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A project for my "International Business Diplomacy: Business, Government, and the Global Economy" class.

A project for my "International Business Diplomacy: Business, Government, and the Global Economy" class.

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  • 1. Jessica Lewis April 14, 2010
  • 2. Business Problem Low-cost competition entering specialty coffee market Partner with CI to create a new label based on internal standards Amend 2007 ICA to include a minimum price for specialty and premium imports
  • 3. Presentation Roadmap Background Non-Market Non-Market Strategy #1 Strategy #2 Sensitivity 3 Business Mini-Case Analysis Lessons
  • 4. Background "Medium is the new grande” – McDonald’s tagline, 2009 Background Starbucks’ Annual Revenues, 2005-2009 Source: Starbucks 2009 Annual Report
  • 5. Non-Market Strategy #1 Partner with Conservation International to create a C.A.F.E. Practices label Non-Market Strategy #1
  • 6. Non-Market Strategy #1 Partner with Conservation International to create a C.A.F.E. Practices label Non-Market Strategy #1  Starbucks goal: to purchase 100% In 2009, Starbucks bought C.A.F.E. certified coffee by 2015 367 million pounds of coffee: 299 Million Pounds (81%)  Increases the visibility of Starbucks’ C.A.F.E. certified C.A.F.E. practices to the consumer  Differentiates C.A.F.E. practices from other certifications on the market  Sets Starbucks apart from quick- service restaurant sector competitors  The label justifies premium prices for coffee
  • 7. Why Conservation International? History of cooperation: Similar vision and mission:  Partnership with Starbucks since  Ethical Sourcing 1998  Environmental Sustainability Non-Market  C.I. helped create C.A.F.E. (conservation and biodiversity) Strategy #1 Practices in 2003  Economic and social welfare of producers "Our partnership engages one of the great corporations, their customers and coffee farmers in this battle against climate change. By stepping up this partnership we have aligned our existing work and success to address the most pressing issue of our time.“ – Peter Seligmann, CEO of CI
  • 8. Certification Comparison Rainforest Alliance Certification Starbucks C.A.F.E. Practices 1% 20% Small Farms Non-Market Small Farms Strategy #1 Large 99% Large 80% Plantations Plantations 2008 Minimum Price Paid (US dollars per pound) 2 1.35 1.49 0 0 Rainforest Fair Trade Source: Rainforest Alliance, Starbucks, and TransFair Alliance Starbucks
  • 9. Marketing C.A.F.E. Label Non-Market Strategy #1
  • 10. C.A.F.E. Label and Competitors Competitors’ Starbucks’ Reactions: Reaction: Non-Market Strategy #1 • Highlight differences between 1. Promote their labels own labels • Emphasize superiority of C.A.F.E. • Brand and sell our label 2. Buy/switch • Sell the know-how for C.A.F.E. to our label Practices 3. Discredit our • 3rd party certification (SCS) label through • Created C.AF.E. with CI “Nike Effect”
  • 11. Non-Market Strategy #2 Work with NGOs and the U.S. government to amend the 2007 International Coffee Agreement to include a minimum price for specialty and premium coffee imports “Through Fair Trade, farmers and their families are earning a better income for their hard work- Non-Market Strategy #2 allowing them to hold on to their land, keep their kids in school, and invest in the quality of their harvest-so they can continue to grow excellent quality coffee for your morning brew.” – TransFair website
  • 12. International Coffee Agreement 2007 Non-Market Strategy #2 Source: http://www.ico.org/documents/ica2007e.pdf
  • 13. World Coffee Prices Non-Market Strategy #2
  • 14. Fair Trade and World Trade Non-Market Strategy #2 Source: “Fair Trade: Turning Social Responsibility into Competitive Advantage,” SCAA Conference April 2000
  • 15. Starbucks and the ‘C’ Market Non-Market Strategy #2 Source: Starbucks
  • 16. Why NGOs? Non-Market Strategy #2 “Oxfam is working to influence agreements on trade and investment rules so that they take into account the asymmetries in development that exist between rich and poor countries.” Source: http://www.oxfamamerica.org/campaigns/trade
  • 17. Selling it the U.S. Government: “Falling coffee prices are forcing farmers to grow coca - the leaf from which cocaine is produced. The price of coffee remains at a 30-year low, despite the efforts of the major coffee-producing nations to reduce exports.” – BBC, 8/15/01 Non-Market Strategy #2 Living National Drugs Environment Standards Security Source: BBC, Aug 15, 2001, http://news.bbc.co.uk/2/hi/business/1493104.stm
  • 18. Legal Framework GATT, Art. XX U.N. Economic and Non-Market Strategy #2 Social Council Resolution 30 (March 28, 1947) Andean Trade Promotion and Drug Eradication Act (ADTPDEA) 2002
  • 19. Legal Framework World Trade Organization, Article XX: Non-Market Strategy #2
  • 20. Legal Framework Andean Trade Promotion and Drug U.S. Act to foster economic Eradication Act (ATPDEA), as amended Aug. development in Andean countries 6, 2002: and provide alternatives to cocaine production:  Public Law 107-210, Title XXXI, Sec. 3102(2): Non-Market  “The Andean Trade Preference Act has Strategy #2 been a key element in the United States counternarcotics strategy in the Andean region, promoting export diversification and broad-based economic development that provides sustainable economic alternatives to drug-crop production, strengthening the legitimate economies of Andean countries and creating viable alternatives to illicit trade in coca.” Source: gpoaccess.gov
  • 21. Competitors’ Options • Costs increase 1. Comply with minimum price • Market share standard decreases Non-Market Strategy #2 • Purchase poor 2. Exit specialty quality “exchange coffee market grade” coffee • Public image decline
  • 22. Reaction to Competitors Non-Market Strategy #2
  • 23. Mini-Case: 1. Clorox Green Works created and marketed internal standard 2. Partnered with NGOs to create a national Mini-Case standard for “natural” cleaning products
  • 24. Mini-Case:  "The NPA standard is science-based and was developed by a team of experts from the association as well as natural products manufacturers and retailers. The advisory panel drew from a variety of sources, including relevant international standards, third-party organizations, existing research, and years of experience in the field. Advisors to the association are the leading natural home care suppliers, manufacturers and retailers, Mini-Case including Green Works natural cleaners®, Seventh Generation®, J.R. Watkins®, Cognis®, Trilogy Fragrances®, Aubrey Organics®, Eco-Me®, PCC Natural Markets® and Sun & Earth®."  Source: Natural Products Association website
  • 25. Mini-Case: Success and Market Share: Mini-Case Source: Green Works Annual Report 2009
  • 26. Sensitivity Analysis Will How much How will Americans of an other support a impact will countries minimum a label react? price? have? Sensitivity Analysis
  • 27. Business Lessons Showcase your own strengths! Don’t Adapt to a compromise changing your market! standards! Business Lessons