Nathanael Baker

N9212175

Case Study
Analysis
AMB336 International
Marketing

Table of Contents
1.

Introduction..................................................................................................... 2
1.1

Company Issue.......................................................................................... 2

1.2

CSR Issues................................................................................................. 2

1.2.1

Farmers in Poverty.................................................................................2

1.2.2

Child Labour........................................................................................... 3

1.2.3

Working Conditions................................................................................ 3

2.

Formulation of alternatives or possible solutions............................................4

2.1

Outsourcing without CSR..........................................................................4

2.2

Education program for Farmers and Workers............................................4

2.3

Produce the product in Australia...............................................................4

2.4

Possible Solutions Summary.....................................................................5

3.0 Expansion into Germany.................................................................................. 5

4.0

Recommendations........................................................................................ 6

4.1

Selecting a Guatemalan Coffee Region.....................................................6

4.2

Education Program for Local Workers........................................................6

4.3

Packaging.................................................................................................. 6

5.0

Bibliography................................................................................................. 7

6.0 Appendix.......................................................................................................... 9

1. Introduction
The outsourcing of production in any market to a third world nation has always
been an issue rort with various Corporate Social Responsibility (CSR) risks.
Although potentially beneficial to a company financially, the repercussions of
taking advantage of the problems in third world nations as a way of cutting
costs, can be detrimental to a Companys reputation. Peter Robinson, the CEO of
Mountain Equipment Co-op recently stated, "Ethics is the new competitive
environment.
In order for a company to be successful, the consumer must first feel
comfortable with what the company offers, but more importantly, what the
company represents. Studies by the Reputation Institute and published by Forbes
show that, peoples willingness to buy, recommend, work for, and invest in a
company is driven 60% by their perceptions of the company, and only 40% by
their perceptions of the products. (Smith, 2012) The study goes further and
states that 42% of how people perceive a company is based solely on their CSR
practises.
Byron Bay Organic Coffee Cuppa Production (BBOCCP) is considering outsourcing
production to one of the following countries, Nicaragua, Guatemala or El
Salvador. Of those three nations Guatemala produces by far the most amount of
coffee (see appendix 1), and already has in place a Fair Trade association of
sorts. (Fair Trade Coffee Cooperatives). This will enable BBOCCP to work with an
organisation with experience in the area on matters pertaining to CSR.

1.1

Company Issue

Byron Bay Organic Coffee Cuppa Production currently produces all of its coffee
locally. The desired volume of product, at present, cannot be achieved totally in
domestic production. For this reason, BBOCCP has decided to outsource
production to Guatemala. With this move comes potential risks to the Companys
brand image that must be addressed.

1.2

CSR Issues

Corporate Social Responsibility reflects on the key challenges that businesses

face in attempting to move towards a more sustainable economy. (Pedersen,
n.d.). Given that BBOCCP intends to outsource production to an ostensibly third
world nation, the company must be wary not to appear to be taking advantage of
those in dire need. After the collapse of the International Coffee Organisation
(ICO) in 1989, the price of coffee per pound dropped from $1.20 to $0.55 and
reached its lowest point late in 2002. (UNCTAD, 2003, p. 24).

1.2.1 Farmers in Poverty

According to World Vision, coffee farmers receive only 7-10% of the retail price
coffee is sold at. ("Coffee and Exploitation - A Hot Topic", 2016). This is extremely

exploitative of the people tasked with producing what is considered the most
widely consumed beverage of the Western world.
Guatemalas rural population (farmers) account for 70% of those considered to
be below the poverty line. ("Rural Poverty Portal", 2016). These farmers produce
over 4 million bags of coffee beans to be exported annually (Steinberg, Taylor, &
Moran-Taylor, 2014) all for an average return of just $3.00 US per farmer per day.
The average 10% offered by companies for coffee at present is not nearly
enough, but it offers the farmers an income of sorts. The majority however, are
still in poverty.

1.2.2 Child Labour

In third world nations such as Guatemala, child labour has always been an issue.
The Bureau of International Labour Affairs is currently suing the Guatemalan
government for breaching their duty to abolish child labour under the Dominican
Republic-Central America-United States Free Trade Agreement (CAFTA-DR).
("ILAB in Guatemala", 2016) As most farmers in Guatemala produce coffee, this
directly affects BBOCCPs decision to outsource to Guatemala. However, most
famers live and work with their families and thus, it could be argued that the
family is merely working together in order to provide for each other.

1.2.3 Working Conditions

Working conditions in Guatemala are often in violation of the countrys laws.
("Guatemala Working conditions, Information about Working conditions in
Guatemala", 2016) This is unfortunate but can be expected when the average
wage of agricultural workers is $3.00 US per day also. The workers, often
children, are given daily quotas which, if not met, means that they do not receive
compensation.
As the farmer is being exploited by corporations buying the product, these
abhorrent issues are passed on to the worker as a direct result of the lack of
humanity for those in Guatemala.

