Table of contents
1. Introduction ………………………………………………………………….2
1.1. Background………………………………………………………………….2
1.1.1. Starbucks …………………………………………………………………2
1.1.2 Starbucks scandal …………………………………………………………………2
1.2. Problem discussion………………………………………………………….3
1.3. Aim…………………………………………………………………………. 3
1.4. Research questions………………………………………………………….3
- Theoretical framework..……………………………………………………………3
2.1 Corporate Social Responsibility ………………………………………………………………3
2.2. Triple bottom line …………………………………………………………………4
2.3. Stakeholder theory ……………………………………………………5
3. Analysis …………………………………………………… 5
4. Conclusion…………………………………………………………………………… 6
5. Recommendations………………………………………………7
Reference list …………………………………………………………………8
1. Introduction
1.1. Background
The concept of sustainable development is first proposed in the 1984 World Conference of Environment Management Industry(Liu 2000). At the meeting, the participants agreed that: the root of the world’s increasingly serious environmental problems is the enterprises from all countries; the business community must recognize that pollution is not only a waste, but also a production inefficiencies; at the same time, enterprise is also an important force to solve environmental problems. Environmental protection is the objective requirements of sustainable development of human society, therefore, in order to achieve sustainable development of enterprises, companies must abandon uncivilized mode of production that endanger the survival and development, establish a good corporate image through creative environmental management and gain comparative advantage to competitors, finally achieve long-term development in increasingly competitive market. (Liu 2000)
Enterprises should strive for not only the needs of consumers, but also the rational use of natural resources and energy, and environmental protection measures and methods(Liu 2000). Achieve harmony among enterprise social , competitors and consumers by pursuing comprehensive benefits (unified benefits of economic, social and environmental )
1.1.1. Starbucks
Starbucks coffee company was founded in 1971, is the world’s leading specialty coffee retailer, baker and the brand owner. Its retail products includes a variety of the world’s top coffee beans, handmade espresso coffee and a variety of hot and cold beverages, fresh food and delicious pastries and a variety of coffee machines, coffee mugs and other merchandise. In 1987, the current chairman of Mr. Howard Schultz acquired Starbucks, led the company go across several milestone.In June 1992, Starbucks as the first professional coffee company successfully launched IPO, quickly promoted business growth and brand development. The company currently has more than 12,000 coffee shops in North America, Latin America, Europe, the Middle East and 37 countries in Pacific Rim , it employs more than 117,000 people. For a long time, the company has been committed to providing the highest quality coffee and service to customers, creating a unique “Starbucks experience” so Starbucks becomes a warm and comfortable life “third living space” in addition to workplaces and homes for people all around the world. In the US, 20.1 million bags of roasted coffee will be consumed annually and 32.8% of them are served in Starbucks (E-IMPORTS, 2015). Starbucks annual sales is 19.2 $billion which is supported by the fact that in average an American people will drink 2 cups of coffee a day (E-IMPORTS, 2015).
1.1.2. Starbucks dilemma
Publicly available data shows that in 2007, Starbucks’ same-store sales decline appear first time in ten years, while the company stock price tumbled. In January 2008, Starbucks’ stock price has fallen by more than 50%, in order to improve the situation, founder Schultz reinstated as the company’s CEO. However, due to the sluggish of US economic environment, the reinstatement of Schultz did not bring reverse, Starbucks in May published the financial statements show that second-quarter profit of Starbucks shrink 28 percent As of July 2007, Starbucks’ stock price has dropped to 1/3 of the peak price in 2006, back to 2003 level.
From 2008 to 2009, Starbucks profits crisis continue to increase. Starbucks US business as a stronghold declined very powerful because of the US market downturn. The full-year profit in the first quarter of 2009 decreased by 69%. After the slowdown pangs, the turnover of Starbucks rise 13.8% in 2010 and reached the highest level of 40-year history, but the growth rate of the whole US coffee market is only 8%, so the overall consumption rate of coffee is slowing down .
1.2. Problem discussion
Sustainable development strategy means that an enterprise, in the pursuit of self-survival and sustainable development process, to consider not only the realization of business objectives and improvement of market position , but also being responsible for the society and community it operates in. Corporate sustainability is a key part of the management of an enterprise and extremely essential for future development. Company governance and the right business strategy play important roles in corporate sustainability.
