KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

Corporate Social Responsibility

CSR of Varun Beverage






Table of Contents
CHAPTER ONE ........................................................................................................................... 1
INTRODUCTION......................................................................................................................... 1
Introduction ............................................................................................................................................... 1
Corporate Social Responsibility ............................................................................................................... 2
CHAPTER TWO .......................................................................................................................... 5
ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY ................................................ 5
Analysis of CSR at Varun Beverage ......................................................................................................... 5
CSR initiatives - Responsive or Strategic ................................................................................................. 7
The Unserved Area of CSR by Varun Beverage ...................................................................................... 8
Value chain analysis of Varun Beverage and Possible CSR activities (Inside out linkages) ................... 9
Social dimensions of competitiveness analysis and possible CSR interventions (Outside in linkages) . 10
CHAPTER THREE .................................................................................................................... 12
RECOMMENDATION AND CONCLUSION ........................................................................ 12
Recommendation .................................................................................................................................... 12
Conclusion ................................................................................................................................... 13
REFERENCES .............................................................................................................................. 1
APPENDIX .................................................................................................................................... 2
Appendix 1: Reasons why the activities are placed in the respective quadrants ...................................... 2


1

CHAPTER ONE
INTRODUCTION

Introduction
Varun Beverages Nepal Private Limited is a subsidiary company of RJ Corp, India. RJ Corp is
the license holder to supply beverages in India, Nepal, Sri Lanka to name a few, under PepsiCo
International, USA, the parent company. The founder of RJ Corp is Ravi Jaipuriya (RJ). RJ Corp
is running a conglomerate of various business ventures in India. Within beverage division it has
nine bottling units among which Varun Beverage Nepal Private Limited is its only bottling plant
in Nepal. RJ Corp is also running other three new ventures in Nepal namely Devayani
International Pvt. Ltd (fast food business KFC and Pizza Hut), Artic International Pvt. Ltd
(distilleries imports) and Varun Developers Pvt. Ltd (housing). Among these four subsidiaries,
Varun Beverage Nepal Pvt. Ltd is the oldest venture of RJ Corp in Nepal established in 1984.
Varun Beverage is located in the capital city of Nepal. The suburb where factory is located is
itself named on companys reputed brand name Pepsi and is called PepsiCola. The factory
does only bottling, the main ingredient concentrated syrup comes from India and R&D takes
place at PepsiCo international. The factory bottles soft beverages namely Pepsi, Mountain Dew,
Mirinda, Slice and 7up. It bottles these drinks in 250 ml reusable glass bottle and 600 ml, 1Ltr
and 2 Ltr plastic bottles. The company also produces soda on the brand name Lehar in 500 ml
plastic bottles. The annual sales on all these drinks in 2011 were around 4 million cases
amounting Rs 1.6 billion. The sales target for 2012 is 6 million cases. The company has
increased its sales target for 2012 by 50 percentage mark because of increased production
capacity in 2011 by addressing capacity constraint. The production rate of Varun Beverages is
15,000 litres per hour.
Varun Beverages holds about 20 percentage of market share of soft drinks in Nepal. Its nearest
rival Coca Cola Company (Bottlers Nepal and Bottlers Terai) holds about 40 percentage market
2

shares. Coca Cola Company has two bottling units in Nepal at Kathmandu (Bottlers Nepal) and
at Bharatpur, Chitwan (Bottlers Terai). Since Coca Cola is first mover in Nepal and has two
bottling units compared to one of Varun Beverage, it has been able to obtain market leader title
since inception. Specially, due to Coca Colas bottling unit in Terai, Varun Beverage is at cost
disadvantage to compete head-on-head with Coca Cola in Terai. But market share of Varun
Beverage and Bottlers Nepal is almost equal in Kathmandu and many other hilly regions.
Varun Beverage claims itself to be one of the most ethical and socially responsible corporate
citizens in Nepal. The years long market presence and sustainable growth are cited as evidences.
But whether the company is maintaining a strong ethical standard and whether its initiatives are
mutually beneficial to society and the company itself will be scrutinized through this study.