2. Formulation of alternatives or possible solutions

BBOCCP has been afforded an extremely unique opportunity to appear
favourable in the eyes of coffee consumers here in Australia. Given that the
company has yet to outsource production to a foreign third world country,
BBOCCP can implement practises that enable it to treat coffee growers and
farmers more fairly.

2.1

Outsourcing without CSR

BBOCCP could elect to totally ignore trade regulations to keep costs down. This
would benefit the company in the short-term but would inevitably lead to heavy
repercussions from both the Australian and the Guatemalan Fair Trade
organisations. Although only about 7% of Guatemala is unionised ("Guatemala
Working conditions, Information about Working conditions in Guatemala", 2016),
on average (per state), 25% of Australia is ("2.5 Million Australians Belong to a
Trade Union and a Further 1.5 Million want to Join Them", 2016).
Furthermore, to totally ignore CSR whilst still outsourcing to Guatemala, the
company would risk massive backlash from disgruntled workers resulting in
potential profit loss.

2.2

Education program for Farmers and Workers

Investing money in the education of the villagers and farmers associated with
BBOCCPs outsourcing would prove mutually beneficial for all involved. By
educating the people of Guatemala in sanitation, basic hygiene and basic life
skills, the company would be vastly increasing their quality of life. (MacDonald,
2003) Furthermore, BBOCCP could offer pumps for clean water and daily rations
for workers in order to maintain a high morale as well as appearing in a positive
light the consumer. ("Global Consumers Are Willing to Put Their Money Where
Their Heart is When it Comes to Goods and Services from Companies Committed
to Social Responsibility", 2016) The cost of this possible solution to farmers in
poverty would be quite high and would need to be carefully considered before a
decision was made.

2.3

Produce the product in Australia

A way of totally bypassing any issues to do with outsourcing is to simply continue

to produce the product in Australia only. This would allow the company to avoid
any issues to do with CSR, business here is heavily regulated. By not
outsourcing, BBOCCP would not be engaging in any potentially risqu business
with a third world nation. The negative side to this solution would be that costs
remain high as Australia has a minimum wage of $17.70 for workers over 21
years of age. ("Welcome to the Fair Work Ombudsman website", 2016)

2.4

Possible Solutions Summary

Coffee production in Guatemala is already managed by Associacin National de

Cafe (ANACAF), an organisation dedicated to reduce the risks of food insecurities
in rural households. This alone, would give a great impression to the general
public that BBOCCP is endeavouring to work alongside local organisations to
ensure that farmers receive the correct payment for their produce and work.
Companies with a good sense of Corporate Social Responsibility will attract and
retain consumers at a much higher rate (proportionately) than those who dont.
(Smith, 2012)

3.0 Expansion into Germany

The German coffee market has been reporting an annual 2.2% increase over the
past 5 years ("German coffee shop market grows turnover by 2.2% annually",
2016). Germany also comes in at number 8 in the top 10 highest coffee
consuming countries with an average of 5.2kg (dry) consumed per capita per
year. ("Roasted coffee: consumption in Germany 2014 | Statistic", 2016). In a
country of over 82 million people, this offers an extensive market for BBOCCP
which would allow for increased profits in order to offset the cost of increased
output into the Guatemalan outsourcing scheme. The beauty of expanding to
Germany is that, as the country is already a heavy consumer of coffee, no
additional marketing beyond the standard would be required for the product.
The GEPA, a German Fair Trade organisation, is already working tirelessly with
coffee producers to abolish the issues associated with the market ("Fair Trade is
our Mission! | GEPA - The Fair Trade Company", 2016) By joining this Fair Trade
organisation, for instance, BBOCCP would also have access to relationships
already built with South American nations and more importantly, workers.

4.0 Recommendations
4.1

Selecting a Guatemalan Coffee Region

Guatemala boats 8 coffee growing region. It is recommended that BBOCCP

outsource production to San Marcos as the region is run in majority by private
farms where the workers do their own processing. ("Barista Guide: 8 Different
Coffee Regions of Guatemala - Perfect Daily Grind", 2016) This would allow
BBOCCP to build rapport with the locals and as well as a lasting relationship. This
would allow for the company to implement an education program for workers in
order to combat child labour ("Coffee the Environment and Labour", 2016) and
the overall poverty of the area.

4.2

Education Program for Local Workers

As a major company, it is BBOCCPs responsibility to exercise good CSR

practises. Education is the key to combatting poverty (Pedersen, n.d.). The next
recommendation would be for BBOCCP to implement an education program for
the locals on each farm under the employ of the company in order to teach them
basic skills for survival. This program would consist of offering classes two times
a week for the workers to learn basic life skills, these classes would be held over
the weekend and would also include food and water for them in order to boost
morale ("Rural Poverty Portal", 2016) and give them a sense of longing for the
weekend.

