In the 21st century, global brands can be seen in almost every nook and cranny of this planet. One of the best examples is Starbucks. The coffee cup with the mermaid logo is seen in downtown Los Angeles and Tokyo. But in recent years the company expanded to places where a couple of decades ago it would have been impossible to see an American company. This is a testament to a company’s growth and success (Salzer-Morling & Strannegard, 2007). It has become an economic juggernaut. But with its success comes problems such as the impact of their business on the people that work for them and the environment where they extract the resources necessary for creating perfect blended coffees. This study will examine how Starbucks tried to refurbish its public image by observing principles of corporate social responsibility and taking concrete steps to help in the fight to reduce the impact of global climate change.
Background
In the not-so-distant past drinking coffee was a non-complicated endeavor. Add coffee to a pot of boiling water pour into a cup and then one is ready for a new day. Adding sugar, milk or creamer is a personal preference. To add a little excitement an electronic gadget, a coffee maker, was invented and the more sophisticated coffee lover can enjoy freshly brewed coffee in the comfort of his or her home. For those who are constantly on the go, their daily caffeine requirement can be satisfied inside a restaurant or in their favorite diner. The rest of the world can enjoy their coffee straight from the can via instant coffee or the more traditional means of manually roasting and grinding coffee beans.
According to the founders of Starbucks, Zev Siegl, Gordon Bowker, and Gerald Baldwin Americans are buying their coffee already grounded and vacuum-sealed in cans (Mulady, 2001). It was the three entrepreneurs who thought of a revolutionary idea – to sell roasted coffee beans in the United States, specifically in Seattle. From that kernel of an idea they were able to grow Starbucks into a lucrative business. But it will take ten years of hard work and a marketing wizard by the name of Howard Schultz before Starbucks can be positioned to conquer America and then the world (Mulady, 2001). After Schultz bought the company from Baldwin, Bowker, and Siegl there was no turning back for Schultz and he succeeded in transforming Starbucks into a global icon.
Then in the 90s and onwards to the 21st century, Starbucks coffee can be seen almost anywhere and in places where one least expects to see a Starbucks store. Japan with its tradition of tea drinking could not resist the temptation of the mermaid logo found in every Starbucks coffee cup. China, once a Communist country and for most of the 20th century dedicated its resources in fighting capitalism is no match for the Starbucks juggernaut and agreed to let Starbucks build another branch in Beijing’s Forbidden City.
Yet there is a good reason why the aforementioned founders allowed Schultz to buy them out. The company experienced exponential growth. For those who love to generate billions of dollars in revenue this is a very appealing situation to be in. But for those who are not ready to give their heart and soul to a gigantic undertaking, Starbuck’s meteoric rise as a publicly traded firm can be daunting. There can be many organizations as well as production problems that needed to be taken care of.
The Challenge
The problem faced by Starbucks is the same with other successful multinational companies and it is how to cope with growth. By examining the following information one can have an idea as to how fast Starbucks is growing worldwide:
- As of 2006, Starbucks created new products; 22 new drinks in two years;
- Opened new branches from China to Brazil;
- In 2006 alone sales increased to 22%; and
- $8 billion in annual revenue (Kiviat, 2006).
In 2007, Jim Donald, the former President and CEO of Starbucks was aiming for 40, 000 stores worldwide and to increase the number of international stores from 3,500 to 20,000 (Allison, 2007). In the latter part of the 20th century the company was not only expanding and opening new stores in places like Russia and Indonesia but also experiencing robust sales in the United States. Americans could not get enough of the Starbucks lifestyle and the store is not only a place to buy coffee but also where people hang out, meet new friends and more importantly to be seen by those they respect and admire. Drinking coffee suddenly became a popular thing for kids, teenagers, and adults.
Starbucks created a new market and just like magic created something out of nothing but the company became the victim of its success (Kiviat, 2006). When it started, the main goal was to provide quality coffee to discerning customers and to educate the average American as to the wonderful world of coffee drinking enjoyed by many Europeans for hundreds of years. It was this passion for creating great coffee that attracted many to the green and white logo. But when demand increases, supply has to follow or the customers will complain of lack of consistency and poor service. From the operations standpoint there is a lot of work to be done and a great degree of modernization has to be accomplished to duplicate the wonderful tasting coffee in America to other places like Malaysia and Israel.
The concept called Corporate Social Responsibility is not new. In the 1990s American firms were made aware of the negative impact of scandals especially those linked to shoddy labor practices and environmental degradation. In 1996 Wal-Mart clothes were rumored to have been produced using child labor in Honduras and it became a public relations nightmare for the retail giant (Power, 2008). In America it is easy for customers to boycott a product or a business if the said company violates certain principles that they hold dear.