Corporate Social Responsibility
Corporate Social Responsibility (CSR) is the continuing commitment by business to contribute
to economic development while improving the quality of life of the workforce and their families
as well as the community and society at large. CSR is all about how companies manage the
business processes to produce an overall positive impact on society.
Companies need to answer to two aspects of their operations.
1. The quality of their management - both in terms of people and processes (the inner
circle).
2. The nature of and quantity of their impact on society in the various areas.
Outside stakeholders are taking an increasing interest in the activity of the company. Most look
to the outer circle - what the company has actually done, good or bad, in terms of its products
and services, in terms of its impact on the environment and on local communities, or in how it
treats and develops its workforce. Out of the various stakeholders, it is financial analysts who are
predominantly focused - as well as past financial performance - on quality of management as an
indicator of likely future performance.

3



Fig: Corporate Social Responsibility


In 1970, just after the first major wave of the business ethics movement in the US, the Nobel-
Prize winning economist Milton Friedman published an article that has since become a classic
text, questioning the alleged social role of corporations. Under the provocative title The social
responsibility of business is to increase its profits, he vigorously protested against the notion of
social responsibilities for corporations. He based his argument on three main premises:
Only human beings have a moral responsibility for their actions
It is managers responsibility to act solely in the interest of shareholders
Social issues and problems are the proper province of the state rather than corporate
managers
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It is now fairly widely accepted that businesses do indeed have responsibilities beyond simply
making a profit. Any corporation takes on social responsibilities insofar as doing so promotes its
own self-interest. For example:
Corporations perceived as being socially responsible might be rewarded with extra and/or
more satisfied customers, whilst perceived irresponsibility may result in boycotts or other
undesirable customer actions. In 2008 survey, The Economist (2008a:13) found that for more
than 50% of global business leader the prime reason to engage in CSR is having a better brand
reputation.
Employees might be attracted to work for, and even be more committed to, corporations
perceived as being socially responsible(Greening and Turban 2000)
Voluntarily committing to social actions and programmes may forestall legislation and
ensure greater corporate independence from government (Moon and Vogel 2008).
Making a positive contribution to society might be regarded as a long-term investment in
a safer, better-educated and more equitable community, which subsequently benefits the
corporation by creating an improved and stable competitive context in which to do business
(Porter and Kramer 2006).
In addition to these business arguments for CSR, it is also important to consider further moral
arguments for CSR:
Corporations cause social problems (such as pollution), and hence have a responsibility
to solve those they have caused and to prevent further social problems arising.
As powerful social actors, with recourse to substantial resources, corporations should use
their power and resources responsibly in society.
Corporations rely on the contribution of a much wider set of constituencies, or
stakeholders in society, rather than just shareholders, and hence have a duty to take into account
the interests and goals of these stakeholders as well as those of shareholders.

5

CHAPTER TWO
ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY

Analysis of CSR at Varun Beverage
Varun Beverage is using proactive approach as CSR strategy. The company actively embraces
the need to behave in socially responsible ways, go out of their way to learn about the needs of
different stakeholder groups, and is willing to utilize organizational resources to promote the
interest not only of shareholders but of the other stakeholders.
Varun beverage believes both the economical as well as moral grounds of social responsibility
and its CSR activities can be categorically placed in four quadrants of virtue matrix as follows.
(Reasons for placing these in each quadrant are provided in Appendix 1).
Strategic
Funding cricket players, teams and
tournament
Drinking Water taps for locals
Installing ATM at company premises
Support industrial exhibition
Petrol and diesel to local police
Salary for full time employee is more
than standards, safety trainings and other perks
Drink N Drive marketing campaign
Hoarding board for retailers where
retailers name in placed and Pepsi brand name
is advertised simultaneously
Affirmative action to employ local
Structural
Help to NGOs working to fulfil MDG
goals
Tree plantation
Voluntarily increase in chimney height




