Teh Dee Sze

AMB 336 Assignment One (Case Study)

Assignment 1: Case study analysis guide: Ethics in International Marketing

Name: Teh Dee SzeStudent ID: N9419225 Tutorial: 2PM – 3PMTutor: Graham Fellows Word Count: 1500 words

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Table of Contents1.0 IDENTIFICATION OF CASE ISSUES...................................................................................2

1.1 INTRODUCTION.............................................................................................................................................21.2 CHOICE OF COUNTRY (OUTSOURCE).......................................................................................................21.3 ETHICAL ISSUES IN GUATEMALA...............................................................................................................3

1.3.1 Labour Abuse....................................................................................................................................... 31.3.2 Poverty................................................................................................................................................... 31.3.3 Corruption............................................................................................................................................ 31.4 Target Country....................................................................................................................................... 4

2.0 FORMULATION OF ALTERNATIVE SOLUTIONS...........................................................42.1 PARTICIPATE IN FAIR-TRADE....................................................................................................................42.2 PROVIDE EDUCATION..................................................................................................................................52.3 UNDERSTAND AND GET INVOLVE IN THE SUPPLY CHAIN (TRANSPARENCY)....................................5

3.0 RECOMMENDATION OR CHOICE OF SOLUTION..........................................................53.1 MARKETING TO GERMANY.........................................................................................................................6

4.0 REFERENCE............................................................................................................................. 7

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1.0 Identification of Case issues

1.1 IntroductionByron Bay Organice Coffee Cuppa Production(BBOCCP) is a coffee retailer-wholesaler for the medium-high end market in Australia. Due to high demand for coffee, the company has planned to outsource its production to one of the lower paid countries in Central America. Outsourcing brings many advantages however this practice would bring about reverse effect if issues such as ethical production were ignored. We can clearly see this happening to Nestle where it is one of the most hated companies in the world due to child labor, abuse, and trafficking in their supply chain (Johnston, I. 2009). Many customers protest due to unethical production causes tarnished company image and hurt sales (Rugimbana, R., & Nwankwo, S, 2003). One example was Nike using sweatshops (Sydney Morning Herald 2005). Due such negative events, these issues had raised the significance of Corporate Social Responsibility (CSR) in contemporary business.Furthermore, BBOCCP will be targeting an European country for sales.

This case study will: Compare and analyse best country to outsource Analyse best European country for sales Identify three feasible solutions to rectify the situation and nominate the best

solution for BBOCCP. Evaluate the impact of CSR along with recommendations

1.2 Choice of Country (Outsource)

Issue Impact/Country

Guatemala Score Nicaragua Score

El Salvador Score

Child LabourDOL. (2016).

13.4%(414,250) 3 8.1%(109,380) 2 6.3%(84,927) 1

Working Condition (positive) (World Bank, 2014)

H 1 L 2 M 3

Corruption Index(Transparency International, 2015)

123/168 2 130/168 3 72/168 1

Control of Corruption(Transparency International, 2015)

-0.534 2 -0.783 3 -0.219 1

Coffee Production (tons)(World Atlas, 2015)

204million 1 130.5milllion 2 45.7million 3

Minimum wage/hour(World Bank, 2014)

$1.58 1 $0.59 2 $0.5 3

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Average TOTAL 1.6 2.3 2*1 best-3 worst

Guatemale is the production country of choice because it has the best working conditions, coffee production and highest minimum wage per hour. However, there are many CSR issues in Guatemala.

1.3 Ethical issues in GuatemalaThe issues consists of labour abuse, poor working environment, corruption, poverty

1.3.1 Labour Abuse

1.3.2 Poverty According to a report from World Bank, the poorest 40% of Guatemala’s 15 million citizens lived on roughly $1.50 per day in 2012, which was reduced from $1.60 in 2003 (World Bank , 2014). It’s the only country in Latin America where the poor getting poorer while rich getting richer (World Bank , 2014). A new World Bank study says the key reason is that Guatemala’s government fails in collecting taxes effectively. Low spending leads to poor infrastructure and slow growth. (World Bank, 2014). As a result of this, foreign investors can take advantage of poverty in Guatemala because it lowers the production cost. This has become foreign company’s primary motivation to outsource their production. (Schiller, B. R, 2006)

1.3.3 CorruptionAlthough corruption rate in Guatemala has decreased from 2014 (32/100) as compared to 2015 weighted at 28/100 with a global ranking of 123/168, this suggests that the corruption level in Guatemala is high (Transparency International, 2015). The country’s low score was partly the result of the state’s lack of transparency in laws and fail to develop a comprehensible policy of transparency to stop corruption (Tanzi, V, 1998). Political corruption is the main root of Guatemala’s corruptions, it involves abuse of public power for personal benefit. (Allison, 2011) Nevertheless, things might change for Guatemala as the previous president was found guilty of high levels of corruptions and a new president was elected (NCID, 2016). This might be beneficial to the country as the new government might set change to be more effective taxation policy and advocate worker’s rights and therefore stabilize the country’s economy.

