Fiji Water’s so-what & why IP colonists are the ones to redefine Corporate Social Responsibility
There are dictators and then there are people who simply own countries. There is a thug who has to think twice about landing in a particular European capital, who stresses out over patronage pyramids, foreign aid flows, the hassle of motivating half the country to snitch on the other half. And then there is a guy, or a gal, doing yoga in, say, Los Angeles, popping in on Conservation International board of directors meetings, chatting with Obama next time he’s in town, reminiscing about the activism of Yes-We-Can yesteryear of 07 & 08, and telling a journalist, calmly, matter-of-factly:
When someone buys a bottle of Fiji, they’re buying prosperity for the country. Without Fiji Water, Fiji is kind of screwed.
In this earlier post (long but full of pretty pictures and funny videos), you can trace the long saga of how it came to be that a bottle of water from Fiji awaits you in any middle-of-nowhere spot in Europe and North America. Linda Resnick, the POM Wonderful queen, copier of Pentagon Papers, Arianna Huffington’s BFF, owner of California’s almonds, pistachios and pretty much most of U.S. citrus, buys the company from the Canadian mogul David Gilmore who kickstarts it all in 1995 after learning of a 17-km long aquifer in the highlands of Fiji’s main island. Mrs. Resnick, with her husband Stewart, builds on what Gilmore started: a brand cocktail of exotica, ad-free lefty/progressive/Hollywood buzz building, top-shelf status signaling, and two decades of parallel commodification of water and public utility fear mongering.
History’s love affair with the Vatukaloko
Buried under this pile of facts lies the original sin, obscure even to those, like Mother Jones, exposing Fiji Water’s various hypocrisies. The Vatukaloko people who lived on this land at the time of British colonization of Fiji caused the most trouble to colonial masters. They fought both the British and the Fijian coastal kingdoms and based their sovereignty claims on their indigenousness to the interior Fiji and an identity that had a lot to do with interior water that was neither coastal nor foreign.
The British couldn’t afford a lot of trouble as Fiji was turned into a profitable sugar estate. Their solution was to lock up all of Vatukaloko and put them on a different island. Fast forward two centuries as the British are getting ready to leave. Almost all other ethnic groups in Fiji get to own their land inalienably, except Vatukaloko who are nowhere to be seen. Theirs got lumped into 17% of land in Fiji that became nationalized government property. Vatukaloko’s unsuccessful attempts to return this land, made throughout the last century, became especially unlikely once David Gilmore thought of “Fiji Water” in the early 1990s and got a 99-year lease from a very friendly military junta.
Corporate Social Responsibility 2.0
This is not yet another horror story of thorough, deafening injustice that only induces paralysis and sends a whiteman chasing escapism. This is a story about a pretty bad situation that can be made better. What is bad is not simply the usual, cocky, condescending act in which a corporation, in the face of blatant exploitation, dresses up its business model in the sugary language of win-win. This one goes beyond the usual grievance. It is not Burger King grossly underpaying tomato pickers in Florida or Target relying on semi-slaveholding manufacturing contractors in Indonesia. This theft is actually grand-er but so is, and this is where this story gets interesting, the potential for remedy and a better future for all.
Before anybody gets a chance to say that a company cannot be responsible for the last 300 years of world history, let’s immediately agree that however shady the ways in which David Gilmore got the aquifer for 99 years and however unjust the fundamental tragedy of the Vatukaloko, the fact that FIJI Water (to respectfully follow the brand guidelines for a moment) exists and is wildly successful is not the problem.
During the 2000 coup [they are a cyclical occurrence in Fiji], a small posse of villagers wielding spearguns and dynamite seized on the chaos to take over the bottling plant and threaten to burn it down. “The land is sacred and central to our continued existence and identity,” a village spokesman told the Fiji Times, adding that “no Fijian should live off the breadcrumbs of past colonial injustices.”
Nothing knows irony like a post-colony and in Vatukoloko’s case it is somehow so compactly layered there is something Monty Python-esque about it. What does it feel like to, say, see Obama on TV sipping it? It’s probably a dissonant surge of both pride and emptiness. Probably similar to what, say, a black blueswoman must have felt watching the world lose it over Elvis. But this is not the issue; the British bought and sold the blueswoman and resettled the Vatukaloko a long time ago. It’s 2011, there is a water company sitting on the land, the whole world can’t get enough of its squared, expensive bottle, the lease is legal, and 400 people have jobs. Neither David Gilmore nor the Resnicks can be expected to have, in the face of this weighty history, the plant disassembled, distribution agreements discontinued, land returned. That won’t happen.
