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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.

    SKE-125

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

    ________________________________________________________________________________________________________________ This case was written by Diana Trujillo Crdenas and Roberto Gutirrez, 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 Administracin 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 Catlica de Chile, Universidad de Los Andes, Universidad de San Andrs, Universidade do So Paulo, IESA, ESADE and Universidad del Pacfico.

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

    R O B E R T O G U T I 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 companys social responsibility. There was consensus that the contributions of Alpina were nothing more than a variety of isolated initiatives which didnt adequately respond to the needs of the country. Mara 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 its 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 weve 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 companys 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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    SKE-125 Alpina S.A.

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    reach a level of 10% of net profits from the previous accounting period. Juan Pablo Fernndez, 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 couldnt propose both alternatives for the near future.

    The company

    Alpina was founded in 1945 as a cheese producer by Walter Gggel, who fled Switzerland, foreseeing the outbreak of war in Europe, and settled in Ecuador. There he met an old friend, Max Bnziger, 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 Sop (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 Alpinas 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). Colombias 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 its name to Alpina Food Products, Inc.

    In 1990 a new plant was opened in Sop, 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 Facatativ 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. Fernndez 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 consumers 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, Medelln, Pasto, Bogot II, III y IV, Cali, Ccuta, Ibagu, Neiva, Villavicencio and Pereira, and the production centers in Simijaca, Sop and Facatativ. In Venezuela, the commercial outlets were in Barcelona, Ciudad Bolvar, Maracay, San Cristbal, 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 arent 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 theres 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 Muoz, 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 weve been in the market for less than two years. In top of mind, were 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 wouldnt 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 dont like it when a company profits from doing such things.

    In the area of sales, Luis Fernando Rondn, Sales Director, gave the following opinion: social efforts have an emotional value; its possible that the final consumer thinks, I like Alpina, its 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 dont think they tip the scale.

    Juan Pablo Fernndez knew these arguments well. He also knew who were Alpinas 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 consumers 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 companys 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 Alpinas 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 Bogot 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 companys distribution strategy.

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

    The impact of this program is not documented in any research, it seems to me. For example, the largest distributor of Alpina is in Bogot. 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 Rondn, 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 Presidents 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 Alpinas 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. Sofa Gmez, 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 Alpinas 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 Germn 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 its 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 Vlezs 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 Sop 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 Gonzlez, head of Human Resources in Sop, 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 Sop and the Governors 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 Germn Camacho, Assistant to the President, the Secretary of Education of Sop told me that his dream was to have a new school administered by concession, like in Bogot. I made the commitment to make this dream happen and we began working together. The city provided some money, the Governors 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 companys 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 Mayors 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 Sop would be a model of municipal education for the rest of the country.

    Other activities in the Sop community were derived from Alpinas 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 Pealosa and Cecilia Mara Vlez, 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 Germn 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 Sop, Its not true that Alpina is so good; they do what they must. Their efforts to conserve water were the result of community pressure. Weve watched Alpina closely over the years, and its because of our pressure that theyve 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 Alpinas 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 its fine that whoever wants to participate does so. But I feel uncomfortable that some colleagues dont 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 dont agree when people brag that this program is Alpinas social contribution. In the end, the ones who contribute resources and labor are the employees. Beyond authorizing some work hours to its employees, whats 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; its like redistributing poverty.

    An alternative course

    Fernndez had a clear picture of Alpinas 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 Fernndez, 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 Fernndez 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. Boletn Desafos, 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 ame 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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    11

    complement Alpinas 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 xito 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.

    Fernndez went back to review different opportunities to increase Alpinas impact within its value chain. Several Committee members would support some of these. Why dont we concentrate efforts in the areas where our business model is criticized and increase the social impact of our operations? Its capricious to invent a new project when we can make improvements on what we have, affirmed one of them.

    As he studied the options, Fernndez 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 Medelln

    6 Pasto

    7 Bogot II,III,IV

    8 Cali

    9 Ccuta

    10 Ibagu

    11 Neiva

    12 Villavicencio

    13 Pereira

    14 Simijaca

    15 Planta Sop

    16 Planta Facatativa

    17 Central Office

    Venezuela

    Ecuador

    Per

    Brasil

    Panam

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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 Alpinas 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 Alpinas Corporate Model (2003)

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    Organizational structure after implementation of Alpinas Corporate Model (2006)

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    SKE-125 Alpina S.A.

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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

    Initiatives Investment Beneficiaries

    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

    Initiatives Investment Beneficiaries

    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 Sop and Facatativ 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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    Initiatives Investment Beneficiaries

    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 childrens 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 Responsible 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 Bogot and Daniel Gonzlez of the Avina Foundation), from information from the web pages of each of the programs, and from Conexin Colombia y Compartamos con Colombia.

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    Program Responsible 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.

    Bogot Without Hunger

    District Government

    Bogot Without Hunger was a joint effort directed at the right to proper nutrition, designed under the Policy of Food Security for Bogot. 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.

    Bogot 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 Bogot. 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 Gonzlez 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 wasnt 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 Bogot Alliances with private companies

    Other Nutrir organizations in the country

    Food assistance Barranquilla, Manizales, Pereira

    xito Foundation Nutrition and Education

    Largest cities in the country

    xito 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

    Bogot Promote management of community diners

    Foundation for the Integral Home Basic attention in food Bogot

    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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    22

    Exhibit 7 Framework for the creation of shared value22

    Agriculture and materials

    Manufacturing and Distribution

    Products and Consumers

    Impa

    cts

    on th

    e va

    lue

    chai

    n of

    the

    com

    pany

    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

    ntex

    t for

    gr

    owth

    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 fo

    r th

    e co

    mpa

    ny Access to quality inputs at desired

    prices

    Producer of Premium foods

    Increased earnings for improved product benefits

    Soci

    al v

    alue

    Greater food production using fewer resources

    Improvements in food production standards

    Greater access to food and better health and nutrition

    22 Adapted from The Nestl concept of corporate social responsibility: as implemented in Latin America. Suiza: Public Affaire, Nestl S.A. 2006. Pp 5-6. www.nestle.com

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    Incorporating Company Practice and Context: Nestls Milk District23

    Nestls approach to working with small farmers exemplifies the symbiotic relationship between social progress and competitive advantage. Ironically, while the companys reputation remains marred by a 30-year-old controversy surrounding sales of infant formula in Africa, the corporations impact in developing countries has often been profoundly positive.

    Consider the history of Nestls 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.

    Nestl came to Moga to build a business, not to engage in CSR. But Nestls value chain, derived from the companys 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 Nestl to transform the competitive context in ways that created tremendous shared value for both the company and the region.

    Nestl 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 Nestl, 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 Nestls milk factory first opened, only 180 local farmers supplied milk. Today, Nestl 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, Nestl 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 Nestls products, further supporting the firms economic success.

    Nestls 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 corporations other core products, coffee and cocoa, are often grown by small farmers in developing countries under similar conditions. Nestls 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 Nestl 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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