While in the case of Starbucks, business conduction lack of corporate social responsibility and sustainability such as dodging tax, pollution wasting plus the fact of slump market put Starbucks in a dilemma. .
1.3 Aim
The aim of this study is to look at the how Starbucks step into this dilemma by examining its business practice and find solutions to realize sustainability development.
1.4 Research questions
What kind of business practices Starbucks engaged that were unsustainable in the aspect of social responsibility and stakeholders?
What kind of solution could be adopt to alleviate the situation?
2.1. Corporate Social Responsibility
Nowadays, the public has put more attentions to environment protections issues. Lots of countries have tasted the fruit the pollution. People becomes more careful about the greenness of the stuff they purchase and the service they get. For instances, many stuffs are deemed not environment friendly in Malaysia, such as glass, pesticides, cleaning detergents, and plastic(Rahbar & Wahid, 2010). Therefore, as consumers, they will be choosy and prudent when purchase stuff. Consumers would be inclined to the products which can be recycled and made of green ingredients. The environmental awareness of customers has become a key for development of any company which strive for long term success. In the business field, the environmental attitude of customers have attracted attentions of many companies. They starts to shift their strategy to meet customers needs for green and sustainable development physically and psychologically. The concept of “green marketing” has begun to emerge in the field of marketing. “The application of green marketing is aimed at two general objectives, namely, a better condition of the environment and higher consumer satisfaction” (Ottman, Stafford & Hartman, 2006).
In developing countries like China and India, people pay less attention the the environmental protection activities carried out by business as their counterparts in western world. Therefore, many business up there focus on profit more than environment protection. It is not hard to detect this trend since the business there make a few efforts into the environmental issues. “The business in China still relies on profit by focusing on family-oriented business “(Peterson, 2014). The awareness of environmental protection in Indonesia is pretty low too. People show no care to public environment and do no see any advantage come from business carry out green activities. This conclusion is drawn from the Bali Climate Change Conference survey, its data clearly shows that 86% of grown ups in the city area of Indonesia has no idea of corporate social responsibility (Solihin, 2009). While the scenario is different in developed countries. Consumers advocate the company which is a green company. The company which runs a green business and be responsible for the society is largely welcomed by the consumer groups.
No specific laws and regulations to force any corporations to incorporate social responsibility. However, the pressure from the society and the consumers are the major driving force to motivate corporations to be social responsible. While the concept of corporate social responsibility has become so deeply in the society. The company is not only a business organization which pursuits business interest. It is the cell of the society and the promoter for the accumulation of the whole wealth of the company, the advancement of social civilization and sustainability of environment. In the course of development, a company should give adequate consideration to economic, society and environment. This demand the company to be creative to find a way shoulder the responsibility of society and environment and at the same time create profit for their stakeholders It is the company’s mission to combine its business goal and social interests together. Companies who occupies leader position should appeal to the social trend of environment protection.Ethical business practices is essential for long term development.
2.2. Triple bottom line
The term “triple bottom line” was originally put forward by the British sustainability consulting firm founder John Elkington in 1994, he believes that the company should be prepared in three different (and separately)bottom lines. One is the traditional measure of corporate profits – profit and loss account “bottom line”; the other is a company’s “personnel account” bottom line – the metrics for the organization’s social responsibility; the third is the company’s “Planet ” account bottom line – corporate environmental responsibility measures. Thus, the triple bottom line is composed of three Ps: Profit, People, Planet. The purpose is to measure the performance of a business in financial, social and environmental aspects in a period of time.
In a sense, the triple bottom line is a special form of the Balanced Scorecard, followed by the basic principle that because the company only measures what it cares, what is being measured is what the company received. Only the company measure social and environmental impacts caused by their own, can it call a social and environmental responsible organization. This practice seeks to take into account not only the direct costs of a decision or alternative, but also potential indirect and hidden costs that could be incurred or passed on to the environment, society or an economy(Lord&Meeker,2008). This method of accounting typically uses the triple bottom lime model in order to offer a full cost and benefit analysis for every decision and alternative from the point o view of not only the company, but also society(Lord&Meeker,2008).
