Mondelēz International Inc. is a large international company that focuses on the manufacturing, distribution, and sale of snack food and beverage products. In 2016, it announced the move of the manufacturing of one of its brand, Oreo, in Mexico and the closure of the factory in Chicago. The purpose of this paper is to investigate and evaluate this decision on the basis of the company’s general description and identify what leadership styles should accompany this move.
Company’s Description
Mondelēz International Inc. is one of the largest global companies engaged in the manufacturing, distribution, and marketing of beverage products and snack food, including chocolate, biscuits such as crackers, cookies, and salted snacks, candy and gum, powdered beverages and coffee, grocery products, and various cheese. Operating in five segments – Europe, Eastern Europe, Africa and Middle East, North America and Latin America, and Asia Pacific, the company has manufacturing in more than 80 countries across the globe and distributes its products to over 150 countries worldwide (“About us,” n.d.). In addition, it employs approximately 80,000 people in its offices, research and development facilities, factories, and distribution activities all over the world (“About us,” n.d.).
Mondelēz International originated in a small cheese business founded in 1903 by James Lewis Kraft, who “used his meager capital to rent a horse and wagon, and each day purchased a stock of cheese to resell to the small storekeepers” (“Our history,” n.d., para. 3). Later, Kraft and his brothers incorporated the business called J.L. Kraft & Bros. Co. that became highly successful due to innovative methods of manufacturing, new ways of promotion and advertising, and the constant introduction of new products. Subsequently renamed as Kraft-Phenix Cheese Corporation, it was acquired by National Dairy Products Corporation in 1930 to become Kraftco Corporation in the 1960s (“Our history,” n.d.). In turn, Mondelēz International Inc. appeared only in 2012 after the company’s division into two parts for the differentiation with the second company, Kraft Foods Group.
The company focuses on empowering people across the globe to snack right as the culture of snaking is currently on the rise, however, consumers do not want to choose “between taste and nutrition, affordability and quality, snack-time and meal-time” (“Growth & strategy,” n.d., para. 1). Thus, with the use of high-quality ingredients, Mondelēz International provides people with nutritious products that support their healthy lifestyle. It is a customer-oriented company that, at the same time, emphasizes innovations, cultural diversity, and the importance of the development of local brands – it empowers them to innovate in order to satisfy customers’ needs. In general, this strategy may be regarded as highly successful as in 2018, the company’s global net revenues and net earnings were $25.9 billion and $3.4 billion, respectively (“About us,” n.d.). The most well-known brands of Mondelēz International include Alpen Gold, 5 Star, BelVita, Barni, Cadbury, BournVita, Chips Ahoy!, Clorets, Halls, Freia, LU, Honey Maid, Marabou, Milka, Prince, Ritz, Royal, Stride, Trident, Toblerone, Tiger, TUC, and Triscuit. Oreo is the company’s another famous brand of cookies, which production currently attracts the particular attention of the general public.
Move of Oreo’s Line to Mexico
The Oreo’s production may be regarded as the company’s oldest one. The first cookie was made in 1912 in New York City, and in the present day, Oreo is manufactured at several factories across the country (Trotter, 2016). In turn, its production in Chicago “dates to 1953, making it one of the longest-running facilities churning out the cookies in the Mondelēz network of bakeries” (Trotter, 2016, para. 10). However, in 2016, the corporation announced the stop of its production line on the city’s Southwest Side with a subsequent demission of almost 600 workers and the shift of its work to Mexico (Trotter, 2016).
On the one hand, this decision is determined by the company’s goal to save continuing profits by the introduction of a highly aggressive cost-cutting plan that implies trimming labor costs and plants’ shuttering. The company’s intention to replace the cookie’s manufacturing was preceded by its jolting offer to the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) in 2015 (Franklin, 2020). Mondelēz International agreed to consider approximately $130 million in the upgrades of the 62-year-old Chicago factory’s equipment “if the union accepted $46 million in annual wage and benefit cuts” (Franklin, 2020, para. 7). In turn, after the calculation of losses, the union refused.
As a matter of fact, Mondelēz’s move corresponds to its efforts to concentrate on growth and development in emerging markets while increasing margins in developed ones. According to the company’s executives, the installation of a highly innovative line in Salinas, Mexico, instead of Chicago could save more than $46 million a year (Trotter, 2016). However, there are more obvious benefits of moving that include infrastructure, cheap export, and labor cost. Developed infrastructure, “especially in the form of railroads,” may be regarded as one of the main qualities of the targeted area (“Why is Oreo moving to Mexico?” 2015, para. 3). In addition, the Mexican government invests in the expansion of the country’s rail infrastructure and welcomes private investment to improve the region’s communications, transportation, and energy.
