Ethiopian coffee exporter challenges
Ethiopia is one of the fastest economic developing countries in East Africa. Ethiopia has significant potential in exporting agricultural products such as fruit, sea bean, coffee, strawberry, etc. The further economic development of the country depends on these sources. Today, it is economically dependent on the agricultural industry and some manufacturing product revenues. However, a majority of the population is involved in the agriculture sector.
There are various types of agricultural products that are produced by farmers in this country. Among them rice, strawberry, coffee, nuts, and more. However, the production volume remains insignificant, covers only the household needs and small exports. Coffee is vital to the economic growth of Ethiopia. For future sustainable economic development, the government should continue to invest in the agriculture sector; otherwise, the results can be miserable. Economically, Ethiopia's development may be difficult if the only source for development will come from coffee revenues, which is not sustainable in the long term.
In the last decades of developing countries' economies could be encouraged by agriculture production like coffee farms. In some developing countries, coffee is a powerful source for their economic development. These countries produce coffee in large quantities and trade in international markets, increasing their foreign exchange and international markets. While producing a country's coffee constitutes economic importance, it makes considerable social importance in consuming countries.
Ethiopia's coffee is the most extensive product for export in the agriculture sector and overall related products. Ethiopian coffee is organic and has a significant market value. It has been shipped abroad through Djibouti's ports. Furthermore, coffee production is essential for the household’s economy of local farmers. Overall, the country tolerates high hopes of increasing production and continuing international trade with high-quality products and services.
Ethiopia's current economics are increasing slowly, mainly due to national and international companies' activities, which contributed to developing business activities in various ways, the Countrywide Cooperative Business focused on coffee production. Moreover, Ethiopia has increased the consciousness of international buyers about Ethiopian coffee. The International Monetary Fund (IMF) addressed the need to rebuild the economy of Ethiopia.
Today, more national and international companies consider investing in this sector of the economy.
International trade is significant for the country’s development because foreign trade can increase its foreign exchange (Leonidou, 2004). Thus, many local and international companies have been enthusiastic about investing in the coffee industry. They competed with each other to provide the best service for farmers to obtain large amounts of coffee. Besides, they collaborate with international companies that aim to export coffee, become competitive in overseas markets. In the Ethiopian agricultural sector, coffee is the largest source of export.
Marketing Strategy
The marketing strategy in all countries depends on how the companies develop and expand their business activities and differ from firm to firm due to different previous experiences from entering various markets. Ethiopia exports coffee to different countries in America, Europe, Africa, and Asia. It is not easy to get the market share, and exporting companies experience challenges. Each company utilizes its strategy, which aims to overcome these obstacles.
Export is the process of legal transportation of goods and commodities to a foreign country. Generally, international trade is supported by government rules and regulations for trade (Kotler, 2011). The existence of export activities proves that countries need to engage in international trade to meet their needs and desires. During this process, the involved parties need to accept the mutual differences in culture, natural resources, climate, geography, human resources and labor skills, and the socio-economic structure of developing and developed countries (Hollensen; 2014).
The international market depends on the progress, information, and technologies that help transfer the product to the customer.
The Ethiopian coffee exporter company must think critically and implement strategies and acceptable management practices to compete with national and international levels. The economic development of Ethiopia is dependent on agricultural and business activities and overcoming the current challenges.
Simultaneously, many local companies in Ethiopia have been exploring foreign markets actively and started to export coffee. With improved quality and services, they promote their product (ICO) international coffee organization certification has become a standard to set the coffee prices and increase its competitiveness. Increasing international requirements make the local companies decide how to maintain the export quality and prices and development within this sector, search for more foreign markets for future benefits.
Problem Statement
Ethiopia's coffee export plays an essential role in the country’s economy. However, some obstacles affect the export process and expectations. Among them are product quality considerations, decreasing supply, increasing demand, lack of price negotiations, and product branding. Lack of promotion, lack of quality, continuity, lack of transportation, lack of modern sudden, lack of modern education to the farmers, and the other challenging most Ethiopian coffee exporter company have no confidence to answer the researchers' requests.
Hollensen (2014); Brodrechtova, (2008); Kotler and Keller (2006) argue that international trade is very competitive nowadays and is challenging to come in. Therefore, based on the introduction, the following research question is addressed: What are the conditions for exporting coffee from Ethiopia?
The Marketing Mix Strategy
The marketing mix's goal is to ensure the right product for the right consumers in the right place and at the right price (Best, 2014; Kotler and Keller, 2006). A marketing mix strategy is built to achieve the companies’ goals as desired, which involves four essential components of the 4p’s strategy. Each component is described below.
Pricing Strategy
The international market has recently increased pricing strategy, significantly in research practice (Lages and Montgomery, 2005). However, price is another side of the marketing strategy; otherwise, many companies follow porter’s business strategy, especial in the export market, and compare to their competitors, but then Lee and Griffith (2004), and Aulakh, Rotate, and Teegen, (2000) argue that at this moment competitive market, the firms are more focusing on the how-to decrease the cost.
