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EXPLORING THE SPACE AND PRACTICE OF E-BUSINESS IN THE FAIR ...

  1. 1. Molla E-business in Fair Trade EXPLORING THE SPACE AND PRACTICE OF E-BUSINESS IN THE FAIR TRADE SUPPLY CHAIN Alemayehu Molla (alemayehu.molla@rmit.edu.au) School of Business Information Technology RMIT University, Australia Abstract: Fair Trade and e-business have been topics of growing academic literature. However, very little is known in terms of the utilization of e-business in Fair Trade. This paper aims to address this gap and explore the opportunities, current utilization as well as challenges of e-business in the Fair Trade Supply Chain (FTSC). The paper makes a unique contribution to the wider understanding of the social and developmental implications of e-business. It identifies some of the issues of implementing e-business in Fair Trade, a sector which has poverty alleviation and equitable development rather than profit and share holder value maximization as its key performance indicators. It offers some perspectives that organizations in the FTSC and others that support the Fair Trade scheme can use to make better use of e-business to improve the FTSC and the value it delivers to developing countries. Keywords: E-business, Fair Trade, Developing Countries, Supply Chain, E-development Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  2. 2. Molla E-business in Fair Trade EXPLORING THE SPACE AND PRACTICE OF E-BUSINESS IN THE FAIR TRADE SUPPLY CHAIN 1. INTRODUCTION The role of information and communications technologies (ICTs) in development has been debated at both theoretical and practical levels. Lately, ICTs have been recognized both as tools for achieving developmental goals (such as those related to improving government, health, education and business processes and services) and as development targets (such as those captured in e-readiness and digital access index indicators). Particularly, the potential of e-business to increase market access for firms in developing countries and by-pass some if not all of market intermediaries has been widely touted. Extant research, however, suggests that there is little evidence to support that e-business has actually delivered these benefits (Molla, 2004a; Moodley, 2003; UNCTAD 2005). Where there is evidence, it suggests that e- business can only improve the efficiency of market information flow in an environment where the market has already been accessed. The reasons for the shortfall in e-business benefits are complex. However, most researchers highlighted that developing countries firms’ access to market is significantly constrained not only because of lack of access to market information and information flows, but also because of (a) regulatory constraints that restrict market access; (b) commodity subsidy policy of the West that makes competition unfair; and (c) the collusion of trans-national corporations that eliminates price negotiations from the market (Brown, 1993; Kastrine, 2006; Nicolas, 2005). This implies that for firms in developing countries to extract e-business value, the structural and systemic challenges that inhibit trade should be addressed (Hinson and Sorensen, 2006; Molla 2004b; Pare, 2003). Further, while businesses at a firm level might capture some benefits of e-business, it is not always clear how those benefits trickle down to address real development issues of the sort identified in the millennium development goals. The Fair Trade model offers unique opportunities to tackle some of the structural challenges of trade and to link the benefits of e-business for development. Fair Trade represents a trading scheme that aims to create better trading conditions, market access and fair price for producers in developing countries (Wilkinson, 1996). It is proposed as one of the mechanisms to address some of the structural challenges commodity dependent developing nations face in global trade. Since its beginning in the 60s, Fair Trade has experienced some social and economic prominence. In 2004, global sales of all Fair Trade products amounted to US$ 1 billion up from an estimated US $500m in 2003 and US $ 335m in 2002 (FLO, 2005; Vidal, 2004). There are now more than 500 Fairtrade certified producer cooperatives, 270 Fair Trade organisations and over five million people in Africa, Asia and Latin America benefiting from Fair Trade (FLO, 2005; Wills, 2005). In Europe, there are more than 70,000 Fair Trade outlets including 3000 world shops, 33000 supermarkets and 50 supermarket chains (Wills, 2005). In some countries, Fair Trade commodities constitute a recognisable proportion of imported commodities. In the UK, for instance, where half of the population is aware of Fair Trade, 15% of the imported bananas, tea, coffee and cocoa are Fair Trade products (Moberg, 2005). In Switzerland, Fair Trade bananas have a 50% market share (AgroFair, 2004). As the Fair Trade model is intended to by-pass traditional intermediaries, to save on transaction costs associated with those intermediaries and to plough back the savings to producers, it appears to be in synch with some of the systemic competencies of e-business. The use of e-business (with its inherent potential to by-pass some, if not all, of the market intermediaries; to reduce transaction costs, and to improve market access and the information Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  3. 3. Molla E-business in Fair Trade content of products) in Fair Trade (which is designed to bypass traditional intermediaries and create a direct link between producers in the South and consumers in the North) is intuitively appealing. It can potentially link the benefits of e-business to poor communities (Batchelor et al, 2002). It can also enable Fair Traders to improve their coordination and reduce the high marketing cost they usually face. Although there is a lot of literature on Fair Trade and an equal number on e-business in developing countries, very little is known in terms of the utilization of e-business in Fair Trade. The purpose of this paper is therefore to explore the opportunities as well as the extent of utilizations of e-business in the Fair Trade Supply Chain (FTSC). The main research questions include (1) what are some of the challenges that Fair Trade organizations face? (2) which of these challenges can potentially be addressed through judicious implementation of e- business (3) what is the current state of e-business use in the FTSC (4) what are the specific challenges of using e-business in FTSC and (5) how can current practices be improved? 