

is beginning to develop.

Today, Moga has a significantly higher standard of living than other regions in the vicinity. Ninety percent of

the homes have electricity, and most have telephones; all villages have primary schools, and many have

secondary schools. Moga has five times the number of doctors as neighboring regions. The increased purchasing

power of local farmers has also greatly expanded the market for Nestlé’s products, further supporting the firm’s

economic success.

Nestlé’s commitment to working with small farmers is central to its strategy. It enables the company to obtain

a stable supply of high-quality commodities without paying middlemen. The corporation’s other core products,

coffee and cocoa, are often grown by small farmers in developing countries under similar conditions. Nestlé’s

experience in setting up collection points, training farmers, and introducing better technology in Moga has been

repeated in Brazil, Thailand, and a dozen other countries, including, most recently, China. In each case, as Nestlé

has prospered, so has the community.

23 Michael Porter y Michael Kramer, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Harvard Business Review, December 2006: 78-92.

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