Mi Nguyen

ETHICAL AND SUSTAINABLE

SOURCING IN THE COFFEE
INDUSTRY IN VIETNAMESE MARKET

Bachelor’s Thesis
International Business

March 2017
Author (authors) Degree Time
Mi Nguyen Bachelor of Business March 2017
Administration
Thesis Title
Ethical and Sustainable Sourcing in the Coffee Industry 56 pages
in Vietnamese Market 6 pages of appendices
Commissioned by
No Commission

Supervisor
Markku Nikkanen, Principal Lecturer

Abstract

The research discussed about the sourcing issue within coffee industry in Vietnam as well as
investigated the awareness and behaviour trends of consumers towards this aspect. It also
included the activities of small coffee producers in terms of ethical sourcing and sustainable
development. The structure was separated into six major chapters: introduction, Vietnamese
coffee sector, conceptual basis, methodology, findings and analysis, finally conclusion.

This issue has been increasingly debated in Vietnam after several coffee companies and
sellers admitted that they had offered customers disqualified coffee products due to poor
sourcing management. In addition, although Vietnam has ranked second over the world as a
coffee-exporting country in December 2015 (The Statistics Portal 2016), the farmers are still
struggling with their low income and tough living condition.

The research used combination of both quantitative and qualitative methods via surveys and
interviews. The data is collected from an online questionnaire among Vietnamese consumers.
It also includes information gained within interviews via skype and emails with different
domestic firms in coffee industry. Theoretical parts are studied from books, articles and e-
books provided by Kymenlaakso University’s Library System.

The outcome of this research was to analyse the impact of sourcing on Vietnam’s coffee
industry along with predicting the development trend of this field in the future. Secondary target
was to give recommendations to improve ethical and sustainable coffee sourcing in Vietnam.
Throughout the study, it can be seen that Vietnamese consumers of educated level possibly
purchase sustainable coffee products, nevertheless they have not well perceived of the
information and passively obtain this kind of knowledge. On the other hand, there have been
already several entrepreneurs who succeed in producing beverage from ethically sourced
coffee despite various challenges. These companies may be the representatives to approach
an industry of more ethics and sustainability in the future. Although this concept is still new and
unusual to Vietnamese market, there are potentials found in both supply and demand sides
towards this direction of development.

Keywords
Ethics, Sustainability, Sourcing, Coffee, Farmer, Vietnam.
CONTENTS

1 INTRODUCTION .......................................................................................................... 5

1.1 Research problem and questions ........................................................................... 5

1.2 Research objectives ............................................................................................... 6
1.3 Research Design .................................................................................................... 6
2 Coffee Industry in Vietnam ........................................................................................... 8

2.1 Background of the Coffee Industry ......................................................................... 8

2.2 Current Situation of Vietnamese Coffee Industry .................................................... 9
3 Conceptual Basis ........................................................................................................ 12

3.1 Supply Chain Management .................................................................................. 12

3.1.1 Supply Chain .................................................................................................. 12

3.1.2 Supply Chain Management (SCM) ................................................................. 13

3.2 Ethics and Sustainability in Business.................................................................... 14

3.2.1 The concept of sustainability .......................................................................... 14

3.2.2 Business Ethics .............................................................................................. 17

3.3 Agricultural Industry .............................................................................................. 18

3.3.1 Agricultural Supply Chain ............................................................................... 18

3.3.2 Sustainable and Ethical Sourcing in Agricultural Business ............................ 21

3.3.2.1 Overview of general sustainable and ethical sourcing ............................. 21

3.3.2.2 Sustainable and ethical sourcing in agro-supply chain ............................ 22

3.3.3 Certifications and Ecolabelling ....................................................................... 23

3.4 Customers Behaviour in Food Supply Chain ........................................................ 25

3.4.1 Customer-driven supply chain ........................................................................ 25

3.4.2 Customer behaviours and attitudes toward ethical sourcing. ......................... 25

4 Methodology ............................................................................................................... 28

4.1 Methodological Framework ................................................................................... 28

4.2 Sampling and Procedure of Data Collection ......................................................... 29
4.2.1 Online Survey................................................................................................. 29

4.2.2 Email and Skype Interview ............................................................................. 30

4.3 Data analysis methods ......................................................................................... 31

 4.4 Validity and Reliability of the research .................................................................. 31
5 Findinds and Analysis ................................................................................................. 33

5.1 Consumer perception and behaviour towards coffee ethical sourcing .................. 33
5.1.1 Customer habits on coffee consuming ........................................................... 33

5.1.2 Consumer perception of coffee ethical sourcing ............................................ 35

5.1.3 Customer behaviour toward coffee ethical sourcing ....................................... 38

5.2 Companies operation towards coffee ethical sourcing .......................................... 41

5.3 Recommendations to improve coffee ethical sourcing in Vietnam ........................ 50
5.3.1 Improvement in enterprise operation .............................................................. 50

5.3.2 Governmental support .................................................................................... 51

6 Conclusion .................................................................................................................. 53

6.1 Findings summary and conclusion........................................................................ 53

6.2 Research Scope and Limitations .......................................................................... 55
6.3 Suggestions for further study ................................................................................ 55
REFERENCES .................................................................................................................. 57

APPENDICES
Appendix 1. Online survey of customer behaviour on ethical sourcing
Appendix 2. Value of Cronbach Alpha and Pearson Correlation
Appendix 3. Questions for qualitative interview
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1 INTRODUCTION

Coffee is not only one of the most important exported products but also a
favourable item in Vietnamese market. Therefore, the development of coffee
industry should be truly concerned. Nevertheless, the industry is being
threatened by several factors coming from poor management. There are
several news and articles on this topic, yet instead of seriously discussing they
just simply keep informing the society. Perceiving that these issues have
become controversial, this research wants to study and give deep
understanding about the sourcing problems in Vietnam as well as how
consumers and companies affect the industry. Although ethics and
sustainability is not a new subject, it is still necessary to explore and analyse
further, especially in a developing economy like Vietnam.

1.1 Research problem and questions

The research problem is what coffee industry in Vietnam has been facing
currently. According to Andy Wells from BBC (2014), coffee production in this
country involved in various social issues such as illegal land grabs and labour
rights violation. In addition, the farmers used an unnecessarily huge amount of
water and fertilizer to grow coffee trees, leading to both environmental
damage and high production cost. Furthermore, as coffee prices are decided
by large domestic distributors and foreign retailers, farmers could not own
selling power. They have to accept low offered price level, thus, suffer from
poor income which is hardly enough to cover their working and living
expenses. It can be seen that this sourcing situation would severely harm not
only Vietnamese farmers’ life but also narrow the development of coffee
industry.

To clarify and solve this problem, the research concentrates on the primary
question: “How does ethical sourcing affect the development of coffee industry
in Vietnam?”. It is followed by several sub questions:

 What is the current situation of coffee sourcing in Vietnamese market?

 What do consumers perceive of ethical sourcing and how does it
influence their buying behaviour?
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 What have companies done to make their sourcing activities more

ethical?
 What are the recommendations to improve coffee sourcing in Vietnam?

1.2 Research objectives

Since coffee is one of the most popular exported products in Vietnam, the
coffee industry also plays an essential part in this country’s economy. It is
increasingly demanded that government and enterprises should made efforts
to maintain and boost the development of this industry in the future. On the
other hand, the issue of sustainable growth has not received enough
awareness and actions yet, which could seriously threat the Vietnamese
coffee market.

Hence, the primary aim of this research is to understand how ethical sourcing
influences the coffee market and give suggestion to improve the sourcing
situation. In order to accomplish this research aim, it is necessary to study
current situation of coffee sourcing in Vietnam and its impact. Furthermore, it
also investigates consumer perception of ethical issues as well as the
relationship between their buying decision and firms’ ethics. Finally, based on
real cases on enterprise’s sourcing process, the thesis collects ideas and
recommends solutions for sustainable development.

1.3 Research Design

The research consists of six major parts, starting from general introduction
and background knowledge, then discuss in more details research methods
and data analysis, finally end with conclusion and further studying
suggestions.

The first chapter is an introduction with a brief description of research

problems, declaring research questions as well as objectives that guide the
process. It also and illustrates the research structure of the study.

The second chapter brings necessary information of Vietnamese coffee

industry in order to provide the readers basic understanding of the situation. In
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addition, it emphasizes and explains further industry’s current challenges that

have been shortly mentioned in the previous chapter.

The third part includes theories related to the study, from an over view of
supply chain management and ethics and sustainability in business, to the
direct discussion of agricultural industry and its ethical sourcing. The demand
side from consumer behaviour to this issue is also considered.

The next chapter presents choice of methods for conducting this research
along with the process of collecting and analysing the data. It also introduces
sample size and characteristics of the respondents.

Chapter 5 is the empirical part that investigates Vietnamese consumers in

their habits, perception and buying behaviours as well as discovers domestic
enterprises in their missions and operations toward coffee ethical sourcing. As
a result, the chapter shows the importance and influences of this issue in the
industry’s long term development. Based on these data, it gives further
recommendations to improve coffee sourcing in Vietnam.

The final chapter states the thesis outcomes within its scope and limitations.
Followings are the suggestions for potential future studying.
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2 COFFEE INDUSTRY IN VIETNAM

2.1 Background of the Coffee Industry

Coffee has been grown in over 80 tropical and subtropical countries

throughout the world. The process starts at farms when coffee cherries are
collected from the trees after one to three years and processed into coffee
beans. Then, the beans are tested, stored, and delivered to particular
producers to be roasted, blended and finally sold to the market. Although
coffee has become the second most exchanged commodity worldwide and a
primary source of international trade in some nations, the industry still faces
numerous challenges, such as overproduction, high involvement of
middlemen and farmers’ poverty. In 2001, there were around 50-70% of coffee
coming from small-scale farms. However these farms were rarely functioned
enough with machines and technologies, leading to the use of mediate
agencies or brokers to move their coffee toward the process. As a result,
small farmers have suffered from low price and limited potential to develop.
(Argenti 2016, pp.33-35.)

In Vietnam, Coffee was first introduced to the market by French people in

1857, but the plantation was interrupted by the Vietnam War in 1955. The
coffee industry from then had dramatically shrunk until 1986 when the
economic reforms was initiated. The production increased by approximately
20-30% per year during the 1990s (Summers 2014). According to Vietnam
Trade Promotion Agency (2011), the total coffee areas had significantly
expanded from 13000 hectares in 1975 to 500000 hectares, reaching the
annual production of more than 1000000 tons green coffee. It was also
explained that the rapid development of coffee industry in Vietnam resulted
from suitable climate and soil conditions as well as encouragement from low
production costs and high market prices. Coffee has been mainly grown in
western central highlands of Vietnam such as DakLak, Gia Lai, Kontum and
Lam Dong with major percentage of Robusta. There are also a potential
amount of Arabica coffee produced in northern regions like Hoa Binh, Son La
and Dien Bien.