In the previous 10 years, reducing costs has been the top priority. Now the Western consumers are increasingly aware of the idea that transferring production and services to China, India and Brazil and other low-cost countries to decrease social and environmental costs, which include Amazon deforestation, excessive use of hydrocarbons, as well as the exploitation of cheap labor.
2.3. Stakeholder theory
Stakeholders, including corporate shareholders, creditors, employees, consumers, suppliers and other trading partners, including government departments, local residents, local communities, media, environmentalists and other pressure groups, even including the natural environment, human descendants and other parties directly or indirectly affected by the business activities. These stakeholders are closely related to the survival and development of the enterprise, some of them even share the business risk, and some would pay the price for the business activities, some would supervise the enterprises, corporate management decisions must be consider their interests and accept their constraints. In this sense, survival and development of enterprises depends on the quality of response to the interests and demands of various stakeholders , not just on shareholders.
A firm should not only create sustainability functions and promote practices that will improve or cause less damage to the environment.Instead, the goal should be to strive and search for creating a prosustainability concept (Belz & Peattie, 2012). In order to succeed in that function, the corporate social responsibility (CSR) method is used, which is both strategic and systematic. According to Belz & Peattie (2012), CSR is a method that seeks to manage the social and environmental aspects of sustainability within a company.
2.3.1 Economic argument
There are two problems in the Economic argument that contributes the unsustainable development of the company, which are the tragedy of commons and Moral Hazard.
“The tragedy of the commons” is an endless plunder, where the meaning of “tragedy” lies. When the individual try to deal with public resources in their own way, the real common tragedy will happen. It is a disaster of unrestrained utilization of resource. Take environmental pollution as example, private must do everything possible to externalize the cost of business because the cost of pollution control. This is what Herman E. Daly calls “invisible feet”. “Invisible feet” made the private self-interest unconsciously put the public interest into pieces. Therefore, it is clear that – “the tragedy of the commons” is from the private use of public property. In fact, for how to prevent the pollution of the commons, Harding’s countermeasures are mutual coercion, even government coercion, rather than privatization.
Moral hazards arise when the producer of a good or service can pass along the cost of that productions. There is no incentive to economics, whoever the producer or consumer who both are involved of resources using and polluting, thereby, both parties have responsibility restricts their actions (R. Edward Freeman, 1984, p41).
From consumerism perspective, and as one of the stakeholders, customers have the right to expect the company they are rooting for is conducting business as advertised. Despite the company’s press releases and CSR reports, the Starbucks’ behaviors contradicts its proclamations. Starbucks claims that it is the world’s leading chain stores, which is not only famous for its delicious coffee, but also for their awareness of environmental protection, such as recycling paper cups. However, Marketplace program on CBC once report that many Starbucks cups were taken to the garbage rather than being sent to a recycling plant. Such revelations surprise a lot of people. Times also reported that Goodwin, the British paper cup recycling company founder, said that the total number of recycling paper coffee cups are less than 3 million every year, while total consumption of coffee cups are 2.5 billion per year in UK, about 700 per day. The actual recycling rate is less than 1%. Starbucks did not do as what they promised and lead customers to become environment villain under an unknown situation. Furthermore, using misleading advertisement to promote and attract consumers and green-minders’ attentions is a dishonest behavior. Starbucks behaviors. In the long run, all of this might hinder the development of the company
As for the internal stakeholders, employees’ disputes may influence employees’ relationship with the firm. The relationship with its staff has encountered some trouble too in recent years .In 2013, Starbucks have to spend $ 3.0 million to settle the lawsuit by a group of employees , employees accused that the company cancel the rest during their shifts. Recently, Starbucks was under attack again, because they failed to inform employees of working arrangements ahead of enough time, the employees got in trouble in the planning of child care, schooling and other things. This might directly lead decrease a sense of belonging to the company, the employees are also a kind of advertisement of the company, bad image in the heart of the employees will also hinder the development of the company.