And here we arrive at the heart of the matter. Mrs. & Mr. Resnick don’t just control the land and the water.
From manufacturing to intangibles
To make money with bottled water is no easy feat. Here you won’t find beer’s microbreweries or coffee’s boutique importer-roasters. The brands you know are all owned by either Coca Cola or Pepsi Co. and then there is French Evian, the “original” high end water. This business pays either if you are a mega corporation and can produce scale with a low-brand-loyalty, pretty much commodity water (Dasani, Aquafina) or you claim to offer something special, not available at just about every gas station, and priced accordingly, like Evian or Volvic (both of the French Danone Group).
Smart business is easy to admire. To start from scratch and shoot for the high-end bracket, and succeed by actually pricing your bottle higher than the rest, has rightly been greeted with envy and accolades in business school case studies and by people who go by titles like brand strategist or creative officer. The biz commentariat is keenly aware of fundamentals of modern commerce. Competition on price and ever cheaper production is a thing of the past.
This is to business what relativity theory is to physics, the big truth that underwrites everything to the point where there is no need to point it out. Once upon a time business schools were all about churning out managers who cut supply chain fat and drove down both the costs and the price. Winning meant making the case that you are just as good or better but cheaper. And there was something to cut because by the time you brought your product to retail, half or more of the money you got from the customer went into covering the cost of making the thing. What happened next is the familiar part of narrative: Asian tigers, Chinas, Mexicos. Manufacturing turned global and cheap, and cheaper, and cheaper. And then some. So much that Business Week could proclaim in 1997:
Today, for the first time in years, there is worldwide overcapacity in industries, from semiconductors to autos. And the excess supply will get even worse as Asia tries to export its way out of trouble.
This is a time when you (First World reader) stop knowing anyone who makes things you use and your counterpart far away starts making things she can only see at work but never afford to bring home. Labor became a global buyer’s market and from the perspective of business strategy close to a non-issue. Where you send your product to be made, who makes it, etc. etc., those were secondary matters as there was not much to squeeze there and the competitive advantage you needed to nail lied elsewhere.
By the time you went shopping in the 1990s about 5% or less of the money you paid at the retail counter for just about any product – your socks, air conditioner, trash bags, your contact lenses, your coffee, you name it – covered the costs of production. The rest of that retail value, per the above graphic, consisted of distribution margin and intangible value.
This, of course, is one of the grand achievements of the neoliberal (counter)revolution; David Harvey can contextualize the rest.
Intangibles and the Global South
How many brands do you know, do you use, that are neither Western nor Far East Asian? I dare you to find some. Email me, if you do.
Here is a visualization suggestion. Everyone likes short cuts to seeing trends and big pictures: a timelapse of world conflicts, or a map of continents according to GDP. One you have surely come across before is the famous night view of the Earth. There are many stories in that image, one being the unequal nature of the world. But, also, how things change as the image gets updated; there are spots that used to be dark and no longer are.
Consider what a similar map of the world’s brands would look like. It’s one way to look at the last 400 years.
It goes hand in hand with this change in the market value breakdown of S&P companies:
IP owners live in rich countries of the North.
Which means that the vast darkness on the map, the Global South, is toiling to produce more, to make better, to do it cheaper, to lure you to send your production plans their way. This is the cornerstone of the development mantra. An ideology and an economic development prescription that has both a little post-conflict Bosnia and a big and very poor Ethiopia both praying to Economous, the god of commerce, to bless them this year, maybe next, with holy letters of FDI.
What the mantra leaves out is that all of the developing world is competing for the same slice of retail value of products they would produce – the production cost margin of 5%. What’s more, a slice that has been shrinking for the last 30 years. Ninety plus percent of value is left on the table to be controlled by distribution and retail.
An Ethiopia has huge transportation costs, a Bosnia is too ravaged and too educated and when it comes to Fiji one look at the map explains why your company will not be putting an assembly there. No Asian tiger dreams for them, but yet pretend they must there are. It is one of today’s great tragedies that the majority of the world is putting their hard work and hopes for better future in boosting production and getting less and less in return.
