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Sanlu's Melamine-Tainted Milk Crisis in China  
 
Product Ref: 09/439C Company: Sanlu Group

Product Type: Case Industry: Food, Beverage & Tobacco

Related Product(s): Teaching Note
On 12 September 2008, Sanlu Group, the biggest producer of milk powder in China, rocked the country when it admitted that its infant formula had been contaminated with the toxic chemical melamine. China's national inspection agency extended its investigation to other dairy manufacturers across the nation. Shockingly, products of 21 other dairies, including some famous Chinese brands, also tested positive for melamine. Due to consumption of melamine-laced milk products, more than 56,000 infants and young children had become sick and four babies had died from kidney failure by the end of September. The melamine scare also resulted in many countries recalling and banning goods using milk products from China. When Sanlu became the key culprit in the milk crisis after its infant formula was revealed to contain as much as four times more melamine than other tainted brands, the company apologised to the public. Sanlu also explained that its unscrupulous raw-milk dealers had illegally added melamine to milk. However, it failed to explain its delay in alerting the public when it first received customer complaints in late 2007. Instead, Sanlu had tried to cover up the news until being prompted by its New Zealand partner, Fonterra, which later alerted the New Zealand government. As a result of the milk crisis, the local government of Shijiazhuang, where Sanlu was headquartered, was accused of holding back the news from the central government. Fonterra wrote off all its investment in Sanlu, and Sanlu finally declared bankruptcy on 24 December 2008.

The Sanlu incident has spotlighted the inadequacy of China's entire dairy supply chain and has forced the government and the industry to make a collective effort to restore consumer confidence in Chinese dairy products.
Functional Area : Marketing
Production & Operations Management
Social Enterprises & Ethics
Strategy & General Management

Issues: This case addresses several issues, including the root causes of the milk crisis, control deficiencies on the part of the government and corporations, ways to restore market confidence in Chinese dairy products, the pros and cons of outsourcing, the role of ethics in supply-chain management, the importance of socially responsive crisis management, and implications for foreign investors doing business in China.
Length: 24 pages Country: China (People's Rep. of)

Pub. Year: 2009 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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