Why might coffee businesses be described as multinational companies?
A multinational company is a company the operates in two or more countries. Coffee businesses aim to distribute their coffee all over the world, therefore they don't operate in only on country. To be recognized at a global level, coffee businesses will operate and set up their business in different countries. For example Nestle, as mentioned in the case study is one of the 5 businesses that dominates coffee production, is set up in different countries worldwide. It has many locations in the United States, UK, India, etc.
Explain reasons why multinational companies in the coffee business operate on a global basis.
Coffee businesses strive to becoming the leading producers of coffee in the market because, unlike other food or beverage products, multinationals in the coffee business are working in a market where they can make up to 26 percent in profit. Therefore all coffee businesses will try to be the most dominant business in the market like Nestle who is currently the most dominant coffee processing business controlling 57 per cent global share of the coffee business. Another reason why coffee processing multinationals operate on a global bases is to spread risks across the world. As mentioned in the case study coffee is grown mostly in developing countries. Since the weather or natural disasters can affect the growing process of coffee, multinationals will have to set up in different countries so they don’t have to rely only on one country. Coffee businesses operating at a global level are able to locate their business in different countries meaning lower costs of production. Coffee production might cost a lot less than what the consumers have to pay in certain countries, as we can see in figure 109.4 that the cost of getting the coffee from the Ugandan farm to the point where the business actually sells its coffee to its customers has increased by over 19 pounds. Coffee businesses also operate on global basis to increase their brand recognition and customer base. Coffee is a beverage that is highly demanded in almost every country across the globe and for coffee business to be selling their product globally means that they increase their customer base and their brand is highly recognized at a global level.
Examine the factors which have affected the globalization of this market.
Globalizations is the integration of the worlds economies in terms of economics, sociology, and politics but when a firm is producing globally they are efficiently producing and selling the same product simultaneously in different countries.The major factor that contributed to the globalization of the coffee market is the liberalization of trade barriers. As mentioned in the case study, Vietnam who barely registered on the worlds coffee markets has experienced an economic growth since trade liberalization was presented in the 1990s’. The liberalization of trade barriers meaning the removal of trade barriers allows coffee businesses to export their products without the intervention of protection methods such as tariffs and quotas. The removal of barriers allows the coffee producers to trade with countries, eventually leading to to the globalization of the market.
Analyze the effects of globalization on multinational coffee businesses.
Globalization has both positive and negative effects on how multinational coffee businesses operate.
Globalization increases the level of competition for the coffee market, thereby causing the different multinationals to compete against each other for their customers. When a business is producing at a globally level they have to meet the customer expectations and needs which becomes more demanding as the business grows. The leading businesses in a market that have established a global presence can benefit from economies of scale, in the case of the coffee multinational the factors of economies of scale which are more appealing would be land and labour because coffee production, as stated in the case study, is carried out mostly in developing countries. Multinational companies have a greater choice of location for their production facilities which is an important benefit because it allows the companies to set up their production facilities in areas that are better for coffee growing. Another benefit for multinational coffee businesses is that they can increase their customer base thereby increasing their brand recognition.
Evaluate the impact of the global coffee business on coffee farmers in developing countries.
After reading the case study and the reaction from William Nagaga of the Ugandan Coffee Development Authority, we can see that the presence of global coffee businesses has an impact on the coffee farmers in developing countries and on the country itself. One benefit of multinational coffee businesses to the host country is that it provides jobs for the many that are unemployed in developing countries. Successful multinational might offer more money to local workers compared to other local businesses but still pay less than what they would pay workers in a developed country. Coffee multinationals can also provide new technology for the local people that relates to coffee growing benefiting both the country and the multinational itself. In some countries, coffee producing multinationals can also increase competition with local businesses or other multinationals that being hosted by the same country. Increase of competition means that all companies will be producing at more efficient levels to attract more customers.
Even though coffee multinationals have their benefits they also have costs to the host country. When multinationals set up in host countries they increase employment and competition but if the local companies cannot handle the competition they are forced to shut down or are in danger of a takeover, therefore causing unemployment. Mr. William Nagaga also mentions that the multinational are too powerful and that “ five men sitting in a room deciding the fate of 25 million coffee farmers around the world.”