The participation of Mexico in The North American Free Trade Agreement (NAFTA) means that large companies like Mondelēz International may receive access to more than 44 free trade agreements, export their products cheaply, and have considerable cost savings due to low tariffs (“Why is Oreo moving to Mexico?” 2015). In addition, Mondelēz International Inc. was inspired by the successful examples of auto, furniture, and aerospace manufacturing companies that were able to create efficient supply chains in Mexico faster due to the country’s extremely liberal trade policies and proximity to the markets of high demand.
And it goes without saying that labor cost in Mexico is definitely its major offshoring advantage. In the United States, manufacturing labor costs may currently reach $60 per hour (“Why is Oreo moving to Mexico?” 2015). According to the contract between Mondelēz International and Mexican workers, they are paid the U.S. equivalent of $7.80 to $10.41 on a daily basis, and these payments are highly acceptable in the country where the minimum wage is $4.71 U.S. per day (Green, 2018). Thus, manufacturing abroad seems more cost-efficient, and at the same time, companies will not choose between cost savings and quality as Mexico’s workforce subsequently becomes educated and high-skilled.
Challenges Related to the Company’s Decision
As a matter of fact, the main challenge Mondelēz faced after its decision to move Oreo’s manufacturing from Chicago to Mexico is the negative response of the American general public. This step has sparked various lawsuits, union-led protests, and even a boycott of Oreos made in Mexico. This fact that a considerable number of veteran workers have lost their jobs due to the factory’s closure, in contrast to the increased salary of the company’s CEO Irene Rosenfeld, outraged Chicago labor activists and Philadelphia elected officials (DiStefano, 2015). Multiple politicians and Even Donald Trump during his election campaign invoked people to boycott Oreo and other brands of Mondelēz International Inc. The company was accused of “betraying the communities that helped its brands become popular and profitable” (Green, 2018, para. 12). At the same time, the members of labor rights groups and unions’ representatives struggled to investigate the working conditions of Mexican employees, however, their attempts remained unsuccessful. According to them, “Mondelēz’s actions illustrate the systemic erosion of American manufacturing in exchange for cheap labor in countries with fewer regulations and worker protections” (Green, 2018, para. 11).
Application of Different Styles of Leadership
In general, none of the six styles identified by Daniel Goleman can be regarded as absolutely right or wrong as their application entirely depends on the situation. Concerning the case of Mondelēz, the move of manufacturing should take several steps from its announcement and the maintenance of the production line in a new place to smooth operation. Thus, in the beginning, the application of authoritative and even coercive leadership is appropriate. The latter is characterized by top-down decision-making, the absence of employees’ autonomy, initiatives, and opinion expression. Despite the fact that coercive leadership is purely imperative and may be regarded as ineffective in the majority of situations, Mondelēz International Inc. may apply it in relation to its new partners. The choice of this style is determined by the absence of the company’s right for any mistake. As previously mentioned, the company’s decision to open Oreo’s production in Mexico and partly close it in the United States invoked the negative reaction of labor unions’ representatives and community members. As a result, the company should elaborate on a clear and effective strategy and follow it strictly in order not to lose its customers.
Subsequently, with successful business development, coercive leadership may be replaced with an authoritative one that presupposes certain initiatives from employees if they relate to production. This style provides certain freedom for risks, innovations, and experiments. In addition, workers may be allowed to express their opinion concerning the expediency of existing performance and the necessity of any improvement. Later, as competition is high and the company strives to keep its profits at the same level, pacesetting leaders will occur who emphasize the exceptional significance of operative and high-quality performance. In general, this style is common for large corporations with factories all over the world that require high standards and always have resources in the case of workforce replacement. There is no certainty that the company will apply affiliative and coaching styles at least before its smooth operations. Although a new area’s cultural peculiarities in relation to business do not stress the necessity of employees’ independence, extreme motivation, and satisfaction, they may be cultivated within Mondelēz’s strategy, vision, and missions.
Conclusion
In general, it is too early to evaluate the expediency and effectiveness of Mondelēz International’s decision to move its production of Oreo from Chicago to Salinas, Mexico. It is obvious that the company followed its intentions to choose more cost-effective performance, and offshoring traditionally provides this option. However, the reaction of American society and labor unions is predictable, as well, as 600 veteran workers with some people from working dynasties among them have lost their jobs in short order. Concerning the attitude of customers to Mexico-made cookies, from a personal perspective, even if intentions to boycott the company will occur, this tendency will not be widely-spread and popular for a long period of time.
References
About us. (n.d.). 2021, Web.
DiStefano, J. N. (2015). Oreo maker faces billionaire squeezers, labor protests. The Philadelphia Inquirer. Web.
Franklin, S. (2020). The Oreo workers Trump betrayed. In These Times. Web.
Green, E. (2018). Crumbling confidence: Some of America’s favorite snacks now made in Mexico. street roots. Web.
Growth & strategy. (n.d.). 2021, Web.
Our history. (n.d.). 2021, Web.
Trotter, G. (2016). End of an era: Chicago’s last Oreo line shut down Friday. Chicago Tribune. Web.
Why is Oreo moving to Mexico? (2015). Web.