Dutch Lady Milk Industries Berhad (DutchLady) was founded by the Dutch farmer families. In 1963, Dutch Lady wasinitially set up as Pacific Milk Industries (Malaya) Sdn Bhd. The company namewas changedto Dutch Lady Milk IndustriesBerhad in 2000 Dutch Lady isclassified as a company in the food and beverage industry DutchLady was the first dairy company to be listed on Bursa Malaysia in 1968.
Theholding company of Dutch Lady is a Dutch corporation, Royal FrieslandCampina. Thebrands of Dutch Lady are Dutch Lady, Omela, Joy, Frisco and so on. Dutch Ladyproduces and sells dairy and “halal-certified” products such as condensed milk,flavoured growing up milk, ultra-high temperature milk, powdered milk forchildren and family, sterilised milk, fruit juices and yoghurt DutchLady has 632 employees in MalaysiaDutchLady is considered to be a leading milk company in the food and beverageindustry Dutch Lady exports itsproducts to Hong Kong and Singapore Dutch Lady is influential as it won thefor sustaining its business very well.Dutch Lady has a lot of loyal customers and this gives Dutch Lady an advantageagainst other competitors and new entrants was established as in Penang.
In 1939,Nestle later grew and expanded to Kuala Lumpur. The founder of Nestle was HeinrichNestlé. Nestle specialised in the food and beverage industry and is aninvestment holding company in the beverage industry. Nestle was listed on theKuala Lumpur Stock Exchange, now known as Bursa Malaysia in 1989. Nestle produces breakfast cereals, coffeeand ice-cream. The famous brands of Nestle in Malaysia are Nestle alsomanufactures food products for pets. For example, Friskies and Purina. Nestleis a well-known name nationally.
Nestle is ubiquitous in 191countries. Hiring5500 employees, Nestle produces more than 500 “halal” products in our country Thereare eight manaufacturing factories located in Malaysia Nestle has beenestablished for 104 years in Malaysia. Owing to the trusts that millions ofconsumers towards Nestle, Nestle is an influential company in the industry.Nestle has become a trusted brand by households and is enjoyed by so manygenerations. This is due to Nestle maintains its quality and integrity Nestle has a strong competitive advantageagainst its many competitors. Nestle is very influential in the food andbeverage industry as Nestle has been termed the industry leader in theindustry. Besides that, Nestle has high market share.
The world’s biggestmanufacturer in the industry is Nestle. Nestle is very powerful and influentialin the industry given its long historical existence in Malaysia Thevisions for both Dutch Lady and Nestle are different. Dutch Lady is already aleading dairy company in the industry, hence, Dutch Lady aims to furtherreinforce its position as a leader and to expand their businesses However, Nestleaspires to be a leading, competitive, nutrition and health company. Nestlevisions to bring improved shareholder value by being the first-choice company,employer, supplier that provides preferred products Besidesthat, both companies have similar mission. The mission for Dutch Lady andNestle is to aid Malaysians to enhance the quality of life with reliable dairynutrition.
Both companies aim to continuously create nutritious and healthyproducts for people Inorder to achieve the vision and mission, Dutch Lady repeatedly review theproduction and marketing skills to strengthen its business sustainability Nestlefocuses on research and development of products in order to achieve the visionand mission. Nestle focuses on understanding the nutritional needs of consumersto create great quality products Both companies do nothave any changes in their visions and missions.The chairman of Dutch Lady is. He has been an independent non-executive chairman of Dutch Lady for 7 years and 11 months.
is the non-independent, non-executive director of Nestle. He has been a memberof the board for 2 years and 3 months.No material contracts relating to loanwere entered into by Dutch Lady that involves the directors. All the directorsdo not have any family relationship with other directors or major shareholdersof Dutch Lady.
There is no conflict of interests between all directors andDutch Lady. The board of directors does not hold any shares in Dutch Lady The Chairman of the Board of Directors is Hehas been an independent, non-executive director since 2009. The independent,non-executive director, holds 8,000 ordinary shares in Nestle. Other than that,the other directors are not shareholders of Nestle. All the Directors have notcommitted any offence for the past ten years. None of the Directors borrowedany loan from Nestle.