The pricing strategy is a way to determine the price level based on the company's internal condition and the actual market situation. Therefore, sales can be managed, so the company can achieve a profit as expected. Price is one of the critical success factors in sales abroad or export trading business. Factors that affect strategies for determining export goods prices are: production costs and market prices, market trends, payment systems, product quality, packaging, a market segment dominated, capital, program or competition planning, exchange rate, monetary and political issues (Hollensen, 2014). Moreover, Best (2014) argues that the product price should be based on customer needs and value, rather than the product cost. It means that the customer does not matter the product's price since it gives greater satisfaction and good quality of product provided to a long term used.
On the other hand, Eusebio et al. (2007), argues that the price is mostly not a dominant strategy for the company’s in the market; therefore, Lee and Griffith, (2004) state that pricing method depended on the pricing strategy – whereby the company set the export prices according to with the demand of consumer and competitor condition. The pricing method has a positive relation to the sales proportion and profit level. Moreover, the pricing strategy concentrated on penetrating the market by giving a low price to obtain a large market.
The price of products in export activities is dependent on the quality of the product and the distance travelled. The international market price determination can be influenced by politics and government policy in the area where the market is located. Thus, three approaches determine the export price (Hollensen, 2014) as first, the Vending market price (cost plus market up). This method shows that if the export sales price setting is based on the total cost (Total cost) cost of goods sold plus interest. Secondly, the current market price method is viewed in contrast to the cost-plus mark-up that when fixing the export prices should be adjusted to a sale price in the international market at the time or the price specified by the buyer. Thirdly, the method then subsidized the price based on the total costs such as cost-plus mark-up and reduce specific cost components. The goal, reducing the cost of production is to strengthen the competitiveness of the international market. Lastly, dumping the product price is lower than the domestic price for the same product or commodity. It is possible to do when a monopoly, so the domestic price may be higher than international market prices.
Promotion Strategy
The promotion objective is to introduce products and services to influence the customers to buy the products and services. In this sense, the promotion's effectiveness requires understanding the process of business activities and how this process is affected by environmental factors (Kotler, 2011; Hollensen, 2014). Various sales promotions can be implemented, depending on the market, what kind of promotion tools they want to use. Indirectly, promotion can also occur through the consumer after having the products, intermediaries used, an industry, advertising, sales promotions, publicity, social media, and some companies used sponsorship as promotional tools to promote their products.
Promotion is one of the marketing mix strategies. Promotion could increase the volume of sales and profit; however, promotion is relatively effective for the campaign to rivals (Thirkell and Dau, 1998). The export market is more critical of advertising with the most significant commitment to a market target (Lee and Griffith, 2004). While investigating marketing strategy the export is also important when used the branch in a promotion strategy (Eusebio et al., 2007). Therefore, the promotion strategy is related to advertising, sale promotion, individual selling, trade fairs, individual visits, and promotion adaptation. (Leonidou et al., 2002).
Furthermore, Moghaddam and Foroughi's (2012) promotion includes attending a trade fair, practising direct marketing, hiring, experience, and educating staff on enhancing the market. Advertising and promotion would increase the cost. Promotion is how the company communicates to introduce the product directly and indirectly to the market. Therefore, Hollensen (2014) critical communication to global marketing will influence the customer to reach the product. Through direct communication, the customer can test how the product tastes.
Promotion is a strategy of people. It is essential to delivering the value proposition and communicating with potential markets or customers. It could be many ways to promote the product; for example, ad copy and social media are selected for advertising, communication will affect the market or customers (Best, 2014; Koed, 1989). Buyer or customers' communication is crafted around the positioning strategy and is aligned too geographically and the people's lifestyle. In marketing, communication is a range of traditional advertising campaigns to integrate with each other (Kotler, 2010). It aims to remain last longer and resonate in the customer's hearts and minds as targeted.
Product Strategy
A product dimension is an essential part of the marketing strategy (Leonidou et al., 2002). The product dimensions, including product design, brand, quality of the product, and product differentiation was determinants (Lages et al., 2004).
Understanding the product is to meet the customer's expectations and to achieve the organization's goals. The product is the company's essential element because it can apply to meet what the customer requires or the buyers who have a relationship with the selected market target (Eusebio et al., 2007).
To international competition, the product should behave a value of the sale (Hollensen, 2014). To produce good quality, the product should take the staging process such as input and output processes. Production of the product may more or less than expected. The product would be exported to several countries, and there has to be an advantage of export.
Thus, the export product strategy determines the type, specification, size of the product, and how to pack the product in the right way that will bring into the international market.
As Hollensen (2014), states that a (1) market research has to determine the situation and characteristics of the market to know the specification demand of the consumer, how was the purchasing level/power, the consumer behavior, market opportunities, the economics of scale, the competition situation, market trends and so on; (2), learn and understand well how far the internal company's ability to react to the product has wanted by the customer; (3), should design the product-specific as required by the customers based on the ability of the export company.
The product is the primary source of communication among businessmen. The product should be designed so that the product's performance and features are built around the customer's needs, as they want to use as their behavior. It would be the desired user experience. It is included branding the product provides an additional opportunity to communicate its positioning (Best, 2014).