2. RESEARCH METHOD Both Fair Trade and E-business have been topics of growing academic literature. However, their intersection remains an interesting but not researched area. This research therefore takes an exploratory qualitative approach. Data were collected from multiple sources of evidence. To explore the opportunities of e-business in Fair Trade, we draw from the mainstream e- business, e-business in developing countries and Fair Trade literature. To understand the activities of Fair Trade organizations, in addition to books and journals, we relied on their Websites, and other trade and professional magazines. These latter sources can often be biased about their claims and researchers should handle the data critically. To examine the extent of e-business utilization, we conducted an artifact evaluation of Fair Trade Websites. We used a set of e-business maturity criteria developed in previous works (Molla and Licker 2004) and applied it to a sample of Websites. The sample was neither random nor accidental. First, a Google search was used to locate the e-business sites. Then, 24 were selected based on their position in the FTSC (see figure 1 below). Data were collected from a total of 10 producers, four umbrella structures and 10 traders Websites. The data were then summarized in order to identify the e-business features. Additional data were collected through key informant interviews. The interviewees were identified through prior knowledge of their involvement in Fair Trade. The invitation was sent out to 15 contacts and only three of them agreed to participate in the interview. The three are not random informants or trivial players. One of the interviewees has been actively involved in consulting Fair Trade umbrella structures, the second has extensive experience in working with Fair Trade producers and setting up producer cooperatives and the third works for one of the labeling and certification bodies. Although the exploratory nature of the research doesn’t provide sufficient ground to make any generalization about the research questions, it however enabled us to get some preliminary insights about e-business in Fair Trade. 3. BACKGROUND 3.1 About Fair Trade Conventional trade is structured based on the premises of Recardian model of comparative advantage and neo-liberal philosophies of free flow of goods, services and finance among countries. Free trade has a significant impact on the growth of global trade that the level of trade in 2000 was 22 times more than what it was in the 1950 (Ransom, 2001). However, more trade has not always meant better economic growth, income and development. In particular, there have been concerns that commodity dependent developing countries are not benefiting as much as they should from the conventional free trade scheme. This is largely attributed due to the absence of market conditions such as perfect access to markets, access to Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  4. 4. Molla E-business in Fair Trade credit, and fair trading conditions, that classical and neo-liberal models inherently assume in the global market (Nicholas, 2005). Against the backdrop of unfair market conditions, the 1960s saw the emergence of the movement of Alternative Trading Organisations (ATOs) linked to churches and development groups in Europe (Wilkinson, 1996). ATOs created a network of shops (also known as Worldshops) to bypass traditional middleman and to market commodities, primarily agricultural, textile and handicraft, produced by poor communities in the South to consumers in the West (North). The main goal of Fair Trade is economic development and to make trade and its distributional impact fair. However, Fair Trade does also imply environmental protection, gender equality, and better working conditions (Witkowski, 2005) Since its humble beginning, Fair Trade has gone through a number of developments in terms of advocacy, public awareness, creating umbrella structures and labelling and certification bodies and developing Fair Trade standards. For instance, the formation of the Fairtrade Labelling Organisation International (FLO) in 1997 and its subsequent introduction of the “Fairtrade” logo in 2002 had resulted in two channels of Fair Trade- labelled and unlabeled. FLO aims to be a worldwide standard setting and certification organisation responsible for defining Fair Trade standards, labelling products that fulfil Fair Trade conditions and auditing the trade to ensure compliance to the standards. IFAT’s (International Federation of Alternative Trade Organisations) registration of the “FTO mark” in 2004 can be seen as an attempt to identify “true” Fair Trade organisations and protect the niche market from commercial poachers. The Fair Trade scheme focuses on the fairness of exchange systems, production relationships as well as environmental consideration. In terms of exchange, Fair Trade is hailed as one of the most effective supplement to free trade for ensuring sustainable and fair relationships between producers in developing countries and consumers in the developed countries (Brown, 1993; Hudson and Hudson, 2004; Witkowski, 2005). The system leverages the solidarity network of producers and importers to bypass a number of middle links (the likes of Proctor and Gamble, Chiquita, Cadbury’s) in the conventional trade supply chain network (Moberg, 2005). Practically, this implies that downstream Fair Trade consumers pay a premium price for ethical and social calls, that is, to contribute towards sustainable development in developing countries (Moberg, 2005). Producers receive a protected and stable price for their products rather than one that fluctuates with seasons and market conditions (Renard, 2003). In turn, they are expected to pay a living rather than a minimum wage to their employees and/or members and invest a certain proportion of their earnings for protecting the environment (Hulm, 2006; Willis 2005). Although Fair Trade organisations rhetorically aim to cut out intermediaries by handling most of the supply chain and retailing operations themselves, in reality, the FTSC management is a complex process that involves a number of organisations and functions spread across geographical areas. These processes include production, transportation, labelling (either at the farm-gate for fresh fruit or after manufacturing for non-fresh fruit), exportation, importation, manufacture and distribution. For the purpose of analysis, we can identify primary, secondary and tertiary members of the chain. Primary members include producers, traders, manufacturers, licensees and consumers and are involved in the actual flow of Fair Trade goods and products. Secondary members include certification, labelling and standard setting bodies and national umbrella structures. The secondary members coordinate the activities of primary members and ensure that the entire chain operates within the shared principles of Fair Trade. Tertiary members offer transaction fulfilment services and include agents and subcontractors. Figure 1 depicts the FTSC. Unlike conventional supply chain, however, the whole philosophy, of the FTSC is governed based on the Fair Trade principles of commercial Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  5. 