Equal Exchange Strategic Management Analysis

Introduction to Equal Exchange

Equal Exchange (EE) 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 EE is its practice of purchasing agricultural products directly from farmers, enabling the organization to procure goods at a fair price. Moreover, the organization promotes fair trade and sustainable farming by educating farmers to develop quality products. This strategy assists EE in obtaining quality goods at affordable prices; however, the company faces several threats in its business environment that affect its operations.

The objective of this strategic paper is to discuss the general environmental factors affecting EE in the industry. The paper also examines the threats facing the company and the strategies available to address them.

Situation Analysis

In a competitive business environment, Equal Exchange is influenced by the general, industry, and competitive environments. The general environment is defined as a broad societal dimension that influences a firm and its industry. The general environmental factors affecting Equal Exchange are political, economic, demographic, socio-cultural, and technological. Company operations are influenced by political forces because governments create laws that all firms must respect; failure to comply can result in litigation. For example, environmental law directly affects EE's operations, and the company must conform to applicable regulations or face legal consequences.

The economic factors that influence the firm's operations include personal income, interest rates, inflation rates, and employment rates. These factors shape the purchasing power of consumers. Since EE operates in the United States — a country with relatively high employment and income levels — the company has recorded strong revenue in recent years. The socio-cultural factor also influences the firm's operations. In the United States, a growing number of consumers make purchases online, forcing companies to adapt their business models accordingly. A shift in consumer purchasing behavior therefore directly affects EE's operational strategy.

Technological advancement has also affected firms' operations by changing consumer tastes and preferences. An increasing number of customers now prefer well-packaged food products that support environmental sustainability. Since consumers increasingly favor sustainable products, EE is required to supply goods that conform to environmental sustainability standards.

Demographic factors include population size, age structure, ethnic mix, geographic distribution, and income distribution. EE is therefore required to develop and position its product offerings based on the population size and age structure of the markets it serves in order to achieve a competitive advantage.

Key Problems Facing Equal Exchange

Stiff competition is one of the key problems facing EE in the business environment. Many organizations have entered the industry compared to 25 years ago, when EE was one of the few companies operating in this space. The top EE competitors include Millstone Coffee, Inc., Global Exchange, and Thanksgiving Coffee Company. Climate change is another major threat that affects EE's operations and, consequently, the products the company distributes (Equal Exchange, 2014).

Urbanization and a decline in agricultural practice have also affected the production of the agricultural products EE distributes. For example, climate change puts the production of black coffee cherries at significant risk. Abnormally high temperatures and heavy rainfall threaten the life cycle of coffee cherries, coffee trees, and the future of coffee production as a whole. Furthermore, fungus and insects cause large-scale damage to crops. Leaf rust — a fungus that spreads rapidly across coffee plants — is among the most serious problems farmers face (Equal Exchange, 2015). Many farmers in Latin America have experienced substantial losses due to leaf rust, with Guatemala and El Salvador being among the regions most severely affected. Addressing these problems remains a formidable challenge.

The CO₂ emissions data presented in Figure 1 (CDIAC, 2011) illustrates that carbon dioxide emissions were relatively low 25 years ago. This historical context helps explain why the challenges EE faces today are more severe than those it encountered at its founding. Farmers did not experience the same level of climate-related disruption a quarter century ago, nor did they face the same depressed production levels now common across growing regions.

These ongoing challenges affect EE's position within its supply chain. The company's bargaining power as a buyer is low to moderate, owing primarily to the shortage of agricultural product caused by climate change, pest pressures, and fungal disease. The bargaining power of suppliers is also constrained by the same forces — agricultural shortfalls reduce the volume available for sale, limiting suppliers' leverage as well.

References

CDIAC (2011). Trend Emission Overview 2010. Carbon Dioxide Information Analysis Center. USA.

Equal Exchange (2014). Annual Report 2014. USA.

Equal Exchange (2015). About Us. USA.

Simpson, C. R., & Rapone, A. (Summer 2000). Community development from the ground up: Social-justice coffee. Human Ecology Review, 7(1), 46–57.