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women
Choice
Provide employment to locals
Help to local clubs, colleges and groups
Provide soft drinks in blood donation
programs and other social events
Provide refrigerator in contract to small
retailers and hotels
Use of domestically available raw
materials like packaging and labelling
materials
Compliance
Water treatment and purification
Strict quality control
Maintaining minimum salary for
contract based employees
No child labour
Health insurance to full time employees
Abide all laws of Nepal


For a business to take responsibility for its actions, that business must be fully accountable.
Social accounting, a concept describing the communication of social and environmental effects
of a company's economic actions to particular interest groups within society and to society at
large, is thus an important element of CSR. Social accounting emphasizes the notion of corporate
accountability. Varun Beverage believes that there should be legal requirements for social
accounting, auditing and reporting though international or national agreement on meaningful
measurements of social and environmental performance is difficult. An integrated report includes
environmental, social and economic performance alongside financial performance information
and is expected to provide users with a more holistic overview of a company.
The triple bottom line -People, planet, and profit should be used and practiced in every move an
organization makes. People relates to fair and beneficial business practices toward labor, the
community and region where corporation conducts its business. Varun Beverage is responsible
towards its people and it conducts activities like sponsoring cricket players, teams and
tournament, establishing drinking Water taps for locals, installing ATM at company premises, no
child labour, and minimum salary for employees and so on. Planet refers to sustainable
environmental practices. The company is also responsible towards the environment and
conducts activities like helping NGOs working for society, tree plantation, voluntarily increase
7

in chimney height and so on. Profit is the economic value created by the organization after
deducting the cost of all inputs, including the cost of the capital tied up.

CSR initiatives - Responsive or Strategic
According to the modern approach, CSR should be strategic not mere responsive. The CSR
initiatives should be focused to create value chain social impact (inside-out linkages) and build
social dimensions of competitive context (outside-in linkages) rather than addressing generic
social issues. So the CSR activities of Varun Beverage can be categorized in three categories:
1. Generic Social Issues
Help to NGOs working to fulfil MDG goals
Tree plantation
Voluntarily increase in chimney height

2. Value Chain Social Impacts (inside-out linkages)
Sponsoring cricket players, teams and tournament (marketing and advertising)
Use of domestically available raw materials like packaging and labelling materials
(procurement)
Installing ATM at company premises (employee relations, HR)
Support industrial exhibition (marketing)
Petrol and diesel to local police (lobbying for security, infrastructure support)
Affirmative action to employ local women (positive discrimination, HR)
Salary for full time employee is more than standards, safety trainings and other perks
( Compensation policy, HR)
Drink N Drive marketing campaign (marketing)
Provide soft drinks in blood donation programs and other social events (marketing)
Provide refrigerator in contract to small retailers and hotels (marketing and sales)
Water treatment and purification and Strict quality control (operations)

3. Competitive Context (outside-in linkages)
Drinking Water taps for locals (improving health of locals, factor input conditions)
8

Use of domestically available raw materials like packaging and labelling materials
(related and supporting industries)
Provide employment to locals (factor input conditions)
After closely scrutinizing the CSR activities classified in above table, the company is doing
many activities that create win-win situation for both firm and society. But the three elements in
generic social issues are redundant. The involvement of the company in helping NGO in
unrelated sector of its business is not mutually beneficial. There is no interdependence and
linkage of business with society; it is just a moral obligation. The expenditure of corporate
resource in this initiative can weaken the competitive strength of the company. Similarly the
expenditure in tree plantation and self initiated uplifting of chimney without any legal and
customary requirement cannot create shared value. The expenditures made on these three
activities could have been more wisely used in other sectors of value chain and competitive
context that help align firm strategy with social requirement. Let us discuss about some
identified unserved portion on value chain and competitive context by Varun Beverage.