Channels of distributions
Many firms' managers have recognized distribution channels, and it takes a long time to measure the manager's performance. It is essential to manage relationships between the people and the firms to perform the distribution channels and create value for making products and services available to customers in an appropriate form at the right place and time. However, it seems to grow the interest in relationship marketing in nature as of the general marketplace. Therefore, the place is the most important in the marketing mix, as Best, (2014) states, it is where marketing exchange occurs. The product and services must be available to market or customers; however, it will be direct or indirect, such as through the internet or dealer and retailer. It is based on customer preference, which could be created to exchange history and plans for future interactions (Weitz and Jap, 1995).
Macneil, (1980) indicates that in the international markets, pure transactions are rare in business exchanges. Almost all firms’ management needs channel transactions with a relational element to coordinate the channel activities between people in the business. The relationship marketing is not a new concept for those businessmen in practice. Otherwise, it is too connected to approaches of stimulating cooperative efforts between independent channel members.
On the other hand, Bagozzi (1986) said that distribution channels are the manager's strategy to set people and organizations concerned with the flow of product directly or indirectly from producer to the consumers. Otherwise, the producers will sell their products to the consumer through some own salespeople, industry representatives, or any other agencies outside the country as an intermediary between producers and the consumers. This means that the industry could establish a warehouse and retail to cooperating with independent distributors and retailers. This depends on the company manager's decisions and options to be better in future management.
Summary of theories
Marketing strategy is planning on delivering goods and services both directly and indirectly to reach the customers well. There is a relationship between the producer and the customers with economic value; however, it could match the international trade. On the other hand, the managers expand a market primarily. The manager's responsibility is to keep the factors affected by the marketing mix strategy elements. There is also competitiveness in terms of market forces by internal environment force to achieve its goals. Furthermore, marketing strategy significantly affects the cost; therefore, the management must apply to a dimension of export market strategy, which is well known by marketing mix strategy.
In marketing within the export strategy, most developing companies have two challenges that affect their activities, such as internal and external challenges. Internal challenges or obstacles include company size, management decision, product quality, market knowledge, information, and technology, design and branding of products, human resources, and other resources supporting the firm. Many researchers have defined external challenges or obstacles, including market distance, differences in culture, languages, government, politics, infrastructure, foreign market structure, and so on.
Price is an important marketing strategy; the international market's strategy is very competitive; many companies reduce costs to provide economic value to the business, such as export and import. Besides, pricing strategy should be based on market conditions and the company. The company can achieve exactly what was planned.
Price is also one of the influences of company success. Therefore, the pricing factors are quality of production, size, shape, design, and so forth. Pricing is valuable if the customer is satisfied with the goods provided. Further pricing is also determined by distance, how long it is shipped, administrative costs, and other direct costs. The price, the marketing mix strategy, and competitive advantage depend on its strategy, the exchange rate in a host country and monetary and government political issues. Therefore, pricing strategy based on the total costs, the market price currently, and price subsidiary set a price on the international market lower than domestic prices. It is possible when it is a monopoly.
Product
One most important element of the marketing mix is the product. The product is produced to meet customers with specification, design, type of the product, quality, branding and labelling, stage of input, process and output to meet customer satisfaction. Nowadays, international trade is competitive. Therefore, companies mostly use the product for communication, such as design, size of the product, and the customer's needs. The product could match the customer experience after having, and it is a business feature onward.
Promotion
The promotion's objective is to introduce products and services to influence the customers to buy the products and services. Promotion could be direct and indirect delivery of goods and services to the customers. With the promotion, sales will increase through communication between the producer (seller), the buyer, and the goods themselves. The promotion also does with individuals or groups and advertising through media such as TV, newspaper, internet, blogs, etc.
Place
However, there are four elements of the marketing mix, and the place is an important one because the place in order for marketing exchange to occur as well as the product and services must be available in the market or customers; however, it will connect direct or indirect through the internet or dealer as well as the retailer. Product placement is the purposeful incorporation of commercial content into noncommercial settings, such as a product plug, which generally is a fusion of advertising and entertainment. Therefore, a company manager must choose how to place a product to get the customer efficiently and keep it longer in heart and mind. To place the product in the right place, its manager determines how it will compete in these target markets. Otherwise, marketing managers may have to choose between markets or market segments. Besides, the manager has innovative advertising media selections. Mentioning the prediction of the media to be used is another decision area within the marketing function.
Moreover, marketing mix and placing strategy are forecasting practices. Marketing organization attempts to predict the best available options for an agreed mix or estimations that a precise set of assumptions will hold for a set of alternate mixes. It is all to achieve the company goals.
This portion consists of the research design, how the theoretical framework relates to our research question, level of analysis, methods that the researcher has chosen for data collection and further analysis.
Research Design
Easterby-Smith et al. (2012) argue that the primary purpose of the research design is to avoid collecting irrelevant data, not addressing the research question and ensuring that the used theory answer researchers the research question.
There are two philosophical debates among social scientists: positivism and social constructionism. Two epistemologies represent different approaches. Positivism relates to quantitative methods, and social constructivism relates to qualitative methods.