5. Molla E-business in Fair Trade relationships that emphasise fairness, trust, respect, transparency, accountability and gender and environmental considerations (IFAT, 2006; FTF, 2006). The monitoring and certification process at the core of the system guarantees that the supply chain is built on and functions according to the above standards and principles. Agents and subcontractors Traders Manufacturer Licensees Certification, labeling Producers and standard setting organizations Consumer National Member Key Flow of goods and information Registration, Certification, Monitoring and Coordination Flow of information Supply chain service Figure 1. The Fair Trade Supply Chain Despite the promises of Fair Trade to improve the market conditions and earnings of commodities for the benefit of producers in developing countries, the FTSC face a number of challenges. 1. Fair Trade products and brands generally lack visibility (Toulouse et al, 2006). Most members of the FTSC are small and medium enterprises or charity organizations and lack the financial resources to promote the Fair Trade brand as much as their mainstream competitors. It is therefore instrumental that product and brand promotion must consider cheaper alternatives. 2. Fair traders are increasingly facing high marketing costs which affect the extent of Fair Trade premium they can realistically plough back to producers (Kasterine, 2006). Although fair traders can bypass exploitive intermediaries, transaction fulfillment and logistic services still need to be performed along the chain and need to be paid for. Research indicates that importers and wholesalers of Fair Trade are increasingly finding it difficult to pay for these services, pay higher premium to their suppliers and offer competitive services to mainstream retailers (Witkowski, 2005). This dictates fair traders to seek for alternative ways of improving the efficiency of the entire supply chain. 3. The niche market of Fair Trade requires detailed and up-to-date information to educate consumers about the social and ethical characteristics of the products (Kastrine, 2006; Witkowski, 2005). In addition, Fair Trade consumers increasingly seek for information as to how the premium price they pay make it back to improving the livelihood of producers (Toulouse et al, 2006). This poses additional challenges of Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  6. 6. Molla E-business in Fair Trade collecting, aggregating, distributing and customizing the information to meet the requirements of consumers. 4. Management of the FTSC requires building trust among the various players of the chain and coordinating their activities. There are a growing number of labeling and certification organizations. For example in Europe Fair Trade labeling is underway in 15 different countries and more than 3000 grass root organizations and umbrella structures are scattered over 50 countries (Hulm, 2006). Coordinating the activities of all these players and ensuring that they operate within the principles of Fair Trade and satisfy quality standards and delivery schedules demand an innovative way of increasing the information content and efficiency of the supply chain (Raynolds, 2000). 5. Most fair traded commodities such as coffee and banana are marketed without real added value (Kastrine, 2006). On the other hand, historical evidence appears to suggest that growth and wealth creation are associated with adding value to a product and then exchanging it (Ibid). The future growth of Fair Trade therefore depends more on market development and less on product development. 6. A number of mainstream businesses are now involved in some sort of upstream Fair Trade activities. They tend to exploit the social conscious of consumers in the West without actually adhering to the principles of Fair Trade (Caserta, 2001; Redfern and Snedker, 2002). Hence, true Fair Traders need effective tool to educate their clients and protect the market from scrupulous commercial entities. E-business offers Fair Traders unique opportunities to address some of the above challenges (Batchelor et al, 2002). The following section reviews background concepts of e-business. 3.2 E-business For the purpose of this paper, we define e-business as the use of the Internet and other information and communication technologies (ICTs) to conduct business transactions. Thus defined, e-business can contain three areas: consumer oriented activity, business oriented activity, and e-business technology infrastructure (Swaminathan and Tayur, 2003). Consumer oriented activities include those that are designed to provide end consumers with information, products and services in either business-to-consumer or consumer-to-consumer domains. Businesses can propose value to their consumers using e-business models such as e- shops and e-malls. The sophistication and functionality of these models can vary from those that are purely informational to those that allow online transaction, to those that are knowledge enabled, and that recognise repeat purchase and account management (Molla and Licker, 2004). Consumer oriented e-business activities can allow firms to overcome some of the geographical barriers of trading globally and to access markets that would have otherwise been impossible to them (Molla, 2004a). In addition, it can enable them to by-pass some of the traditional market intermediaries and hence save on market transaction costs. On the other hand, consumer oriented activities can also include new forms of intermediation (or re- intermediation) thorough information aggregation (infomediation), sellers’ aggregation and other transaction brokering services that improves the efficiency of the on-line market. Further, firms can use e-business as a comparatively cheaper and richer medium of advertising to increase their global exposure and brand visibility. Overall, effective deployment of e-business in consumer oriented activities has been found to be positively associated with better brand recognition and greater financial performance (Barua et al, 2004). Business oriented activities consist of electronic interactions among enterprises and between a government and businesses. They facilitate inter-business communication, coordination and collaboration (Premkumar, 2000). The Internet opens new venues for organizations to create flexible supply chains by offering high-speed communication and tight connectivity. It allows Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  7. 