The unsustainable could also be seen from the aspects that the company is only driven by profit regardless of environmental protection,including water and electricity wasting well as the greenhouse gases releases. Once the problem being realized, t Secondly,
Connecting with the theory of “tragedy of the commons”, in order to achieve largest profit as possible, the individual company acting independently for their own sake and betray the common good of other parties. The shipping of the coco will consume fossil fuels that will take millions of years to regenerate. The use of fossil fuel will release greenhouse gases to contribute to global warming which is also a major concern for the current social (Casper, 2010). The British Sun newspaper has done a survey and estimated that the company’s waste per day have reached to 600 million gallons, which is enough to relieve a small African country’s water crisis. Ignorance to the public resources to a such a degree shed a negative light to the image of Starbucks.
As for the moral hazard, the producer or consumers are both involved in resources and polluting, both producer and consumers have responsibility. The in house decoration of the each store is pretty energy consuming to give a good experience to customers. For example, the lights will be turned on even during the daytime, water faucet will be opened all the time to wash the cup wares and prepare coffees. The customers will realize that they are paying for the product which shows no care to the environment. This will definitely damage the relationship with the customers.
Nowadays, environment problem is getting worse and worse. Forest destroy and soil erosion caused by over development of the coffee bean farmland has become the key issue that impact the image of Starbucks for its neglects to environment protection. The over development of the coffee bean farmland is only for the profit end. People becomes more careful about the greenness of the stuff they purchase and the service they get. A business organization is not only for the pursuits of business interest, it is also the cell of the society and should be responsible for the advancement of social civilization and sustainability of environment. The disregard for the environment will damage the reputation and long term development of the company.
Conclusion
Starbucks need to make itself a green brand, the best way to solve the problem is to put more efforts in the environment protection, build up a environment protecting image and take good care of its stakeholders. To achieve this purpose, Starbucks can make changes along its entire business operation line to promote sustainability from the sourcing end to customer end. From the beginning of its operation line, Starbucks could set up Eco friendly land or a Eco friendly community to produce coco or have expertise to different coco bean land to give guidance to the farmer in regard of how to protect the land and have high volume of good coco beans without jeopardize the land. Make Investment to new technologies and designs to save energy and natural resources consumption within the land. Establish the energy saving code in the the process of the operation line. Promote activities among customers.
Recommendations
“When a brand is linked to corporate social responsibility, manufacturing practices must meet certain standards”(Higgins,2009). Starbucks should shoulder the responsibilities from the sourcing end. Starbucks could buy a land from government in some significant place to set up ad. The environmental coffee plantation will test different way of growing coffee bean to achieve the purpose of high volume , good quantity, and Eco friendly at the same time. Within the land, a standard conduction code should be set up. The code should be able to achieve the purposes of financial interest and environment protection at the same time. The environmental coffee plantation should have training course regularly. When needed, Starbucks could invite farmer from certain lands to visit and take training in the environmental coffee plantation. Starbucks could also sent professionals to different plantation to give guidance and help. A system or bridge between farmers and Starbucks could be established for better communication.
Starbucks should adopt the method of cooperation with coffee bean farmers. Provide help to coffee bean farmers to improve their life condition and protect the environment plantation is the way to go. To achieve this purpose, the following method could be considered to be adopted. Pay premium to coffee bean farmers. To alleviate the burden of coffee bean farmers and make them to have better life condition is the to share profit with its stakeholders and therefor shows being responsible and care for the society. The second solution is to provide free or low price machines to the local farmers. It also could be a way of marketing. From this perspective, Starbucks could cooperate with factor which produce machine for coffee bean plantation to design and product a certain machine. This kind of machine will help in environment protecting and being efficiency at the same time. Provide loans to coffee bean farmers to help them to set up their own factory with financial and technical aid, this could be in a form of equity investment. In this way, Starbucks will not only be a retailer of coffee but also a investor of coffee. Invest in coffee growers to boost their economy.
For Starbucks’ s own factory, it should update its own facilities and consult professionals to up grade its own system to be more effective and Eco friendly. Another thing could be improved it that it could reduce the amount of large pant that serves broad geographic area and establish more small scale plant that spread the area. This solution could reduce the cost of transportation fees and ensure the freshness of the coffee beans. Most importantly, it could reduce the greenhouse gases. Starbucks could also invest in new energy project . The green building code in US should be met. Through implementing the code, a large part of waste could be recycled including water and materials. More green-energy device should be purchased. Regularly training to raise the awareness of employees should be given out. Specific behavior code should be established as the guide of employee behaviors. To raise the awareness of the energy saving, Starbucks could allocate quote of energy to different departments according to the nature of their work. If one department performs really good, appropriate price should be given. It could also cooperate with electricity bureau to monitor the consumption pattern of electricity and work out a plan to save electricity.