Positivism argues that the social world exists externally, and our knowledge of it should come from objective methods (not intuition, reflection, etc.) and not from our senses, in other words, based on observed facts.
Social constructivism argues that reality is not objective and external; preferably, the reality is socially constructed and meaning is given by people. People agree upon reality, and social constructivists are interested in what people are thinking and feeling, considering how people communicate with each other and make sense of the world. Our research is based on social constructivism because the researcher asked about respondents’ opinions, feelings, and thinking, which cannot be measured in numbers.
Data Collection
There are several types of collecting data: quantitative, qualitative, and the mixture of both. The researcher has utilized the qualitative approach. The reason for that is to provide a holistic view of the problem. According to Cresresurcherll (2003), the approach where researchers acquirement produces new knowledge is usually based on constructivist perspectives (i.e., the multiple meanings of individual experiences, meanings are socially and historically constructed. With a determination of developing a theory or pattern) or advocacy/participatory perspectives (i.e., political, issue-oriented, collaborative. or change-oriented) or a combination of them.
The qualitative approach has three tools with which a researcher can collect the data, and these are called modalities.
1. Modalities through the language (e.g., interviews)
2. Modalities observation (e.g., ethnography), and
3. Modalities interaction (e.g., action research) (Easterby-Smith et al., 2012).
In our research, the researcher is using the modalities through the language, more precisely interviews. There are two types or forms of interviews: individual and group interviews. Individual face-to-face interviews can be run in people’s homes, offices, streets, and other places on the condition that the researcher agrees to provide the interview with information.
Group interviews are usually more settled. Six to ten people are invited to a particular place. The interview can last for some time, run by a trained moderator preparing questions beforehand (product, organization, or service). In this condition, the moderator needs objectivity, knowledge of the subject, and group behavior (Hollensen, 2014).
In this paper, the researcher used individual interviews (face-to-face). This approach aims to gain insight into social and organizational realities by discovering the individual's views, experiences, perceptions, and opinions.
Interviews have given the primary data; secondary data can supplement and give more insights. Primary data are original data collected by the researchers themselves. Secondary data are already existing data sources such as publications and electronic media (Easterby-Smith et al., 2012).
To collect the primary data we have interviewed the company of coffee exporter on one side. Precisely we interviewed people from the government side who work within the export, import, and coffee sector (Ministry of Agriculture). The researcher wanted to get an insight into their experiences, opinions, and perceptions. There are three types of interviews: highly structured, semi-structured, unstructured (Easterby-Smith et al., 2012). In our research, the researcher used a semi-structured interview. These interviews are more open than highly structured and give a higher value and confidence in the research. The interview replies tend to be more personal. Some other aspects have appeared during our interviews, and speaking with the interview has provided us with rich data. Secondary data that researchers collected mainly represents the documentation from companies, news, articles, and reports. This task was hard to accomplish, as there is a lack of information on the Ethiopia coffee export sector. The researcher has interviewed eight (8) respondents from both the private and public sectors.
Table 1. List of respondents
|
Respondent |
Company |
|
1 |
Marketing department |
|
2&3 |
Export department |
|
4 |
Manger |
|
5 |
Quality control of the company |
|
6 |
Company employer |
|
Informant |
Government |
|
7 |
Minister of Agriculture: employer |
|
8 |
Minster of commerce: employer |
The choices have fallen on these people due to their competence and knowledge about the environmental conditions (context), marketing process, and export in these organizations.
According to Yin (2013), case studies can explain, describe, or explore events or phenomena in the everyday context in which they occur. He argued that all case studies should have exact designs produced before any data is collected. All designs should cover the principal question or propositions, the unit of analysis, link data, and propositions, and finally, procedures for interpreting data. Further, Croresurcher (2011) argues that case study findings can imply further theoretical development and theory testing. Our research utilizes case study research to get a deeper understanding of the company's marketing strategy. The researcher analyzed the findings by choosing theoretical perspectives. The component of the analysis is the article that forms the basis of any sample. In this case, a unit of analysis is an organization with its marketing strategy.
Validity and Reliability
Validity is the extent to which measures and research findings provide an accurate representation of reality (Easterby-Smith et al., 2012). Further, Golden and Locke, (1993) state, that validity of constructionist designs has three critical criteria:
1. Authenticity
2. Plausibility
3. Criticality.
Authenticity involves convincing the reader that the researcher has a deep understanding of what was taking place in the organization; believability requires the researcher to link into some ongoing concern/ interest among other researchers; criticality encourages the reader to question their taken-for-granted assumptions, and thus offer something genuinely novel.
To ensure the research's validity, the researcher generally determined the validity by asking a series of questions and transcribed all answers provided in interviews. Good research should have good quality and reliability. This research can be translated into other research and achieve the same result and help readers connect it to their experiences. To ensure this research's quality, a researcher had to translate the interview guide into a local language Amharic. The interviews, researchers conducted in Amharic. Then the researcher hired a professional translator to transcribe the interviews to Amharic and translate them further into the English language. After that, they independently checked the Amharic interviews with the text in Amharic and the translation. The researcher made the necessary corrections in the texts.
