Starbucks Case Study: Ethical Practices in Business

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STARBUCKS CASE STUDY
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Executive Summary
Ethical principles in the business refer to the holistic principles that are taken up by a company to
ensure that its business operations are carried out in a smooth manner. Taking up business
strategies only helps an organization to carry out business procedures in a proper way but taking
up strategies that are legal and ethical provides an additional advantage to business organizations
to gain maintain a brand image and loyal customer base on holistic grounds. Many companies in
recent times have adopted business strategies that might help them to gain large profit margins
but it might hamper their brand image in the long run. The report is mainly based on the case
study of the Starbucks Company of UK which is one of the leading beverage companies. The
company in order to gain high business return had taken some unethical practices that had
hampered its brand image. The report, therefore, tries to evaluate the importance of ethical
practices in business and recommend ways in which a company can incorporate it.
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Table of Contents
Introduction......................................................................................................................................3
Analysis...........................................................................................................................................3
Conclusion.......................................................................................................................................6
Recommendations............................................................................................................................7
Reference List:.................................................................................................................................8
Appendix..........................................................................................................................................9
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Introduction
Business Strategy is a strict working plan that is generally used by companies for achieving its
specified goals. These strategies mainly help the company to improve its financial status and also
help in improving its position in the competitive market. It allows the systematic development of
the company as a whole. According to Aziz, Ghaniand Shaari (2016), ethics refers to a code of
conducts that determines persons or groups loyalty. Business ethics refers to the holistic
strategies that are taken by a company or business organizations to carry out its business
operations in a loyal manner. It also refers to the code of conduct that a company follows while
dealing with its internal and external shareholders. Ethical practices in a business deal with
controversial matters like trading, corporate governance, financial status, environmental
sustainability laws. The purpose of business ethics is to help the business to expand in a legal
way by attracting more consumers, providing healthy competition to the company.
Background of the Case Study:
Starbucks is the leading manufacturer and retailer company of specialty coffee in the world. It is
an American beverage company that mainly specializes in providing the world's best coffee to its
consumers. Apart from this the company also specializes in providing the best pastries, Tazo
teas, coffee brewing machines and other items related to coffee and tea products. The company
has its main outlet in the UK but it also has outlets operating in various other countries like
China, New Zealand, India, Germany and Australia. The main mission of the company is to
become the topmost provider of the finest coffee in the world without compromising with its
ethics and principles. According to the reports the company has an annual return of about $ 24.7
billion in 2018 which was about 10 % more than the previous year this was because of the
increased sales in its various outlets (Starbucks.co.uk, 2019).
But according to the reports of 2012 which was published by Reuters Agency, the company had
escaped from providing major taxes in the UK. The report stated that the company's who entered
into collaboration with the Starbucks Company would definitely earn high business return nut at
the same time would acquire a criminal record from the tax authority for not paying taxes. The
company paid only $8.6 million as taxes in its 14 years of business.
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Figure 1: Starbucks Company Annual Revenue
(Source: Starbucks.co.uk, 2019)
Analysis
Ethical practices in the business refer to the different holistic strategies that are often taken up by
companies to carry out their business in a legal manner. As opined by Guerci et al. (2015), the
ethical practices in business not only consider the whole business operations but it clearly
focuses upon each and every activity of the company. A slight inclusion of illegal principles into
the business can affect the company's entire legal framework. The ethics in business helps in its
expansion by increasing consumer approval for the company. Business ethics helps the company
to maintain a balance between social responsibility and business operations. The business ethics
practices may include corporate responsibilities, organizational loyalties, social responsibilities,
legal technical framework and so on.
Importance of Ethical practices in business
Ethics refer to the judgmental capability of an individual or group between right and wrong
activities while carrying out business operations. Business ethics takes into consideration the fair
dealings of the business operations. The main advantage of incorporating business ethics into a
company's organizational and operational framework is as follows:
● Stopping business malpractices- In order to gain huge profits many big companies and
business organizations take up business strategies that lead to illegal activities like
adulteration, high pricing, selling of duplicate products, escaping tax payment. These
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malpractices often hamper consumers. For example, the Starbucks Company of UK
exempted itself from paying taxes thereby hampering the monetary fund level of the
country. Incorporating business ethics practices helps to solve such problems (Lawton
and Páez, 2015).