None of the Directors have any family relation to any otherdirectors and/or major shareholders of Nestle. All the directors do not haveany conflict of interest with Nestle.Accordingto the independent auditor’s report, the financial report gives a true and fairview of Dutch Lady’s financial performance at 31 December 2016. The external auditorsissued an unqualified report. No material misstatements are found in thefinancial statements. There is sufficient audit evidence obtained by theauditors.
The financial statements are in accordance with Malaysian FinancialReporting Standards and other standards. No issues, improvements andsuggestions were raised by the auditors.Accordingto Nestle’s auditors’ report, the external auditors issued an unqualifiedfinancial report. The financial report provides a true and fair view ofNestle’s financial performance at the end of 2016. The financial reportfaithfully represents the financial position of Nestle. No improvements andsuggestions were raised by the auditors. The auditors expressed that there is arisk that Nestle might overstate their revenue.
The auditors took action toassessed the sales transactions and credit notes prior to and after thereporting date. They also checked the journal entries that involves revenue.The audit committee of Dutch Ladyencompasses four members. All members of the audit committee are independentand literate in finance. According to Institute of Internal Auditors, the bestpractice is to have at least on member that is an expert in financing., thechairman, and a member of Dutch Lady’s audit committee are chartered accounts.The latter is the past president of.
The chairman of the audit committee hasbroad experience in internal audit and financial management. This portrays thatthe two members have the competencies in accounting and auditing. According to the Corporate Governance Statement, the audit committee isto review the performance of internal audit with the Internal Audit Charter andapplicable professional standards. the chairman of the audit committee ofNestle, and, another member, are qualified Chartered Accountants and members ofis the the. All members are able to use their knowledge and skills to managefinancial resources of Nestle. They are independent non-executive directors.Dutch Lady may face raw materials risk Many manufacturers face financial pressure asprices of raw materials are highly unstable over the past few years.
In 2008,raw materials that are used for consumer-packaged goods increase at double digit rates The reason thattrigger the raw material risk this year is the increasing demand from China Supplyand demand can affect the raw materials costs Inflation may cause raw materialscosts to increase The rise in global raw sugar price in 2015 may also cause theincrease in raw material prices in Dutch Lady Dutch Lady may face health and safety risk. One of theDutch Lady labels, Friesland Foods, was recalling dairy products from Macau andHong Kong in 2008. Theyoghurt and strawberry milk that were produced in China were found to betainted by melamine This may severelyendanger people’s lives According to the, melaminemay cause health problems in toddlers and children Dutch Lady failed to comply with the health andsafety regulations, hence, so Dutch Lady faced health and safety risk. The lackof regular monitoring of the production process may cause health risk.
Theunsafety production may go unnoticed and the contaminated products may beconsumed by consumers. Dutch Lady may face reputation risk. Reputation risk exists follows by the adverseresults of another risk faced by Dutch Lady. Dutch Lady may face reputationrisk as a result of the health and safety risk aforementioned. By the reason ofDutch Lady recalling the contaminated and unsafe strawberry-flavoured milk,Dutch Lady’s reputation was tainted. The bad product qualityof Dutch Lady brands may cause reputation risk.
The inclusion of melaminedepicts the quality of Dutch Lady products is bad. The unethical production of Dutch Lady cause people toperceive Dutch Lady as a bad brand which is unsafe to be consumed. However, anyother risk that is faced by Dutch Lady may cause reputation risk, ifthe former risk is not reduced. Nestle faces environmental risk.
Nestle has a poor environmental culture andfail to help to reduce the natural hazards. Nestle pumps tens of millions ofgallons of water from the forests of California yearly while knowing Californiais a drought prone area. As a result, California has water shortage However,Nestle does not care about the environment. Nestle continues to earn atremendous profit by bottling the city water and sell to the public. Nestleuses a permit that expired 28 years ago and only pay the an amount of $524yearly Nestle faces environmental risk when Nestle does not comply with theenvironmental regulations as Nestle uses an expired permit.Legalrisk may arise when Nestlebreaches the rules and regulations or is being sued by third parties. Nestle faces legal risk as Nestle is being sued by the reason of falseadvertising. The lawsuit alleges that Poland Spring Water, one of the Nestlebrands deceived consumers that the water is allegedly drawn out from the woodsfrom Maine.