Strengths and Limitations
Being Ethiopian, the researcher knows cultural and traditional characteristics that may influence coffee production and export in Ethiopia. Having a relevant education allows us to evaluate the interviews' researchers and compare them to recent research. Our motivation arises from the topic's importance and that no one has done similar research before in our country.
One of the limitations is that the researcher recognized lack of experience and understanding regarding performing an interview, investigating it, and developing conclusions.
Marketing Strategy
After the researcher interviewed Ethiopian coffee exporter companies, it was found that they have their coffee export strategy.
In the interview, we found that every coffee exporter recognized that the quality of the coffee from Ethiopian coffee exporter is outstanding in comparison to other countries mentioned:
“Because organic coffee is a unique one, the Ethiopian coffee is unique in the world; therefore, people from outside love our coffee.”
It is the product advantage of coffee in Ethiopia. However, all of them sell organic coffee. Most coffee exporters export to the American and European countries and the rest to Asian Countries and Australia. The exporter does not have difficulties selling their product because some sell to the buyers they already know. Some of them sell to the auction market. However, the coffee exporter in Ethiopia recognized that the quantity of the coffee is very low compared to Brazil, Indonesia, Papua New-Guinea, etc., they have their strategy to keep the market, such as some of them only buy the coffee from those as a member or belong to the companies and some of them offer a high price to farmer compare to another exporter aim not to lose the market. We considered marketing strategy fundamental to a sustainable increase of sales, but what we found is that Ethiopian coffee exporter is facing the fact that the quantity of the coffee does not guarantee the companies to increase their export. They have to diversify their products, increase the coffee plantation, and invest more in the coffee sector.
On the other hand, Ethiopian coffee exporters are using land transportation to deliver their product to the market; some have a permanent contract as the buyers, and some select the market through the connection.
Ethiopian coffee exporter recognize the distance to their coffee market is too far; therefore, they need to protect the quality of coffee, as one respondent stated:
“As we notice about the coffee’s quality, we care about every process to keep the quality such as; drying and packing for exportation even one seed drops out we cannot recollect it for packing so we just omit it, because we afraid of the damage that can be caused by this coffee.”
Export mode a home country product could be transferred to host country either directly and indirectly. As we mentioned before, Ethiopian coffee exporters only sell to those they already know. Most of the company said they sell directly to the buyer in the foreign market based on the demand of the buyers in foreign countries without any cooperation or agent. In our research, we considered that the export mode in this study is indirect export because the exported coffee in Ethiopian coffee exporter considering the wholesaler abroad as their final customer. One respondent confirmed this as follows: “I have mentioned above that we do directly export our coffee to the foreign. We do not have any retailer, wholesaler, or agent as an intermediary in our coffee distribution”.
Pricing
The pricing strategy is a way to determine the price level based on the company's internal condition and the actual market condition. Based on our interviews, the entire firm set different prices for a different market. Some companies set the price overseas based on the distance and see the coffee type (quality of coffee). In our case, a coffee exporter in Ethiopian coffee exporter's price is suggested by the buyer. The price is lower than their cost; they will keep it until a better price is offered later. As mentioned deputy manager did not export it until they find a different decision. For those other markets or countries, Ethiopian coffee export depends on the buyers overseas, even though they have a contract with permanent buyers. However, it does not guarantee their market and price it. Overseas buyers change looking forward to another coffee production in other countries such as Brazil, Indonesia, etc. On the other hand, the government cannot intervene when companies sell it to the overseas market. The government only controls coffee farmers' prices when they sell it to companies, aiming to protect the farmer from those companies when they manipulate the coffee price. However, since now the government has a good relationship with those companies, they considered government needs more investment in the coffee sector to increase the coffee quantity.
Promotion
Promotion is to introduce the product and service and influence the customer. In our case, most of the Ethiopian coffee exporter companies have participated in export trade to promote their coffee in foreign countries such as Saudi Arabia, China, Thailand, etc. In most of the trades, the government has invited the exporters to promote their coffee; also government recognized they had been given some browser to commercial ambassadors from different countries as a manner to promote coffee from Ethiopian coffee exporter, some of those companies using technology or their website to promote their product. Based on the interview, we still consider the companies' lack of initiative to promote their coffee in the overseas market and influence them because they have permanent buyers abroad. Further, some companies recognized they used different ways to promote their coffee, like giving a coffee to officials who visit foreign countries. One respondent stated: “Some of our company members, when they go overseas, they always present our coffee as the souvenir for the host leaders; through this process, people get to know our coffee and eager to buy it.”
This approach does not see a strong link between foreign government officials and associated coffee importers through government officials. This approach is not about communication to the right person; people who received the coffee as souvenirs will keep it for themselves.
Product
Based on our interview, all the coffee exporters does not have differentiation of the product. They only sell coffee beans to the overseas market or permanent buyer and with their labels. As one respondent stated: ”We only sell in 60 kg packs to international, foreign, and they sell in bean and powder coffee for domestic market”.