● Improve customer’s confidence-Incorporating business ethics helps to improve the
customer confidence on the price, quality and quantity of its products and services which
helps to increase its sells.
● Increases life Expectancy for the company- Companies that follow ethical practices in
their business operation tend to have a longer time of existence compared to countries
who take up unethical practices to increase the profits.
● Protecting the rights of the shareholders- The business ethics helps a company to take
up practices that would help to safeguard the rights and interest of the shareholders which
would help the company to increase its sales. For example - when it was proved that the
Starbucks Company had escaped huge taxes over the years, the government claimed that
the companies who would enter into collaboration with the Starbucks Company would be
deemed as faulty taxpayers (Stanfill et al., 2016).
● Develop good business relations- Adopting business ethics practices enables a company
to gain a good image in the world market which helps it to enter into collaborations with
many renowned companies that helps to increase the company's business.
● Enabling smooth business operations- Incorporation of ethical practices helps in the
smooth running of the business operations of the company. This is because as the rights
of the shareholders like employees, distributors, suppliers will remain preserved by
ethical laws this would increase their satisfaction which would help to run the business
operations smoothly.
● Promotes Healthy competition- In order to gain a good position in the competitive
market the company should take up ethical practices that would help the company to
enter into the competitive market where it would fight with its rival groups in an ethical
manner without indulging into unethical practices like copying products of other
companies or trying to take the copyright of another company. This would help the
company to easily gain a firm position in the competitive market and at the same time
acquire a loyal consumer base (Stanfill et al., 2016).
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● Creates good image - Adoption of healthy practices helps in creating a unique brand
image for the company/ as the company would be known in the market for its legal
practices it will come into the limelight where it would bet opportunities to increase its
business by entering into collaboration. Moreover, the company's products will be the
first preferences for consumers. For example in case of the Starbucks, the company's
brand name and image was spoiled when it was proven that it had not paid only half of its
governmental taxes even after its long years of business background
Figure 2: Importance of Ethics in Business
(Source: Stanfill et al., 2016)
Analysis on the basis of the Case Study
The Starbucks Company which is one of the leading beverage companies in the UK had been
accused in the year 2012 for not paying half of its governmental taxes even after conducting its
business operation for more than 14 years. Escaping taxes although had helped the company to
enter gain huge profits all these years but the company has failed to maintain the responsibility
that it had towards the welfare of the country and its population. The management of the
company in order to increase the business return had introduced high pricing strategies for its
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products. As the company already had a good brand image in the UK beverage market, therefore
consumers were forced to take buy the products at a very high price. Besides in order to maintain
a loyal consumer base the Starbucks company had taken up a Social responsibility strategy that
was based upon three pillar- Ethical Sourcing, Community Welfare and Environmental
Sustainability (Starbucks.co.uk , 2019). Although the company was able to maintain its pillars of
Environmental Sustainability and Community the major drawback remained with the Ethical
sourcing pillar. According to this pillar, the company tried to ensure that it purchased all the raw
materials for its products ethically by paying all taxes and payments. But in reality the company
had taken up faulty economic practices that helped the company to show that it had incurred
heavy losses in recent times but the truth was that the company had actually gained huge profits
in its 14 years of business which had enabled it to acquire the best beverage retailer company tag
in the UK market. The company claimed it had maintained ethical principles all throughout its
business operations but in reality, it failed to maintain its business framework in legal terms
(O'Connor, and Myers 2018).
As a result of its faulty business activities, the company had faced huge losses in recent times.
The company faces stiff competition from its rival groups like McDonald's because as the
Starbucks Company takes up high pricing strategies for its products therefore often the
company's consumer base has opted to avail products from the McDonalds and other companies
whose products were affordable at lower prices. Besides the company had also failed to pay
taxes to the government which hampered its social responsibility policy thereby spoiling its
brand name in the UK market. This faulty practice of the company has been questioned by many
social activists that had made its position in the UK market unstable. Due to its faulty tax
payment the company had also lost the support of its shareholders because it had hampered their
interest as they too were considered to be faulty taxpayers under the UK government.