Coffee is one of the most fundamental agricultural exports in Vietnam and

provides living for about 2.6 million people. In 2009, the country produced
about 1.2 million tons for export and achieved the earnings of 1.7 billion US
 9

dollars, accounting for around 1.6% national GDP (Vietnam Trade 2011).
Coffee is traded mostly to Germany, United States, Italy, Belgium and some
other European markets; however, they are often sold as green beans and
then processed in the imported countries (Summers 2014).

2.2 Current Situation of Vietnamese Coffee Industry

In the recent years, Vietnam has become the second largest coffee producer
and exporter over the world. According to The Statistics Portal (2016), within
December 2015, Vietnam exported 2.15 million 60-kilo sacks of coffee and
ranked second just after Brazil, nearly twice as much as Columbia in the third
place. During the whole season 2015/2016, the total production of the country
was 29.3 million sacks, increasing 6.9 percent in comparison with previous
season. Nevertheless, USDA (2016) predicted in its report that this production
would drop approximately 2 million sacks in 2016 due to dry and harsh
weather. The report also emphasized that Vietnamese coffee suppliers have
now been more reluctant to sell their products to export channels because of
the falling price, leading to a decline in bean exports and an escalation in
inventory and ending stocks.

The fluctuation of coffee production has placed farmers in an unstable

situation that their income can vary due to unpredictable factors like climate
and weather. Furthermore, as mentioned above, the exported coffee in
Vietnam is primarily green beans which are cheaper than processed one;
hence the profits that come to farmers are badly smaller. In addition,
according to Mr. Do Ha Nam, vice president of Vietnam Coffee-Cocoa
Association (2015), coffee industry has been dominated by a small number of
large domestic corporations (such as Trung Nguyen Company) and foreign
buyers who decide the price. Therefore the farmers hardly have any selling
power in the market. Summers (2014) reported in BBC News that despite the
large number of Vietnamese coffee farmers, there was just a minority of them
gained great profits. The poverty rate in coffee growing regions has remained
considerably high and exceeded nation’s average (Figure 1). Consequently,
they are not willing to make efforts to produce high-qualified coffee.
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Figure 1: Poverty Rate in Vietnam's regions (General Statistics Office of Vietnam 2016)

The quality of coffee has become worse as some coffee producers had been
reported to add other ingredients made from corn or soybean and chemicals
to make coffee products. In 2015, a coffee producer in Dak Lak was
discovered to use nearly 90% of ingredients not coming from coffee to create
coffee products (VnExpress 2015). Another survey from Vietnam Standard
and Consumers Association in 2016 has inspected more than 250 random
samples of black coffee from small beverage shops in Hanoi, Ho Chi Minh
City and some other provinces. The results showed that approximately one
third of these samples had little content of caffeine (less than one gram/litter),
instead it contained different miscellaneous substances that could negatively
affect consumers (Tuoi Tre News 2016). Moreover, coffee production in
Vietnam under poor management has resulted in deforestation, soil
degradation, carbon emissions, over use of water and agrochemicals, leading
to the negatively influences on environment (Mistiaen 2012). These rising
problems have motivated a new wave of sustainable business and the urge
for consumers to care more about production process.

To improve the agriculture industry, national government has published

several polices to support farmers and protect environment. Irrigation service
fee exemption, cheap credits for facilities, income support, research and
development support for farmers have been put into practice since 2009.
Nonetheless, these supports are still moderately low compared with neighbour
countries such as China, Indonesia and the average of OECD (OECD 2015,
 11

p.29-30). In terms of ecology, government assists 70% of the costs to reclaim

and improve unused land, 50-70% costs for fertilizer and plant protection
products (OECD 2015, p.132). According to Circular 38/2010/TT-BNNPTNT of
Ministry of Agriculture and Rural Development, chapter VII, pesticides and
agrochemicals that are used have to be listed in the allowance list and
traceability, with the right amount, right concentrations and right methods as
instructed in the labels.
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3 CONCEPTUAL BASIS

3.1 Supply Chain Management

3.1.1 Supply Chain

In nowadays integrative economy, the need to understand the concept of

supply chain has become increasingly important. The APICS dictionary (a
professional association for supply chain management) has described supply
chain as “the process from the initial raw materials to the ultimate
consumption of the finished product linking across supplier-user companies”
(Fredendall & Hill 2001, p.3). It consists of series of activities from designing,
procurement, manufacturing, transporting and supporting products to buyers.

In order to gain competitive advantages by adding more values to products

and services, supply chain has developed and expanded into value chain
(Figure 2). Value in economics means the difference between perceived
benefits and costs arising from ownerships. The benefits are achieved through
product quality and supporting services that come along with it. According to
Christopher (2011, pp.30-32), customer services are considered as a powerful
tool to create added value and divided into three stages: pre-transaction
(written policy, accessibility), transaction (order cycle time, inventory
availability) and post-transaction (return, warranty).

Figure 2: The Value Chain (Potter 1985)

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The value chain includes two main categories: primary activities and support
activities. In primary activities, it starts with inbound logistics which is handling
materials and collecting inputs, then comes to operation process of
transforming inputs into final items, outbound logistics with selecting,
warehousing and distributing products, then markets and sales the products
through advertisement and promotion, finally ends with service like installing
and maintaining (Blanchard 2010, pp.7-8). Whereas, support activities mainly
concentrate on people, machinery and facilities during the process. By
operating these functions more efficiently and innovatively, enterprises can
deliver extra value to their customers as well as achieve greater marginal
profits, hence creating advantages over their competitors.

Through the value chain, firms can also have a better supervision on each
stage of the process, therefore they can realise at which they provide the most
and the least value. This leads to the decision of outsourcing in business
(Christopher 2011, p.11). Companies are possible to have another
organization perform that function in a highly beneficial way. As Booth (2010,
p.6) also discussed, modern business are hardly to control all the components
creating customer value but to take use of third parties in a way that enlarges
and enhances the process. For this reason, more actors join in the supply
chain network, requiring deeper complexity in management and new
advanced skills.

3.1.2 Supply Chain Management (SCM)

According to Christopher (2011, p.3), supply chain management is the

management of both upstream and downstream relationships with suppliers
and customers, including materials, information and financial flows, to result in
more values with less cost. By this statement, it means that the better the
relationships, the more effectiveness of the operation. Suppliers and
customers have played essential and equal roles in organization’s supply
chain. Christopher also claimed in his book that the final target of SCM is to
improve and better the outcome for all parties. The logistic procedure starts
from procurement stage with suppliers to manufacturing through operation
and ends at distribution stage to customers. It can be recapped within five
phrases: plan, source, make, deliver and return (Blanchard 2010, p.6).
 14

The key demand for supply chain management is the strong connections
among actors in the network. To smoothen the three flows mentioned above,
it is essential to strategically exchange information, build trust and proficiently
collaborate throughout the supply chain (Fredendall & Hill 2001, pp.8-9). The
important role of tight corporate commitment in the success of SCM is also
emphasized by Blanchard (2010, p.10).

As debated in the previous part, supply chain has been widely expanded,
leading to more challenges in managing and processing. Christopher (2011,
pp.217-218) has suggested in his book three solutions to accomplish this
complex demand network, namely collective strategy development, win-win
thinking and open communication. They mean that the supply chain should
follow a plan that are developed and agreed by all the partners, and that plan
should head to common goals benefiting everyone in the network. During the
process, all actors should strengthen communication channels by taking use
of advanced technology and Internet.

Nowadays, the supply chain is increasingly driven by its market, shifting from
supplier-centric to customer-centric. The end customers are no longer the final
destination but the start of the whole chain, requesting faster and more
satisfied responses from the firms (Christopher 2011, p.22). As a result, it is
progressively important to understand customer insight, identify their needs
and value as well as analyse their behaviour.

3.2 Ethics and Sustainability in Business

3.2.1 The concept of sustainability

Sustainability is not a new concept but has been debated for a long period of
time. Since 1987, World Commission on Environment and Development
(WCED) has explained this term as “meets the needs of the present without
compromising the ability of future generations to meet their own needs” (Our
Common Future, chapter 2). It emphasizes that instead of concentrating only
on short-term benefits, one should take a further vision of future influences
from his current actions. There are two ideas underneath this definition:
satisfaction and limitation. Satisfaction, referred as “needs”, is to consistently
maintain and improve the quality of present life in various aspects, whereas,
 15

limitation guarantees that this satisfaction does not eliminate living tools and
resources of upcoming generations.

According to Christopher (2011, p.241), during the 21st century, sustainability

has become one of the most dominant issues of the common development
which need to be concentrated on. There are increasing demands for
enterprises to go sustainable. More specifically, Pilot (2014, p.1) also stated
that corporate responsibilities are gradually crossing out of core business
borders to move towards social and environmental achievements, such as
protecting human rights, erasing poverty and preventing pollution.

The concept of sustainability in business is accompanied by the triple bottom

line: profit, planet and people (Figure 3). These elements are tightly connected
with each other as fulfilling one factor usually leads to benefits for the other
two as well. For example, more efficient use of energy and materials not only
enhances the environment but also contributes to long term cost
effectiveness, or reducing chemicals in production is beneficial to both
ecosystem and working condition. Therefore, the final aim of triple bottom line
is to intensify the presence and development of a business while still
preserving and enriching social well-being for next generations (Christopher
2011, p.242).

Figure 3: Triple Bottom Line (Source: Selling Sustainability Solutions)

 16

The triple bottom line can be achieved through creating shared value, which
has been defined as “policies and operating practices that enhance the
competitiveness of a company while simultaneously advancing the economic
and social conditions in the communities in which it operates” (Porter and
Kramer 2011, p.6). It does not redistribute the value within market but
increase the total profits that every actor can benefit from. Nevertheless, the
priorities of these profits are not the same. Porter and Kramer (2011, p.15)
have explained that profits relating to social achievement are more likely to
build positive cycle for community and business development, thus represent
higher form of capitalism than financial earnings. It is also believed that
creating shared value would contribute much more to the operation efficiency
and sustainable growth than existing efforts in corporate social responsibility.

Regarding sustainability, the supply chain has evolved from a linear model,
which is the one-way process from materials to wastes through production,
toward the direction of circular economy. This concept is defined by
Geissdoerfer et al (2016) as a regenerative system where products are
manufactured with fewer resources, less energy and less waste by the help of
reverse logistics (such as maintenance, reuse and recycle). The authors have
also summarized different studies and proven the crucial role of a circular
model in raising consumer’s incentives to positively change their behaviour.
Nevertheless, it is considered that the circular supply chain concentrates more
on environmental aspects rather than economic and social benefits.

Although it takes much more efforts to go sustainable, there are several

drivers for firms to operate toward this direction. According to Pilot (2014,
p.12), a CEO study on sustainability by United Nation with over 1000 chief
executives around the world has summarized these factors in order of
importance as follows:

 Better brand image and reputation

 Decrease in production cost
 Demand from customer
 Demand from company itself
 Employee engagement
It can be seen that primary drivers come from the relationships within
company and customers, especially to deepen consumer’s trust and
 17

preference to the enterprise. Its second target is an economic goal to increase

revenue by lower their long-term input cost. Other drivers from outside actors
are also added in the list, such as government’s requirements on environment,
influences of development gaps and demand from shareholders.

