Shaping Global Business Contexts : Starbucks & Fairtrade - Case Study Example

Shaping Global Business Contexts Case: Starbucks & Fairtrade For a business to operate in a productive way, it must adopt a business model, which coincides with what the business intends to offer to the customers. The business model explains what a business does in its industry. For restaurant chains, most of such businesses in the U.S usually adopt one of the two main business models that include the franchise model and the standard model. Starbucks adopted the standard model. Most of Starbucks revenues come from retail locations that the company has established in many countries. This business model is known to hinder domestic expansion but Starbucks has managed to overcome this. The company managed to overcome this challenge before large-scale vendors flooded the market. The main products that Starbucks offers include various coffee products. Starbucks also strategized by ensuring that it established its retail outlets in the regions that have high foot traffic. This would increase the sales volume. This has indeed helped the company into acquiring a global name in its business sector (Simonds). These strategies have also ensured that Starbucks competes with some of the biggest companies such as McDonalds. The company still intends to continue expanding in to the emerging markets and has already established itself in most of the continents with the exception of Africa. The presence of Starbucks has been felt in very few African countries. With respect to Starbucks’ business model, Starbucks is the first coffee company to have a retail outlet in every BRIC countries in addition to other regions. Besides having established the business in various regions, the success of Starbucks can also be attributed to the commitment exhibited by its human resources. The business model has incorporated a strategy that motivates the employees through establishment of a good workplace. Specifically, the employees are not treated as interchangeable parts but as partners. Satisfied employees lead to loyal customers due to provision of high quality services and the subsequent power to beat the competitors. Fairtrade is a social movement that seeks to ensure that it helps producers in the developing countries to get better trading deals as well as promote sustainability. The main issue behind Fairtrade is fair trade. The movement believes that when individuals are provided with the most appropriate trading situations, they can improve themselves and even countries especially because these countries experience high levels of poverty (Fair Trade Federation). Better social in addition to environmental standards is also advocated by the members of the movement. In the quest to realize these goals, the movement has established a comprehensive mission. The mission statement is that Fairtrade seeks to connect disfavored producers as well as consumers, to promote fair trading conditions, to empower the producers so as to combat poverty, to strengthen the positions of the producers and consumers, and help people to take more control over their lives (Fairtrade Labelling Organizations International). The mission statement is reflected in the established organizational values where this organization works as an example so as to promote the changes that they seek to have in others. This has made the success of the movement realizable in addition to practicing the most appropriate business related behaviors such as transparency and collaboration. Fairtrade and Starbucks formed an alliance, which Starbucks had requested so as to ensure that it increases its own reputation through guaranteeing fairness in its business operations. Since the success of Starbucks was sparked by globalization and globalization has many negative aspects such as low salaries and poor working conditions, Starbucks introduced Fairtrade into its business ethos to ensure that it dissociates itself from negativity and promote better ethics within the consumers. Fairtrade also undertakes additional activities such as marketing coffee products and bananas. Banana is the most popular product offered by Fairtrade. Besides establishing ties in the name of showing fairness, there were also business related deals involved in the alliance. The alliance’s scope involved a deal, where Starbucks would market coffee from Fairtrade through its already established 2,000 retail outlets as well as its website (Coffee Research Institute). The coffee would be imported from exporters who have paid the producers a fair price for the products so as to improve the fairness of the whole process and follow the values of Fairtrade. The deal also involved the idea that Starbucks would promote and educate people on the products from Fairtrade. Being the main marketer of Fairtrade’s coffee, Starbucks would then be the largest buyer of Fairtrade’s coffee because the company was anticipating to marketing Fairtrade’s coffee only by the end of 2009. According to Starbucks, the move to market Fairtrade’s coffee was mainly directed towards ensuring that farmers in the developing world get adequate returns. Specifically, the company estimated that the farmers would receive £2.5 million (Fair Trade and Starbucks, n.d). It would be appropriate to deduce that most of these revenues would be directed towards the African continent, which has high levels of poverty. However, although Fairtrade was improving the developing world, it was concentrating