Low wages and bad living conditions have been an unavoidable result of low world prices in the coffee sector (Specialty Coffee Association of America, 2005). Child labour in Guatemala happens when coffee pickers are required to pick a daily quota of 45 kilograms in order to earn the minimum wage, giving them no choice to invlove their children to work. It also result from the desperate measure taken by orphans to get a living. These child workers are not eligible for child labour protections. (World Vision Australia , 2014) Although, there are arguments about abolishing child labour, the abolishment would cause children to live in greater poverty because their families rely heavily on their income to provide a living (World Vision Australia , 2012). Similarly, people who labour at coffee plantations had to sometimes work in physical confinement and abusive enviroment. There are restrictions on movement during working hours where guards are present and workers are consistently subject to threats and verbal abuse. (Verite, 2012). A survey taken place in Guatemala’s plantation shows that none of the suppliers paid their workers at the country’s minimum wage (Fridell, 2007). Otherwise, majority of workers did not receive any overtime pay or employee benefits required by law. (Good Empowerment Project , 2014)

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However, this might be a disadvantage for foreign and dometic companies and investors as it would be tougher for them to gain business advantage through bribery. (Yogyakarta, 2011).

1.4 Target Country

Target Country Factor

Finland Score Norway Score

Germany Score

AverageConsumption per capita (World Atlas, 2015)

1,252 cup 1 916 cup 3 1,040 cup 2

$/Cup $3.35 2 $3.75 1 $2.23 3Ethical Consumption

High 2 VL 3 VH 1

Country of Origin

High 2 Low 3 VH 1

WTP (willingness to pay)

Medium 2 Low 3 High 1

Average TOTAL 1.8 2.6 1.6*1 best-3 worst

Germany has been been taking ethical consumerism seriously for the past few years, the expenditure on ethical goods and services in the Germany has been relatively stable between 1999 and 2008 (Andorfer, V. A. 2013). For many years, Germany’s Federal Government has been promoting CSR as part of its policies. Germans have increasingly called for companies to have more responsible behaviour due to the economic and financial crisis. These demands had even been voiced in the Heiligendamm summit in 2007 during Germany’s G8 Presidency (CSR Policies in Germany. n.d.).. The UN Human Rights Council for example adopted the UN Guiding Principles on Business and Human Rights, and in 2011 the OECD revised its Guidelines for Multinational Enterprises (CSR Policies in Germany. n.d.). As a results of these steps and developments, focus on corporate due diligence when it comes to compliance with labour, social and environmental standards is now stronger (CSR Policies in Germany. n.d.). This indicates that there are large number of ethical consumers in Germany and it is becoming consumer’s code of conduct to purchase from ethical companies. German customers have high expectation on COO. A survey done by European Association of Agriculture Economists (EAAE) shows that 90% of consumers use product origin as a major attribute in the choice process (EAAE. 2009). Coffee is a low involvement product for Germans that makes marketing stimuli (packages, CSR and COO) so important.

2.0 Formulation of alternative solutions

2.1 Participate in Fair-trade

BBOCCP could support fair-trade to minimise occurrence of poverty and labour abuse where this practise of CSR has been considered as part of the due diligent (Hasselback, D. 2015). Since CSR has been on the rise in Germany and even worldwide, this indicates that a company with high CSR will gain better reputation which will be beneficial in the long run. Participating in Fairtrade organisation means

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by providing coffee farmers and workers fair terms of trade and better working conditions. The Guatemala’s FLO (Fairtrade Labelling Organisation) will assist companies by providing full data of the products’ supply chain to consumer. As such, consumers will be able to understand how Fairtrade works, also educating workers to be aware of their rights and power to bargain. With that, this will help BBOCCP to generate positive word-of-mouth from its consumers. On the contrary, another issue might occur if more and more growers participate in fair trade, it attracts low quality beans. “Every crop contains some beans that are of higher quality than others. If the market price for the low-quality beans is below $1.40 and the market price of high-quality beans is above $1.40, then the fair-trade system incentivizes growers to dump their bad beans into fair-trade channels.”- The Huffing Post (Wydick, B, n.d.). This being said, there are some coffee beans that are higher quality than others and both placed at the same price in the market, it might motivate growers to dump their low quality beans into fair trade channels. (Wyick, 2014)

2.2 Provide education

2.3 Understand and Get involve in the supply chain (transparency)

3.0R

ecommendation or choice of solutionAs BBOCCP will be targeting Germany’s medium to high end market, it will be advantageous as ethical consumerism in Germany has been adopted since early years, hence, BBOCCP’s COO effect will be play a big role in consumer’s purchasing behaviour and process as coffee is a low involvement product for Germans that makes marketing stimuli (packaging, CSR and COO) so important.