3.2.2 Business Ethics

It is erroneous to think that enterprises are unrestricted to maximize their

profits as long as they follow legal laws. Together with economic and legal
factors, ethics is also one fundamental category of social responsibilities that
business needs to fulfil (Carrol 1979, p.499). The importance of ethical
consideration can even be placed in priority as an immoral action would not be
made no matter how beneficial it is, stated by Redcliff (2002, p.25).

To clarify the term, William Shaw (2003, p.2) has collected the definition of
business ethics as an “ethical outlook” of a corporation that is demonstrated
through their behaviour and/or official statement; it is also a group of principles
and motivations driving people’s actions toward the way they should act. In
another explanation, business ethics is related to the evaluation of a firm’s
practices to determine if it is moral or not (Cremer et al 2011, p.1).

Furthermore, Shaw also discussed in his book that these ethical regulations
had resulted from the characteristics of doing business, which is not
competitive but primarily cooperative. In order to attract others to do business
with, the entrepreneur has to fit in their point of view and offer them an equal
and honest environment with particular conditions and demands. Hence, the
economy participants are bonded with each other through ethical obligations
and principles. According to Handy (1995, p.130-131), there are six basic
types of stakeholders that a company needs to take responsibilities for:

 Financiers (shareholders, creditors)

 Employees
 Suppliers
 Customers
 The environment
 Society (local, national and international level)
 18

While the association with shareholders and employees are chiefly based on
internal obligations and common interest, those with creditors, suppliers and
customers are external and based on building consistent business network. In
addition, competitors are also considered as another factor that requires fairly
competitive actions from the firm (Shaw 2003, p.20). All the mentioned
relationships with these stakeholders have been driving businesses to
become more ethically responsible, thus preventing the possibility of moral
risks and crisis.

In order to manage and assess an ethical operation, companies are

encouraged to develop their own corporate Code of Ethics that is adequate for
their vision and mission. The Code depicts appropriate actions from all
employees in the situation of ethical dilemmas. These standards need to be
clear, logical and concentrated on their particular business lines. Based on the
Code, workers can involve in and orientate their daily performances in the
direction of corporate ethics. (Argenti 2016, pp.233-234.)

3.3 Agricultural Industry

As food has been critical raw material for human beings in various aspects,
food industry also plays an essential role in the economy. Especially many
Asian countries where urbanization is still in process and there is a majority
living in rural areas, agriculture remains a core earning source for the nations.
The agricultural industry has been coming halfway toward remarkable
structural changes in terms of products features, global manufacturing and
consumption along with new applications of sciences (Jayaratne et al 2011,
p.5).

3.3.1 Agricultural Supply Chain

According to Bourlakis & Weightman (2008, p.2), food supply chain requires
flexibility and complexity in operation, high accuracy in time management as
well as integrity in products. It is crucial to provide high quality of the goods
accompanied by appropriate use of technology, logistics, information
technology and driven by regulations and customer demand.
 19

The network of agro-supply chain (Figure 4) consists of four main actors:

farmers, processors, distributors and retailers. There are more than one
company playing one role in this chain, and furthermore, there are several
supply processes operating subsequently or in parallel. As a result, the
partnerships within these networks also vary vertically and horizontally,
claimed by Van de Vorst et al (2007, p.15).

Figure 4: Food Supply Chain from the perspective of Processor (Van de Vorst et al 2007, p15)

Another diagram illustrated by Bourlakis & Weightman (2008, p.6) has

described the United Kingdom food supply network in the 2000s (Figure 5).
This second diagram added consumer as one of the primary actors as well as
gave farmers more directions and choices to follow the chain.
 20

Figure 5: The UK Food Supply Chain excluding export-import activities (Bourlakis &
Weightman 2008, p.6)

The agro-supply chain is divided into two typical types depending on the
characteristics of its final products: fresh agricultural products and food
processed products. The first type, for example vegetables and fruits, requires
mostly storing, packing and delivering while products remain as its nature. The
second one (such as canned food and juices), on the other hand, focuses on
processing raw materials from farmers into desired items where some of its
natural components have been changed. (Van de Vorst et al 2007, pp.15-16.)

Along with the evolvement of general supply chain, agricultural network are
also witnessing dynamic transformations. According to Bourlakis &
Weightman (2008, pp.2-3), the use of external professional logistics
companies would be more frequent thanks to its convenience and shared
responsibilities, as well as advanced applications of Internet and technology
into operations. Moreover, there are a rising demand for higher level of
collaborations and integration among all partners, resulting from the recent
development of “own label” retail food products, food safety legislations and
consumers preference of shorter lifecycle and life shelf of a product (Bourlakis
& Weightman 2008). Last but not least, the food supply chain is also moving
toward the direction of ethics and sustainability.
 21

3.3.2 Sustainable and Ethical Sourcing in Agricultural Business

3.3.2.1 Overview of general sustainable and ethical sourcing

Sourcing is one of the first stages throughout a supply chain where company
works directly with suppliers through purchasing goods and services. It is “a
core business function at the interface between a business organisation and
the external environment in which it trades and operates” (Allinson 2008,
p.50). Therefore, it also contributes to the business success and long term
benefits. Another definition by Emmett and Sood (2010, p.59) was stated that
sourcing, the same as purchasing or procurement, is an organisational
progress entering all materials, items, people and services from different
sectors into supply chain.

In order to maximise the efficiency of sourcing, Booth (2010, p.106)

recommended corporations to enhance their knowledge of supply market.
Specifically, it is necessary to always keep updating about their market for
new inventions, technology, opportunities or challenges, even when certain
suppliers have already been chosen. In addition, she also mentioned that the
procurement program should influence suppliers in a way that orientates and
improves their ability in the long run; since there is a linkage between the
successes of both two actors.

Ethics and sustainability in sourcing can be achieved through collaboration,

incentive alignment, supplier development and energy efficiency (Emmett and
Sood 2010, p.73). The authors have explained collaborative relationship
between firms and suppliers as shared vision, risks and sensitive data, win-
win partnership, and equality. Whereas, supplier development is identified by
improving seller performance, decreasing cost, solving quality problems and
engendering competition for higher priced products. The final aim of these is
to integrate suppliers into company’s operation and generate common
strategy to utilize materials and optimize process. Furthermore, companies
can make their procurement more ethical by expanding the co-operations with
local or emerging suppliers, depending on different categories, in order to
contribute at regional development (Booth 2010, p.130).
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3.3.2.2 Sustainable and ethical sourcing in agro-supply chain

Figure 6: The Ethics Matrix (Food Ethics Council 2001)

The Ethics Matrix (Figure 6) illustrates the ethical orientation in terms of well-
being, autonomy and justice of four primary roles in the agricultural network,
including individuals and firms, consumers, farms and the environment. It can
be seen that the appropriate income is important to individuals, while safety of
the products is crucial factors to customers. This matrix also fulfils the triple
bottom line to both financial, social and environmental issues, leading to the
sustainability throughout the whole process.

Along with the booming development of food industry, the concern about
effects of food sourcing also arises among society. It has been criticised that
corporate power sometimes places negative impacts on small and local
farmers, for example falling and dissatisfied prices, below-standard working
conditions, insecure and short term employment. Moreover, the export-
oriented growth in developing countries also threatens the local food
manufacturing, security and farmers’ life. Therefore, many non-governmental
organisations and unions have encouraged enterprises to perform more
ethical practices on sourcing and prevent difficulties for suppliers. There are
several initiatives taken in fair trade and ethical trade, in order to support small
produces and improve conditions of waged employees throughout agro-
business structure. (Barrientos & Dolan 2006.)

A particular contribution to ethics and sustainability in sourcing is to follow the

code of conduct. To be more specific, in coffee industry, the Code of Conduct
for coffee community has been pubished by 4C Association and the Global
Coffee Platform (2015), a collaboration connecting more than 300 agricultural
and coffee organizations over the world. It has listed several requirements for
 23

companies in this industry work toward sustainable sector, comprising

economic dimesions (coffee farming as a business, supporting coffee
farmers), social dimensions (business partners and workers), and
environmental dimension. Among those, codes that focuses on sourcing from
farmers are emphasized:

 Profitability and long term productivity: Producers help to increase

profit, productivity and offers appropriate management at farm levels.
 Access to services: Suppliers are accessable to some services such as
fertilizer trading, planting methods and technology support.
 Market information and commerce: Transparent pricing.
 Enhance product quality: Assessment during process at farms,
including inventory.
 Traceability: Coffee is identified, seperated and prevented from mixing
with other sources.
 Business integrity, No discrimination, Freedom of Association and Right
to collective bargaining.

3.3.3 Certifications and Ecolabelling

In order to assess the ethics and sustainability, ecolabel is used as a direct

measurement at customers. The Global Ecolabelling Network (GEN) has
defined Ecolabelling as “a voluntary method of environmental performance
certification and labelling that is practised around the world”. These
certifications and labels are provided to certain products and services
following sustainable standards, to offer customers reliable information of their
impacts on ecosystem. There are three types of ecolabel, categorized by The
International Organization for Standardisation (ISO), which are: environmental
labelling program by a third party, self-declare environmental claims by
manufacturers or retailers, and environmental declaration under pre-set
parameters of a third party.

According to Gerald and Dorothy (2003, pp.171-172), a survey on 340

respondents in Muncie, Indiana had showed criteria for ecolabel that were
considered important to consumers as follow:

 Child labour in production

 24

 Presence of toxins and artificial substances in product

 Products origin and locally produced
 Water pollution due to manufacturing
 Atmospheric impacts
 Waste generation
 Resources and Energy Consumption

There are numerous worldwide ecolabels and certifications for ethical and
sustainable sourcing. The Ecolabel Index (2016) has tracked 465 ecolabels in
total within 25 industry sectors around approximately 200 countries, of which
18 labels are available in Vietnam. Among those, Fairtrade is considered as
one of the most popular systems. Established in 1997, it has operated to
assess and authorize FAIRTRADE Certification Mark to producers who fulfil
their economic, environmental, and most importantly, social requirements.
Fairtrade’s purpose is to contribute to the improvement of farmers and
workers’ livelihood in poor countries, as well as offer them opportunities to
better their future. The ecolabel system attempts to achieve these goals by
maintaining stable prices that cover cost of sustainable production; paying
pre-financial Fairtrade Premium to producers to invest in education,
healthcare or facilities; connecting long term partnerships globally and
empowering farmers and workers through the process. Their main product
groups are bananas, coffee, cocoa, cotton, sugar and tea. In term of coffee,
roasters and importers have to pay a licensing fee for certification and
monitoring cost to sell fair trade beans. (Fairtrade 2011.)

Nevertheless, ecolabel procedure with national/international standards can

sometimes be a challenge. Local producers may face difficulties with
complicated paperwork and the differences between common requirements
and specific local conditions (Gerald and Dorothy 2003, pp.64-65). Therefore,
there is local label system for local food products to trade within certain
regions. It has also been explained in Gerald and Dorothy’s book as a network
of local groups adhering to common principles but translating them to fit the
local situation. One of the examples for local label is the Wholesome Food
Association (WFA) launched in 1999 in Devon, United Kingdom. Based on
trust, WFA requires connection and compliance of member manufacturers to
 25

their principles. It also allows customers to visit production areas and access
to WFA standards, proving that food can be local and authentic.