Impact of Globalization
Before the modern age, the citizens of a particular country can do whatever they want and never hear the reaction of other nations except for those who are close to their borders. Traders in Europe can perform their duties without fully understanding how their Asian counterparts are doing theirs. It is all due to communication and transportation. In modern times the advent of high-tech means of transportation and communication resulted in a shrinking world where Chinese businessmen can easily forge partnerships with someone in places like Ohio, USA. A remote province in China can manufacture goods for a company in Europe and the products and services can easily flow from one continent to the next.
Communication and transportation were able to bridge the gap. The Internet is an integral part of the equation and it enables two different cultures to sustain their relationship across vast distances. But aside from business opportunities globalization is also how value systems from highly industrialized countries and developing countries collide and merge. American and many European businessmen pride themselves in their business practices wherein integrity and respect for human life are as important as profit.
But when Americans and European firms were forced to collaborate with Asian countries such as China, India, Malaysia, Indonesia, and the Philippines, it did not take long for them to realize that the mindset existing in these regions is far different from theirs. Lax laws and the inability to enforce them are the reason why poverty-stricken countries in Latin America are turning a blind eye to the existence of child labor in their manufacturing sector. While Americans believe in the necessity of sending children to school, poor families living in Third World countries are only thinking of survival.
Global Climate Change
Aside from globalization there is a related issue that has been hugging the headlines for the past few years – global climate change. And it is the multinational corporations that are also getting the blame. Global climate change is the reason behind global warming as well as the unpredictable weather patterns experienced by billions of people in the world today. It has become so important that others are discussing global climate in the same way that they will discuss a moral problem, very intense and very personal. A lot of it is generated by fears that this world will soon end or at least the create a situation where most people will find it hard to sustain their current way of life.
There is agreement among scientists that global climate change is man-made. This is brought about by the degradation and destruction of the earth’s ecosystems that is in turn the result of the non-sustainable practice of exploiting the planet’s natural resources such as illegal logging and commercial farming that allows for the transformation of large swaths of lands without considering the possible impact of destroying diversity in favor of growing a single and yet high-value crop. Americans may continue to feast on bananas, chocolate, orange juice and other exotic fruits and vegetables without realizing what it will take to produce them. Developing nations in the Asia Pacific region as well as those in Latin America are being pushed to the limit to reach production quotas. This means forcing the land to yield fruits and vegetables out of season and this in turn would require the use of genetically engineered plants such as high-yielding sugar cane, cacao and coffee trees. There is also heavy use of various agrochemicals that may help meet burgeoning demand but in the long run will destroy not only the land but the livelihood of the farmers.
There is reason why many should worry and many experts agree that the global climate change is no longer a hypothetical assumption and that even a non-scientist can observe its negative impact to the planet. The following are just some of the symptoms of a physical world gone awry:
- unusually strong hurricanes;
- fiercer heat waves;
- harsher droughts;
- heavier rains; and
- rising sea levels (Hertsgaard, 2007).
As mentioned earlier if there is a negative perception against Starbucks – that they are partly to be blamed for the global climate change then there can be serious repercussion when it comes to attracting more investors. They also have to fix the negative public image to prevent their customers from switching to another brand. Starbucks is well aware of this problem and just like other companies that have branches and offices from Brazil to Taiwan, the coffee retail giant is doing everything they can to improve their public image. In 2007 Starbucks made a contribution in the information campaign against global warming when it promoted a movie documentary of the environmental problems brought about by high levels of carbon dioxide in the earth’s atmosphere.
It makes a lot of sense for Paramount Classics and National Geographic Films to partner with Starbucks. The chain of stores can rival McDonalds and it simply means that if every store will commit to show the documentary at least once a day for a few weeks or months then it is guaranteed that hundreds of thousands of people will be able to at least get a glimpse of the seriousness of the problem. The documentary is entitled Arctic Tale. The story of the pitiful plight of Arctic bears and walruses because climate change is melting arctic ice, it is the integral part of their lives and survival.
Rationale
Corporations and consumer are now more aware of the reality of globalized production and the harsh working conditions and violation of labor laws – specifically those pertaining to child labor practices (Power, 2008). Upon closer examination researchers and activists discovered that these conditions exist not only because these countries are poor but also because there are powerful forces at work preventing the poor to transform their pitiful existence and elevate their families from poverty to a more decent lifestyle where there children can go to school and there is access to healthcare among others.
It was discovered that there is a vicious cycle that exists within these nations and that there is increasing pressure from consumer groups and other parties for multinational corporations to give back to the world, specifically to the regions where they get the bulk of their raw materials. There is also pressure to examine their production systems in order to determine if they are directly or indirectly encouraging despicable labor practices. Moreover there is a movement to force multinational corporations not only to help improve the lives of the farmers and workers in developing nations but also to establish initiatives that will lead to the protection of the environment.