7. Molla E-business in Fair Trade supply chain members to digitise their business processes (such as through e-catalogue) and to address problems of information access, information asymmetry and uncertainty (Barua et al, 2004). Better information flow in supply chain facilitates effective coordination and collaboration with other members of the chain (Premkumar, 2000). Through effective supply chain collaboration and administration, firms can improve their planning and execution, reduce cost, minimize overall risk and improve customer satisfaction (Premkumar, 2000; Swaminathan and Tayur, 2003). Further, firms can either set up their own seller controlled e- markets or participate in either buyer or third party controlled e-markets to facilitate their procurement. Such systems can reduce the cost of searching and locating a supplier and improve a firm’s sourcing and procurement decisions. Overall, business oriented e-business activities can influence (a) procurement and supplier management, (b) visibility and information sharing (c) pricing and distribution and (d) customization and postponement (Swaminathan and Tayur, 2003). E-business infrastructure covers both the hard infrastructure of network technologies and the soft-infrastructure of e-business applications (Molla and Licker 2004). The hard infrastructure represents the electronic infrastructure of organizations that provides the backbone for the soft infrastructure supporting eCommerce. This incorporates computing and telecommunication networks including intranets, extranets and Internets. The soft infrastructure, on the other hand, refers to application solutions that run over the hard infrastructure and make it technologically feasible to build business models and perform business functions electronically. These include electronic messaging, electronic data interchange, electronic payments, electronic publishing, enterprise-wide applications and security applications 4 E-BUSINESS IN FAIR TRADE 4.1 E-Business Opportunities in the FTSC The advent of e-business has enormous potentials to improve the Fair Trade supply chain in both consumer and business oriented activities. From the opportunity to exchange information to securing orders online, to improve coordination and collaboration along the supply chain, the possibilities and potential benefits of e-business are enormous. By drawing from the mainstream e-business and Fair Trade literature discussed above, we identified e-business opportunities in Fair Trade as summarised in Figure 2. Some Fair Trade producers and many Fair Trade wholesalers and retailers use the Internet to realise the Fair Trade commitment. In assessing the current application of e-business, we focus on the three activities of e-business defined earlier- consumer oriented activities, business oriented activities and e-business infrastructure. 4.2. Consumer-Oriented Activities of E-business in FTSC Among the different business to consumer e-business models, e-shop is the most popular model currently applied in Fair Trade. Often, e-shop is combined with traditional marketing channels. This is true in Fair Trade too. Most Fair Traders who engage in on-line trading operate in a ‘Brick and Clicks’ model. An increasing number of producers have established their own Websites. Nevertheless, not all Fair Trade commodities are suitable for direct on- line selling. For instance, it is not feasible to sell commodities such as cocoa, rice and tea. Such commodities need further process, package or even branding before they become final products. Although an increasing number of producers and producer groups are building their own Websites, the functionality is limited to providing basic company and product information. Table 1 provides a sample summary of ten producer Websites. From the sample, only one producer supports on-line transaction, three provide the function of email order, and the remaining does not have transactional functionality. In addition, many of the producers’ Websites lack attention to Fair Trade visibility. Only two of the ten sampled producers provide some sort of information about the Fairness of their trade. Six provide some stories Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  8. 8. Molla E-business in Fair Trade about who they are, what their background was and the poverty level of the producers. Consumers may wish to know if the Fair Trade products were produced and developed in an environmentally friendly manner. However, only four provide some information about their product development. Moreover, although all of the 10 sampled Websites provide email contact as an interaction tool, only one producer provided ‘customer review’ information. This can be interpreted as either few producers had regular customers, or most of them were not customer oriented. Supply Side - Producers/ producer groups/exporters: - Increases visibility - Improves market reach - Enables to by-pass some if not all of intermediaries, - Enable to promote the agenda of Fair Trade - Facilitates communication and information dissemination - Potentially reduce market coordination costs - Creates transparency Certification and Intermediaries – Traders labelling structures and Licensees - Transparency - Information aggregation - Information aggregation - Market making - Creating communities E-business (aggregation) of interest - Transaction brokering - Potentially reduce E-mail, Web E- - Transaction facilitation coordination costs commerce, E- - Creating communities of - Enable to promote the marketplace, E- interest agenda of Fair Trade catalogue, E- - Creates transparency - Monitoring and auditing collaboration, virtual - Enable to promote the - On-line support community agenda of Fair Trade Demand side: Consumers - Enable Fair Trade learning awareness - Product sourcing - Compare prices and products - On-line interaction with Fair Traders, producers - On-line transaction Figure 2. E-opportunities in Fair Trade Some Fair Trade producers and many Fair Trade wholesalers and retailers use the Internet to realise the Fair Trade commitment. In assessing the current application of e-business, we focus on the three activities of e-business defined earlier- consumer oriented activities, business oriented activities and e-business infrastructure. Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  9. 9. Molla E-business in Fair Trade In the context of Fair Trade, it is unrealistic to expect from the majority of producers to acquire the necessary skills, build the required infrastructure and sell directly via B2C e- commerce. In addition, considering the variety of Fair Trade commodities, it might be hard for producers to independently market commodities such as cocoa and rice. In reality, if producers have independent Websites, it is unlikely that they will be able to get the search engines to rank them high enough to catch the eyes of new customers. Customers are more likely to find the international sites that have invested the time and expertise in getting high ranking in search engines. As a result, it is instrumental that producers affiliate with Fair Trade labelling and certification bodies and umbrella structures in order to increase their visibility. There are a number of Fair Trade advocacy groups and labelling and certification structures. Chief among them are Fair Trade Labelling Organisation International (FLO), International Federation of Alternative Trade Organisations (IFAT), The Network of European Worldshops (NEWS) and The European Fair Trade Association (EFTA). These four institutions have formed an umbrella network known as FINE. The Fair Trade umbrella structures under FINE host producer Websites and provide infomediation services (Table 2). This allows producers to gain better visibility and consumers to search and access producers easily. In addition, IFAT provides details of its monitoring system on its Website. Consequently, customers who purchase from the producers’ links IFAT provides may have a better trust in the system. Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  10. 10. Molla E-business in Fair Trade Name of the Web site Address Own Catalog Offering Country of Certi-fied ? Product *Pro-ducer ** Msg of ***Cus- on-line organization Website host Origin developme stories Fairness tomer transaction nt review enabled Sindyanna of Olive oil Galilee http://www.sindyanna.com/ Y IFAT products Israel Y N Y Y N N Fair Trade Producers Handicraft Socieity http://www.getradefps.com/ Y IFAT products Ghana Y N Y N N email order Machakos District Co-op Handicraft Union Ltd http://catgen.com/machakos/EN/0.html N IFAT products Kenya Y N N N N email order Clothing, Bed Sadhna http://www.sevamandir.org/Sadhna/ Y FTF cusions India Y Y Y N N email order Palm oil Agbanga Karite http://agbangakarite.com/ Y FTF products Togo Y Y Y N Y Y Handicraft Manos http://www.fairtradefederation.com/membio/macre.html N FTF products Peru Y N N N N N Handicraft Base http://www.basebangladesh.com/ Y IFAT products Bangladesh Y Y Y Y N N Handicraft Xochiquetzal http://www.laneta.apc.org/xochiquetzal/ Y NEWS! products Mexico Y N N N N N Handicraft CIAP http://www.ciap.org/ Y NEWS! products Peru Y Y Y N N N Handicraft YWCA http://www.catgen.com/home/ywca/EN/0.html N IFAT products Bangladesh Y N N N N N * Producer stories could be an introduction of producers, what they do and why they choose Fair Trade ** Message of Fairness means: What is Fair Trade? Why producers go for Fair Trade? What producers do with the money they earned from Fair Trade? *** Customer Review is a review of who are the customers, why they purchase the products and what was their comment on the products they bought. Table 1: Sample Websites of Fair Trade Producers Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  11. 11. Molla E-business in Fair Trade FTO Web site address Main Services Commodities FLO www.fairtrade.net • How to get Fairtrade Coffee, tea, certification banana, rice, • Product development juices, cocoa, • Producer networking sugar, honey, sports balls, flowers IFAT www.ifat.org • Virtual community to Giftware, members on-line household • Membership goods, application furniture, • Provide links to jewellery, food producer products and organisations beverages NEWS www.worldshops. • Links to other Fair No specification org Trade organisations, • Links to importers, retailers (world shops), & small number of producers (most links don't work!!!) • Provide links to access world economic statistics and trends • Virtual community to members EFTA www.eftafairtrade. • Provide links to Coffee, rice, org importers cocoa, sugar, • Provide Fair Trade garment, information, hardwood, tea, education materials, banana research documentation Table 2. FINE Services to Producers 4.3. Business-Oriented Activities of E-business in FTSC Of the various business-oriented activities, e-catalogue, e-marketplaces, e-collaboration and e- administration are most common in Fair Trade. E-catalogue. Many of the umbrella organisations and some of the producers provide catalogues to facilitate sourcing of Fair Traders and Fair Trade products. However, the services they render are buyer-centric rather than seller or transaction centric. For instance, IFAT hosts an online catalogue of its trading and non-trading members with a link to their Websites. For those that haven’t generated their own catalogue, it plays an infomediary role of broadcasting trade opportunities through its fortnightly member update services. The Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  12. 12. Molla E-business in Fair Trade catalogue is searchable by region, country, product type, organisation name and keyword or any combinations of these. It also offers a list of Fair Trade organisations that passed its monitoring requirement and that can use the FTO mark- a mark that symbolises true Fair Trade organisations. Other similar catalogues are hosted at Peoplink, NEWS, CatGen and in almost all National Associations. Businesses that seek Fair Trade suppliers and products can use these and other catalogues hosted by National Associations to get names and addresses of potential suppliers. But actual relationship is to be established off-line by contacting suppliers directly. E-marketplaces. The most common e-marketplace activities in FTSC are the seller and third party controlled e-marketplaces. In seller-controlled marketplace, Fair Traders can use producers’ catalogue to identify business prospects and order products and services. In FTSC, the transactions between the Fair Trade FTOs/importers/wholesalers and retailers are examples of seller-controlled marketplace. Fair Trade retailers can order commodities through importers, wholesalers or sometimes producers Websites. In terms of third party controlled e-marketplaces, NEWS and FTF (Fair Trade Federation) provide