In the stores, the materials for decoration should be those could be recycled and reused. Starbucks could be creative when designing the its stores. Sometimes wastes could be reused to decorate the stores, such as the wrapping paper of coffee bean bags could be used as wall paper. This could give the store a special “Starbucks style” . Such design could give customers a sense of newness and trust its products. Different kinds of energy saving device should be purchased. Actually, Starbucks could form a special team that focus on the design of stores. The team should be skillful in reusing materials and experienced with all kinds of energy saving technology. The design should have distinctive features of Starbucks at the same time be Eco friendly. Reduce the reliance on disposable paper cup. The company could find more recyclable materials to make cups. Also, all the wrapping bags could use recyclable papers. From this perspectives, Starbucks could also collaborate with relevant companies to work out whole plan for the recycling. Collaborate with its own cup supplier to invent and design the cup using less woods. Starbucks could promote customers to use their own cups, in doing so, it could have deduction on the price of coffee if customers using their own cups. In terms of water, the tap should be close when not being used. water filtration system should be implemented. Starbucks could have professionals into stores and detect any unnecessary water wastes and respond it with remedy plan.
Setting up Eco friendly production land or environmental coffee plantation will be welcomed by local governments for the potential growing tax revenues and growth of employment rate. If environmental coffee plantation becomes a standard or even successful symbol of Starbucks, it will even became a tourist spot and boost the tourism industry of the place. Rebuilding and redesign the manufacture will also provide job opportunities. Training staff to use high tech technology would be beneficial to their career development. It will be easily accepted. They may have a second thoughts or are not used to the new code of energy saving for the behavior pattern has formed. The company could promote some incentive policy to encourage the employees to follow energy saving plan. The promote activities among customers could also employ some incentive tactics. The only difficulty in implementing this is this will cost large amount money. From establishing environmental coffee plantation to providing aids to coffee bean, and redesign the store and manufactures with energy saving device as well as investments to energy saving device, every project will needs large financial investment. This might be a significant issue in convincing shareholders to make investment. For this matter, it is recommended that the high management level work out a plan and cash flow to convince the shareholders. Another solution is that Starbucks could work with different capital company to proceed all kinds of investment and projects.
For coffee bean farmers, the move of Starbucks could definitely improve the the life quality of their families. Starbucks could help them to build their own career with professional aids in regard of financial and technology. For the shareholders, there will be really high invest in the initial stage. At the initial stage, the expenses could be extremely high. The financial report may not look as good as usual. This may shrink the confidence of the shareholders. While the savings on resources can offset the investment to the equipment, decrease the operation fees and reduce expenditure. It will have long time benefits. Once the environment protecting image is set up, the company has a better green image and the price of the shares of the company may grow. From a long term perspective, it is still a good impact. For the employees of Starbucks, they will get professional training in which way increase their personal skills. The awareness of environment protection will also be beneficial and sustainable for the society. For the society, Starbucks will truly make its contribution to it in any aspect and appeal more companies to conduct green business. For the company itself, all moves can be a marketing opportunity for itself. With its influence spread out, people will see it as a green brand. Furthermore, with investment in various areas and different kinds of cooperation, the company could expand its business to a degree and have more revenues long term speaking. The company itself will be acknowledged by the society maybe become a benchmark of the industry or even the whole business society and appeal to the social trend of environment protection. if it works well, the company image will be promoted. The long term benefits is magnificent. If work out, It will be a win win results for shareholders, the company and the most importantly, the society. There are also potential risks, difficulties and weakness about the plan. Many difficulties will emerged in implementing the strategy in terms of financial and technology difficulties for experience in this regard is pretty rare and immature. Starbucks needs to build its own professional team to monitor and conduct all the environment protecting matters. Cultivate environment protecting awareness among staff is not a easy task too.
It is a social responsibility for all the natural resource consumption companies to find ways to regulate their reckless business actions. More focus should be placed on the concept of environmental sustainability and social sustainability, not only on economic return. Starbucks could a be leader in this regard.
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