The Production of Coffee Within Australia

1.0 Identification of case issues

The production of coffee within Australia, has been around for years. Australia has begun gaining recognition for the unique flavour of their coffee beans, which is due to Australia's particular micro climatic conditions. Although due to UK consumers high demand of the product, the Australian Clean Green Coffee Production (ACGCP) is unable to produce the product, therefore having to look into outsourcing the production of the coffee to Guatemala. As the new international marketing manager for ACGCP, the current task is to evaluate outsourcing of coffee production to Guatemala to further retail in the UK regional markets.  

The production of coffee is not new to Australia, but there are only few companies currently producing. Whereas countries such as Guatemala which was 2014’s 10th largest coffee producing country in the world, has 8 different regions that produces coffee (Vitola, 2011). Many companies around the world have outsourced to Guatemala, but unfortunately with further research it has come to attention that there are several ethical issues that could have an effect on further sales to the UK.  Research shows that child labor exists within many of the Guatemalan industries, where the children are not officially employed and therefore do not receive labour protections (Institute for Global Labour and Human Rights. 2007).  Within the coffee industry, child labour has been commonly recognised all around the world. To earn the minimum wage, Guatemalan coffee pickers are required to pick a set quota per day, in order to meet this quota, a high percentage of coffee workers bring their children along to help. There is a high chance for coffee workers to be exposed to hazardous working conditions, meaning the not only the parents but also the children work in intense heat while carrying heavy loads, and also working with sharp tools and pesticides. Working hours are commonly in excess of legal limits, and the families earn far less than the minimum wage (World Vision, 2014).

The concept of corporate social responsibility means that organisations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law (Barnett, 2011). Companies can directly and indirectly contribute to the occurrence of forced and child labour. Because of this, it could be argued it is a corporate social responsibility to address this problem. In recent years, companies have been heavily criticised for their unethical practices and their use of cheap child labour in their supply chains (World Vision, 2012). Research shows that business responsibility in the UK is expected from both the businesses and consumers, which not only benefits the society but also the business when marketing (Department for Business Innovation & Skills, 2014).  

ACGCP must take the country of origin effect into consideration, the country of origin has an important effect on how a company internationalizes and how it conducts its business abroad. It is the assumption of a business based entirely on how the quality, performance, value, etc. is in a specific country (Bertoli & Resciniti, 2013). The country of origin effect may cause issues for ACGCP due to the Guatemala being known for forced and child labour. There is a wide range of high quality coffees being produced around the world, which can cause difficulty for consumers to select from, therefore consumers may make a decision based on the country of origin effect. The UK consumers take the country of origin effect quite seriously, this meaning the UK consumers not only being influenced by the price but also by the stereotypes, demographic, social and economic factors, etc. of where the product had been produced (Vrontis, Thrassou, and Vignali, 2006).

2.0 Possible solutions considering this position

The task that has been assigned to the international marketing manager for ACGCP is to eliminate the ethical issues, without threatening the cost, quality or quantity of the product, therefore making the product stand out within the UK market.  Solving the global ethical issues as spoken about above, ACGCP’s business can result in an equitable brand image and better reputation (Madden, Roth and Dillon, 2012). Two possible solutions will include, eliminating poor labour and also eliminating negative country of origin effects towards Guatemala.

As the gap between the company and consumer closes, the elimination of poor labour conditions sees the opportunity of CSR that the consumers are expecting from ACGCP. After the worldwide shock of the Nike China sweatshops, consumers have begun pressuring companies into providing them with ethical trade products. Ethical trade is a company’s responsibility to provide adequate working conditions to all employees (Smith, 2011). In order to enforce labour standards that will satisfy the UK market, several representatives from ACGCP will manage the working conditions in Guatemala first-hand. According to the International Labour Office (ILO) it is mandatory for each employee to have a rest period, for every 6 hours of work in the UK there must be at least a 20-minute rest period, and a 60-minute rest period is required if work exceeds 8 hours (International Labour Organisation, 2004). ACGCP representatives will enforce these UK standards along with helping eliminate child labour. This can be done by lowering the quota per day to more realistic numbers, so that employees are not required to enlist help from their children. By keeping children out of the fields and in school, the cycle of poverty can be broken and the country of origin can be shifted.

Currently the country of origin effect is negatively enforcing the UK consumers, to change this, ACGCP must come up with a solution to counteract this. “In the event that country of origin has negative connotation for their products, multinationals often decide to de-emphasize manufacturing origin and emphasize country of brand,” (Nakra, 2015). This can be done by creating an advertisement that focuses on Australian culture and iconic landmarks. Alternatively, this could have a negative effect as Australia is not well-known within the coffee industry. As another argument for improved country of origin effect, the consumer perception must be changed to promote a happy and healthy life of the Guatemalans. This can be done through a ACGCP sponsored tourism advertisement of Guatemala. These possible solutions will provide ethical relief to ACGCP.

3.0 Choice of solution

Based on the above solutions, the following recommendations have been made in order to minimise the negative effects of Guatemala’s ethical issues. The main areas of discussion that had been focused on were eliminating the poor labour standards within Guatemala and also the negative country of origin effect. For the elimination of poor labour conditions, several ACGCP employees will manage the working conditions directly. The negative country of origin effect will be handled by ACGCP de-emphasizing the country of manufacture and emphasizing the country of brand. These recommendations will form a basis for ACGCP to build corporate social responsibility. The CSR will be done through the improvement of Guatemala’s labour conditions.