Strategic Management Analysis of Equal Exchange

Equal Exchange Strategic Management Analysis

Introduction of Company

The EE (Equal Exchange) is an organization that distributes organic, cocoa, bananas, tea, gourmet coffee, chocolate bars and avocados produced by farmers in Africa, Latin America, and Asia. Established in 1986, the core competence of the EE is by paying the agricultural product directly from the farmers assisting the organization to purchase the product at a fair price. Moreover, the organization promotes the sustainable farming by educating farmers to develop quality products. The strategy assists the EE in procuring quality products at affordable prices, however, the company is facing several threats in a business environment, which affect its operations.

The objective of this strategic paper is to discuss the general environmental factors affecting the EE in the industry. The paper also discusses the threats facing the company and the strategy to address the problems.

Situation Analysis

In a competitive business environment, the Equal Exchange is being influenced by the general, industry and competitive environments. The general environment is defined as a general dimension within a broader society that influences a firm and industry. The general environmental factors affecting the Equal Exchange are political, economic, demographic, socio-cultural, and technological. The company operations are influenced by the political forces because the government creates a law that all firms should respect and failure to respect the laws can make the organization facing a court litigation. For example, the Environmental law affects the operation of the EE and the company is to conform to the law or face a court litigation.

The economic factors that influence the firms' operations are personal income, interest rates, inflation rates and employment rate. These factors influence the purchasing power of consumers. Since the EE is operating in the United States, which is a country with high employment and income rates, the company has recorded high revenue in the last few years. Moreover, the socio-cultural factor also influences the firm's operation. In the United States, increasing number of consumers make a purchase online forcing companies to change their business model and operate online. Thus, a change in the purchasing strategy of the consumer affects the business operation of the EE.

Technological advancement also affects firms' operations, which has changed the consumer taste and preferences. Presently, increasing number of customers prefer well-packaged food product that enhances environmental sustainability. Since the consumer now prefers the sustainable product, the EE is required to supply products that conform to the environmental sustainability.

Demographic factor includes population size, age structure, ethnic mix, geographic distribution, and income distribution. Typically, the EE is required to produce a product based on the population size and age structure of a country to achieve a competitive market advantage.

Key Problems facing Equal Exchange

A stiff competition is one of the key problems facing the EE in the business environment since many organizations have now entered the industry compared when EE was the sole company in the industry 25 years ago. The top EE competitors are Millstone Coffee, Inc. Global Exchange, and Thanksgiving Coffee Company. The climate change is another threat that affects the EE operations, consequently affecting the products distributed by the company. (Equal Exchange, 2014). Moreover, the urbanization and a decline in agricultural practice have affected the production of the agricultural product distributed by the EE. For example, the climate change put a risk to the production of the black coffee cherries. The factors such as abnormal high temperature and heavy rainfall threaten life cycle of cherries, coffee trees and future of coffee production entirely. Moreover, the fungus and insects cause a large scale damage to crops. The leaf rust is also the biggest problems to farmers, which is the fungus that spreads like wildfire on the coffee plants. (Equal Exchange, 2015).Thus, many farmers in Latin America have experienced a substantial loss due to a leaf rust. Two regions, Guatemala, and El Salvador have been affected by climate change, and addressing the problems remain a great challenge.

Fig 1: CO2 Emissions 1751-2010

Source: CDIAC (2011).

Based on the problems that farmers face from the crop production, the EE is facing a shortage of product from suppliers. However, the EE had not faced the equal problems similar to the problems they faced 25 years ago. For example, the level of the climate change was not as high as it was today. As being revealed in Fig 1, the Carbon dioxide emission was relative low 25 years ago. Thus, farmers have not experienced similar problems 25 years ago compared to the problem they are presently facing. Moreover, the farmers have not experienced a low level of production 25 years ago as being experienced at present.

The challenges that the EE face over the years makes the EE's bargaining power of buyer to be low- to- moderate. The EE has the power to buy the agricultural product at reasonable price levels, and the EE bargaining power of buyer is low to moderate because of the shortage of the agricultural product. However, the bargaining of power of supplier is low because of the shortage of agricultural product due to the climate changes and problem of pest and fungus

Recommendation

A diversification of business is the best strategy that the EE can employ to overcome their key problems. Over the years, the EE procures different products at affordable prices, which include coffee, chocolate, cocoa, food and snacks and banana. However, the company needs distributing the industrial agricultural processed product similar to non-processed agricultural products. The strategy will assist the company to increase its revenue reduce the impact of competition facing the company. Moreover, the paper recommends that the EE should develop a strategic alliance with other companies in Latin America, Asia, and Europe to increase their market advantages.