4.3

Packaging

peoples willingness to buy, recommend, work for, and invest in a company is

driven 60% by their perceptions of the company, and only 40% by their
perceptions of the products. (Smith, 2012). Once the aforementioned
recommendations are implemented, BBOCCP should consider making the fact
that they are working with local farmers a prominent fact on all packaging. The
packaging of products should include reference, whether a logo or small
paragraph, to the good work that the company is doing. This will encourage a
positive brand image and increase brand recognition. ("The impact of CSR on
brand reputation and sales", 2016)

5.0 Bibliography
2.5 Million Australians Belong to a Trade Union and a Further 1.5 Million want to Join Them.
(2016). Roy Morgan. Retrieved 1 September 2016, from
http://www.roymorgan.com/findings/finding-3928-201302270454

Barista Guide: 8 Different Coffee Regions of Guatemala - Perfect Daily Grind. (2016).
Perfectdailygrind.com. Retrieved 1 September 2016, from
http://www.perfectdailygrind.com/2016/02/roaster-guide-8-different-coffee-regions-of-guatemalaspecialty/

Coffee and Exploitation - A Hot Topic. (2016). campaign. woldvision. Retrieved 28 August 2016,
from https://campaign.worldvision.com.au/wpcontent/uploads/2014/03/7280_DTL_Factsheet_Coffee_Web_Single.pdf

Coffee the Environment and Labour. (2016). Organicconsumers.org. Retrieved 28 August 2016,
from https://www.organicconsumers.org/old_articles/starbucks/coffeelabor.htm

Fair Trade Coffee Cooperatives | Global Exchange. (2016). Globalexchange.org. Retrieved 28

August 2016, from http://www.globalexchange.org/fairtrade/coffee/cooperatives

Fair Trade is our Mission! | GEPA - The Fair Trade Company. (2016). Gepa.de. Retrieved 1
September 2016, from http://www.gepa.de/en/welcome.html

German coffee shop market grows turnover by 2.2% annually. (2016). FoodBev Media. Retrieved
28 August 2016, from http://www.foodbev.com/news/german-coffee-shop-market-grows-turnoverby-2-2/

Guatemala Working conditions, Information about Working conditions in Guatemala. (2016).

Nationsencyclopedia.com. Retrieved 1 September 2016, from
http://www.nationsencyclopedia.com/economies/Americas/Guatemala-WORKING-CONDITIONS.html

ILAB in Guatemala. (2016). Dol.gov. Retrieved 1 September 2016, from

https://www.dol.gov/ilab/map/countries/guatemala.htm

MacDonald, R. (2003). Providing the world with clean water. BMJ, 327(7429), 1416-1418.
http://dx.doi.org/10.1136/bmj.327.7429.1416

Market profile Germany For Australian exporters - Austrade. (2016). Austrade.gov.au. Retrieved
28 August 2016, from https://www.austrade.gov.au/Australian/Export/Exportmarkets/Countries/Germany/Market-profile

Pedersen, E. Corporate social responsibility.

Roasted coffee: consumption in Germany 2014 | Statistic. (2016). Statista. Retrieved 28 August
2016, from http://www.statista.com/statistics/511534/consumption-of-roasted-coffee-in-germany/

Rural Poverty Portal. (2016). Rural Poverty Portal. Retrieved 28 August 2016, from
http://www.ruralpovertyportal.org/country/home/tags/guatemala

Smith, J. (2012). The Companies with the Best CSR Reputations. Forbes, pages 1-3. Retrieved from
http://www.forbes.com/sites/jacquelynsmith/2012/12/10/the-companies-with-the-best-csrreputations/#42062e79a727

Steinberg, M., Taylor, M., & Moran-Taylor, M. (2014). Coffee and Mayan Cultural Commodification in
Guatemala. Geographical Review, 104(3), 361-373. http://dx.doi.org/10.1111/j.19310846.2014.12031.x

The impact of CSR on brand reputation and sales. (2016). Consultancy. Retrieved 1 September
2016, from https://econsultancy.com/blog/7582-the-impact-of-csr-on-brand-reputation-and-sales-2/

Top 10 Coffee Producing Countries - Coffee Area. (2014). Coffee Area. Retrieved 1 September 2016,
from http://www.coffeearea.org/top-10-coffee-producing-countries/

Welcome to the Fair Work Ombudsman website. (2016). Fair Work Ombudsman. Retrieved 18
August 2016, from https://www.fairwork.gov.au/awards-and-agreements/award-and-agreementfree-wages-and-conditions

6.0 Appendix
Appendix 1. Top Coffee producing countries

("Top 10 Coffee Producing Countries - Coffee Area", 2014)