3.4 Customers Behaviour in Food Supply Chain

3.4.1 Customer-driven supply chain

Consumers, as discussed before, have become the driver of whole supply

chain, deciding the type, quantity, quality and value of the products (Bourlakis
& Weightman 2008, p.4). In order to create market-driven network,
Christopher (2011, p.37) recommended four steps to integrate customer
values into corporate supply chain, starting from investigating their insight and
needs, identifying how to provide them those value and determining directions
to win the market, finally developing a supply chain strategy based on those
research and plans. As a result, there have been increasing demands for
studies and analysis on customer insight that aim at understanding their
choices and motivations.

In this aspect, agricultural industry is significantly affected by consumers as

well. Barrientos and Dolan (2006, pp.3-4) has emphasized an idea of food
ethical sourcing that food should be original, affordable, quality-trustworthy
and sourced under customers’ collective control. As can be seen people
believe in the critical role of buyers from the very beginning of manufacturing
process – sourcing stage.

3.4.2 Customer behaviours and attitudes toward ethical sourcing.

According to Marshall (2008, p.11), consumer choices of food mirror their

culture, context, class and history, either habitual or non-habitual actions. He
also investigated the decision making process in which customers firstly seek
for their needed value and compare between substitute options, then decide
to purchase for trial or repeatedly. This process is strongly influenced by their
existing experiences as well as sociocultural, psychological and marketing
factors. While marketing factors (price, promotion, product and place) are
created by producers and retailers, sociocultural factors come from
 26

community; psychological factors are the perception and attitude of buyers

themselves.

Recently, consumer concerns about the quality and origin of food have been
growing. Along with the voice of socialists and environmentalists, customers
also raise questions about food system’s ethics and sustainability. After
experiencing several incident of food poisoning such as BSE, E.coli, foot and
mouth disease as well as high content of pesticide in fruits and vegetables
during 1980s-1990s, customers increasingly desires to involve in the
manufacturing operation and know how their products are sourced, stored,
processed and delivered (Barrientos & Dolan 2006, p.3).

Nonetheless, according to Vermeir and Verbeke (2006, p.188), consumers

have favourable attitudes to ethical aspects in products whereas their
behaviours are not fully equivalent. Despite the need of sustainable items,
customers still have to face several restrains preventing them from ethical
purchases. The shortages in knowledge of agriculture and real sustainable
product characteristics as well as the poor availability of those product types in
markets have decreased the confidence of customers to make buying
decision. Furthermore, they also compare the value from brands, prices and
tastes with sustainable factors to find the most suitable items. In addition,
customers need to believe that their action could positively contribute to the
society (perceived consumer effectiveness - PCE) in order to encourage their
behavioural changes toward ethics and sustainability directions (Vermeir &
Verbeke 2006, p.188). As a result, it is suggested to raise consumer
involvement, communication attempts, information spread and products
availability to eliminate barriers and boost PCE of consumers.

In terms of coffee consumption specifically, customer perception has

developed along with the three waves of coffee. The first wave started in
1800-1900s when instant coffee with vacuum packaging was invented and
producers wanted to increase manufactured quantity as much as possible.
Consumer needs at this wave simply focuses on having a coffee drink in a
short time with a reasonable price. Moving to the second wave, the demand
has become further complicated as consumers care more about how to enjoy
coffee. They prefer drinking coffee with their friends as a specialty product in
an open atmosphere, and get to know several types of coffee drink like
 27

espresso, latte, and cappuccino. It has led to the booming of popular coffee
shop chains around the world, particularly Starbucks. The third wave was first
announced by Trish Skeie (2003), referring to a movement toward good coffee
when customers choose coffee based on its quality, not marketing campaign
or popularity of the shops. Third wavers prefer to know the farms where coffee
has been grown and how it is processed, thus dominant business at this wave
is small independent roasters or coffee shops that roast beans in house. It is
also predicted that in the future there would the forth wave, at which
consumers prioritize equal and sustainable practices from coffee producers.
(Trish 2003 & Craft Beverage Jobs 2016.)
 28

4 METHODOLOGY

4.1 Methodological Framework

In order to collect and analyse data, the thesis combined both qualitative and
quantitative methods. According to Ghauri and Gronhaug (2010), depending
on problems and purposes, the researchers usually choose the most suitable
option between these two methods; however, they still can be used together in
one study. While qualitative method concentrates on understanding the insider
view and process approach, quantitative research mainly collects facts and
figures from an outsider view and employs measurement to orient result.
Nevertheless, these differences are not absolute and sometimes cannot be
exactly divided, stated by Kananen (2013, p.35).

Qualitative research is the most effective when the study is preferred to

achieve detailed and in-depth information from respondents without large
sample size and statistical methods. It uses words and sentences in order to
understand a situation in practice and then get rational interpretation in theory.
(Kananen 2013, pp.31-32). Therefore, this thesis applied the method on
exploring enterprises’ point of view and decisions, specifically using open
interview techniques. By interviewing, the researcher could build up a
relationship with firms’ representatives, thus could get their opinions, ideas,
desires and choices about the issue and have an inside overview of their
operation. In addition, it does not require many respondents, hence it has
more time to focus deeply on each case.

Whereas, the quantitative method are best used when it starts with general
theories and phenomenon then ends with details. It requires structured forms
of questions to come up with results as figures and numbers (Kananen 2013,
p.34). In this paper, the researcher wants to use quantitative approach to do
survey on consumers behaviours relating to sourcing. The survey was made
in an electronic questionnaire form so that it could reach a large number of
participants in Vietnam. This method was chosen thanks to its abilities to
question many people in a fast and systematic way. In order to generalize
awareness and behaviours, the research needs to investigate major numbers
of Vietnamese consumers and process result accurately and succinctly. The
result also has to present the common preference of society in coffee market
in reality, which is closer to practical outcome of quantitative method.
 29

These both methods were processed online, taking advantages of web

program and social media. According to Kananen (2015, p.18), the availability
and flexibility of social media have encouraged discussion and communication
among people. Thus, it is hoped that with the use of online platform, the
research could reach plentiful and various opinions.

4.2 Sampling and Procedure of Data Collection

4.2.1 Online Survey

The survey has been processed via Webropol system and spread throughout
means of social media for nine days from 9 November to 17 November 2016.
Thanks to the convenient technique, it could reach numerous participants in
far geographic distance (from Finland to Vietnam) whose have internet
connection and use social media. The participants voluntarily joined the
survey while not needing to provide their personal and secured information.

The survey has reached 101 respondents of which approximately 90% are
young people aging 18-29 years old. They represent well educated citizens
living in major cities of Vietnam like Hanoi and Ho Chi Minh City with 35.64%
are male and 64.36% are female. About three forth of the informants are
students from different specializations and others are accountants, engineers,
researchers and freelancers. With these backgrounds, the respondents are
more aware of ethical issues than most parts of the Vietnamese population.
They have better access to such information and stronger motivations as well
as financial sources to purchase sustainable products. Therefore, the survey
results are considered to be rather more positive than population’s average in
general. Nevertheless, this group is also one of the main targets in coffee
market, especially for a new trend of ethically sourced coffee. Besides, since
these participants are used to researches and surveys, they are open and
honest to give their thoughts and opinions along with well understanding of the
questions, thus increasing the reliability of this study.
 30

4.2.2 Email and Skype Interview

The qualitative data was collected from email exchanges and skype interviews
due to distance from Finland to Vietnam. The communication has been made
during the whole research progress with firms’ representatives who also took
part in the interview in a voluntary manner. The questions for interview were
categorized in separated themes and simultaneously explored further to
ensure that they reached numerous and in-depth layers of responses
(Kananen 2015, p.109).

The interview targeted at small-medium size beverage companies in Vietnam.

According to Kananen (2013, p.111), informants should be associated or
concerned with the issues. Therefore, selected interviewees are firms who
operate in coffee industry, have innovative knowledge of sustainable
development, direct connection with customers and represent the industry in
the future.

Introduction of interviewees.

The interviewees are representatives of three beverage firms in Vietnam: Mr.

Phuong Dao, Founder of Oriberry, Ms. Minh Nguyen, Founder of International
Market Development and Investment JSC (MDI) and Ms. Huong Ngo,
Executive Director of Green Fair Trade Co. Ltd.

Oriberry is established in 2010 by the Advancement of Community

Empowerment and Partnership, a local Vietnamese NGO whose mission is to
improve agricultural practices in rural regions in order to eliminate poverty and
provide more opportunities for producers. They work directly with farmers in
producing high quality of Vietnamese coffee and tea. The second company,
MDI, has been operating in 2007 as a family-owned and social entrepreneurial
company specializing in agricultural and handicraft sectors. Betterday
Fairtrade and Organic is a brand of MDI, which includes coffee products and
connects local production with domestic and international market. The last
one, Green Fair Trade, was founded in 2013. It aims at facilitating the export
of certified agricultural products, trade promotion through B2B (business-to-
business) context, know-how transfer and technical support to farmers and
small producer groups.
 31

As can be seen, the common characteristics of these three firms are their
commitment to agricultural value chains and targets of an ethical and green
image. They prioritize sustainable aspects and concentrate on advancing
production process, not just financial benefits. They have opened their coffee
shops in Hanoi where coffee are also roasted. Although they both are small
and medium size, they have potentials to develop further and represent a new
wave of coffee business in Vietnam.

4.3 Data analysis methods

After being collected, all the quantitative data was exported to SPSS software.
Every question was considered as a variable with corresponding values in
numeric type. The data were categorized as nominal, ordinal, interval and
ratio scale and investigated in correlation and factor analysis. Correlation
analysis shows the relationship between two variables and how much they
depend on each other by calculating relation coefficient. The closer it is to
zero, the less interdependence within variables. Factor analysis focuses on
grouping several variables of the same issues together and measuring these
groups to study the phenomenon (Kananen 2013, pp.160-163).

In terms of qualitative research, all interview answers were written down and
read repeatedly so that the researcher could conceptualize the materials
(Kananen 2015, p.117). Then the data were divided into several segments
and analysed based on question’s themes as well as similarities and
differences among respondents’ points of view. The themes were categorized
as company experiences, operations with suppliers, social responsibility,
perspective of ecolabels and future business plan.

4.4 Validity and Reliability of the research

Quantitative research

To assess the liability of these results, the Cronbach alpha has been
computed in SPSS. Cronbach alpha measures the consistency and reliability
of a test or scale with the value varying from 0 to 1. The more correlated the
items are, the closer Cronbach alpha is to 1 (Tavakol & Dennick 2011). In this
 32

quantitative research, the results are considered acceptably reliable as the

value of Cronbach alpha is 0.77.