Conclusion
Starbucks which is one of the leading beverage companies in the UK has gained great popularity
in recent times. The company as per its mission to become the topmost coffee seller in the UK
market had taken up faulty practices that had hampered the position of the company in recent
times. The company in order to increase its profit margins had taken up faulty practices like high
pricing strategies, faulty tax payments. All these have spoiled the brand image of the company in
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the UK market as the company that has indirectly led to a decrease in its loyal consumer base
and shareholders support. Ethical business operations refer to the legal policies and principles
that help a company to conduct its business operations in a legal manner. Maintaining ethical
principles helps a company to have an added advantage of increasing its business size along with
an increase in its life expectancy. As for the Starbucks company, although the company has
taken up measures to rectify its fault and has again adopted new ethical principles for its business
operations but still it had failed to maintain its competitive position in the market which led to
decreases in its sales in recent years owing to its lost brand value in the UK market.
Recommendations
A business organization or a company is sure to earn huge profit margins and longtime consumer
support if it can carry out its business operations on ethical grounds. Loss of brand name of the
company on the basis of unethical practices can hamper its position in the market for a lifetime
(Rhodes, 2016). Therefore it is necessary for companies to take up measures that would help to
promote ethical practices in business operations.
● Clearly distinguishing between what is wrong and right- it is essential for the
company's management to clearly distinguish the activities which are righty and which
are wrong. Taking up the right practices or activities will help the company to gain more
profit in the long run as well as maintain a brand name. As for Starbucks company the
company should not take up any faulty decisions of escaping taxes in future.
● Focusing on Skill Building- According to Shin et al. (2015), the company's should take
up the initiative to develop their skills of their employees in such manner that it would
help to reduce the intentions of the company to take up faulty practices for increasing its
sales. As for the Starbucks company, its management should take up pricing strategies
that would help the company to gain more profits without escaping the valid
governmental taxes [Refer to Appendix 1].
● Reinforcing Desired Behaviors- In order to maintain a good business relation and brand
name a company should take up only those practices that it is capable of and which it can
maintain in the long run., As for the Starbucks company, the management of the
company should try to revise its pricing strategies and social responsibility strategies that
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would help the company to maintain ethical business operations throughout lifetime
(Shin et al., 2015).
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Reference List:
Aziz, N.A.A., Ghani, A.H.A. and Shaari, H., 2016. Issues and problems in ethical practices
amongst takaful agents. International Review of Management and Marketing, 6(4S), pp.21-26.
Guerci, M., Radaelli, G., Siletti, E., Cirella, S. and Shani, A.R., 2015. The impact of human
resource management practices and corporate sustainability on organizational ethical climates:
An employee perspective. Journal of Business Ethics, 126(2), pp.325-342.
Lawton, A. and Páez, I., 2015. Developing a framework for ethical leadership. Journal of
Business Ethics, 130(3), pp.639-649.
O'Connor, D. and Myers, J., 2018. Ignatian Values in Business and Accounting Education:
Towards the Formation of Ethical Leadership. Journal of Business and Educational
Leadership, 7(1), pp.124-136.
Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the
disruption of corporate sovereignty. Organization Studies, 37(10), pp.1501-1518.
Shin, Y., Sung, S.Y., Choi, J.N. and Kim, M.S., 2015. Top management ethical leadership and
firm performance: Mediating role of ethical and procedural justice climate. Journal of Business
Ethics, 129(1), pp.43-57.
Stanfill, B.A., Villarreal, A.D., Medina, M.R., Esquivel, E.P., de la Rosa, E. and Duncan, P.A.,
2016. Beyond the culture of corruption: Staying ethical while doing business in Latin
America. Journal of Organizational Culture, Communications and Conflict, 20(SI 1), p.56.
Starbucks.co.uk (2019). ABOUT US. Available at: https://www.starbucks.co.uk/ [Accessed on
27th April 2019]
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Appendix
Appendix 1: Ways to incorporate ethical principles in a business organization
(Source: Created by Author)
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ClearlydistinguishingbetweenwhatiswrongandrightFocusingonSkillBuildingReinforcingDesiredBehaviors