on fairly developed countries such as Mexico instead of Africa. The scope also involved expansion strategies that would also be attempting to support sustainable production of coffee. The company believed that continued cooperation with the Fairtrade and similar bodies would be a demonstration of its commitment towards the coffee farmers and their families. Starbucks also had the mandate to roast the coffee and brand it appropriately. Most of the coffee was sold in the U.K, the Pacific Rim, Middle East, and Northern America. However, similar to most alliances, the Fairtrade-Starbucks alliance also had some challenges. The main challenges in the alliance involved criticisms and competition. Besides the criticism that Fairtrade is not as affair as it claims, there were other criticisms mostly directed towards showing that the organization is not entirely fair as earlier thought. Some of the criticisms lie in the pricing. Here, the company was criticized for not compensating the producers fairly as compared to the revenues that they got from the coffee. Fairtrade claimed to pay the producers a price that was higher than the market price to motivate the producers to produce higher quality coffee, which would lead in a better product (Hickman). The chief promise for Fairtrade was that the organization would ensure that producer’s lives would be improved through providing a platform through which the producers would sell their products at a higher price. However, most coffee growers, importers and rosters maintain that Fairtrade is not delivering what it promised; reduction of poverty in the developing world. Although the farmers have produced high quality coffee, their living conditions have not changed as the movement originally promised to deliver. In fact, the organization does not have any data that it can use to confirm that its activities have led to the improvement of the farmer’s living standards. This is one of the biggest challenges because even the consumers are beginning to shift their preferences. This may be the reason why, by 2008, Starbucks was struggling with increasing competition (Haight). This mostly took place in the U.K. Some consumers have also voiced concerns that the quality of the coffee produced through Fairtrade is not the same as the competitors’ product. This is because the competitors have higher quality coffee. The organization has also been criticized for duplicating laws related to coffee. In the Latin American nations, Fairtrade has been criticized for setting similar laws as those already in place. Such laws include those that govern the usage of child labor and the minimum wage. Other challenges include those related to transparency during business dealings. The most transparent dealings include record keeping for future references especially for farmers to access information regarding the organizations practices for better decision-making processes (Haight). Record keeping for the organization has been problematic and at times, it has led to language barriers and literacy barriers. Such record keeping issues affect the morale of the producers and even the marketer, Starbucks, because transaction records are paramount in any business. When taking the occurrences in the organization, I can foresee some outcomes that may not be favorable for both companies. Since Starbucks is already connected to Fairtrade and is marketing most of its coffee from Fairtrade, its downfall may be fueled by the shortcomings that have been exhibited by Fairtrade. This is because of the complaints that have been voiced by the customers. Here, since the customers have stated that Fairtrade is producing low quality coffee, this may be one of the reasons behind a higher possibility of intense competition and a possible break up between the two companies. This is mostly because both companies are involved in this issue. Another possible future scenario is that the producers will prefer to sell their products through the open market and abandon Fairtrade. This is because the company is offering incentives to keep the farmers producing more coffee for them but their livelihoods are not improving. It is also possible that Starbucks will decide to break the alliance mostly because of the discrepancies that have been exhibited by Fairtrade. Such include the idea that Fairtrade has failed to keep its promise of improving the conditions of the farmers and that its coffee is of low quality. Such aspects may also affect Starbuck’s market significantly. Works Cited Coffee Research Institute. 2006. Web. 5 Nov. 2014. http://www.coffeeresearch.org/politics/Starbucks%20Fairtrade.htm Fairtrade Labelling Organizations International. Our Vision & Mission. 2011. Web. 5 Nov. 2014. http://www.fairtrade.net/our-vision.html Fair Trade and Starbucks. n.d. Web. 5 Nov. 2014. http://geographicalconcepts.wikispaces.com/Fair+Trade+And+Starbucks Fair Trade Federation. About Us. 2014. Web. 5 Nov. 2014. http://www.fairtradefederation.org/about-us/ Haight, Colleen. The Problem with Fair Trade Coffee. 2011. Web. 5 Nov. 2014. http://www.ssireview.org/articles/entry/the_problem_with_fair_trade_coffee Hickman, Martin. All Starbuck’s Coffee to be Fairtrade. 26 Nov. 2008. Web. 5 Nov. 2014. http://www.independent.co.uk/life-style/food-and-drink/news/all-starbucks-coffee-to-be-fairtrade-1035162.html Simonds, Lauren. Starbucks: A Model of Success. 27 Aug. 2013. Web. 5 Nov. 2014. http://business.time.com/2013/08/27/starbucks-a-model-of-success/ Read More