The Unserved Area of CSR by Varun Beverage
According to our secondary data collection, Varun Beverage is found to be one of the culprits for
decreasing ground water level in Kathmandu. We have also found that decade old vehicles are
being used by the company that are noisy and throw much more smoke than average vehicles at
the street. Similarly, other areas of CSR are also found to be unserved, particularly companys
lack of initiative to teach and train their employees and also not providing way out for part time
employees to earn money during the off season when they are laid off.
9

Value chain analysis of Varun Beverage and Possible CSR activities (Inside out linkages)

Fig: Porters Value Chain




10

Social dimensions of competitiveness analysis and possible CSR interventions (Outside in
linkages)

Fig: Porters Diamond Model

After the analysis of the possible CSR activities that can help in enhancing value chain and social
dimensions of competitive context, it is found that PepsiCo can do a lot of new CSR activities
which can help it grow together with society. The company has to rebound the investment in
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generic social agendas to the above mentioned CSR activities. But all the CSR activities
mentioned above cannot be initiated at once. The company has to find out the most useful that
creates high shared values. When we look at above figures, we found that some of the CSR
activities help in enhancing both value chain and social dimensions of competitive context. They
are water recharging, establishing bottling plant in terai, using new vehicles, investing in
employee training and education and emphasize in using Nepal made advertisements.

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CHAPTER THREE
RECOMMENDATION AND CONCLUSION

Recommendation
Varun Beverage has maintained considerably higher ethical standards and social responsiveness
and has helped in uplifting the civil foundation of Nepal. But there are areas for improvement.
From the analysis and gaps identified above the following are some of the recommendations:
Implement rainwater harvesting system: The Company should not depend on
excessive use of groundwater. The groundwater level is decreasing at the rate of 2.5
meter per year in the valley (source: http://www.wateraid.org). So as a responsible
corporate citizen, company should invest in rainwater harvesting. The effort will help
both the company and society. Company can itself join and also assist in helping local
people join rainwater harvesting system. By doing this, local people will be benefitted
and also be positive toward company, support it and create positive brand image. Even
during the month of drought the rain water that had been harvested and stored could be
used. The company can get more groundwater at surface to use, so cost of extracting
water goes down.

Build plant on Terai: The Company need to build bottling plant in terai. It will help
company to create benefit to society and company itself. Society will be benefitted by
increased employment, preserved water of the valley, developed industrial infrastructure
out of valley, reduced air pollution and vehicle congestion in the valley, etc. Company
will be able to target increasing number of terai population, where half of Nepalese reside
according to census 2068. Moreover company can decrease cost of inbound and
outbound logistics and solve the problem of capacity constraint at existing plant.
Company can start new production plant at industrial zone where it can help create
opportunity for supporting industries to provide raw materials for it.
13


Dispose old vehicles: The Company need to dispose all its decade long vehicles. The
society will be less polluted whereas company get supply chain efficiency and improved
reputation.

Provide safe drinking water in many parts of Nepal: According to UNDPA more that
3 million people in Nepal have no choice but to get water from where ever they can. The
question here is regarding safe drinking water. Instead of just establishing water taps in
few parts, a nationwide project of supplying safe drinking water should be initiated.

Conduct awareness programs against drugs: According to the latest data published by
Ministry of Home Affairs the number of drugs user is 91,543 throughout the country.
Varun Beverage should focus on conducting awareness programs as well as rehabilitation
programs for such individuals


