Fairtrade – a Competitive Imperative? An Investigation to Understand the Role of Fair Trade in Company Strategy in the Chocolate Industry Master’s Thesis in Business Administration Author: Phuong Thao Tran & Elina Vettersand Tutor: Anna Blombäck Jönköping University May 2012 Master’s Thesis in Business Administration Title: Fairtrade - a Competitive Imperative? Author: Phuong Thao Tran & Elina Vettersand Tutor: Anna Blombäck Date: 2012 -05-14 Subject terms: Strategic entrepreneurship, fair trade, competitive advantage. Abstract Background: The rise in ethical consumerism has become evident through an increase in sales of fair trade products in recent years. Consumers are prepared to pay a premium for fair trade chocolate, and with a steady future growth in the fair trade movement, this is an attractive market for new entrants. Of particular focus are the Swedish and German markets for fair trade chocolate as they show promising growth rates and interest in this field. Problem: The chocolate industry is very competitive, and the observation that con- sumers reward companies that act socially responsible presents an oppor- tunity for ethical companies to compete. This is attractive for entrepreneuri- al firms, but there exist numerous motivations why firms choose to engage in fair trade. Purpose: The purpose of this thesis is to understand the role of fair trade in corpo- rate strategy (either in partial or entire assortment), its relation to entrepre- neurial opportunity-seeking behaviour, and examining how the strategic re- source of Fairtrade certification is used to gain competitive advantage. Method: A qualitative interview study was applied, and ten chocolate companies ac- tive in the Swedish and German markets were included in the sample. Data was collected through semi-structured interviews (four telephone interviews and six email responses), and complemented with secondary data from company websites and press releases. The interviewees were mainly repre- sentatives of the marketing department and CEOs. Empirical findings were analysed using relevant models and theories, and organized under the two categories of ‘firm use of fair trade’ and ‘visibility of fair trade.’ Conclusion: The findings in this thesis show that there are multiple reasons why choco- late companies engage in fair trade including reputation, spreading aware- ness, proactive opportunity-seeking behaviour, strategic differentiation, as a means of communicating to producers and consumers, and for quality in- surance of raw ingredients. Fair trade engagement is visible through its role as a social resource. This image is created by ethical and social commitment and wholeness in values, non-exploitative respectful business network rela- tionships, consistency in firm behaviour, and through wealth creation in terms of benefiting the firm, society, and the environment. The Fairtrade la- bel is not imperative to achieving a state of competitive advantage, but can inevitably lead to that result through the firm wholeness created by mission- and vision-driven values. Table of Contents 1 Terminology ............................................................................ 1 2 Introduction .......................................................................... 2 2.1 Background ...................................................................................... 2 2.2 Problem ............................................................................................ 4 2.3 Purpose ............................................................................................ 5 2.4 Research Questions ......................................................................... 6 3 Frame of Reference ................................................................ 7 3.1 Structure Description ........................................................................ 7 3.2 Strategic Entrepreneurship ............................................................... 8 3.3 Strategic Resources ....................................................................... 10 3.4 Social Resources ........................................................................... 11 3.5 Social Labelling .............................................................................. 12 3.5.1 Fair Trade .......................................................................... 13 3.5.2 Growth in Ethical Consumerism ........................................ 13 3.5.3 Ethical versus Mainstream Companies ............................. 14 3.6 Entrepreneurial Orientation ............................................................ 15 3.7 Entrepreneurial Mindset ................................................................. 15 3.8 Strategic Positioning ....................................................................... 16 3.9 Competitive Advantage .................................................................. 18 4 Method .................................................................................. 20 4.1 Sample ........................................................................................... 20 4.2 Data Collection ............................................................................... 21 4.3 Data Analysis ................................................................................. 22 4.4 Limitations ...................................................................................... 23 5 Empirical Findings .............................................................. 24 5.1 The Motivations behind Engaging in Fair Trade ............................. 24 5.1.1 Entirely Fair Trade Companies .......................................... 24 5.1.2 Partially Fair Trade Companies ......................................... 25 5.2 Entry Barriers to Engaging in Fair Trade and the Entrepreneurial Mindset Involved ........................................................... 26 5.2.1 Entirely Fair Trade Companies .......................................... 26 5.2.2 Partially Fair Trade Companies ......................................... 28 5.3 Entrepreneurial Orientation ............................................................ 28 5.3.1 Innovativeness ................................................................... 29 5.3.2 Proactiveness .................................................................... 29 5.3.3 Risk-taking ......................................................................... 30 5.3.4 Autonomy ........................................................................... 30 5.3.5 Competitive Aggressiveness ............................................. 30 5.4 Incorporating Fair Trade into Existing Company Strategy .............. 31 5.4.1 Entirely Fair Trade Companies .......................................... 31 5.4.2 Partially Fair Trade Companies ......................................... 33 5.5 Relation of Fair Trade to Corporate Values .................................... 34 5.5.1 Entirely Fair Trade Companies .......................................... 34 5.5.2 Partially Fair Trade Companies ......................................... 35 i 6 Analysis ................................................................................ 37 6.1 Why Do Chocolate Producers Use Fair Trade? ............................. 37 6.2 How Is Fair Trade Visible in a Company? ...................................... 38 7 Conclusion ............................................................................ 42 8 Discussion ............................................................................ 43 References…………………………………………………………...45 Figures Figure 1 - Purpose of this Investigation ........................................................... 6 Figure 2 - Author's Flowchart of Relations Between Theories ........................ 7 Figure 3 - Creating Wealth Through Entrepreneurial and Strategic Actions ... 9 Figure 4 - Entrepreneurial Orientation Dimension Definitions ....................... 15 Figure 5 - Porter's Generic Competitive Strategies ....................................... 17 Figure 6 - Entrepreneurial Orientation Survey Results .................................. 29 Tables Table 1 - Comparison of Fairtrade Retail Sales in Europe…………………….3 Table 2 - Interviewees and Interview Method ................................................ 21 Table 3 - Categorization of the Role of Fair Trade ........................................ 40 Appendix Appendix I – List of Companies Contacted ........................................................ 52 Appendix II – General Information about Companies ......................................... 53 Appendix III – Interview Plan for Partially Fair Trade Company ........................... 54 Appendix IV – Interview Plan for Entirely Fair Trade Company ........................... 56 Appendix V – Entrepreneurial Orientation Results ............................................. 58 Appendix VI – Ananda Chocolate ...................................................................... 59 Appendix VII – Axfood ..................................................................................... 61 Appendix VIII – Cloetta .................................................................................... 62 Appendix IX – Divine Chocolate ....................................................................... 65 Appendix X – GEPA ........................................................................................ 68 Appendix XI – Lovechock ................................................................................. 70 Appendix XII –