Chiquita Brands International

International Business Environment

October 1, 2013

Chiquita Brands International Chiquita is the biggest banana firm and the largest market for bananas is Europe. In 1993, the European Union established a new regime on banana imports and “third country” imports like

the ones from US Companies were restricted to a 2 million metric ton quota, with a fee of 100ECU/mt ($124.81)1. Imports in excess of the quota had a fee of 850 ECU/mt. Chiquita's banana plantations are in Latin America so this policy of the EU limits Chiquita's growth and instead it makes Chiquita unprofitable for 3 consecutives years. In response to this policy, Chiquita filled a petition with the Office of the U.S. Trade Representative. After the USTR rejected the petition Carl Lindner approached Senator Bob Dole and asked his help but after a few results Dole was found the second most contributor of "soft-money" to the political party and that gave bad publicity for Dole and Chiquita.

The company Chiquita as a big settle company, can produce at a low cost and have the logistics to export to almost all the world. They sell a short-lived good. Is a commodity, so it´s ruled by price but it can be sell in all places, Also is wide open to a lot of threats like the EU banana policy, labor unions and external government policies. As shown on Exhibit 4, in the time frame of this case Chiquita was the biggest US producer in banana sales, but in profit they lose a lot because all the regulations for the banana exports, instead Dole the second biggest one sells less than 50% of Chiquita in Banana, but has more products what makes them able to face the EU policies and still get profit. 1 e g a P

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(FXtop, 2012)

Karla L. Rodriguez C.

Panther ID: 5048069


October 1, 2013

Politics and Companies The United Fruit Company would never achieve the size it was in such little time without the governments help. They got a lot of advantages like low price or free land, monopoly on the transportation infrastructure, political position to make decision in every country they operate. They also manipulate the price of the human labor and struck the possibility to make labor unions. After the time, the company was bought by Carl Lindner and changes the name to Chiquita Brands, but the new owner has the same old way of doing business through political intervention. He uses the money to “buy” politicians as Senator Dole to push Latin American

countries on the way that was more favorable to the company. When Chiquita faces the problem of the EU banana policy, they face a lot of lost due to the small quota they had to distribute between all non APA countries. They had to look for solutions to this problem and they acted with the political force. In my opinion they should have acted by the entities that ruled the international commerce like they do with the USTR. The company should not get involved in political games, it may have worked with battles against small countries with unstable governments but it isn’t the ethically correct way to do business. The Senator Dole shouldn’t handle the petition on the way Lindner ask, push the Latin American governments toward the company will was not the solution. A political figure shouldn’t agree to

play manipulation games based on threats. He must analyze the problem and view other solutions viable for U.S. Maybe he could support the GATT and add U.S. as a part of the petition. Also he could consider the previous pacts between U.S. and Europe and use them as a negotiation weapon. 2 e g a P


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October 1, 2013

It make me think if the countries like Colombia, Costa Rica, Guatemala, Nicaragua, and Venezuela, join to filled a complaint against the existing EU import policies, why Chiquita don’t join them if they were their biggest suppliers. And the answer will be the bad relations this company had on those countries and maybe this petition was made like a way to get rid of the company. But in the position of the CEO, he has to do anything to make the company profitable. Based on the Study Case my suggestion will be diversify the income source, like in Exhibit 4 the 60% of Chiquita Sales is banana and in contrast the next company is only 25%. And any problem or issue that will affect the banana market will impact the company in almost 60%. In this time the company is having a surplus, and because the product is short-lived they have to sell it at very low prices what makes them lose money. The banana production is almost once a year and the same plant can only produce 2 times, so in 2 years or less the company can diverse their production or reduce the actual and it will keep them of selling very cheap the banana and losing instead of making profit. Another option is to explore Asia, export to Asia and Japan that represents the 10% of the world market; it will be a feasible option and will be place for the banana that can’t be sold in Europe

within the quota.

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October 1, 2013

Analyzing the Banana Policy We can see the role of protectionism in 2 ways, the economic and the political. Politically is a good defensible role, it enables small local business to expand without aggressive competition and allows them to stay in a comfort zone to grow on their own way. As well you can see on Exhibit 5 and 6 Europe is not a producer of banana, but instead is a big consumer so in the economic aspect these extra regulations, the prohibitions and the extras fees only make the product expensive for the consumer, because this cost y automatically added to the sale price. Also it makes inefficient the local production because without competition there are no natural incentives to raise the efficiency and with shortage the product price also can be establish at a higher value. This part of the fee is pay by the supplier Price

Revenue from Fee

Export Supply with Quota and fee. Fee

Export Supply

Import Demand This portion of the fee is pay by the consumer

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On the Supply Demand Graph is shown a huge gap between the price the consumer wants to pay and the price the Chiquita can sell. This Extra revenue is neither for the consumer not the producer, this extra is money lost in the government bag. And mostly pay by the consumer.

Quantity

PA is the equilibrium price of bananas PB’ is the Price with quota. PB’ is the Price with quota and fee.

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QB is the Quantity demanded for imports in EU QB is the amount US can export with the quota. 4 e g a P


Panther ID: 5048069


October 1, 2013

This protectionism is not viable on the long run because it weaken the local economy and not encourages competence, but most important it affects directly the consumer. From this case we can learn a couple of things, how to grow fast and how not to handle company’s issues in the politics.

One way to grow fast a company is to be allied with the government, however they should watch out to do the thing within the law margins because once you’re in politics is too easy to corrupt

and take advantages of the political power like what happen to the United Fruit Company. Other lesson is that government don’t always do economic policies, they do political policies that

will affect the economy but will be good at the population point of view. Like the banana policy is good only to the eyes of the local producers but in the long run it will affect the local economy, and this unfair competition that is made by the government it will not last in the long run in a market environment.

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Bibliography Batres, A. (1995). The Experience of the Guatemalan United Fruit Company Workers,19441954: Why Did They Fail? Austin, Texas, United States of America. Retrieved from http://lanic.utexas.edu/project/etext/llilas/tpla/9501.html FXtop.

(2012).

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http://fxtop.com/en/currency-converter past.php?A=100&C1=EUR&C2=USD&DD=01&MM=12&YYYY=1991&B=1&P=&I= 1&btnOK=Go%21 Girón, M. Z. (n.d.). El Feudalismo de la United Fruit Company. Guatemala, Guatemala, Guatemala.

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http://stuff.mit.edu/afs/athena/course/21/21f704/UnitedFruit/UnitedFruit.html SCHLESINGER, S. (2011, June 3). Ghosts of Guatemala’s Past. New York Times. Retrieved

from http://www.nytimes.com/2011/06/04/opinion/04schlesinger.html?_r=0 SPAR, D. (2007, September 12). Chiquita Brands International (A). united fruit historical society. (2006). The Great White Fleet . Retrieved from united fruit historical society: http://www.unitedfruit.org/great-white.htm

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Chiquita Brands International

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