e-marketplace services (limited to catalogue and portal) that bring together producers, wholesalers and retailers of Fair Trade products. Another example of a Fair Trade e-marketplace catering for the handicrafts sector is Peoplink (www.peoplink.org). It services Fair Trade artisans and purchasers all over the world by offering storefronts, product development, market research, and catalogue development and hosting. It features details of Fair Trade products on its Website with images and descriptions from over 100 artisan groups from 30 countries. The site also links to the homepages of many producer groups. Peoplink had the classic first mover advantage and was able to bring artisans to the world market. However, according to one of the key informants, the volume of sale from its site has been disappointing and overtaken by three commercial sites from the US- Novica, Worldstock and The Hungersite. Nevertheless, PEOPLink is the premier IFAT recognised Fair Trade handcraft e-marketplace. E-collaboration. A number of supply chain activities are conducted among FTSC members. These include receiving producers’ information about new products (such as pictures, product samples); receiving transaction information (such as invoices and shipping orders); receiving the evaluation of commercial relations by producers; sending feedback to producers on sales and market trends and general information about the importing organisation. According to our key informants current collaboration along the supply chain is not as effective as one would expect and lacks a clear Fair Trade value and focus. Further, we sampled 10 Websites of Traders and assess the level of supply chain collaboration. The result is summarized in Table 3. The finding indicates that none of the Websites provide links to producers. Only five of them provided stories about producers along with the products they promote and four have information on product development. Moreover, even though seven of them provide Fair Trade information, only four provide links to FINE. Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  13. 13. Molla E-business in Fair Trade organisation Website Address Category Offering Certified Link to Link to Fair Trade Producer Product Fair Trade Customer Member On-line producer FINE Resources profiles/ develop- Infor review ship transaction stories ment enabled Shared Earth http://www.sharedearth.co.uk/htWholesaler/ Handicraft Y N N N N N N Y Y ml/retail.html retailer Pachamama http://pachamamaworld.com Importer Handicraft Y N Y Y Y N Y N N Y Coffee, Chocolates Oxfam http://www.oxfam.com/eng/ Importer/ Food and Y N Y Y Y N Y N N N Wholesaler/ handicraft Retailer/ products Bridgehead http://www.bridgehead.ca Importer Coffee Y N N N Y N Y Y Coffee http://www.coffeeexchange.com/ Importer Coffee Y N N N Y N N N Y Exchange Urbanblands http://www.urbanblends.com Wholesaler/ Coffee/tea Y N N Y N N N N Y Y retailer Divine http://www.divinechocolate.com/ Importer Chcolate Y N N Y Y Y N N N EshopAfrica http://www.eshopafrica.com/ wholesaler/r Handicrafts Y N Y Y Y Y Y N N Y etailer products Onevillage http://www.onevillage.org/ Importer Handicrafts Y N Y Y Y Y N N Y products Fair Trade on- http://store.yahoo.com/fairtradeon Wholesaler/ Food and Y N Y Y N N Y N N Y line line-uk/ retailer handicraft products Garuda http://www.garudainternational.c Commercial Food and N N N N N N N Y om handicraft products Table 3. Sample Website of Traders Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  14. 14. Molla E-business in Fair Trade E-administration. To gain international recognition and credibility, improve quality of service and promote the Fair Trade agenda, there should be a harmonisation of efforts and activities. For instance, FLO and IFAT’s Websites provide details of Fair Trade criteria for those producers and traders who seek certification. However, as of January 2006, if any Fair Trade producer-based organisation wished to establish relations with importing organisation or membership network, they must fill their request on a number of virtually identical questionnaires. This duplication decreases the efficiency of all members in the Fair Trade supply chain. NEWS, on the other hand, provides massive amount of information and links to Fair Trade movement in Europe. EFTA runs an e-library on its Website, which provides exclusive information about Fair Trade, its movement, commodities offering and producer stories. Such open information platforms facilitate better collaboration and understanding of the Fair Trade movement. In addition, FINE members use a member only platform to facilitate communication among themselves and their members. This can increase the efficiency of handling administrative events, and lead to better management of the Fair Trade system. 4.4. E-business Infrastructure in the FTSC Although the FTSC members are investing in ICTs--buying computers, digital camera, creating Websites and on-line catalogues-- because of its charity-driven root, most members are very conservative towards embracing ICTs. One of our key informants stated that “the Fair Trade movement is quite conservative and tends to adopt new ideas and tools very slowly. It is still too much “charity driven" and not ready to use technologies to improve their work and bring benefits to the producers”. In addition, the infrastructure shows greater variability depending on the realities of specific countries. Overall, small producer organisations use fax, and telephone to communicate and coordinate along the supply chain. However, even these technologies are hardly accessible to producers in some countries. E-mail is the most important application that has a significant impact on Fair Trade supply chain. In the crafts sector, it is used to upload local products on Peoplink’s e-marketplace. Upstream, it is used to convey order and delivery information including ideas about product and market conditions. It is particularly important in certification, monitoring and auditing of supply chains. According to our key informant, investing in email has been one of the most cost-effective benefits of the Internet for producers, bringing both cost savings and improvements in efficiency and speed of communications. However, in some of the poorer countries, telephone lines and services are obsolete, unreliable or easily affected by the economic crisis. Internet bandwidth is limited for multimedia data transmission. Larger producer groups and many traders have developed a Website ranging in complexity from simple to complex functionality. However, all of these systems that laid the technological foundations