Hitting Two Birds
In their current press release Starbucks, Inc is committed not only to serve high-quality coffee but the company also aims to achieve the following:
- create a better future for coffee farmers;
- help improve communities; and
- to protect the environment.
Starbucks is well aware of the need not only to address the negative impacts of globalization in the lives of coffee farmers but also to help ease the environmental problems caused by irresponsible farming. In attempting to solve both problems Starbucks became partners with TransFair USA and other related organizations such as Fair Trade Labeling Organization International. By doing so Starbucks was able to hit two birds with one stone because these organizations are not only monitoring the working conditions in developing countries, specifically the growers and suppliers of coffee beans used in Starbucks stores but also to provide strict guidelines when it comes to ecological sustainability.
Fair Trade Certified
In its official website Fairtrade Labeling Organization International (FLO) asserts that it is a non-profit and multi-stakeholder association. And it is for good reason because the newcomer in the world of “fair trade” could not help but cast a suspicious eye for any organization that partners with multinational companies. The phrase that says “it is all about the bottom line” keeps ringing in the mind of the skeptic for there must be a catch somewhere. But by creating a non-profit group composed of many stakeholders the FLO can assure consumers that they are the real deal when it comes to ensuring the protection of the environment and sustaining the drive to protect workers and farmers from exploitation.
Fair trade principles include the following concepts:
- Fair Price: A democratically organized farmer group can apply for fair trade certification and in return they will be assured of a “guaranteed minimum floor price” plus an additional premium if they will commit to deliver organic products.
- Fair labor conditions: Workers that belong to Fair Trade certified farms are also assured of safe working conditions and reasonable wages. More importantly the fair trade certification prohibits child labor.
- Direct Trade: Farmer groups belonging to Fair Trade farms will have the luxury of working directly with importers – at least this is the ultimate goal – to eliminate costly middlemen. In developing countries middlemen are not the only parasites that suck the lifeblood of farmers and fair trade transactions help to minimize these incidents.
- Democratic and Transparent Organizations: There is a mechanism in place where farmer groups that are certified by the FLO are forced to abide by democratic principles. The rule of majority will dictate how funds will be invested. It must also be pointed out that not all the revenue that goes into these farmer organizations is given back to the farmers. A portion of the revenue is set aside for future investments and help improve the living and working conditions of the farmers.
- Community Development: Aside from improving the farm such as the creation of proper irrigation, use of sustainable practices etc, the families of farmers enjoy the benefits of social and business development programs such as scholarships, leadership trainings, and organic farming certification.
- Environmental Sustainability: There are certain agricultural practices that promise a quick rout to success. But in reality these methods quickly deplete the soil of nutrients and would hasten the destruction of the farmland. Sustainability is the new buzzword in farming and food safety discussions therefore fair trade is also committed not only to ensure the viability of the business but also in protecting the environment.
For those with even a limited knowledge of economics, fair price is the most crucial facet of global trade. Pricing determines the sustainability of the business but in Third World countries pricing is the main tool to control the development of the lives of millions of workers. If prices remain low then farmers will never be able to change their plight. They never have enough money to send their children to school. Aside from not able to provide quality education for their kids farmers have no way of setting aside a portion of their income so that in the future they can invest in more lucrative ventures.
If the next generation of Guatemalan farmers for instance will have no other opportunities but farming then the cycle of defeat will continue and they will be forced to live like slaves, very much dependent on the meager resources that they currently have and heavily indebted to loan sharks and other unscrupulous individuals taking advantage of their situation. The rich and powerful people in these areas have nothing else to do but to maintain the status quo. Starbucks is stepping in to change the trajectory of their lives. Starbucks in partnership with Fair Trade groups will help ensure a better future for coffee farmers. This is not only promoting good business practices but also social justice (Cliath, 2007). Starbucks is simply doing the right thing.
Promoting fair labor conditions is not only the humane thing to do but will also help empower the people (TransFair USA, 2009). When people are empowered they have control over things that they believe must be accomplished. It is one thing to know how to protect the environment and another to have the means that will enable the farmer to do what must be done to ensure economic security. If labor conditions can be improved then there will be less problems to deal with in terms of health care. Bad labor conditions can shorten the life expectancy of farmers and in some cases it will be the cause of injuries. Death and debilitating health problems will further increase the poverty in coffee producing countries and the cycle of defeat continues.
Promoting direct trade is a dream for most farmers. The middlemen are considered as a pestilence worse than the most annoying crop disease. This is because these middlemen can easily slash their income significantly just like an invading army of locusts can easily wipe out their annual harvest. But aside from the middlemen there is the oligopoly perpetuated by buyers such as Nestle and Kraft Foods (Fridell, 2008). For small farmers there is no way that they can negotiate properly with these groups. They needed assistance from the Western world in order for them to begin proper negotiations (Lindenberg, 2001). The new global environment prevents these farmers from being heard because powerful forces within these countries would like to maintain the status quo.