Exporter only wants to buy as much as possible from the farmer and ignore particular product differentiation from competitors. However, it is not easy for Ethiopian coffee exporters to enter the new market. One fundamental issue in the question of branding. Some exporters do not want to have branding because the quantity of coffee is decreasing every year; secondly, it takes time - as one respondent stated: ”To make a branding is taking the time and make sure you will continue with the same standard for every year.”
Exporter wonder about the number of coffee decreasing every year. They want to have branding if the quantity of coffee production increases. Based on the argument above, we considered exporter coffee in Ethiopian as: firstly, still lacking knowledge of the differentiation of products to attract the customers in overseas; secondly, low quantity of the coffee is the main difficulty for coffee exporter to enter the new market; thirdly, they cannot compete in the international market.
Channel of distributions
This refers to how an organization distributes products or services to the end-user. Distribute the product or services to the user at the right place at the right time, efficient and effective. Our research found that most of the companies’ exporter has distributed their product only to those buyers. They already know or have a contract and coffees that they export are not finished product or raw materials. As a respondent stated: “We always exported green beans or seeds. We never export coffee powder to the international markets... The organic coffee that we export to Asia and Europe, America is Royal coffee”.
We considered that the exporter delivered coffee based on the demand wholesaler and the auction markets as their customer. We conclude that Ethiopian coffee exporters ship directly to the external wholesaler. The wholesaler sells it to the retailer, and the retailer is selling coffee as the finished product to the final consumer.
The marketing strategy challenge of the Ethiopian coffee exporter
Product
The results indicated that there is a lack of continuity, quality of export; this indicates that there is a challenge to the permanency of coffee export quality. The Ethiopian coffee export volume is not sufficient. Currently, among Ethiopian coffee exporters there is no information sharing between each other. Ethiopian coffee product quality is excellent, but there are more competitors in the global market, and there is a lack of volume exports, and also there is limited exportation in the destination area of the country.
Price
Ethiopian coffee product export prices are challenging, and also the price of Ethiopian coffee has tremendous challenges of the competitors over the world market. The price of Ethiopian coffee is not increasing in the global market due to some reason, such as the covid-19 pandemic, but according to some respondents, the volume of Ethiopian coffee exports has been increasing due to covid-19 because many people were sitting at home and increasing the coffee consumption. The coffee's higher price has decreased the volume of exporting the products and affects the coffee exporter's discouraging exporter business. It does not satisfy the customers' overall pricing because the customers are always demanding first keeping their advantage. This means that they need to purchase products by lowing the prices. If new customers come to the business, the exporter is in the first period of entering the market encouraged to decrease the selling price until adapting to the market and also increasing the volume quantity of export. The decreasing of the price of coffee affects the exporter in profit; decreasing the selling price profit according to the survey indicated that there is a challenge of price strategy on Ethiopian coffee exporter.
Promotion
The advertising of the Ethiopian coffee products is not enough as compared with the other on the global market.
Does advertising affect the company's sales figures? The results have shown that most respondents strongly agree with advertising affecting sales because the advertised product and the products that have no advertising have not the same figures because the products that have advertisement are selling more than the products without it.
Ethiopian sales promotion of coffee products is not satisfying currently; it needs more work on sales promotion. According to the survey outcomes, most of the respondents have no ways of sales promotion of Ethiopian coffee products; it impacted and challenged the coffee products. Due to that, the company lacks information about the best market area or country, or location. The survey results show that respondents agree that the Ethiopian coffee product sales promotion is not compared to another global market. It is shown that not comparing the sales promotion with the other global competitors is challenging for the business of exports of the products and the company's profit. The results have shown that if the company promotes more from day to day and time to time with remarkable organization of promotion, the customer is getting aware of the products and is encouraged to purchase those products. The company also gets more clients, even though some organizations help build market knowledge and increase awareness. Sales promotion has not continued for the Ethiopian coffee export companies. There is a sales promotion available, and there is a lack of continued promotion of the products; this implies it is challenging to the continuity of the sale promotion. The significant challenge of Ethiopia coffee exporters is no use of publicity material. The outcomes have shown that the majority of respondents do not use publicity material. This is showing that according to the survey results, there is a lack of the results of public service announcements or the new generation through the media, and lack of the facilitatation of the volume purchase, and a lack of repeating to the customers to purchase the product. The significant challenge of Ethiopian coffee exporter is no advertising in the global market on websites. The results have shown that most respondents strongly agree that there is a lack of product promotion through global websites; this affected the market and market developments, it means a lack of developing business skills and reduced strategic relation to the competition.
Generally, according to the survey the Ethiopian coffee exporter´s promotion strategy has more challenges regarding marketing promotion and product development, lacks more advertising, and the products in the global world's market lacks more selling promotion, and also the lacks the promotion comparison with global competitors, lacks the continuity promotion in the global markets and also unused publicity materials.
Place
In the global market, Ethiopian coffee product is available in every tread area of the coffee shop. Most respondents are neutral. The results demonstrate that most respondents responded neutrally because most Ethiopian coffee is available in every trade area of the coffee shop's global world. The customer can buy Ethiopian coffee in every café in the global market. The results indicated that most respondents are not sure about Ethiopian coffee availability in every café globally.