The measures used in the study were decided based on background

knowledge of situation and previous researches in similar fields (New ethical
living research from Guardian News & Media in 2011 and Nielsen Global
Survey in 2014) so as to ensure its content validity. In order to understand
customer behaviours of buying coffee, the research not only questioned their
purchase frequencies and habits but also discovered how they perceive and
believe in their ability and the market. Instead of using words like “often”,
“usually”, “good”, “bad” that can differ from each individual, the survey
questions tried to express ideas as clear as possible by offering particular
numbers, times and explanations for the informants.

Qualitative research

The table below shows the internal/external validity, reliability and objectivity
of the research process.

Criteria Method of addressing

Credibility  Consistent communication with interviewees

throughout the research process to exchange ideas
and information.
 Continuously compare and combine literatures
reviews, interview materials and analysis results.

Transferability  Respondents are representatives from different

firms with different methods of sourcing and
operating.
 Although they all work in coffee industry, they are
still processing or targeting at other agricultural
industries as well.

Dependability  Respondents provided information as in both their

individual experiences and as a representative of
their companies.

Conformability  The data provided are secured and not used for
marketing or competitive purposes in the market.
 Researchers and interviewee exchanged knowledge
and information objectively and constructively.

Table 1 Validity and Reliability of Qualitative research

 33

5 FINDINDS AND ANALYSIS

5.1 Consumer perception and behaviour towards coffee ethical sourcing

This analysis is based on the online survey’s results. The respondents are
mainly young Vietnamese people from large cities and have stable access to
Internet. They portray the segment of customers who are modern, highly
educated and have fine living standards in society. They can be considered as
the most innovative and approachable consumers to new forms of business in
general and beverage shops specifically. The study below shows how they
perceive and behave under the influences of ethical and sustainable process.

5.1.1 Customer habits on coffee consuming

The research has illustrated the overall situation of both frequent and non-
frequent coffee buyers in densely populated cities of Vietnam, primarily young
customers. As the number of respondents who usually purchase coffee is
nearly equal to those who do not (Appendix 1), it can be seen that there are
no remarkable preferences for coffee drink in the domestic market.
Additionally, coffee is more favourable to men than women, since 38.9% of
male participants buy coffee more than 10 times per month while the
percentage is just 15.4% in terms of female (Figure 7). Therefore, it can be
seen that main customer group of Vietnamese coffee industry is men.

45
38.9
40 36.9
35
30 26.2 25
25 22.2 21.5
20
15.4
13.9
15
10
5
0
<1 time/month 1-5 times/month 5-10 times/month >10 times/month

Female Male

Figure 7: Frequency of buying coffee in percentage of Male and Female (each gender
accounts for 100%)
 34

Furthermore, Vietnamese customers enjoy drinking coffee at shops much

more than at homes or offices (Figure 8). About 56% of informants, more than
a half, said that they most often have their beverage at shops, some others
like making themselves at home (26.73%) or take away (10.89%), and just a
small group would rather drink at their schools and offices. The majority of
consumers prefer an open atmosphere to talk with each other where
everything is served at tables. This has resulted from the second wave of
coffee as mentioned previously in theoretical framework. Thus, there is an
increasing number of coffee shops opened in large urban areas and a
booming approach of international coffee chains such as Starbucks. A coffee
shop becomes a place of meeting and entertainment while a cup of coffee is
the start of a conversation. This chart indicates the important role of coffee
shops in influencing the growth direction of this industrial sector. It suggests
an effective way to approach and affect consumers through beverage stores
instead of just via wholesalers and retailers. As a result, sourcing information
and sustainable products could be accessed the most easily if they are
provided in these shops. Additionally, it can be seen that Vietnamese market
are in the second wave of coffee (as described in part 3) and expected to
move forward to the third wave, giving potential opportunities for
entrepreneurs to operate sustainably.

Take away 10.89

Schools/Offices 5.94

Home 26.73

Shops 56.44

0 10 20 30 40 50 60

Figure 8: Preferred places to drink coffee of Vietnamese customers in percentage

 35

5.1.2 Consumer perception of coffee ethical sourcing

In order to understand the importance of different factors in consumer

awareness, the survey asked respondents to rank these factors according to
what influences them the most in making buying decisions of coffee products
(Figure 9). The factors were chosen based on marketing effects (product
brand, price, selling place, popularity), social influences (familiarity) and
psychological motivations (personal emotion, perception of green image)
which strongly impact customers.

Rank as 2nd most important Rank as most important

Personal Emotion 12.9%

10.9%

Convenient Location 12.9%

9.9%

Price 20.8%
5.0%

Green Image of brand 10.9%

7.9%

Popularity of the brand 9.9%

13.9%

Taste and Quality 14.9%

42%

Familiar Brand 17.8%

11%

Figure 9: Level of importance among factors in making buying decision

The outcomes show that there are approximately 42% choosing coffee’s taste
and quality as the most crucial aspects when they consider whether to
purchase or not. A respondent had emphasized in the last open question that
quality is the only thing he cares about. This may result from numerous recent
reports of disqualified coffee made from chemicals that have been noticed in
the second part of the thesis. Although price is hardly ranked first, it is usually
the second factor that consumers think of before buying, as nearly 21% of
participants rated it in the second place. This means that Vietnamese coffee
market is quite elastic to price, but not significantly. On the other hand, green
image of the brand is not fundamental to customers since there are only 8% of
informants who put it in the first position whereas 21.8% considered it as the
 36

least important. Other factors such as popularity and familiarity of the brands
are placed in the middle levels of importance.

Concentrating on sustainable aspect, the survey tried to discover customer

experiences in buying coffee products from known ethical companies over the
past six months. There is just more than one fifth of the answers stated that
they have purchased ethical coffee, of which 5% bought for more than 5
times. The majority either has never had this experience (31%) or does not
perceive if their brand is ethical (49%). These results have proved that ethics
and sustainability is still a new concept in consumer awareness. They do not
have much knowledge in this field, including green ecolabels and certificates.
Furthermore, it can be seen that companies themselves do not usually make
efforts to advertise their social responsibility as well, leading to the
inaccessibility of customers to these types of information.

35%

30%

25%

20%

15%

10%

5%

0%
Strongly disagree Disagree Neutral Opinion Agree Strongly Agree

Willing to change to another brand which is more ethical

Willing to pay higher price for ethical products
Willing to travel farther to buy ethical products

Figure 10: Willingness of customers to buy ethical coffee products

Nevertheless, the respondents also claimed that they could purchase coffee if
they know surely it is ethical (Figure 10). Nearly 60% of them are willing to pay
a higher price for ethically sourced of coffee products while the others mainly
have neutral opinion, and just more than 15% refused to make the purchase.
These figures relatively match with Nielsen Global Survey 2014 as Nielsen
 37

found that about 64% of consumers in Asia-Pacific would pay more for socially
responsible brands (Adams 2014). The study also asked participants to
change into another brand which is more ethical and the results are similar:
59.4% responded as agree or strongly agree. However, the willingness of
customers has slightly decreased in terms of travel distance. There are 47.5%
who would still buy ethical products even if they have to travel further whereas
26.8% thinks that it is not worthy. Furthermore, the results also show that
there are no considerable differences between men and women in these
decisions as the proportions in each gender is approximately equal.

This reaction of customers is fairly positive, yet the company has to prove their
corporate social responsibility. The survey has investigated which factors
make an operation ethical in customer’s point of view by asking them to
choose among five options: supporting farmers, community involvement, high
quality of coffee, energy saving and limited use of pesticides and chemicals.
The largest number of votes is to apply less agrochemical on the plants with
70.3% strongly agreed and 18.8% agreed. Then it comes to the demand for
pure coffee which is not mixed with high amount of substances (82.2% voted
in total). The data have depicted one more time that Vietnamese consumers
truly prioritize coffee products that leave no harm on their health, contain no
poisonous ingredients from pesticides or additives. They also pay attention to
environmental aspect such as land and water pollution resulting from uses of
chemicals in planting. Farmers support is placed in the third place with more
than three forth of respondents think it presents business ethics. In summary,
to persuade consumers to believe in ethical products, companies need to
focus on working with their suppliers to provide qualified products and improve
farmers’ living condition.

In addition, consumer awareness of their power toward community has played

an essential role as well. There are 65 participants (around 71% of them are
female) in the survey claimed that they believe their personal buying
behaviours could place influences on society and environment. On the other
hand, 15.8% do not think that their purchases matter (Figure 11). It can be
considered as an optimistic result since the majority who perceive of their
power would increase their individual attempts to limits negative effects and
be more responsible for each shopping decision. However, men seem to be
 38

less aware of their impacts than women, while they are the main consuming
group of coffee industry.

43.6%

19.8% 20.8%

7.9% 7.9%

Strongly Disagree Neutral Opinion Agree Strongly Agree

Disagree

Figure 11: Responses to the statement “You believe your individual buying behaviour can
have social and environmental impacts”

The correlation efficient value between consumer beliefs mentioned above

and their willingness to change the brand was calculated as approximately
0.46 (Appendix 2). It means that these two variables have moderately positive
interdependency. The more buyers realise their individual influences, the more
willing they are to become an ethical customers.

5.1.3 Customer behaviour toward coffee ethical sourcing

The research has revealed numerous conflicts within customer behaviours in

terms of coffee consumption. The first one is the contrary between desires of
ethically sourced products and the efforts to understand ethical sourcing
(Figure 12). Throughout the survey, 58.4% participants said that they would
like to access more information of where and how their coffee products are
procured and processed, whereas just nearly one fifth of them think these
kinds of information are not necessary. This also has a positive correlation
with the customers’ mindfulness of their individual impacts (r = 0.53).
Nonetheless, the result for the next question is completely opposite.
Approximately 64.4% have never made actual efforts to gain knowledge of
sourcing progress while only 9% have this experience before. These
outcomes demonstrate that there is an existing need of transparency in coffee
 39

sourcing, yet consumers are more likely to wait for government or other
organizations to introduce this information to them instead of trying to find by
themselves. These are called as passive eco-friendly consumers.

40%

35%

30%

25%

20%

15%

10%

5%

0%
Strongly disagree Disagree Neutral Opinion Agree Strongly Agree

Want to know more about where and how coffee is sourced

Have tried to find out where and how coffee is sourced

Figure 12: Responses toward desire and efforts to know coffee sourcing (in percentage)

Furthermore, this study also investigates what are the trustworthy sources of
information to those passive customers mentioned above. The results are
depicted in figure 13 below. The most reliable sources according to
participants’ selection are international ecolabels and certificates (82%). They
strongly believe the global standards that have been accepted widely
throughout various developed countries and regions. Word-of-mouth is also a
preferable option among the respondents with more than half of the total
votes, which explains that Vietnamese consumers are influenced easily by the
people surround them. The least favoured sources are company’s own
statement which has a little value on consumer’s belief.
 40

Ecolabels and Certificates 82.18%

Word-Of-Mouth 55.45%

News and Magazines 30.69%

Company's claims and advertisements 12.87%

Figure 13: Respondents’ choices on reliable sources of information

However, despite considering ecolabels as the most trustworthy, the

customers do not follow this when it comes to shopping habits. This is another
conflict between customer awareness and behaviours. There are only 24.8%
of informants claimed that they have searched for ecolabels and certificates
on the packaging while choosing coffee products. More than twice as much as
that quantity, 51.5% of them admitted the opposite (Figure 14). The number of
passive “green buyers” has outweighed the active and passionate one in
domestic market.