The challenge for these farmers is to establish democratic and transparent organizations that can be used as the main vehicle for communicating with Fair Trade groups and its members. Without the farmer group there is no way to be organized and to be at a level where an individual farmer can be heard in discussion regarding fair price and labor conditions. This is the only aspect of the Fair Trade principles that is not clear at this point. If this is not fully evaluated then what will happen in the future is the creation of a new oligopoly where farmers who are not members of certified group will be left out. There can be no perfect solution to the global crisis brought about by climate change and globalization but these are concrete steps and this is a good foundation in the fight against global poverty and other related problems.
In order to have an idea as to the kind of impact FLO can create in terms of basic commodities trading and food security the following FLO labeling initiatives can be found in the following countries:
- Denmark
- Finland
- France
- Germany
- Ireland
- Italy
- Japan
- Luxembourg
- Netherlands
- Norway
- Spain
- Sweden
- Switzerland
- UK
- USA
- Australia and New Zealand
These counties are some of the major purchasers of raw materials coming from developing nations. This means that if FLO representatives are present in these countries then more and more firms will be made aware of a growing global movement. But in the case of Starbucks there is a dynamic that is created which only a company of Starbucks stature and prominence can accomplish. This means that since Starbucks is well-known all over the world and has branches in major cities in this planet the Fair Trade principles they adhere to will be made known to many people. There is therefore a symbiosis that exists between Starbucks and FLO international.
A Much Bigger Challenge
Starbucks may have swept the world by storm in the 20th century but it is struggling to maintain its dominant position in the retail coffee business. It is still a widely recognized brand but investors are worried especially when it comes to the long term growth of the company in 2009 and beyond. The company recalled Howard Schultz to active duty, a sign that stakeholders’ confidence is at an all time low (Liedtke, 2009). The global financial crisis is adding more woes to a company that has been assailed by critics and distracted by legal battles.
Why is it important to take a closer look at what is currently happening in Starbucks, Inc.? The reason is simple. Even if one considers the fact that Starbucks is merely doing these steps to ensure that their public image will continue to rake in more profits for the company, it can also be argued that Starbucks is doing these things for the right reason. Skeptics will always be there to question the sincerity of a global juggernaut such as Starbucks but giving the company the benefit of the doubt consumers can be easily impressed at the type of changes Starbucks is helping to generate in coffee producing countries.
In other words this is better than nothing. Based on the FLO reports and the evidence gathered by researchers it can be argued that Starbucks will benefit from the success of coffee farmers. Therefore this partnership will continue to blossom and improve. If Starbucks will be successful in the long run, then more and more companies will jump into the bandwagon. There will be many firms who will see the light so to speak when it comes to helping the people and the environment that produce raw materials for products needed in the developed nations. It will be a great thing to know that helping others will also help the company’s bottom line.
Conclusion
Starbucks was founded in the 1970s. But the founders did not realize the growth potential of the company until it was sold to a dynamic leader and businessman. When the deal was finalized Schultz decided to transform Starbucks into a global brand and the rest was history. In the latter part of the 20th century the Starbucks logo became a part of the lives of millions of people all over the world. It was another example of a highly successful American export. But in recent years Starbucks faced the daunting challenge of promoting corporate social responsibility and to help in fighting the negative impact of globalization and climate change.
It is easy to understand why Starbucks is targeted by critics when it comes to exposing the evils of globalization and the multinational corporations’ contribution to global climate change. This is because Starbucks seems to be everywhere, but more importantly it is the fact that Starbucks imports its coffee beans from farmers who will never be able to afford the highly expensive lattes they are serving everyday. The irony of this fact plus the enormous profits the company is raking in every fiscal year is enough to drive human rights and environmental activists to frenzy.
Aside from the radical groups that would love nothing else to do but stage protests outside Starbucks outlets, the company is also well aware of the fact that public perception can easily change their fortunes. A mass boycott of Starbucks products can be accompanied by a significant drop in stock prices and the next thing the executives will know is that Starbucks is in the brink of bankruptcy. Before all these things can happen Starbuck is on the offensive and the company is partnering with Fair Trade groups not only to help improve the lives of coffee farmers but also to ensure that the environment is taken cared of and not exploited simply to meet production quotas.
There is much that can be achieved if the public help support Starbucks. At this point there is very little criticism that can be leveled against a company that tries to help alleviate poverty in Third World Countries. The only thing that can be done is to continue exerting pressure so that Starbucks will find more ways to give back to the farmers and to the environment. If FLO is monitoring the farmer groups there must be also another agency that continues to monitor Starbucks if the company is doing more than expected.
References
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