However, the water is claimed not to be “100% Natural Spring Water”as advertised It is alleged that Nestle charges consumers a premium price forthe “non-spring water”. The lawsuit alleged Poland Spring Water is not entitledas spring water and is not in accordance with the If Nestle falsely advertises and mislead consumers, then Nestle violatesthe consumer law and faces legal risk Reputation risk may arise as a result of the bad consequences of another risk. Nestlefaces reputation risk as Nestle implements unethical business practices. Nestleuses child labour in its cocoa production in Africa Nestle has been using childlabour for more than a decade now. In 2015, approximately 1 million of childrenwere found to work in Nestle’s farm. Children who are younger than 15 years oldwork at Nestle’s cocoa farms.
Children were found carrying out unsafe tasks,for example, carrying heavy loads and using knifes there was evidence of forcedslavery. The young worker did not receive any salary for a year Nestle was suedfor using child labour. Nestle’s reputation is on the line as the use of childlabour is illegal and morally dangerous.
The immoral exploitation of childrencan tremendously affect how consumers perceive Nestle. The volatile price of milk can affect the revenueand profitability. Dutch Lady may suffer severe losses as the selling price nowis not able to cover the cost of goods sold.
However, Dutch Lady increased theproduct price to cover the production cost and raw material cost Dutch Lady didnot exactly take action to reduce the raw material risk. The risk of rawmaterial still exists. The costs of raw material may keep rising tremendouslyand Dutch Lady may have to keep increase its selling price. This in turn willlose a lot of loyal customers as there are so many choices that can providehomogeneous products in the food and beverage industry.
Dutch Lady may not beable to compete with its many competitors. Dutch Lady’s revenue may declineenormously. Dutch Lady may cease to be the industry leader if it cannotmaintain its loyal customers.The incompliance of health rules, standards andregulation may cause Dutch Lady to pay a tremendous amount of penalty.
Customers may lose confidence in Dutch Lady and its products. Dutch Lady maylose loyal customers. Customers may boycott the products by Dutch Lady as theyare afraid of the possibility of having health problems after consuming theproducts. Dutch Lady’s operation may face difficulties. Dutch Lady’s revenueand profitability reduce immensely. However, Dutch Lady recalled the productright after finding out the melamine test was tested positive.
Stopping theproduction of strawberry flavoured milk, Dutch Lady took action to reduce thehealth and safety risk. Dutch Lady recalled all the plastic milk bottleproducts. Dutch Lady starts to abide by the According to the Dutch LadyMalaysia, Dutch Lady now enforce many more stringent requirements to ensure theDutch Lady products meet their own high standards on quality, food safety andenvironment safety WhileDutch Lady was facing reputation risk, Dutch Lady took action to conduct apress conference to provide assurance to consumers and the public that allproducts are safe to consume except for the two products that were found to becontaminated However, Dutch Lady’s effort did not stop the poor reputationentirely. Customers may lose confidence in Dutch Lady’s products. Supermarketretailers may avoid to display Dutch Lady’s products on their shelves and optfor other brands that have a good reputation. The shareholders ofDutch Lady may lose confidence as Dutch Lady face difficulties in operation andin making profit. The shareholders may divest their shares as they do not wantinvestments that have a great potential for financial losses. The consumers may not support Nestle’s products anymore as they loseconfidence in the unethical operation.
Nestle may face adverse publicity andthe Nestle brand name may be tainted. Nestle may have to pay penalty to theU.S. Forest Services as Nestle breach the environmental regulation by illegallydrawing out water with an expired permit. Nestle reduces the environmental riskby implementing water withdrawal reduction efficiency programs Nestle plans towork with all stakeholders to protect the water resources after receivingcomplaints and protests. Nestle ensures their operation do not compromise thelocal communities’ water rights Nestle took action to reduce environmentalrisk, so this ameliorate Nestle’s reputation. Consumers may gain confidence inNestle after seeing Nestle complies with environmental regulations.