Look for ecolabels and certificates on

products packaging

25%

Disagree/ Strongly Disagree

51% Neutral Opinion

Agree/ Strongly Agree

24%

Figure 14: Participants’ responses for ecolabels on packaging

 41

To summarize, Vietnamese consumers have positive attitude and willingness

toward coffee products from sustainable and ethical sourcing as well as
production process. Nevertheless, they are lack of appropriate knowledge and
motivations to achieve that knowledge.

5.2 Companies operation towards coffee ethical sourcing

This part of the research analyses qualitative results from interviews with three
coffee companies and organizations, namely Oriberry, MDI Company and
Green Fair Trade & Production Limited Company. The interviews might differ
depending on each respondent, but were similarly structured along six primary
themes in order to clarify what they have done toward an ethical supply chain,
specifically during sourcing stage.

Theme 1: Company experiences

According to Oriberry’s representative, the founder group of the firm has

worked with farmers since 2004 in a project to support their living conditions
with public services and facilities in Huong Hoa, Quang Tri. Through the
project, they have built an understanding of the needs and difficulties that
coffee farmers have faced. Until Oriberry was established, they still kept
researching the situation and maintained their involvement in the region. “The
problem lies at the process of buying and selling coffee, not farmers’
knowledge”, said Dao Phuong, one of the owners of Oriberry. In 2013, they
began co-operating with farmers in other areas like Lam Dong and Dien Bien.

About MDI, before founding the company, Ms. Minh Nguyen had participated
in Poverty Elimination project of VSF, a French non-governmental
organization to develop agriculture and farming. Moreover, the company itself
also gained 9 years working with farmers in Vietnam, mostly from minority
ethnics. Therefore, MDI has been accustomed to their suppliers.
Nevertheless, Nguyen also admitted that there were several obstacles coming
from the far geographic distance as well as their differences in education
levels, cultures, lifestyles and even languages with ethnic groups.

Similarly to these two firms, Green Fair Trade Company (abbreviated as GFT)
also has rich experiences in this field. Ms. Huong Ngo, GFT’s executive
 42

director, has studied about fair trade since 2009 and collaborated with farmers
since 2010, three years before the company was established. Instead of just
being the buyers, GFT has tried to be a partner with coffee farmers, raise their
awareness of sustainable development and create common benefits
throughout a transparent and effective value chain. The interviewee also
shared some disadvantages of operating with farmers, which are the slow
transformation in knowledge and performance, negative collectivism in rural
lifestyle, and the perception of short term profits over long term.

To summarize, both three companies have the starting point as a socialist,

working for the development of community. Thus they have strong motivations
to become more ethical and contribute to society. Furthermore, they have
experienced many years of partnering with farmers, resulting in deep
understanding and close relationship with their suppliers. Through
investigating and experimenting, they studied how to process their supply
chain to achieve productivity and efficiency.

Theme 2: Operation with farmers

The three firms manufacture coffee from various places where the plant is
popular, namely Quang Tri, Lam Dong, Da Lat, and Son La, locating in the
north-west or central highlands of Vietnam. They concentrate on poor, remote
rural regions and work directly with farmers to together improve their living
conditions. They all have different principles for the whole value chain that all
members are expected to adhere.

To MDI, the main requirement for suppliers is to follow fair trade principles
such as No child labour, No discrimination, Respect environment and
Freedom of association. Nevertheless, the two most essential ones in their
point of view are the potentials of improving coffee quality and enthusiasm to
work toward sustainable development. MDI is currently buying coffee from
approximately 1000 farmers, including tea, cashew and coffee sectors.

Oriberry also has same criteria about labour and environment. Besides, it is
necessary to perform good agricultural practices which are stated officially in
their websites:

 Soil needs to be tested

 Traceability and legality
 43

 Soil and fertilizer management

 Application of trees care and harvesting guidelines
Since its establishment, Oriberry has collaborated with large clusters of
farmers in Quang Tri Province (125 households in seven villages).
Nevertheless, as their business size is relatively small, they have recently
turned into a different model of working with individual farmers at other
locations. The representative said that “We are now focusing on smaller
coffee farming groups in Dien Bien and Son La to improve the supply chain.
We hope that these groups would later share knowledge and experiences with
other farmers in the area so that the whole region can develop toward
sustainability”. He also explained that the firm strengthened its supplier
network by holding farmers exchange trips where existing suppliers visited the
new ones to give helps and advices.

Unlike Oriberry and MDI, Green Fair Trade does not directly purchase coffee
from farmers, but boosting the trading process of their products to market. The
planting regions they have been working with are cooperatives from Dak
Nong, Lam Dong, Dien Bien, and Kon Tum Province. The company helps
farmers to access foreign importing partners, enlarge their domestic and
international markets in order to promote exporting and selling. In addition,
GFT contributes to the improvement of product quality and brand popularity in
the areas.

All the interviewed enterprises are young and in small sizes, thus instead of
setting really high principles for the suppliers in the beginning, they have
decided to coproduce with farmers step by step to reach the standards.
Beside financial targets, they also aim at social benefits by choosing suppliers
based on their poor living condition and unstable income. These operations
reflect the theory of ethical and sustainable sourcing discussed previously,
including collaboration and supplier development. The firms treat their
suppliers in an equal and win-win partnership with shared vision, risks as well
as information to enhance performance and solve quality problems.

Theme 3: Responsibility to society and environment

All the interviewees have claimed their commitment to social and

environmental-friendly practices. They target to build a positive brand image
that can differentiate themselves from other large coffee corporations in the
 44

market and increase added value of the products. During their operation, they
have made their best efforts to contribute to society through farmers
supporting activities and limit the influences on environment. The
responsibility toward community and ecosystem are emphasized as important
as the need to improve coffee quality.

As mentioned previously, these enterprises choose to work together with their

suppliers in planting and farming. They believe that through good farming
practices, they could both achieve high quality of products, smoothen the
process and protect the living environment. Dao Phuong has explained the
situation of farmers in the beginning:

“When we just started the project in Quang Tri, not all the farmers
perceived of the coffee production process. They did not apply the
right methods of planting, fertilizing, enriching soil and watering.
Most of them have paid attention to protecting the plants, but not
cared about nurturing the soil. They also did not take advantage of
machines effectively.”
Realizing those challenges, Oriberry has helped farmers approach innovative
farming guidelines, put the use of technology into practice and build
agricultural co-operatives to manage the production. The firm also orients
toward organic farming by composting fertilizers, arranging coffee planting
areas and pest controlling. Similarly, according to Minh Nguyen, MDI
Company has supported the suppliers in cultivation techniques, processing
techniques and advance their management skills. “It is also a way to maintain
a long term development for farmer groups and protect environment as well as
consumer’s health”, she said. The Betterday products, their wholesale and
retail brand, are eco-friendly manufactured which meets European standards
for agricultural food safety and chemical use. In terms of GFT, in order to
preserve environment, the firm has committed to apply organic fertilizer,
replace the use of gas by electricity and restriction of chemical substances in
coffee products.

Another farmers supporting measure is to buy at a higher price and expand

the markets. Both MDI and GFT Company aim at reaching more customers so
that they can buy an increasing amount of coffee with Fairtrade price, which is
higher than the conventional. On the other hand, Oriberry do not use the
Fairtrade price, but apply their own pricing policy that also benefits farmers.
They pay the suppliers 20% more than local market price for Oriberry coffee,
 45

and in case the market price falls down, they pay the production cost plus
10% for farmers. Additionally, through enlarging the market, the company
wants to create more offers and opportunities, thus generate better selling
power and negotiating power for people who grow coffee as a living.
Furthermore, the growth of business opportunities raises the need for more
works and employees, producing numerous jobs in the industry.

When being asked about the improvement of farmers’ life, all three
interviewees stated that their firms have achieved positive social results.
According to Dao Phuong, an evidence for the higher product quality and
better living standard is that farmers start to spend some of their coffee on
personal consumption. “Previously they sold all of their cherries as they were
lack of money, and also they did not consider coffee as a good beverage. But
recently they have enjoyed it as well”, he explained. In his opinions, the
farmers became more satisfied and confident, since they have guided other
suppliers in the company’s network to follow their organic farming methods
and techniques. In terms of income, MDI’s representative noticed that overall
benefits of farmers have increased, especially in the tea sector which their
income doubled within just the first two years of operation. “The ethnic
minorities have sent their children to school. They feel more excited and proud
of their products being purchased by foreign customers”, Minh Nguyen
commented. She also mentioned an experience of their farmer group’s leader
joining the Asian Producer Association of Fairtrade meeting in India in 2009.
In terms of awareness, GFT director believes that their farmers are getting
better understanding and applying of fair trade and sustainable farming. The
cooperatives in Dak Nong, Lam Dong start to increase their productivity,
efficiency and product quality, leading to their approach to fair trade market
which offers the price 160% higher than conventional average. The farmers
now can decide where to sell their coffee, not depending on few large
corporations like before.

In addition, the enterprises have made efforts to contribute to community, not

just their suppliers. Since 2014, Oriberry has participated in several social
activities and events such as barista training courses, charity bazaars and
coffee tours. In 2016, Green Fair Trade Company has joined in organizing
“Young Fair Trade Leader” Contest for new startups in Vietnam with the aim of
finding and investing in business ideas of fair trade products and services.
 46

As can be seen, these young companies have seriously concentrated on

ethics and sustainability in production. Founded by socialists, the firms truly
desire to contribute to community and create not only financial profits but also
positive social and environmental impacts. By cooperating with farmers and
committing to their responsibilities, they have achieved several successes in
limiting harmful chemicals, saving resources and energy, together with
improving suppliers’ lives. Furthermore, their brand images of high coffee
quality, restrictive use of pesticides and farmer supporting activities have
fulfilled what consumers expect from an ethical business, as analysed above.
Hence, these companies have potential to attract more customers in the
future.

Theme 4: Ecolabels and Certificates

As analysed above, international ecolabels and green certificates are the most
reliable source of information in customer perception. Therefore, both three
companies have attempted to apply for these labels. While Oriberry tried to
achieve certificates from UTZ, other two firms have targeted at Fairtrade
labels. They all admitted that there are numerous difficulties coming from the
application procedures.

“It is very hard for the farmers to get certified by Fairtrade. They
do not understand the language, their team-working skills and
group-management skills are poor and inefficient. They are also
not used to recording their daily process, quantity and productivity.
Moreover, the application fee for Fairtrade is quite high to
small/medium farmers.”, Nguyen from MDI told the researcher.

Similar problems have challenged Green Fair Trade Company. According to

their director, the process requires farmers’ strong determination and
willingness to follow the Fairtrade standards, stable financial source to pay
annual fee, improvement every year, good management and transparency. “It
is very time-consuming and complicated”, said the director.