In order to prevent protest and “boycott” by ethical consumers, BBOCCP chould understand and get involved within the supply chain. This can be done through performing factory audit such as repeated visits to problematic factories. The famous sports wear “Nike” once caused public outrage and protests during 1991 due to poor working condition and pay in Indonesia. However, they manage to get themselves out by performing factory audit and establishing Fair Labor Association (Nisen, M. 2013). Transparency was achieved by complete list of the factories Nike contracts being published revealing the conditions and pay in its factories and acknowledging widespread issues (Nisen, M. 2013).

BBOCCP should provide education funds to the villages that produces coffee bean to reduce labour abuse. Workers in Guatemalan were lacking in knowledge and skills. Hence, this is where education comes in handy, education is very important for human capital development, a proper education will boost the population's progress positively as it provides the necessary knowledge and skill which will increase their capability to accomplish goals more effectively. Similarly, this would help gain trust and acknowledgement from Guatemalan government and will build a positive brand image for BBOCCP through CSR. Alternatively, a study shows that people who suffered from poverty have several limitations in terms of social, physical and emotional wellbeing. However, they might find it difficult to adapt the education system provided. Hence, UNESCO mentioned that poverty situations needs to be taken into consideration while designing education or training program. (UNESCO , 2001)

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Firstly, BBOCCP should participate in Fair-trade where it would earn them great positive image among ethical consumers in Germany. This participation would be a great marketing tool for BBOCCP to promote and to differentiate from other competitors (Carrigan, M., Marinova, S., & Szmigin, I. 2005). Next, BBOCCP should also create CSR programs around education in Guatemala. As mentioned above, CSR has been part of a company’s due diligent in Germany (CSR Policies in Germany, n.d.). Lastly, to prevent any backlashes from local media or competitors, BBOCCP must get involve in supply chain to make sure CSR has been adopted throughout the supply chain (Nisen, M. 2013).

3.1 Marketing to GermanyAfter much effort in CSR, BBOCCP need to show their effort out to Germany’s ethical consumers. For long-term marketing, BBOCCP could first, create a website that introduces their production of coffee, what effort has the company made to ensure CSR exist in their supply chain. Secondly, promote through social media such as Facebook, Instagram, Twitter etc. Facebook is a must as there are 36.8mil Facebook users in Germany itself ranking top 8 in the globe (Statista. 2016). Lastly, making use of search engine optimization. However, BBOCCP must not transplant their marketing strategy from Australia to Germany due to cultural sensitivity in Germany. Understanding of protocol is paramount to effective marketing (Lawrence, A, n.d.). The intricacies of a nation its beliefs, even its superstitions can break your business (Lawrence, A, n.d.). Although Germans are fluent in English, it is considered polite and general rule of thumb to use their mother language as it gives German consumers good impression during the early stages in business (Onkvisit, S., & Shaw, J. J, 2004).

As for short-term marketing, BBOCCP could use trade magazines. Trade magazines are a popular source of advertising in Germany as it is a key source of information for managers and decision makers in all sectors of the German industry (Lawrence, A, n.d.). Best magazine for advertisement is “tv14” with 2.35million copies sold in 2015 ranking 1st (Statista. 2016). BBOCCP could also advertise at the bus stop.

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4.0 Reference

Allison, M. (9 December , 2011). Corruption back on the rise in Guatemala .Retrieved from Aljazeera:http://www.aljazeera.com/indepth/opinion/2011/12/201112611161269960.html

Andorfer, V. A. (2013). Ethical Consumption in Germany. Zeitschrift Für Soziologie,42(5). doi:10.1515/zfsoz-2013-0505

Coffee Review. (n.d.). Retrieved August 30, 2016, fromhttp://www.coffeereview.com/coffee-reference/coffee-categories/geographic-origins/coffees-from-the-americas/guatemala/

CSR Policies in Germany. (n.d.). Retrieved August 31, 2016, from http://www.csr-in-deutschland.de/EN/Policies/CSR-national/CSR-Policies-in-Germany/csrpolicies-in-germany.html

Carrigan, M., Marinova, S., & Szmigin, I. (2005). International marketing review.Bradford, England: Emerald Group Publishing.

DOL. (2016). Retrieved August 30, 2016, fromhttps://www.dol.gov/agencies/ilab/resources/reports/child-labor/el-salvador

EAAE. (2009). Retrieved August 31, 2016, from http://www.eaae.org/Site2014/index.php/non-eaae-information/publications

Good Empowerment Project . (2014). Bitter Brew: THe Stirring Reality of Coffee .Retrieved from Food Empowerment Project :http://www.foodispower.org/coffee/

Hamlett, K. (n.d.). Reasons for Outsourcing in a Manufacturing Industry. RetrievedAugust 30, 2016, from http://smallbusiness.chron.com/reasons-outsourcingmanufacturing-industry-1292.html

Feed the Future. (2015, January 28). Guatemala’s Private Sector Helps Ramp Up theFight Against Coffee Rust.