Nestle may have to pay at least of penalty for false advertising andmisleading labelling Nestle faces adverse publicity no matter Nestle uses 100per cent spring water or otherwise. Consumers may not want to purchase anyproducts from Nestle because Nestle has a reputation of not producing highquality products. Nestle may face financial losses if consumers lose confidencein Nestle. Nestle denied the allegations and expressed that Poland Spring Wateris pure and natural. Nestle stated that the water brand has a great record interms of quality. Nestle also constantly monitor the water brand abide by allfederal and state rules an.
Nestle’s action may provide assurance to consumersand this may in turn increase the consumer’s confidence. Consumers may boycott Nestle’s products because Nestle has thereputation of using child labour. Nestle has been boycotted as Nestle knowinglysupported child slavery. Nestle may face the loss of market share as a resultof the notorious reputation of using children as labour. The total sales earnedby Nestle may plunge dramatically. The shareholders of Nestle may want to selltheir shares as a company that has a bad reputation may not operate well in theindustry. Nestle has a bad reputation because of the usage of childexploitation, so Nestle aspires to tackle child exploitation.
Nestle made a lotof efforts to raise awareness among the farmers to stop child exploitation.Nestle notified the farmers about the code of conduct which forbids to usechild labour Nestle help children that are involved in child labour by registeringtheir birth certificate and subsidise school bags and uniforms to children. Nestleimplements the Nestle Cocoa Plan to tackle the child labour issue Dutch Lady should prioritise health and safety risk. This is because ifthe incident of contaminated milk incident occurs again, consumers may nolonger trust Dutch Lady and Dutch Lady’s operation may be at stake. Dutch Ladycan reduce the health and safety risk by regularly monitoring the productionprocess. Dutch Lady should ensure all employees involved in the productionprocess adhere to all health rules and regulations. Dutch Lady should always testthe finished product whether it is safe and high quality for consumers toconsume. Health and safety risk can be reduced by ensuring the employee cleanliness.
Dutch Lady should walk the employees through the health protocol. Dutch Ladyshould communicate with workers in the factory to ensure they are fully awareof the details These suggestions could help Dutch Lady to reduce health andsafety risk. Out of the non-financial risks Nestle may face, reputation risk is themost significant risk Nestle should prioritise. This is because Nestle’sreputation is at stake due to the use of child exploitation. If Nestle does notprioritise the risk, Nestle’s operation may go downhill. Nestle can setstringent rules to control what labour they use.
Nestle can work with suppliers,bodies or organisations to ensure the supply chain are properly trained regardingon the issue of child labour and how to tackle the problem. Nestle can alsoimplement a code of conduct to eliminate child exploitation and protect thewelfare of children. However, Nestle has to ensure the code of conduct iscommunicated through employees, suppliers and farmers in Africa. Nestle canwork with suppliers to make sure cocoa farmers are aware of the regulations inthe code of conduct.
Nestle can implement corporate social responsibility toameliorate its reputation. For example, Nestle can donate money to children’sorphanages and schools or built schools for children to have a chance to havean education. This will change what people think of Nestle. Nestle’s reputationslowly may be amended. Nestlé is worth investing as compared to Dutch Lady. Nestle won a gold awardfor The as Nestle has the highest return on equity for the past three years.
The award also bestowed Nestle as the top puclic companies to be listed onBursa Malaysia because Nestle’s growth of profit is outstanding and the returnshareholders get is very high. Hence, investors that invest in Nestle may get agood amount of return. Besides that, Nestle also won. Nestle’s products like, were recognised as the number one most chosenbrand for food and beverage in Malaysia. This depicts that Nestle’s profitsurged dramatically. Nestle’s continues to perform very well. Investors mayearn a generous amount of return as Nestle’s profitability is better than DutchLady.
Nestle was also awarded Thisshows that although Nestle may face environmental risk, legal risk and reputationrisk, Nestle’s profitability is not affected. Nestle is able to sustain itsbusiness aside from all the risks faced. All things considered, Nestlé has better future prospect as compared toDutch Lady Milk Industries Berhad. Therefore, Nestle is much more worthinvesting.