It’s not that these poor places don’t have intangibles. It’s that when they do, others either own them or own the margins these intangibles earn. The story of Fiji Water is one such example.
Why you don’t see another bottle from Fiji
“The land is sacred and central to our continued existence and identity,” a village spokesman told the Fiji Times, adding that “no Fijian should live off the breadcrumbs of past colonial injustices.”
Two years later, the company created the Vatukaloko Trust Fund, a charity targeting several villages surrounding its plant. It won’t say how much it has given to the trust, but court proceedings indicate that it has agreed to donate .15 percent of its Fijian operation’s net revenues; a company official testified that the total was about $100,000 in 2007.
Fiji Water’s marketing budget at $10 million in 2008 (Brandweek). It recently dropped $250,000 to become a founding partner of the new Salt Lake City soccer stadium.
“Learning from the lessons of products, we must brand ourselves,” Fiji’s ambassador in Washington told a news site for diplomats in 2006, adding that he was working with the Resnicks to try to increase Fiji Water’s US sales. A Fiji Water bottle sits at the top of the embassy’s home page, and the government has even created a Fiji Water postage-stamp series—the $3 stamp features children clutching the trademark bottles.
Fiji Water … has trademarked the word “FIJI” (in capital letters) in numerous countries. (Some rejected the application, but not the United States.)
It has also gone after rival Fijian bottlers daring to use their country’s name for marketing. “It would have cost too much money for us to fight in court,” says Mohammed Altaaf, the owner of Aqua Pacific water, which ended up taking the word “Fiji” out of its name. “It’s just like branding a water America Water and denying anyone else the right to use the name ‘America.’”
“They don’t have a ton of options for economic development,” Mooney told U.S. News & World Report, “but bottled water is one of them. When someone buys a bottle of Fiji, they’re buying prosperity for the country.” Without Fiji Water, he said, “Fiji is kind of screwed.”
THE NITTY GRITTY
Weak (could) become heroes
It’s time to define what an IP colony really is. It is unlike an 18th or 19th century state-private venture, something ala East India Company, that goes after a raw material, a luxury spice, or human labor while relying on its home country (the empire) to provide physical and political control that makes all that possible.
A 21st century IP colonist is still a Western company going after resources in what is now referred to as the developing world and selling products in Western retail. These resources today, in what is the crux of the story you are reading, are intangibles. Obtained through dispossession or crass exploitation or both, it is the intangibles of Global South that underwrite the specialty status and retail value of a great range of corporate, Western products.
Fiji in the story of Fiji Water plays the role of an IP colony.
IP colonists search for and build into their business models distinctiveness in various forms – uniqueness, identity, traditional knowledge, heritage, invention – in order to earn comparative advantage in Western markets where, as elaborated earlier, intangible value makes up most of the price consumers pay for most of the products they buy these days. In practically all instances of IP colonialism, the true and rightful owners of these intangible assets earn sometimes as low as 2%, rarely as high as 10% of income their IP earns in retail. They more often than not live in extreme poverty, on less than $2/day and struggle for physical survival.
In some cases IP colonists manage to outright own this intangible value in retail markets in the of form intellectual property such as trademarks, patents, and trade secrets, in others they use strategies such as distribution monopoly and marketing muscle, to exercise de facto ownership.
But, as I labor to emphasize throughout the story, Fiji water’s is as much a saga of potential and breakthrough as it is of exploitation. The business proposition that makes Fiji Water possible is indeed the hallmark of a world remade by three or so decades of what has come to be known as neoliberalism. The key transformation of this time, our recent past, is appropriately captured in the retail price breakdown for a product such as a bottle of Fiji Water.
THE BUSINESS OF PARTNERSHIP
What would a real one smell like?
…[T]he company created the Vatukaloko Trust Fund, a charity targeting several villages surrounding its plant. It won’t say how much it has given to the trust, but court proceedings indicate that it has agreed to donate .15 percent of its Fijian operation’s net revenues; a company official testified that the total was about $100,000 in 2007.