The results have shown that the current market destination of Ethiopian coffee exports is not enough. It needs more market development and product development, and more searching the market's destination on the global markets.
The Ethiopian coffee export product has not enough availability and accessibility. The results indicated that Ethiopian coffee export products need to do more availability and accessibility.
The primary challenge of Ethiopian coffee exporter is the limited destination of the country. The results indicated that Ethiopian coffee exporters have a limited destination, it has shown that the place is challenging for the Ethiopian coffee exporters. Consequently, they need to increase the place of destination, which is a sales market of the products on the global market.
Ethiopian coffee exporter´s major challenge is the lack of market penetration and increase of market share. The results have shown that Ethiopia coffee exporters need market penetration and development of the market share worldwide.
The majority of respondents showed that the place is challenging for the Ethiopian coffee exporters and there is a lack of products in every tread area of the coffee shop, there is no more than the usual area of the place of the destination market. There is a limited area of destination that of selling market. There is a lack of market penetration and a lack of increase in the market share.
Internal challenges or obstacles
Among internal challenges and obstacles, we recognize the lack of coffee quality, lack of quantity, and lack of transportation. We recognize that almost all coffee companies in Ethiopia are exporting to different destinations. Ethiopian coffee exporters have many disadvantages, such as poor production management, low productivity, and the ability to resist the crisis, etc. The most important thing is that a significant number of foreign markets must import good quality coffee. However, then there are no guarantees on the quality. As one respondent stated: “Our coffee is well known widely now because we make an effort to export coffee to numerous countries in Europe and Asia as well as Africa. We have many foreign buyers, they ask for more coffee, but we do not have much coffee production.”
Merely speaking of quality products, there are more problems affecting the preparation of coffee. The companies and the government want to develop coffee production quality within the minimum farmers' understanding of coffee production, rural area, and small coffee plantation. On the other hand, the production process is still manual. In addition, there is no laboratory with adequate technology to have a good production of coffee. Moreover, there is also low-cost production, low price, and no chance for international trade. One respondent steted: “We just export coffee beans. We packed 60 kilos in a sack, and we are labelled with our company’s name Ethiopian Coffees. We do not have an especial brand; we just write on the sack Ethiopian coffee. We do not research that a brand affects our business future because we just export coffee beans.”
External challenges or obstacles
After we interviewed, we found some external obstacles that affected Ethiopian coffee exporters.
Firstly, we consider the production of coffee in Ethiopia. It will not increase because of the government's difficulties in expanding the coffee plantation. Without the regeneration of coffee trees, most of the farmer's coffee still depends on the old trees. Secondly, the coffee farmer's knowledge is low as they only focus on how to sell coffee tress to the exporter companies without knowing how to sustainable produce coffee in the future.
Financial
The government considered expanding the coffee plantation to prepare the coffee seeds, but needs more money to invest in increasing the coffee production since now the government only focuses on infrastructure in the agriculture sector, as the National Director of Plantation Coffee Industry stated.
Technical support
During the research, we collected some information related to government support of the coffee sector. We have found that the coffee sector's technical support is still low in terms of improving the exporter´s knowledge.
Market Distance
Most of the Ethiopian coffee exporters sell their coffee to the USA and European countries' wholesaler market. Some of them export to neighboring countries such as Africa and Asia. They recognized that market distance is significantly affected by their coffee price. Before they deliver to wholesalers, they need to deal with the price if the price is reasonable. They will sell it. If not, they will keep it and look for another buyer.
One factor that affected their delivery is transportation. Sometimes they delayed delivering their coffee to the wholesaler. Related to market distance, the Ethiopian coffee exporter has a wholesaler in the international market. However, suppose the wholesaler can still find a new market. In that case, the exporter does not deliver their product on time because of a lack of port.
CONCLUSION AND IMPLICATIONS
According to the research question “What are the conditions for exporting coffee from Ethiopia?” we conclude that international marketing in the developing country is a critical issue that can provide useful insights into further development and growth of the nation’s economy. However, our research shows that Ethiopian coffee exporters are confronted with several export barriers. The exporters fail to compete in the foreign market with coffee production.
Marketing Strategy
When it comes to marketing strategy, most of the companies have been learning from the experience. Some of them have fair international trade and marketing; however, almost all respondents answered that they would need more knowledge to gain a competitive advantage in the future.
Managers provide capacity building for themselves and the staff, for example, by giving formal education to qualified employees, sending them abroad to increase their qualifications. They also participate in local and international workshops, investing in human resources to obtain a competitive advantage.
The company also hires professional technicians in the agriculture sector to educate the local technicians before implementing their knowledge in the field. The company makes more investment in human resource development.
All responded companies use coffee beans as their primary product in the international marketing strategy in international competition. However, some of them also roast coffee but only sell it in a domestic market in a local competition.
