The Details of the Partnership Proposed By Starbucks and the Ethiopian Government

Answer

1. The Details of the Partnership Proposed By Starbucks and the Ethiopian Government

               Starbucks is a key buyer of Ethiopian coffee while the Ethiopian economy is heavily dependent on the trademark of this primary product. Coffee generates about 60 percent of its total export earnings and is closely tied to the culture of the Ethiopian people. In 2004, the Ethiopian government set out an initiative to trademark the three major regions in the country that are associated with its finest coffee beans; Harar, Yirgacheffe, and Sidamo. The trademark would enable the country to charge distributors a licensing fee for the use of the trademarks. Starbucks argue that the trademark approach is not based on sound economic advice and that such a proposal would hurt the Ethiopian farmers economically. According to Starbucks, trade marking would be legally complicated and is likely to price Ethiopian coffee out of the market. The other proposed option for the Ethiopian government was to register its coffee names as geographic indicators (GIs) to other importing countries. However, the Ethiopian government rejected this bid citing that coffee is grown in over four million small plots and setting up a certification system would be too expensive and impracticable (Oliveira, 2013). As such, they were for the trade marking which would offer them more control.

    Starbucks finally agreed to the agreement to respect Ethiopia’s right to use intellectual property system to increase its revenues from coffee. They will work together to strengthen the brand that are associated with the three premium-quality coffees from Ethiopia. The licensing agreement covers distribution and marketing of the brands. This agreement acknowledges the government ownership of the coffee names although Starbucks will not be required to pay loyalties for the same.

   The Source of the Strategic Conflict between Starbucks and the Ethiopian Government

   Starbucks resisted the trademark strategy for the Ethiopian coffee in 2006. The company argued that this approach is wrong advised and Ethiopia should opt for certification mark and not trademarks. Starbucks set out for lobbying aimed at persuading Ethiopia into changing its approach. However, these efforts did not change Ethiopia’s position. Ethiopia pursued its engagement strategy and sought to settle the dispute through a negotiation. They took advantage of every opportunity to persuade officials of Starbucks. Ethiopia’s strategy was complimented by the efforts of different pressure groups. The blocking of the Ethiopian efforts to trade marking led to a serious public relations crisis for Starbucks as the usually ethically-minded company accused of acting very tough on the impoverished country (Cullen & Parboteeah, 2009).

   The Market Position of the Ethiopian Farmers

   Coffee is set to be really popular among the different kinds of people in the present modern world with more countries getting into the coffee business. Retailers of coffee are known to make huge profits out of the business while farmers mostly in developing countries earn very little. This puts the threats of new entrants at very high because it is easy for other people and companies to open small coffee shops. However, barriers to entry as a bigger player in the industry is low because the existing major companies such as Starbucks make it hard for chain specialty coffee shops. Name recognition is an issue because competitors make it hard to succeed in the industry. Because of the thriving coffee culture in many western and European countries, current competition is very high. There is fierce competition between the existing competitors with branding and market positioning being the main sources of competitive advantage. Power of customers is very high and a key consideration in the industry. Satisfying customers in the coffee sector is an important driver of business. The threat of substitute products is equally high considering the number of other products that can be traded for coffee including soft drinks, cigarettes, ice cream, and beer (Singh & Ramamurti, 2009).

   The bargaining power of the suppliers/farmers is very low in most developing countries because they lack adequate funds and position to raise their prices. However, the situation depends on the country and their economic and political situation. For instance in the case of Ethiopia, the bargaining power of the farmers is slightly higher than their counter parts in developing countries because of the trade marking initiative by the government. This placed the Ethiopian farmers in a more strategic position compared to others in the same conditions and market. The Ethiopian coffee is as such very marketable with customers willing to pay higher for the various Ethiopian brands. The strategy has strengthened Ethiopia’s marketing and negotiating position in the specialty coffee market. This implies that government corporate and ethical sourcing has the capacity to drive brand positions and enhance sales and returns.

   The Role of Certification Systems

   The purpose of licensing is to secure recognition from the coffee distribution industry in the sense that Ethiopia owns and controls the use of trademarks and as such builds a reputation and goodwill of its specialty coffees around the trademarks. It enhances the market visibility and raised the export premium for Ethiopian specialty coffee. This strategy is an effective way of addressing the threat of new entrants, increase the power of suppliers, reduce the power of customers, and reduce the power of substitute products (Wahl & Bull, 2014). For instance, this strategy ensures that Ethiopian small businesses and farmers to secure a reasonable return from sale of their coffees.