Nevertheless, the companies have still succeeded in getting green certificates

for agricultural products, such as Fairtrade Dalat Coffee (green beans) from
MDI and Thuan An Arabica and Robusta coffee from GFT. In case of MDI,
both the firm and their suppliers need to achieve these labels, and MDI has
supported their farmers in paying fee and processing the application.
 47

On the other hand, Oriberry did not manage to apply for the ecolabels. To get
the UTZ certificate, it is necessary to examine both the production process
and the quality of final products. However, the costs for these examinations
are so high that farmers usually choose to either test the process or test the
final items, leading to inadequate information. Additionally, after limiting the
business target at only domestic market, the firm has realized that they could
develop a regional label instead of a global one. As their main source comes
from Khe Sanh Region in Quang Tri Province, Oriberry has concentrated on
spreading the local brand: Khe Sanh Arabica for farmers who have committed
to best coffee practices. The brand has gradually become popular, attracting
more and more groups roasting coffee themselves and been officially
acknowledged by the Department of Agriculture.

Figure 15: Oriberry products with local label Khe Sanh Arabica

The situation of these companies has emphasized the theory discussed

previously about drawbacks in ecolabel application process and the founding
of local certificates. The theory considers local labels as an appropriate
replacement in case there are numerous difficulties from complex paperwork
and condition differences, and the solution of Oriberry also proved that the
regional labels can be widely spread in society. As a result, small companies
 48

and farmers who are not able to achieve international certificates can have
another potential solution to still develop toward sustainability.

Theme 5: Customers reactions

While MDI and Green Fair Trade primarily target at exporting coffee products,
Oriberry has focused only on domestic market. The main overseas importers
of MDI are Danish, German and Dutch corporations whereas just about 10%
of the products are distributed in retail shop and selling outlets around Hanoi.
Additionally, GFT even opens their stores on Alibaba, an international online
shopping web. Oriberry, on the other hand, decides not to export due to their
small production and possible dependences on foreign buyers. The firm has
opened three beverage shops in Hanoi to respectively aim at Vietnamese
consumers, international tourists and foreigners living in the city. The
reactions of these customer groups to the increase in price of ethical products
have diversified from firm to firm.

According to Dao Phuong, sourcing coffee just accounts for approximately

10% of the total cost to operate Oriberry coffee shops. Although the firm has
to pay premium price for farmers, there are no remarkable changes in how
much customers need to pay for a cup of coffee. “Our pricing is not different
from other coffee providers in the market, thus we do not see reluctance in
customer behaviour. What makes us less attractive than other competitors
may be our shop decorations. Our first two coffee shops are quite small and
simple, mostly for foreigners and tourists. So we are trying to make the third
one more appealing to younger groups of Vietnamese customers.” – He
concluded. In terms of Green Fair Trade, the company said that their
customers are willing to pay 15-20% higher than market price to products with
Fairtrade certificates.

In contrary, MDI has faced obstacles resulted from an increment in product

price. Due to certificates fee, the high standards in production and no use of
cheap and harmful chemicals, MDI’s coffee are more expensive than market
average. The firm’s representative answered in the interview that buying
motivations from consumers have decreased, and usually people with high
income paid more attention to the products. “There are some manufacturers
who advertise their coffee product with a much lower price. However, these
products’ quality is not as good as they promised, making consumers
 49

confused, uncertain, and creating unfair competitions in the market.”, Nguyen

replied.

Talking about the future trend in customer behaviours, Dao Phuong

mentioned three waves of coffee (discussed in theoretical framework). He
believed that Vietnamese market is in the second wave where they enjoy
having coffee at shop as a specialty drink, which also complies with the online
survey results. And there is a positive movement toward the third wave where
consumers care about coffee origin and the manufacturing process.

Theme 6: Future plan

Both three interviewed firms have planned to continue developing and

promoting their production toward sustainable direction. Despite facing
numerous challenges, they still keep operating in accordance with their vision
and mission. It is hoped that with their future potentials, these companies can
inspire and stimulate the industry, especially in ethical sourcing.

To Oriberry, their strategy for the near future is to enhance the involvement of
Vietnamese farmers in roasting coffee beans, building strong local brands and
participating in coffee and drinks services. After achieving certain success with
coffee, their next step is expanding the business to fruits sectors, improving
supply chain of fruits and juices as well as enlarging distribution channels.

Answering the researcher, MDI’s representative stated that the company has
not had any plans to expand sourcing areas and supplier groups in the few
next years. Instead, they keep co-operating with existing farmers and
continuously improve product quality by constructing their corporate program,
resolving financial strategy, cost allocation and profit reinvestment.
Furthermore, MDI hopes to broaden both domestic and international markets
in order to increase agricultural outputs.

Lastly, Green Fair Trade Company profoundly focuses on enlarging fair trade
market in Vietnam. They are going to develop Fairtrade Garden and Fairtrade
shops which sell clean, organic and certified agricultural products with clear
origin. They also try to approach other trading chains and systems to further
promote their items, along with keep advancing the production at
cooperatives.
 50

5.3 Recommendations to improve coffee ethical sourcing in Vietnam

5.3.1 Improvement in enterprise operation

It can be seen from the survey data analysis that the majority of consumers
are lack of knowledge about ethical and sustainable products; besides, they
are also the main factor that drives the whole value chain. As a result, it is
essential for enterprises to escalate their awareness and attention to
production and sourcing process, thus influencing their behaviours. The coffee
companies should increasingly concentrate on promoting and advertising their
commitment and responsibility toward ethical sourcing. By stating their
determination and showing their attempts to develop sustainably, the firms
make customers more familiar with the concept. The more they see and hear
about sustainability in their daily life, the more often they would think and find
it when making buying decisions, raising demand for green brand image.
Since customer demand is the start of a value chain, it will lead to the change
throughout the organizational process as well.

Another important role in the supply chain is the company itself. Firms are also
in need of improving their knowledge and practices of ethical sourcing. It is
necessary to encourage farmer groups and small processors to apply organic
farming methods and help them with technical issues. Training programs and
guidelines could be held in order to raise their awareness, sharpen their
working skills and offer an open space to share related experiences.
Furthermore, companies are responsible for fair prices that benefit both them
and farmers, giving farmers more power in bargaining and providing them
financial assistances. As mentioned previously, the long term collaboration
between firms and suppliers plays a key role in ethical sourcing, hence
Vietnamese coffee producers should advance their co-operation with shared
risks, shared vision to reach a win-win solution. There are already some
companies such as MDI and Oriberry that have been successful in developing
their suppliers, so it is possible for others to follow that potential growing
direction.

Besides supporting the suppliers, strict and consistent monitoring is also

required to enhance the efficiency of the process. By establishing Code of
 51

Ethics and controlling environmental impacts, companies can manage and

assess how productive and sustainable their farmers have grown and
collected coffee. International ecolabels and certificates are another guarantee
for the performance of suppliers.

Last but not least, ethical firms should promote their products more strongly to
other retailers and distributors, thus intensify the availability of their coffee in
the market. Instead of concentrating on the brand, many customers purchase
coffee which they can find easily in department stores and supermarkets.
Therefore coffee business needs to take advantages of the network by
building solid relationships with retailers and beverage shops, in order to place
their green products on the shelves and introduce them to buyers.

5.3.2 Governmental support

The research has mentioned previously that Vietnamese government has

relatively poor financial supports to agricultural industry in comparison with
other neighbor nations. Therefore it is suggested to pay more concentration
on promoting the industry in the future, specifically coffee sector. By offering
capital grants, subsidies and input facilities, the government can place positive
influences on the supply chain. The assistance should be escalated to
suppliers who operate efficiently and social-beneficially in order to stimulate
ethical development among coffee farmers.

In addition, it is recommended for government to work with social

organizations or NGOs to provide farmers, especially those living in remote
mountainous areas, availability to modern technologies, machines, organic
fertilizers as well as arrange training program of good farming practices for the
community. Accessibility to market is also crucial for them to gain knowledge
of customers, other coffee processors, market demand of quality and quantity,
thus they have an overview of the situation and ideas to build their orientation
strategy. Through the access to market, Vietnamese farmers can approach
various opportunities for business collaboration and employment as well.

Furthermore, Vietnam’s government should invest in researching and

developing advanced technology, infrastructures and alternative energy
sources. As a result, farmers and processors could reach a larger amount of
 52

energy to boost productivity, maintain the downward and upward flows of

information throughout the value chain as well as utilize the use of ICT in
manufacturing coffee products. The application of these skills and equipment
could increase the outcome quantity and quality while still limiting
environmental impacts from production. A solution to enhance technology is to
import them from developed countries in Europe and Asia. It also creates
more motivations for foreign markets to involve in manufacturing process and
raise their imports from Vietnam.
 53

6 CONCLUSION

6.1 Findings summary and conclusion

The research has studied and analysed Vietnamese coffee sector in terms of
sourcing process based on consumer awareness and enterprise operations.
By investigating both demand and supply sides, it could give an overall look at
the current process as well as potentials and future directions for the industry
to develop. The summary and conclusion will be conducted in this part by
briefly answering four research questions.

What is the current situation of coffee sourcing in Vietnamese market?

Coffee has experienced a long history of planting in Vietnam and also played
an important role in the economy until now. The industry remarkably
contributes to the country’s growth and provide livelihood for a large number
of citizens. Vietnam has ranked second as a coffee producer and exporter
throughout the world. Currently, the industry still remains its position on an
upward trend, nonetheless it has been facing serious problems that threaten
its development in the future. These challenges result from unsteady
production, low price, and ineffective operation, leading to farmer poverty,
under-qualified products and environmental damages. Realizing the issues,
Vietnamese government has implemented supporting policies and
manufacturing requirements, which have not created significant impacts yet.

What do consumers perceive of ethical sourcing and how does it

influence their buying behaviour?

The majority of coffee consumers are men, and it is primarily served as a

specialty drink at beverage shops. In the order of importance, Vietnamese
customers prioritize coffee quality the most, while the factors of ethics and
sustainability are not highly considered. They hardly have knowledge and
experience of ethical production and trading. Furthermore, they also lack of
motivations to achieve those knowledge as well as understanding of
enterprises’ performance.

Nevertheless, an optimistic sign has been shown as consumers have strong

willingness to purchase products which are proved to be ethical, regardless of
price, location and brand. They own an interest to international ecolabels and
 54

green certificates as well, resulting in huge advantages for certified agricultural

items in the market. Generally, Vietnamese customers are described as
passive eco-friendly.

What have companies done to make their sourcing activities more

ethical?

There is an increasing number of ethical operations in coffee sector who truly

care about social and environmental responsibilities. They usually have
gained experiences in collaborating with rural farmers before working as an
enterprise. These companies improve their sourcing activities by directly
coproducing with farmers along with training and advancing their process.
They offer higher prices and attempt to expand market for sustainable
products in order to give suppliers more choices as well as trading power. By
achieving global ecolabels like Fairtrade and spreading local certificates, the
firms also enhance the brand image and reputation for their products and
farmer groups. Although there are numerous difficulties in the process, they
have still managed to raise product quality and farmers’ living condition.

What are the recommendations to improve coffee sourcing in Vietnam?