The keepers of the Fiji Water business model are keenly aware of what determines value in Western retail: identity and lifestyle economics, market segmentation and IP strategy. While the transportation costs for Fiji Water are formidable, Mr. Gilmore and Mrs. Resnick (who was consulted from early on) know that what they come to get in Fiji is plenty valuable to justify costs and risks. In other words, the basic premise and value of a business enterprise such as Fiji Water is “umbilicaly” linked to the value and endurance of the brand myth it has built and upon which it stands.
This is handy to recall whenever a concept is invoked that after a decade of corporate use and abuse has come to mean practically nothing: partnerships. It’s due to be remembered what a company such as Fiji Water gets when it “partners” with Fiji. If, in a moment of magic, these intangible assets turned material, turned for an instance into containers being loaded into tankers for departure, there would be a fleet upon fleet leaving Fiji with valuables.
Here is a simple suggestion for way forward. When a company like Fiji Water is bought and sold, various experts determine the enterprise’s market value based on an inventory of physical and intangible assets. The company’s leverage of Fiji and the ownership of the Fiji Water brand make up for a very big chunk of that value, as they do in the pricing options for individual bottles. If these assets are taken into account during the company’s appraisal, then they should also be considered when talking CRS and “local partnerships.”
One would note that no one is arguing that what marketers encounter in Fiji is ready-made for Western retail. No one is offering anything that simplistic. The company’s marketing gurus are fully aware of the kind of raw intangible material they get to work with. There is value added, no doubt, and also no doubt where all value ultimately emits from.
WHAT’S A PO’ BOY TO DO
United we own, divided we play casino
All of this reminds of the old CSR compassion machine, the one Starbucks works hard on keeping well oiled:
And Ethiopia has something to say about how a story such as that of Fiji water weaves into a larger narrative. Think of it as curious instances of tables being turned. When and if you ever hear about IP it is by rule and always about Western IP owners (pharma, film, music, publishing, IT industries) raising hell about piracy issues in the developing world and making adherence to a particular kind of IP regime part of being allowed group memberships and benefits of multinational state capitalism. All of which has over time ensured for some big misperceptions.
One is that the Global South doesn’t really have much of what we consider IP, as that is associated with Western high technology. Another is that even if some developing world producers had IP and tried to do with it what Western corporations do, they would discover an equal playing field with fair and sensible rules of the game. In other words, their invisibility has nothing to do with us and how we stack our own home court. The ultimate misperception is more kind of a contemplation rendered unnecessary and démodé, and that is what a strange animal IP reveals itself to be if you stare at it a second longer, a child of our current neoliberal moment in capitalist sun.
So, here is a story about what happens when a Third World sector, a group of producers and exporters from indeed one of the world’s poorest countries, decides to be in the business of intangibles. It will make our Fiji situation appear for what it is and what it curiously could become.
To get you in the mood, start with this trailer that doesn’t let you in on this particular story but defines our problem:
Imagine about five million people. From farm to border, they are growing, carrying, transporting and selling three particular kinds of coffee. These are Harar, Sidamo and Yirgacheffe. A couple of years ago an Ethiopian initiative set out to redefine terms of engagement that they and coffee producers world over decry: namely, a global casino commodity mode of exchange whose price fluctuations leave cruel marks over the lives of producers of all tropical crops. In Ethiopia’s case, facing few buyers left millions of small farmers to compete against each other in a race towards the lowest possible price. Ethiopians attempted to escape this trap by adopting a particular analytical mode that is basic Western business school business strategy. Considering this, it should not by now surprise that IP sooner or later makes an appearance.
THE BATTLE OF YIRGACHEFFE
Sightings of unusual brand managers
There are huge degrees of differentiation among coffees, most of which is trade in planet shattering amounts of cheap, blending robusta strand out of Brazil and Vietnam. That’s why Brazil’s annual drama with rain or lack thereof can have millions of eyes and life projects all across the Earth’s tropical belt stare in suspense at the latest price fluctuations coming out of New York.
Ethiopia’s fine coffees, on the other hand, have been key parts of the palette on which the specialty coffee market in the U.S. Europe, and Japan has based its expansion. Hence the ability to make a case that at the wholesale tail end of the market, Ethiopia’s particular coffees were indeed stuck in a wrong market, a global commodity coffee market that did not reflect the product differentiation along the supply chain as the retail value these beans eventually acquire.
