Term 2 Project - What Price Coffee?

a) A multinational company is a company which has a factory in one country and ships its products elsewhere, typically based in third world countries as the aim is to reap economical benefits such as cheaper labor and materials. Coffee business can be described as MNCs because the coffee plant needs a particular environment to thrive in and thus it becomes essential to export this particular item from tropical companies.

b) Coffee is a very popular item all around the world. Many people actually drink so much of it that they develop a caffeine addiction. However the coffee plant only grows in certain areas of the world. Thus, to supply this demand, it is necessary for coffee businesses to operate on a global basis. By keeping its production facility (in this case, a farm) in one place, the company only has to upkeep standards in this one place rather than having to exert control over quality in numerous places. Figure 109.4 demonstrates the low costs of transportation and payment to farmers thus coffee MNCs have a strong opportunity to make a profit thus it makes sense to provide to the global market as it is a globally demanded product. A MNC must adhere to the laws of its host country therefore a company can maanipulate this in its favor with issues such as taxes or tariffs.

c) Factors affecting globalization include government funding and encouragement in the case of Vietnam. Until that point, farmers had focussed internally, growing rice crops but trade liberalization cleared the way for exportation in a country with a good coffee farming environment. Farmers in third world countries have opportunity to guarantee that they can sell their crops to this vast market thus avoiding complete poverty though the wages they get from this are pitiful. Also the pesticides and fertilizer Vietnam farmers used are contributing factors to the globalisation of coffee since it was this technology which allowed it to grow and thrive.

d) Globalization has caused the MNCs to have a lot of power; enterprising coffee producers find it nearly impossible to breakthrough in the market and the decisions that the MNCs make affect the market as a whole. The economies of scale which lower prices can cause a negative effect too such as in the case of Nestle who faces competition from coffees of higher qualities against their instant coffees when prices are low. Globalization also means that the brand name of the MNC is better known and the company has a bigger customer base. Globalization increases competition between the coffee companies, which also contributes to eliminating chances for new coffee enterprises to breakthrough into the market.

e) MNCs take advantage of the third world countries by employing its inhabitants at the lowest possible rates. These people are forced to accept these terms or face starvation. While the MNCs can argue that they are providing employment and economical benefits to these people, the company still uses the poverty there to increase its profit margin which in turn causes the farmers to be deprived of what we in the civilized world would class as adequate wages. However, with the global popularity of the MNCs it is possible that their businesses and their practices will come under the microscope for inspection now and again and to avoid world wide negative publicity, the treatment of the businesses third world employees will probably be better than less popular brands. Fair Trade members capitalize on the third world employees by promoting their treatment of their third world employees and associates in order to gain the publics favor.