Market Entry Strategy
It is crucial to choose the right market to sell and deliver the product and meet the right consumer. Therefore, in our interview results, we concluded that most companies use organic coffee as the main product to enter the market. To find new markets, companies attend international exhibitions. They sign up contracts with visitors interested in their coffee. Besides, other products from Ethiopian coffee exporters are promoted along with coffee.
Internal challenge
Human resource capability is the primary key to success for a company. According to this theory, we found many internal obstacles in our research, such as the lack of human resource knowledge and management capability capabilities. Lack of quality, lack of production, lack of branding, no product diversification, and lack of organizational structure are all present in this sector.
Those internal barriers will affect the continuity and existence of the company in a market. Managers should search for a better way to convince the farmers to increase coffee production.
Lack of infrastructure and transport are the primary external obstacles. It delays the farmers from meeting with potential buyers and delivering the product to the market. Many roads remain in poor condition, thus leaving the rural area disconnected from towns and cities. It positively affects transportation costs. Working in the country's capital does not freight enough to export. It affects the speed of transportation and in current situation, it can only become more challenging
Product
The coffee produced in Ethiopia is organic and of good quality. Therefore, the companies have no problem in selling it to the foreign market, even with the current obstacles. The companies struggle to increase the quantity by various methods described earlier. The coffee trees are too old and thus less productive. Besides, coffee is grown in difficult areas and is not taken proper care of it. Few farmers have agricultural education and do not understand the company’s efforts in increasing coffee production. It means providing new coffee seeds, cutting old trees, and increasing the coffee plantations. Companies hire and educate locals and try to include local churches disseminating the knowledge on how to produce more coffee of better quality. The low price for coffee comes from the lower quality of it.
Promotion
When it comes to the promotion, we defined three ways utilized by the companies. The first is to promote the product online through their own and collaborating websites; secondly, introducing coffee on exhibitions and international guests visiting the country. Thirdly, by opening a coffee shop in the global market or city. There is, however, no active promotion and active search for new markets. It can be explained by the lack of quantity and the current situation when the supply is lower than the current demand.
Pricing
Pricing is the management decision according to costs, distance, and quality of the product. However, our analysis shows that a management decision on these factors is not essential. The buyers dictate the price, and as long as the manager sees that, there is some profit. Furthermore, managers think that coffee pricing should be based on international prices. When the coffee price has changed during the delivery, the manager will not comment on the changed price but accept the one mentioned in the contract.
The channel of distribution or Place
The export system is direct and is depending on the wholesale requirements and market demand. It means that the exporter is going to ship the coffee when the buyer comes with demand. The seaport is the channel of distribution of coffee in the overseas market. However, based on the research results, we noted that companies do not directly export from the country because there is no port in Ethiopia, as they say, but go through Djbuty port. The global market buys Ethiopian coffee from the companies through the company export department, connecting the producer and the buyer. Thus, we conclude that the distribution channel is a direct export.
Recommendation for companies
The major challenge revealed is a lack of coffee due to different reasons discussed above. This lack of supply threatens the stable position of coffee exporters in international markets. Therefore, a series of actions should be implemented in order to increase production and achieve the next level of development:
- Companies need to differentiate their product and improve the quality of the coffee.
- One of the possibilities in the struggle for higher production is diversification.
- The exporters need to find new markets and sell their product by themselves, helping set the price by themselves and become independent from the current wholesaler.
- Companies need better cooperation with the central government, local authorities, and farmers. The sharing of information, exchange, and training should continue.
- Companies have to take the initiative to promote their product in the international market and start with branding or image of their coffee to make it recognizable overseas.
Recommendation for government
There are seven essential contributions that the government should implement to enhance this sector of the economy:
- Providing financial support or loan, or subsidy to coffee farmers and companies.
- Capacity building in national and rural areas, especially in the coffee sector.
- Enlarge the seaport to decrease the delivery time and increase the confidence in buyers.
- Repairing the roads for easy access to coffee production in rural areas, establish a transportation system, and help the farmers access the market or companies who buy their products. It is also easy for the companies’ access to the coffee farmer.
- The central government should have good cooperation with the local government, farmers, and companies.
Recommendations or suggestions for farmers
Farmers are the leading suppliers of coffee exporting companies. There is a strong demand to increase their awareness of their role in the country's economic development. These are a few aspects where farmers can contribute to Ethiopia.
Firstly, good cooperation with local leaders and companies as well as government is needed. Lack of skills and knowledge should be eliminated from participating in workshops and training to harvest and collect their coffee in the best way and keep the trees healthy.
Secondly, coffee farmers need to realize the contracts' potential and leasing their land to the government and other companies or expand their coffee plantations to make more money. As it came from the interviews, some farmers do not allow the government or the companies to plant trees in their abandoned areas. Farmers do not possess the knowledge to help them and that the land is not taken from them.
Thirdly, we recognize that farmers lack strategic long term thinking when refusing to cut the old trees and only think for one following year. It takes more than five years for a coffee tree to start producing the coffee, and thus farmers resist cutting the old trees as they still give some coffee.
We have categorized the revealed difficulties in internal and external obstacles. These obstacles have affected the competitive advantage of coffee exporters in foreign markets.
Author: Fuad Usmael Yusuf
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