Here is a case-study like, pro-initiative, pro-poor-IP treatment of the situation:
Ethiopia grows and exports some of the finest coffees in the world and is well positioned to directly benefit from this growth in demand for differentiated, specialty coffees. … These distinctive coffees command good, and sometimes very high, retail prices in world markets. In the U.S. market in 2004, for example, Harar was sold at retail for up to $24 per lb; in 2005, Sidamo retailed for up to $26 per lb.
These retail prices directly reflect the value placed on the reputations for high quality and unique flavour that are the result of the hard work of generations of Ethiopian coffee farmers. A reputation is not a concrete thing, but an attribute, that is, intellectual property. Future generations of Ethiopians have a vital stake in this intangible, but valuable intellectual property.
Despite coffee consumers’ appreciation, expressed in the growing demand and strong retail prices, the export return to Ethiopia for these coffees is disproportionately low. Harar earned only $1.20 per lb and Sidamo $1.60 per lb. These export prices, represent only 5% and 6% of retail price respectively.
Some Ethiopian fine coffees have achieved far higher export prices when traded in specialty coffee auctions, reaching close to or over $10 per lb. However, more generally, the export price for most of Ethiopia’s fine coffees falls in the range of $1.10-$1.30 per lb, a premium of only 10-30 cents over the recent New York exchange based price for Arabica coffees. The New York quoted price is set in an open market based on international standard grades, or ‘commodity’ coffee. In conclusion, Ethiopia’s finest coffees are mostly treated as commodities whose price cannot be negotiated without reference to the New York Board of Trade (NYBOT) price and the standard ‘C’ Contract used to buy and sell green coffee beans around the world.
The implications for Ethiopian coffee producers of being unable to de-link from the New York ‘C’ Contract and receiving such low export prices for these fine coffees are grave. Farmers operate in ignorance of the true value of their coffee crop. Investment by farmers and others in the sector is lagging. Some of the world-renowned Harar crop is even being replaced by narcotic production which is perceived as more remunerative. This represents a possibly irrevocable loss of a unique asset.
THE REPUTATION MARGIN
Equitable leverage through brand management?
In other words, faced with this situation, what action would Western business logic demand? If Ethiopia were a corporation, what would it do?
The goal would be simple: increase the share of retail value from 5-10% to 15-30% over a certain, reasonable amount of time. The main means for achieving this would be increasing leverage of wholesalers vis-à-vis rest of the supply chain. It means becoming interested and engaged in final markets themselves. Since the three coffees behave like (ingredient) brands that signal a heritage and reputation, owning their value in forms of trademarks and managing their use through licensing programs would be on priority order of corporate business.
It is in the course of registering trademarks in IP offices across the globe that Ethiopia stumbled upon its marks as already registered property of a few companies, in the U.S. Europe and Japan, with Starbucks most notably among them. A visible and loud public campaign ensued that marked one of the rare instances of the Global South crying foul over Western misappropriation of their own IP. As noted, usually it is the other way around.
All this amounts to building a network of licensed distributors. Finding key early allies among a very diverse universe of coffee companies of every size and mission is one way to build towards a tipping point. It may seem strange to hear that license agreements offered to companies for signing are royalty-free; but the rationale becomes clearer when one looks at before and after, as envisioned by initiative’s implementers.
IMAGINING JOINT PROMOTIONS
Development’s ultimate reincarnation: marketing
There is something to the claim that the licensor-licensee arrangement provides something that before has been missing: in a market disconnect/failure there is no platform to address mutual issues of producers and distributors. Active brand management, in concept, turns the engagement from one of passivity to one where the two sides of the supply chain are encouraged to address some standard concerns: quality consistency for importers, for instance, introduction of brand guidelines for Ethiopian licensee liaisons.
It’s all about self-perceptions of own negotiating strength. The burden on Ethiopians as a whole is to sign up enough companies and provide for a momentum that leaves no doubts as to Ethiopians’ seriousness and buy-in. If price floors are to work, they must be products of agreement, mutual stakes and good will.
Confidence is also in the case of individual farmers the final price arbiter. As the rationale argues:
Farmgate prices for Ethiopian farmers will increase as the export revenues for the fine coffees increase. Farmgate prices have historically been connected to the NY commodity price and they have been subject to the price fluctuations of the global market. As export prices for fine coffees in Ethiopia are de-linked from the commodity price and connected to retail prices, the farmgate price will become connected to the retail price as well. Also, export prices will stabilize for long durations of time due to the stability of the retail price reference point, simplifying farmgate price calculations for producers as well as other points in the chain.