Based on the situation, the research has suggested some solutions to improve
coffee sourcing in Vietnam. As one of the main actors in the value chain,
coffee companies should increase promotion about a green and ethical image
to raise customer perception, along with encouraging and assisting farmers to
follow modern and organic farming methods. They also need to approach and
partner with various distribution channels to reach more consumer groups. In
addition, it is essential to receive supports from government in terms of
finance, infrastructure, and access to market and technology.

With all analysis above, the research comes to a conclusion that the trend of
ethical sourcing are gradually influencing Vietnamese coffee sector, first to
young and medium social enterprises. The rising awareness of farmers and
positive attitude of customers have opened a direction of sustainable
development and motivated the industry to make the movement. Although it
requires continuous efforts, it will promisingly solve the current problems and
remain fundamental position of coffee industry in the economy.
 55

6.2 Research Scope and Limitations

The research concentrates on Vietnamese coffee market only, not the whole
economy or importing markets. It discusses about sourcing process from
farmers to enterprises and within the awareness of the end users. It does not
include other activities throughout the supply chain although some of them
may be mentioned. Moreover, in terms of sourcing, the research focuses more
on the collaboration between farmers and producers than environmental
aspects, thus environment is still mentioned but not chiefly debated.

The limitation of the research is that some data was collected from
Vietnamese sources. Some sources have English versions but there are still
two articles only in Vietnamese, which hinders the ability for non-Vietnamese
readers to check the information. Nevertheless, they were published by official
and popular websites, ensuring their accuracy and reliability. The main and
important information of the research can all be found in English. Besides, the
research is primarily done via Internet and social media due to physical
distance between Finland (where it is processed) and Vietnam. Thus, it lacks
of practical experiences and direct face-to-face communication.

Another limitation of the study is the shortage of respondents’ diversity. The

online survey has not reached consumers who are older than 40 or coming
from rural, remote areas in Vietnam. In addition, the interview did not succeed
in approaching dominant coffee corporations, both domestic and international
ones, in the market. Consequently, the results have not multidimensional to
represent the whole Vietnamese society.

6.3 Suggestions for further study

During the research process, it can be seen that every stage of the supply
chain is tightly connected to each other. Therefore, the recommendation for
further study is to examine integration of the whole chain, including sourcing,
production of the companies, transporting, distributing, marketing and other
services under the effects of ethics and sustainability. Furthermore, as this
thesis has not analysed in details the enterprise’s activities, it is suggested
that upcoming research may concentrate deeply on one company and follow
their operation to assess their effectiveness and improvement. By working
 56

with just one firm, it can also give more practical ideas contributing to its
growth and success.

Additionally, based on what have been investigated in coffee sector, other

studies in the future can expand to the whole agricultural industry or
fruits/vegetables sectors. As they have similar features and may face the
same issues, it is potential to continue developing from this research as well
as relate between different business factors. Besides, enterprises usually
manufacture products not just from one but various sources such as tea,
cashew and fruits; hence by committing with one particular company, the
researcher can still reach a number of trading sectors in the industry.

Lastly, through this study, it is acknowledged that the coffee supply chain has
been largely driven by the activities of export and import. Since a huge
amount of coffee is spent on international markets, the power of foreign
buyers has left significant influences on the manufacturing process, including
price. Therefore, further research can focus on the transnational level of
trading, from the activities of MNEs to the worldwide regulations and how they
affect the sustainability in this business sector.
 57

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 61

TABLE OF FIGURES
Figure 1: Poverty Rate in Vietnam's regions (General Statistics Office of Vietnam 2016) . 10
Figure 2: The Value Chain (Potter 1985) ........................................................................... 12
Figure 3: Triple Bottom Line (Source: Selling Sustainability Solutions).............................. 15
Figure 4: Food Supply Chain from the perspective of Processor (Van de Vorst et al 2007,
p15).................................................................................................................................... 19
Figure 5: The UK Food Supply Chain excluding export-import activities (Bourlakis &
Weightman 2008, p.6)........................................................................................................ 20
Figure 6: The Ethics Matrix (Food Ethics Council 2001) .................................................... 22
Figure 7: Frequency of buying coffee in percentage of Male and Female (each gender
accounts for 100%) ............................................................................................................ 33
Figure 8: Preferred places to drink coffee of Vietnamese customers in percentage .......... 34
Figure 9: Level of importance among factors in making buying decision ........................... 35
Figure 10: Willingness of customers to buy ethical coffee products ................................... 36
Figure 11: Responses to the statement “You believe your individual buying behaviour can
have social and environmental impacts” ............................................................................ 38
Figure 12: Responses toward desire and efforts to know coffee sourcing (in percentage) 39
Figure 13: Respondents’ choices on reliable sources of information ................................. 40
Figure 14: Participants’ responses for ecolabels on packaging ......................................... 40
Figure 15: Oriberry products with local label Khe Sanh Arabica ........................................ 47

TABLE OF TABLES

Table 1 Validity and Reliability of Qualitative research ...................................................... 32

 APPENDICES
Appendix 1/1
ONLINE SURVEY OF CUSTOMER BEHAVIOUR ON ETHICAL SOURCING
1. Cities:
Number of respondents: 98

Frequency Percentage
Hanoi 76 77.55%
Ho Chi Minh City 7 7.14%
Bien Hoa 7 7.14%
Others 8 8.16%

2. Age:
Number of respondents: 101

Frequency Percentage
<18 1 0.99%
18-29 97 96.04%
30-39 2 1.98%
>40 1 0.99%

3. Gender:
Number of respondents: 101

Frequency Percentage
Male 36 35.64%
Female 65 64.36%

4. Occupation:
Number of respondents: 98

Frequency Percentage
Student 72 73.47%
Administrative Assistant 8 8.16%
Accountant 3 3.06%
Trade/Marketing related jobs 8 8.16%
Others 7 7.14%
 Appendix 1/2
5. Frequency of purchasing coffee
Number of respondents: 101

Frequency Percentage

>10 times/month 24 23.76%

5-10 times/month 23 22.77%

1-5 times/month 29 28.71%

<1 time/month 25 24.75%

6. Place of having coffee

Number of respondents: 101

Frequency Percentage
Served at shops 57 56.44%
At home 27 26.73%
At school, office 6 5.94%
Take away 11 10.89%

7. Rate the factors according to their level of importance when making

purchasing decision of coffee products: 1st as the most important and 7th as
the least.
Number of respondents: 101

Frequency
1st 2nd 3rd 4th 5th 6th 7th
Familiar Brand 11 18 19 11 12 21 9
Taste and Quality 42 15 5 11 13 8 7
Popularity of the brand 14 10 11 17 17 13 19
Ecolabels and Certificates 8 11 16 11 17 16 22
Price 5 21 19 18 20 9 9
Convenient Location 10 13 18 15 12 23 10
Personal Emotion 11 13 13 18 10 11 25
 Appendix 1/3
8. Frequency of purchasing coffee from ethical brand (over the past 6 months)
Number of respondents: 101

Frequency Percentage
Never 31 30.69%
1-5 times 16 15.84%
5-10 times 3 2.97%
> 10 times 2 1.98%
Not sure if the brand is ethical 49 48.51%

9. Factors relating ethical sourcing

Number of respondents: 101

Strongly Neutral Strongly

disagree Disagree Opinion Agree Agree
Want to know more about where and how
your coffee is sourced 10.9% 7.9% 22.8% 26.7% 31.7%
Have tried to find out where and how your
coffee is sourced 29.7% 34.7% 26.7% 4.0% 5.0%
Looking for ecolabels and certificates in the
product packaging 24.8% 26.7% 23.8% 12.9% 11.9%
Willing to pay higher price for ethical
products 6.9% 9.9% 23.8% 32.7% 26.7%
Willing to travel farther to buy ethical
products 12.9% 13.9% 25.7% 31.7% 15.8%
Willing to change to another brand which
is more ethical 3.0% 9.9% 27.7% 32.7% 26.7%
Believe that personal buying behaviour can
have environmental and social influences 7.9% 7.9% 19.8% 20.8% 43.6%

10. Trustworthy sources of information (choose more than one option is

possible)
Number of respondents: 101

Frequency Percentage
Company's claims and
advertisements 13 12.87%
News and Magazines 31 30.69%
Word-Of-Mouth 56 55.45%
Ecolabels and Certificates 83 82.18%
 Appendix 1/4
11. Factors to consider a company as ethical operation
Number of respondents: 101
Strongly Neutral Strongly
disagree Disagree Opinion Agree Agree
Supporting Farmers 7.9% 5.9% 10.9% 32.7% 42.6%
Community Involvement 3.0% 16.8% 22.8% 35.6% 21.8%
High Quality of Coffee 5.0% 5.0% 7.9% 18.8% 63.4%
Energy Saving 6.9% 4.0% 17.8% 29.7% 41.6%
Limited use of pesticides and
chemicals 7.9% 1.0% 3.0% 17.8% 70.3%

12. Open Questions: Personal opinions toward ethical sourcing issues that
you want to add?
Number of respondents: 3
 Appendix 2
VALUE OF CRONBACH ALPHA AND PEARSON CORRELATION
Cronbach Alpha value calculated in SPSS software for questions 9 and 11:

Reliability Statistics

Cronbach's Alpha N of Items

.771 12

Correlations coefficient value:

Correlations

Believe that
personal buying
behaviour can Willing to change
have to another brand
environmental and which is more
social influences ethical
**
Believe that personal buying Pearson Correlation 1 ,462
behaviour can have Sig. (2-tailed) ,000
environmental and social N
101 101
influences
**
Willing to change to another Pearson Correlation ,462 1
brand which is more ethical Sig. (2-tailed) ,000

N 101 101

**. Correlation is significant at the 0.01 level (2-tailed).

Correlations

Believe that
personal buying
behaviour can Want to know more
have about where and
environmental and how your coffee is
social influences sourced
**
Believe that personal buying Pearson Correlation 1 ,534
behaviour can have Sig. (2-tailed) ,000
environmental and social N
101 101
influences
**
Want to know more about where Pearson Correlation ,534 1
and how your coffee is sourced Sig. (2-tailed) ,000

N 101 101

**. Correlation is significant at the 0.01 level (2-tailed).

 Appendix 3

QUESTIONS FOR QUALITATIVE INTERVIEW

1. Company experiences
 How long have your company operated in this field? In your opinion,
what are the important factors related to ethics and sustainability in
this field?
 Are there any challenges to collaborate with farmers and operate
the process?
2. Operations
 Where have you purchased coffee from?
 How do you choose and evaluate suppliers?
3. Company Responsibility
 What have your firm done throughout the sourcing process in terms
of environment protection?
 What have your firm done to support farmers? In your point of view,
how have farmers’ life been improved?
4. Ecolabel and Certificate
 Do you apply for any ecolabel and eco certificate for your products?
What are the challenges to apply for an ecolabel?
 Are there any local labels for your products? If yes, how have they
been developed and spread out?
5. Customer Reaction
Is your product price influenced by ethical and sustainable sourcing process?
If yes, how have customers reacted to that change?

6. Future Plan and Recommendation

What is the future plan of your company toward ethical and sustainable
direction? What do you want to improve?