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Ethics in Starbucks, Research Paper Example

Pages: 5

Words: 1255

Research Paper

Executive summary

Since its inception in 1971, Starbucks has grown to be a global giant in the coffee industry. Currently Starbucks operates in many countries in the world. This expansion strategy even in its local market has come under criticisms of unethical practices by the company such as overpricing its products and pushing out smaller competitors by overpaying property leases in order to stifle competition. According to the Kantian, virtue ethics, and utilitarian theories, the company is behaving in an unethical manner. This is because it focuses on profitability alone without considering the welfare of its stakeholders. To avoid these ethical concerns, the company should ensure fair pricing by conducting a thorough market research and pay leases that are equivalent to the market value.

Company description

Starbucks is the foremost organization in the stream of the coffee industry. It was established in 1971 at Pike Place Market, Seattle. The original name of the company was Starbucks Coffee, tea and spices. The main turning point of the company’s history was when Howard Schultz joined Starbucks in 1983 at the post of marketing director and after that he founded the Starbucks Company in 1985. In 1992 Starbucks was listed on the NASDAQ as a SBUX. Now days, Starbucks is the international coffee company all over the world and its headquarters is located in Seattle, United States (Fellner, 12)

Issue identification

Starbucks has built its name over the past few years today it is one of the largest brands of coffee shop in the world. Starbucks uses its identity to show people that what they are drinking is purely premium and high quality coffee. The problem with this is that fast food restaurants like McDonalds and Dunkin Donuts has the same quality of coffee that they can offer for just $1. Starbucks has had some bad reputation for overcharging their customers for a cup of coffee. The question here is, is it ethical for Starbucks to be charging more for their coffee?

Is Starbucks being unethical here? They are continually putting more and smaller coffee shops out of business. Starbucks had a lawsuit against them for using anti-competitive tactics to get rid of their competitors. Starbucks employees would hand out free samples of their own coffee right outside of the small coffee shops in their neighborhoods, gaining more business and profit for themselves. They would try to buy out all other coffee shops near them. They would also sign leases for 3 times as much as the market value so that property owners would not rent to other coffee sellers (Eckert 1). This has had an impact on the coffee market especially for small coffee shops. An example of how the company behaves unethically is when a property manager failed to renew the rent of a coffee shop in Boston, Massachusetts having been in operation for twenty-five years, yet the next tenants were Starbucks. These actions by the company are attempting to ride out competition from small coffee shops.

Issue significance

According to the Kantian, utilitarian and virtue ethics theories, these actions by the company are unethical. The only ethical theory that supports these company acts is the individualism theory that postulates the objectives of any action undertaken by a company is to maximize profits, which Starbucks in currently undertaking in killing off competition from smaller coffee shops. These undertakings are also expansion strategies that will increase the market share of the company; therefore, higher profits.

From a utilitarian theory perspective, these acts of the company are unethical. This theory postulates that any action by an entity should be for the good of the society (Melden 91). Smaller coffee shops are beneficial to adjacent residents than Starbucks cafes. Small coffee shops offer people realistically priced coffee than Starbucks. Additionally, people are fond of shops that they are used to and they will be disappointed when they suddenly disappear and there place comes a new coffee shop that charges higher prices (Eckert 1). By charging higher prices and driving out small businesses, Starbucks is behaving in an unethical manner.  Considering that their actions will kill competition in the entire neighborhood, residents will have no option even if the coffee is overpriced.

According to Kantianism, the actions undertaken by Starbucks are unethical in that they are competing in a selfish manner and deny small businesses the opportunity to exist and earn a profit. Their actions are driven by their selfish interest to make profits at the expense of small coffee owners and various stakeholders in the coffee industry. This violates the formula of humanity, which is a key principle of Kantianism. Furthermore, the formula of autonomy, which is a component of Kantianism, is violated by these actions because it states that a company must adhere to the laws that it has set for itself.  Treating people with respect and dignity is one of the objectives of the company, and by engaging in such actions is a violation of these objectives. The motivation to expand though this technique is not from goodwill but from the desire to make more profits without a consideration of the welfare of its stakeholders.

Lastly, the actions by Starbucks are unethical in that according to virtue ethics, actions by any business entity must make a consideration of the welfare of all interested parties and the community at large (Melden 72). Many of the shops opened by the chain were started quickly to phase out the small competitors, but they could not sustain these stores leading to their closure. Additionally, paying high prices for leases in order to drive out competition without adhering to their market value is unethical.

Stakeholder identification

This issue affects various stockholders of the company. If the issue of unethical expansion of the company is not resolved, it will adversely impact the profitability in the long run, which will affect the stockholders. Pricing of coffee will affect coffee drinkers because they will have no alternative, but buy the high priced Starbucks coffee. Considering that the small coffee business will have been driven out of business, many drinkers will not afford the current coffee prices. Small coffee businesses are the last shareholders who will be affected because the competition from Starbucks will drive them out of business. Since these businesses offer employment opportunities, the society will be affected.

Recommendations

For Starbucks to avoid ethical issues related to its expansion programs, it must undertake the following actions:

  1. Undertake market research before opening a Starbucks café. This will enable it to determine the profitability of the market and outcomes of its entry.
  2. Adhere to the values of autonomy and transparency during pricing. This involves establishing power balance between itself and the clients.
  3. Pay property leases by adhering to market trends in order to enable small businesses to thrive in the competitive market.
  4. Adhere to its mission and vision statements of attending people with utmost respect because doing so will enable avoidance of unethical practices.

Implications

The recommendation will have various implications for the company and stakeholders. First, the company will come up with competitive prices that are affordable to its clients. Secondly, the company will avoid accusations of unethical practices during market penetration. Thirdly, small businesses will have an opportunity to compete in a level playing ground; therefore, it will be respecting the principles of autonomy. Additionally, the company will ensure long-term competitiveness and profitability because all its expansion strategies will be based on market research.

Work cited

Eckert, Katie. Starbucks Scolded for Stifling Competition. Web. February 17, 2013.            http://businessethicscases.blogspot.com/2013/02/exchange-inc-v_3188.html

Fellner, Kim. Wrestling with Starbucks: Conscience, Capital, Cappuccino. New Brunswick, NJ:      Rutgers University Press, 2008. Internet resource.

Melden, Ian.  Ethical Theories. New York: Lightning Source Incorporated, 2008. Print.

 

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