When the Best Price Is Not the Fair Trade Price: Starbucks

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Table of Contents

Introduction
Utilitarianism
Rights
Duties
Justice and fairness
Starbucks Response
Conclusion
References

Introduction

Starbucks is dedicated to uplifting people’s lives through its wide range of products. The organization has more than 2,500 stores in different countries and is determined to grow its presence to become a global brand. It began in 1971 within a small shop located in Seattle, Washington. The company has slowly spread to other countries including Korea, Japan, Taiwan, UK, New Zealand, Dubai, Hong Kong and Kuwait among others.

The first Starbuck outlet in Kuwait was opened in Sharq in 1999. Establishing a relationship with CARE, which is an international humanitarian organization, contributed to its fast growth and expansion. Through this organization, Starbucks distributed coffee samplers and opened a lot of stores in the Pacific, as well as the introduction of food in its product line.

It also included domestic supermarket sales and this made the products very popular among the potential consumers. It is present in 37 countries and specializes in hot and cold beverages, accessories related to coffee, complimentary food items among other non food items. Its headquarters is in Seattle although its main operations are in the US.

Other countries including Kuwait have adopted the company’s culture. Here, the company provides its consumers with an aromatic cup of coffee to start their day. It also offers them a pleasant customer service by giving the customers an opportunity to find their niche while listening to music or reading one of the books provided.

This is what the company refers to as the “Starbuck experience”. It has used it to build its brand to become one of the most popular coffee destinations competing at the same level with other established brands like the MacDonald’s (Case 5-1 Starbucks Coffee Company, n.d.).

As would be with any other company, there is an expectation for Starbucks to operate within the premises of business ethics. Business ethics refers to policies that are set up by a company with regard to any potential issues that may be controversial. Such issues include but are not limited to corporate social responsibility, discrimination, insider trading, fiduciary responsibilities and corporate governance.

Ethics in business are guided and influenced by the law. In other instances, they are influenced by the culture and the framework of the business itself. Ethics in business are implemented so as have public acceptance of the business operations and gain trust from the public. Ethics can also be defined as the way that people should conduct activities in the corporate world.

More specifically, ethics deals with the appropriate measures to take in the process of constraining self interest pursuits. In economics, business ethics is a social science which addresses social values and moral principles. In simple terms, ethics can be said to be a code of conduct within which businesses must operate within.

Other practical examples of business ethics include companies encouraging competition within the industry, supplying commodities to consumers at reasonable prices, avoiding black market practices, protect the interests of small businesses in the industry, and they must remit their tax returns dutifully. Business ethics promotes the general well being of a society.

In the case of Starbucks, the dilemma which it was faced with was an accusation by global exchange, a human rights company that engages in the promotion of political, social and environmental justice globally, of not purchasing ‘fair trade’ coffee beans. The accusation was made at a Starbucks annual shareholders meeting in the year 2000.

Fair trade is a concept that was initialized after the second world war. It started with some non-profit organizations with religious affiliations purchasing products that were hand made so as to resell them. The concept then evolved into a practice of purchasing crafts from producers in third world countries at prices that were fair. These crafts were later resold in markets in the western countries.

Fair trade is a concept that majorly deals with fair compensation of labor and respect that exists between suppliers and consumers. In the year 1999, a certification agency (third party) in the united states launched a coffee label that was “fair-trade certified”.

Starbucks company is a market leader in specialty coffee. It gained this reputation from purchasing only the highest quality of coffee and providing the ‘Starbuck experience’. The company had built a good relationship with the providers of the coffee beans who were the farmers. Starbucks believed for a long time that it paid the best prices for the best quality of beans.

However, their best price is not the fair trade price. This is the dilemma that Starbucks faces. Implementing the fair trade price would have serious implications for Starbuck. The price floor for coffee beans regardless of the quality of the coffee beans is 1.26 dollars. Starbucks admittedly declared that although they paid the highest prices for the coffee beans, the prices may not have reflected fair prices for suppliers (the farmers).

This is because it is practically impossible to be able to follow the movement of money that flows from the exporters and importers by means of supply chain directly to the farmers. The purpose of the fair trade practices is to improve the welfare of the farmers by increasing their income. One of the missions of Starbuck is to be a corporation that is socially responsive by enhancing fair treatment to its suppliers and customers.