Hasselback, D. (2015, July 29). Why corporate social responsibility is now part of duediligence. Retrieved August 31, 2016, fromhttp://business.financialpost.com/legal-post/why-corporate-social-responsibility-is-now-part-of-due-diligence

Ibrahim, H. W., & Zailani, S. (2010). International Business Management. A Review on the Competitiveness of Global Supply Chain in a Coffee Industry inIndonesia, 4(3), 105 - 115.

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IGD. (10 Oct , 2007). Ethical Consimerism . Retrieved from IGD :http://www.igd.com/Research/Sustainability/Ethical-consumerism/

Johnston, I. (2009). Nestle: The world's biggest food company and one of the 'mostboycotted' Retrieved August 29, 2016, fromhttp://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimbabwe/6235566/Nestl-the-worlds-biggest-food-company-and-one-of-the-most-boycotted.html

Lawrence, A. (n.d.). Marketing a Business in Germany. Retrieved August 31, 2016,from http://www.startupoverseas.com/starting-a-business-in-germany/marketing-a-business.html

Onkvisit, S., & Shaw, J. J. (2004). International marketing: Analysis and strategy. New York: Routledge.

NCID . (22 January , 2016). The challenges facing the new president of Guatemala . Retrieved from Navarra Center for International Development :http://ncid.unav.es/en/news/challenges-facing-new- president-guatemala

Nisen, M. (2013). Why The Bangladesh Factory Collapse Would Never HaveHappened To Nike. Retrieved August 31, 2016, fromhttp://www.businessinsider.com.au/how-nike-solved-its-sweatshop-problem-2013-5

Perez, M. G. (2016, July). Java Junkies in U.S. Driving Global Coffee Demand toRecord. Retrieved August 29, 2016, fromhttp://www.bloomberg.com/news/articles/2016-06-30/java-junkies-in-u-s-driving-global-coffee-consumption-to-record

Ramírez Perez, M. L. (2015). Labour conditions are tough in Guatemala's garmentfactories, and they are not improving. Retrieved August 29, 2016, fromhttp://www.dandc.eu/en/article/labour-conditions-are-tough-guatemalasgarment-factories-and-they-are-not-improving

Rugimbana, R., & Nwankwo, S. (2003). Cross-cultural marketing. London: Thomson.

Sydney Morning Herald (2005). Nike Admits to Abuses in its Factories, 16-17 April,p.17.

Statista . (2016). Leading countries based on number of Facebook users as of May2016. Retrieved from Statista :http://www.statista.com/statistics/269807/leading-tv-channels-in-the-uk-by-reach/

SPECIAL REPORT Central America. (2014, February). Retrieved fromhttp://www.fews.net/sites/default/files/documents/reports/FEWS NET coffeerust shock report update_2014_02_en_0.pdf

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Specialty Coffee Association of America . (2005). Child Labor in the Coffee FarmSector . Retrieved from SCAA Organisation :https://scaa.org/PDF/Child%20Labor%20Statement%202005.pdf

Schiller, B. R. (2006). The macro economy today. Boston, Mass.: McGraw-Hill/Irwin.

Tanzi, V. (1998). International Monetary Fund. Corruption Around The World:Causes, Consequences, Scopes and Cures.doi:10.1007/springerreference_301693

Transparency International . (2015). Corruption Perceptions Index 2015 . Retrievedfrom Transperency International : http://www.transparency.org/cpi2015

UNESCO . (August , 2001). International Workshop on Education and PovertyEradication Kampala . Retrieved from United Nations Educational, Scientificand Cultural Organization:http://www.unesco.org/education/poverty/news.html

World Atlas. (8 March, 2015). Top 10 Coffee Producing Countries. Retrieved fromWorld Atlas : http://www.worldatlas.com/articles/top-10-coffee- producing-countries-2014.html

World Vision Australia . (2012). Child labour is better than living in poverty .Retrieved from World Vision Australia :https://campaign.worldvision.com.au/wp-content/uploads/2013/04/It-is-better-for-children-to-work-debate-kit.pdf

Wydick, B. (n.d.). 10 Reasons Fair-Trade Coffee Doesn't Work. Retrieved September01, 2016, from http://www.huffingtonpost.com/bruce-wydick/10-reasons-fair-trade-coffee-doesnt-work_b_5651663.html

Yogyakarta. "Why Do (business) People Bribe?" THE JAKARTAR POST. N.p., 18Nov. 2011. Web.

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