Global Production Network of Coffee - Case Study Example

International Business Name Institution Course Date International Business Research studies of economic globalization have heavily been directed towards the role of value chain and production networks in configuring the relationship between the consumers and the producers (Ernst and Kin, 2002). These studies have assisted in the understanding how trade relationships and production networks of transnational corporation corporations are structured in relation to innovation in logistics and bodies governing the world economy. Global Production Networks transmute the production with tremendous implications for a ground-breaking theory of economic change (Bridge, 2008). Global Production Networks can be termed as the tie of the interconnected functions, operations and transactions that result to the production of a particular product and service. A global production network extends across national boundaries and combines the concept of global value chain (Coe, Dicken and Hess, 2008). Both large and small-scale producers strive to internationalize their operation owing to the global demand for coffee. Taking a cup of tea is termed as completing the final link in global production networks that has made it possible for the coffee to reach the consumers. The final consumer of coffee is linked to the farmers producing them. This paper will analyse the Global Production Network (GPN) of coffee and will highlight the party benefiting most from the structure of this GPN. Global Production Network is a set of inter-organizational networks that are linked together in which a specific commodity is produced (Dickson, 2015). These networks are specific and socially constructed, underlining the social entrenchment of economic organisation. Under Global Production Networks, economic activities are disaggregated and dispersed to multiple geographic locations. The derogation and dispersion of these economic activities in turn require greater coordination and incorporation of supply chain activities which draws on geographical reach of multinational corporations (Dickson, 2015). Global Production Networks is embedded on economic, political and ideological concepts. Coffee growers especially those living in the developing countries receive average salaries. Although a large amount of coffee is grown by smallholders and cooperatives, large plantations also take part in coffee growing and famers here are paid a smaller portion of the coffee prices (Levy, 2008). Several intermediaries in coffee-growing countries such as exporters and buyers take a larger portion of the value chain. The largest portion of the value added is witnessed in Western markets where the coffee prices are high. The distribution of revenue along the value chain is dependent on the tussles of the coffee chain coupled with the politics of its governance (Grereffi, Humphry and Sturgeon, 2005). GNP concept is founded upon three major elements: value, power and embeddedness. Value is created by GPN actors and supplying regions endeavour to enhance this value through upgrading (Gluckler, 2005). Firms also strive to enhance value through retail strategies and technological innovations aimed to reduce the cost of sourcing products like coffee in the GPN. Power is considered asymmetrical in flow retrieved from structural conditions such as markets and political institutions and is structured by actors of the GPN. Embeddedness on the other hand can be viewed from three viewpoints; the local and territorial, the trans-local as well as the societal (Gluckler, 2005). The world economy entails tangled webs of production networks that extend across geographical scales. A Coffee production network is made up of the coffee growers, multinational companies that process the coffee, traders, and larger-scale retailers (Levy, 2008). This group of different parties interact with other parties who are part of the production process. These parties may include governmental agencies, Non-governmental organisations and international organisations. Actors of the coffee production network may not actually recognize their membership (Levy, 2008). Recognition of identity in a production system grows as parties join forces and compete over regulator and economic dimensions of the production network. Non-governmental organisations have joined forces with coffee growers, multinational coffee processors and retailers in instituting Fair Trade Programs where farmers are paid high wages for certified coffee (Levy, 2008). This has played part in building and politicising the GPN as a concept where the corporate practices are connected to poor working conditions for coffee growers. Labour plays a major role in the coffee global production network. Labour used in coffee GPN is considered place-bound, within and between places, labour is very much segmented in terms of skill, gender, and ethnicity as well as by age (Newsome et al., 2015). The world coffee market has changed in the last years due to the changes in international polices coupled with new requirements of the market. This factor has extended the power asymmetries existing between actors in the Global Production Network and it has made it hard for coffee producing countries to benefit from coffee trade (Banerjee, Carter and Clegg, 2009). On the demand side, new trends in the market including flavoured coffee and fair trade have make the traceability of origin an important concept for instituting collaborations between producers and roasters. On the other hand, on the supply side, as a result of augmented volumes and quality, some countries’ coffee have fortified their market positions and downgraded other producers (Kaplinksy, 2000). This has resulted to some actors downstream in the global production network including the retailers and traders acquire a higher value compared to the coffee producers found in the upstream positions. This is referred to as the coffee paradox where the producing countries market their coffee product for its material quality and the consumers purchase for its symbolic value. Overall, the downstream actors often benefit from the global production network while the upstream actors suffer (Levy, 2008). Value is captured in order to benefit locations where a commodity like coffee is distributed (Raikes, Jensen and Ponte, 2000). Coffee direct trade schemes are responsible for distribution of earnings. Different actors in the Global Production Network of coffee play a specific role. For instance, exporters select coffee beans and prepare the coffees while shipping companies transport the coffee to different locations (Levy, 2008). The most value is created during the roasting process since roasted coffee can be sold at prices 3 times higher than the purchase price. The coffee growers receive a C-market price (Gibbon and Ponte, 2005). The global coffee chain has changed over the decades as today consumers can chose from different coffee varieties from different origins and of different flavouring. Coffee prices are going up in the speciality market. The international market is oversupplied with coffee of low quality. This can be attributed by collapse of International Coffee Agreement and asymmetric market power. The growing gap existing between the price of coffee bean and the coffee output is due to oligopolistic rent that is captured by the concentrated roasting industry (Gibbon, Bair and Ponte, 2008). In the global production network of coffee, there are key actors and institutions that take part in the chain structure. The government is the main actor in the coffee global production network controlling the domestic chains with the aim of increasing revenue and foreign currency and offering incentives to coffee production (Grereffi, Humphry and Sturgeon, 2005). The other group of the GPNs is private intermediaries including actors playing intermediary roles between production and consumption of coffee and they include private processors, exporters, roasters and suppliers to name a few. Exporters are the most powerful private intermediaries since they are in contact with the international buyers. Although MNCs are not directly in contact with the coffee suppliers, they have an established relationship (Gereffi, Humphrey and Sturgeon, 2005). Wholesalers and roasters operate domestically with a quite minimal niche market. Non-Governmental Organisations endeavour to create awareness of coffee both as a social and political issue. This has increased pressure on coffee multinational corporations to adapt some code of conduct that will assist in developing a market with fair trade that increases income to the coffee growers. However, this has not changed the asymmetries power have even strengthen the power of Western Multinational Corporations. GPN governance has revolutionized from a structure based on price and quantity regulation to one that is market based (Grereffi, Humphry and Sturgeon, 2005). However, there is struggle for power between coffee Multinational Corporation and coffee growers. In conclusion, Global Production Networks can be termed as the interconnection of different entities through which a product or a service is produced. GNP concept is founded upon three major elements: value, power and embeddedness. Value is captured so as to benefit locations where a commodity distributed. Different actors in the Global Production Network of coffee play a specific role. Some GPN actors include the government, NGOs, suppliers, producers and exporters to name a few. Value distribution in the coffee global value chain is considered unfair since the coffee growers receive lower wages while the multinational corporations benefit more. The amount of coffee distributed has increased significantly and this has resulted to some actors downstream in the global production network including the retailers and traders acquire a higher value compared to the coffee producers found in the upstream positions. Overall, downstream actors benefit more that the upstream actors. The government is the major actor in the Global Production Network but power asymmetries exists between actors in the Global Production Network. References Banerjee, S.B., Carter, C. and Clegg, S 2009, ‘Managing Globalization’, in M. Alvesson, T. Bridgman and H. Willmott (eds.) 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