on which online trading exchanges could be built are isolated and lack integration to draw supply chain efficiency. Two e-business technologies worth mentioning in Fair Trade are the CatGen of Peoplink and ITU’s ECDC (e-commerce in Developing Countries). CatGen (for “Catalogue generator”) is an e-business platform that allows Fair Traders globally to create and maintain their own credit-card enabled on-line catalogue. It offers 24/7 support, search optimization and eBay listing tools. According to the information on the CatGen Website accessed November 2006, more than 2000 enterprises from 42 countries directly benefiting over 200,000 individuals are posting more than 20,000 items and services on CatGen. The ECDC initiative of ITU is another technological infrastructure that supports some Fair Traders. Trust is a major issue to any business in general and e-commerce in particular. By providing secured payment and transaction services, ECDC is offering a useful e-commerce service that makes critical e-business service accessible for businesses in developing Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  15. 15. Molla E-business in Fair Trade countries. The list of implementation requirements that ECDC outlines can also be used as a decision tool to identify e-commerce impediments and risks (Molla, 2004b). 5. CHALLENGES OF E-BUSINESS IN THE FTSC There are a wide range of issues that influence the effective utilisation of e-business in the Fair Trade sector. Some of these issues are generic and common to e-business application in any sector. Here, we focus only on issues that are relatively specific to the FTSC. We divide these issues as configuration and implementation issues of FTSC. Under configuration we cover issues related to e-business value, and e-business models. Under implementation we discuss supply chain members, and technology issues. 5.1. Configuration Issues 5.1.1. Value proposition The Fair Trade market environment has significantly changed over the last number of years. Although the Fair Trade movement has been traditionally spearheaded by charity organisations, many other organisations and companies are now playing in the Fair Trade market. Following the entrance of mainstream supermarkets in Fair Trade retailing, some of these entrants are building their own supply chains outside IFAT and FLO by leveraging the use of information technology. For instance, Peoplink’s founder admits that three commercial on-line vendors in the US sell more than the total value of crafts sold by IFAT members worldwide. This is threatening the secured Fair Trade market. It is taking away the moral high ground of organisations like FINE and opening the sector to operate in an increasingly competitive environment. The ever growing awareness of consumers to trade inequalities and Fair Trade not only presents opportunities to more markets, but also represents challenges of defending the market against “poachers” from the commercial system. Therefore, the “true’ Fair Trade sector should aim to differentiate its supply chain through better branding (such as Fairtrade and FTO), provision of beneficiaries’ stories and information around the Fair Trade products, and through increasing the informatisation, transparency and efficiency of the supply chain. Strategic embracing of e-business can enable the sector to deliver these impacts. This might require at least three critical decisions from the umbrella structures. First, Fair Trade umbrella structures need to clearly articulate the role and value proposition of e-business in the Fair Trade supply chain. E-business value proposition needs to be defined within the context of the wider global and Fair Trade markets and should incorporate the social, economic and technical realities of their constituents. Second, there is a need to secure the commitment of the parties to achieve critical mass of participants. Without a critical mass of e-business users and suppliers, Fair Trade e-business may not move from having comparative advantage (low cost of production) to gaining competitive advantage. Finally, members’ e-business capability needs to be build to allow effective collaboration. 5.1.2 E-Business Model Issues Most of the B2B Fair Trade e-markets were buyer-oriented. Buyer focus has been one of the major causes of failure for early e-markets. The Fair Trade e-markets placed too much focus on buyers and offer them with a choice of Fair Trade suppliers. Although FLO and IFAT regulate prices, buyer-centric models inherently make price the key differentiator between competing products and remove some of the branding individuality that Fair Trade suppliers may have worked to develop. Another feature of a buyer-centric model is that fees are charged to sellers rather than buyers. This implies that in the long run the poor producers that Fair Trade is trying to help have to pay the fees. A buyer-centric model also shifts the power from the seller to the buyer as buyers are able to choose a wide range of sellers’ profiles. Even if such models can increase sellers’ market Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  16. 16. Molla E-business in Fair Trade reach, buyers’ control of information doesn’t appear to sit well with the producer empowerment theme of Fair Trade. In addition, current Fair Trade business-to-business online markets provide limited trade facilitation and their service doesn’t go beyond basic catalogues. In some cases, the catalogues are static without a database structure or search functionality and can only be searched thorough a browser’s “find” facility. It is instrumental that the umbrella structures invest in e-business models that are seller-oriented and offer buyer aggregation services. 