Conclusion
Varun Beverage as a multinational company in Nepal is found to be doing business ethically and
in socially responsible manner. However, some of its practices have still space for improvement.
The companys innumerable CSR activities show how sensitive MNCs are in uplifting the civil
foundation of the host country. The company has been helping uplift the civil foundation of
Nepal by strictly adhering to the legal compliance mainly in quality standard maintenance and
employee benefits. Some of the activities that the company has been doing in strategic quadrant
and structural quadrants like installing ATM, above industry salary, etc have also high chances
that it will come under legal requirement or some form of industry wise acceptance level as
customs. But as recommended it can do much more than what it is doing.
Varun Beverages has also initiated such CSR activities that created mutual benefits to society
and company itself. Though CSR activities done at the local level are on the discretion of
Nepalese management without any objective cost-benefit analysis, almost all the activities are
benefitting company value chain or in strengthening the social dimensions of competitive context
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except few. But assessing cost and benefits of each CSR activity can help find best mix of CSR
among many possible alternatives to find optimal CSR that help link business with society.
The ethical practices are seen to follow relativism concept in marketing, finance and HR whereas
absolutism in production department. The companys code of conduct to adhere strictly to the
Nepalese law in marketing, finance and HR provides room for managerial judgement. But in
production, global code for standardization is adopted. So, company is not compromising in
quality of the product and workplace safety respecting core human values. The company has also
respected human dignity by helping community and protecting employees rights. But as
recommended, some areas have to be addressed. The company has also taken steps to be good
corporate citizen by helping address social issues. But the company need to take some steps to
communicate ethics to its low level staffs, downward supply chain members and to marketing
and sales staffs on the field.
If the company take care of provided recommendations, the company can achieve its motto of
performance with purpose with no questionable arguments.




REFERENCES
(n.d.). Retrieved from http://www.rjcorp.in
(n.d.). Retrieved from Pepsi Company: http://www.pepsico.com
Donaldson, T., & Regan, M. (1996, September). Values in Tension. Harvard Business Review .
Martin, R. L. (2002, March). The Virtue Matrix. Harvard Business Review .
Porter, M. E., & Kramer, M. R. (2006, December). Strategy and Society. Harvard Business Review .















APPENDIX

Appendix 1: Reasons why the activities are placed in the respective quadrants
CSR Activities Quadrant Reason for placing in the given frontier
Provide employment to locals Choice It is a usual practice in Nepalese business
Provide Dasain bonus and
festival leave
Choice It is a usual practice and expected practice
Help to local clubs, colleges
and groups
Choice Almost all the company does this
Provide soft drinks in blood
donation programs and other
social events
Choice Beverage companies like Dabur Nepal (Real),
Chaudhary group (Rio), Coca Cola practice this
Provide refrigerator in
contract to small retailers and
hotels
Choice Coca Cola, its strong competitor, does this
Use of domestically available
raw materials like packaging
and labelling materials
Choice Almost all companies does this to reduce cost
and make feel it is domestic
Water treatment and
purification
Compliance This is mandatory under Consumer protection
act
Strict quality control Compliance This is mandatory under Consumer protection
act
Maintaining minimum salary
for contract based employees
Compliance This is mandatory under labor act
No child labour Compliance This is mandatory under labor act
Health insurance to full time
employees
Compliance This is mandatory under labor act
Abide all laws of Nepal Compliance MNCs are strongly scrutinized and punished
Sponsoring cricket players, Strategic It helps in promoting brand



Fig: Reasons why the activities are placed in the respective quadrants
teams and tournament
Drinking Water taps for locals Strategic It helps in brand promotion, public relations and
local support
Installing ATM at company
premises
Strategic It helps in maintaining HR relations, interest
savings , reduced transaction cost, employee
satisfaction and increased productivity
Support industrial exhibition Strategic It boosts corporate branding and sales
promotion
Petrol and diesel to local
police
Strategic It helps strengthen company security and ease
of lobbying
Salary for full time employee
is more than standards, safety
trainings and other perks
Strategic Helps boots employee satisfaction and increase
productivity and employee commitment and
citizenship behaviour to MNC
Drink N Drive marketing
campaign
Strategic Helps branding through brand recall and
discourage hard drink while driving
Hoarding board for retailers
where retailers name in
placed and Pepsi brand name
is advertised simultaneously
Strategic Helps brand company and retail store,
standardize retail shop branding
Affirmative action to employ
local women
Strategic Help gain positive image and deployment in
packaging where women can do comparatively
better than men
Help to NGOs working to
fulfil MDG goals
Structural No strategic benefit to company, just giving
back to society without any expectation of gain
Tree plantation Structural No any direct benefit, just an HR initiative to
celebrate environment day
Voluntarily increase in
chimney height
Structural Not because of public pressure or government
requirement, no direct benefit, locals didnt
notice