The other dilemma the company had to deal with was how to be socially responsive without affecting the core fundamentals of the company. The core fundamentals are core to the foundation of Starbuck and its success thereof (Case 5-1 Starbucks Coffee Company, n.d.).

An analysis of how Starbuck may respond to this dilemma involves an understanding of Fleming principles of business ethics. These principles are utilitarianism, rights, duties and justice and fairness. These principles are a guideline as to the things that a company should consider while responding to a dilemma involving business ethics.

The principles imply that ethics are present when individuals and businesses enforce business activities and decisions from a moral point of view. The principles take into consideration the moral impact that decisions made by businesses have on others. Flemming describes these principles as the morality that underlies any decisions that management makes. The principles are discussed below briefly (Fleming, n.d).

Utilitarianism

This principle explains that a person should act in a manner that the actions provide the best results for the greatest number of people. The principle entails obtaining the outcome, but does not deal with the means of obtaining the results. Therefore, a person should select alternatives which provide the best social benefits.

The weakness of this principle is that it makes it difficult to find a common measure of what alternative to employ. In addition, in the case of a huge business decision, it is difficult to estimate the overall social good for a certain alternative (Fleming, n.d).

Rights

A right is described as the entitlement which a person has to behave in a certain way. Rights explain the legal and the moral rights (Fleming, n.d).

Duties

This principle provides two classes of duties. The first duty includes the duties which dictate obligations. Such duties must conform to the social standards. For instance, every member of the society has a duty to obey the laws. In business ethics, examples of duties are honoring promises, being honest, and respecting contracts among others.

The second class of duties is the duties which are created when a person holds rights over other people. For instance, people have an obligation to respect individuals with the right of privacy (Fleming, n.d).

Justice and fairness

This principle defines ethics in terms treating people equally. The principle stipulates that people should share the benefits equally. However, distributing benefits such as wages in a b business environment is not possible. Therefore, methods that are morally acceptable are applied in distributing resources and benefits (Fleming, n.d).

Starbucks Response

In view of the above discussion of the ethical principles as advanced by Flemming, Starbucks can handle the dilemma in two ways. The first would be to implement the fair trade price. This move will mean that Starbucks will incur higher costs in purchasing the coffee beans. On the other side, it will imply a better relationship with the farmers. If done on a large scale, the economies of scale may even out any reduction in revenues that may face Starbucks.

Another way they may maintain revenue generated is by passing on the burden to the consumers. It will be possible to do this because of the good services that Starbucks offers and the customer loyalty it has fostered over the years. The general implication of this on the stakeholders might not change (Case 5-1 Starbucks Coffee Company, n.d.).

It is the moral and legal right for Starbucks to act in a way that it deems best. This action will be within the confines of the company. The company also has a duty to ensure that the farmers are compensated fairly. Implementing the fair trade price would be the enforcement of this duty. The same argument can be advanced with regard to the principle of justice and fairness (Case 5-1 Starbucks Coffee Company, n.d.).

The second action that Starbucks can employ is maintaining its current pay stand. This action will mean that, if the current pay to the farmers was not compensatory enough, then the justice and fairness principle will have been disregarded. The global exchange organization may also not cease to push Starbucks to implement fair trade prices.

Starbuck will also not have met its obligation to compensate the farmers fairly. However, they will have exercised their right as a company to pay what is acceptable by the farmers even if it may not adequately compensate them. In terms of Utilitarianism, not all the stakeholders may benefit from this course of action (Case 5-1 Starbucks Coffee Company, n.d.).

In my opinion and analysis, it would be best to employ the first move. This is because it meets most of the requirements of the ethical principles. By doing so, Starbuck also restores and maintains the faith of the society in them which is good for business in the long run.

Conclusion

Business ethics are an important aspect of the operations of any organization. They are the moral compass of a company and distinguish between the good and not good practices of the company. Starbucks was faced with such a dilemma and had to employ business ethics with regard to the principles that guide them. This is a responsibility that the company towards the society and its stakeholders.

References

Case 5-1 Starbucks Coffee Company, n.d. Retrieved from Starbucks Coffee Company Grinder Typ El 70.

Fleming, J. E. (n.d). Business Ethics: An overview. Retrieved from pdf.

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