5.2. Implementation Issues 5.2.1. The nature of agents in the supply chain The majority of the producers and trading partners in the FTSC are small scale producers in developing countries. These types of organisations suffer form multi-layer digital divide. First, they are in developing countries, where the constraints for e-business are many and the drivers a few. Second, they are mostly rural industries and stay on the negative side of the urban- rural digital divide. Some are in remote regions with no or limited access to either analogue or digital information technology and market information. This makes e-business in the up-stream FTSC very challenging. Other members of the FTSC also suffer from limited professionalism and lack of business- oriented approach. For a long time, Fair Trade has been a "charity-driven" model, with low attention paid to long-term market sustainability. Only few fair traders have succeeded in combining solidarity with a professional approach, creating a new model of alternative economy (Wills, 2002). For the majority, the changing environment represents a threat to their charity model, rather than an opportunity. While the charitable approach has helped many small-scale producers to find new market opportunities, it is no longer enough to help them to find their way out of poverty (Batchelor and Webb, 2002). It does not sufficiently strengthen their capacity to mainstream their products and compete in the current dynamic and competitive international market. Nor does it make full use of the high potential of the Fair Trade "niche" market. Due to the scarce inclusion of ICT in the working procedures of Fair Trade organisations, a number of these new producers’ needs remain unfulfilled. Relevant data are not collected or not shared, the communication flow remains slow, the gap between producers and consumers remains unabated (Caserta 2002). 5.2.2 Technology Setting up an e-business infrastructure is a complex task even for large companies with technical know-how. For smaller companies with less expertise and resources, the complexity can be overwhelming. The conservative approach towards ICTs among the Fair Trade agents implies that members are very concerned about the cost of technology change and ownership. Fair Trade needs open source tools that produce savings without imposing significant financial outlays. 6. SUMMARY AND CONCLUSION Fair Trade is established as an alternative supply chain model to enable producers in developing countries to benefit from the opportunities of global trade. The rational of Fair Trade is in part a political reaction to the rise of free trade, capitalism and the power of multinationals which would lead to the poor and marginalized being exploited or excluded. Therefore, a strong theme of Fair Trade has been parallel to the conventional trading system. The objective of Fair Trade is to ensure that poor producers receive a price which reflects an adequate return on their input of skill, labour and resources, and a share of the total profit commensurate with their input. This article demonstrates how a supply chain approach may provide a holistic and robust tool for an academic research in understanding Fair Trade in general and e-business in Fair Trade Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
  17. 17. Molla E-business in Fair Trade in particular. Analytically, this paper highlights the complexity of the Fair Trade chain and the extent of involvement of Fair Trade middleman in the chain despite the rhetoric of disintermediation. The parties in Fair Trade can be categorized into the supply side (producers, producer groups), the intermediaries (exporters, ATOs, wholesalers and retailers) and demand side (consumers). There are also certification and labelling organisations, umbrella structures and supply chain servicing agencies and subcontractors. The different entities in the FTSC share a common ideology of making international trade fairer for poor producers in developing countries. However, the chain is not free from supply chain problems of poor information flow and lack of coordination among the different parties. These problems can lead to several inefficiencies in the FTSC including lack of visibility, inaccessible market and producer information, limited producers’ capacity to access market, and high cost of trading. To address some of these challenges and to achieve the Fair Trade goal, e-business offers enormous opportunities. In terms of e-business, the paper demonstrates how the specific nature of upstream members can influence the extent of e-business utilization mid and downstream members can enforce in Fair Trade. In the conventional supply chain, powerful market players can force their smaller suppliers to implement certain standards and technologies. However, the essence of Fair Trade and its principles make such market push forces unlikely to exert any significant influence. In addition to its analytical contribution, this paper provides insights regarding the unique opportunities that e-business offer to fair traders as well as the challenges different members of the chain face. This analysis also reveals, albeit preliminarily, the extent of current e- business practices in the Fair Trade chain. Assessment of current applications of e-business indicates a growing number of FTSC members making use of Web-based marketing techniques to target niche markets as well as to coordinate business-to–business activities. Producers and importers are increasingly using Internet to do their business. Still it is limited, in many cases, to having a website and communicating by email. But there are also interesting experiences of on-line assistance in product development. Umbrella structures offer some e- sourcing services but tend to operate on the buyer-seller beware basis without value-add services. In addition, their Web systems are not interactive to facilitate on-line applications, product support and learning. The Wolrdshops appear to be the weakest link with very limited interest in the use of e-business and its benefits. For instance, a proposal for building a Fair Trade Global Information Exchange Systems couldn’t take off the ground because of lack of commitment and support1. In terms of the technology infrastructure, platforms like CatGen offer affordable and viable alternative to expensive commercial solutions. However, its real benefits have yet to be seen. Finally, this paper represents a preliminary investigation of e-business in the FTSC. Although the exploratory nature of the research doesn’t provide sufficient ground to make any generalization about the research questions, it however enabled us to explore the space for and practice of e-business in Fair Trade. In addition, the bulk of the data is collected from Fair Trade organizations Websites. The content and functionality of the Websites are continuously changing. This makes the validity of the research finding temporal. More commodity specific and empirical studies are required to get a deeper understanding of e-business in Fair Trade. 7. REFERENCES AgroFair (2004) The Co-op in Switzerland Goes for 100% Fair Trade Bananas and AgroFair, Press Release, 2 February, Accessed Nov. 2004 from <www.fairtradefruit.com/Press Releases>. 1 Personal communication with the consultant of the project, November, 2005. Proceedings of the 9th International Conference on Social Implications of Computers in Developing Countries, São Paulo, Brazil, May 2007
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