In order to ensure that this indeed occurs and farmers benefit, extensive awareness raising activities and monitoring will be required. Awareness raising activities will be carried out in the regions where the trademarked coffees are produced to set farmers’ expectations in terms of their expected benefits from the initiative and nation-wide information will be dispersed. Periodic price checking will be carried out to check whether farmgate prices are increasing and long term monitoring will identify improvements in the chain as well as challenges to the initiative’s goals.
If that is indeed so, then it is reasonable to argue that there are compelling incentives for distributors and retailers to also adjust their attitudes. Effectively they are getting a stake in Ethiopia-The-Coffee-Nation in a similar way a company producing Apple accessories has a stake in Apple doing well and doing better. It often gets lost on NGOs and campaigners how impractical it is for a retailer to commit to advertising and signaling out one particular variety and to not know what amounts and what quality consistency she can expect next year, next shipment.
What also changes is the outlook on aid. Each year the development-industrial complex – made up of World Banks, USAIDs, various European aid agencies, and armies of grantee implementers – pours millions of Euros and dollars into Ethiopia’s coffee sector to build coffee processing facilities and to aid exporters and cooperatives in finding buyers who will offer them a price that leads beyond subsistence.
Aside from one-off success stories where each year someone somewhere fetches a surprising price, plans for specialty coffee growers to escape commodity casino and permanently attach pricing to retail won’t be found. Nor will there be any mention of how Ethiopia could for instance do what Jamaican Blue Mountain coffee producer do: capture 45% of retail value instead of 5%. (No, this doesn’t mean Ethiopians could pull off such margins by copying the Jamaican strategy; or that in the Jamaican case more than a few white estate owners benefit, that’s a story for another time. It just means that, to paraphrase a well-worn slogan, another world is possible.) If one didn’t know that aid programs are largely, at least on the ground, filled with well-meaning, hard-working people usually stuck between a rock and a hard place, one could walk away thinking that development professionals think that brands are not something brown people should dabble in.
Alas, they just don’t feel comfortable with the subject so they avoid it. FDI they do know, so they provide money for a bidding process among the world’s top ad agencies (Saatchi & Saatchi won) to produce the Young Europeans. What if they enabled Ethiopians to do what licensors and licensees do best: joint promotions?
Instead of building yet another building, holding yet another training session, flying in yet another consultant, what if Ethiopians could use that money to entice their global network of licensed importers and retailers (Whole Foods, Sbux among them) to put matching funds on the table for an aggressive global and regional joint campaigns, with clear goals: i.e. by 2015, in key markets such as the U.S., increase the percentage of fine coffee drinkers who know Ethiopia is the birthplace of coffee from the current 2% to, say, 15%.
If those consumers can believe that Juan Valdez is a real person, they can certainly believe that all coffee is ultimately from Ethiopia; because, you know, it is. Next time you roam the First World’s airports, while listening to your latest chill-out-downtempo-lounge playlist, you could be drinking a Sbux cup screaming that ingredient brand and watching CNN International abuzz with colors and emotions mixed up just for you by Wharton’s or Kellogg’s best and brightest. Or you could be drowning in a tub of Hagen-Dasz coffee ice-cream that very conspicuously tells you it’s the Ethiopian beans they used.
Be cheeky, be funny. White people like that:
On aside, branding is out of the bag for BRIC, and so is internal brand management. Here is a country’s equivalent of an internal memo on, say, consistent (mis)spelling of a product line. Simon Anholt must have flown in a couple of times:
DREAMS OF ALLIGNMENT
Ethiopia sets to prove F. Scott Fitzgerald wrong, again
They got drunk on their own success, some would say, but that sentiment misses the point. Ethiopia’s fine coffee brand ownership and management labors have always been about the right to choose its own path whether that meant f*%#ing up or hitting it out of the ballpark. The brawl with Starbucks was predictably intoxicating and predictably both helping and hurting the initiative’s real goals.
All of those goals––trademark ownership of fine coffee brands in all export markets, creation of an umbrella brand, and the ultimate de-linking from New York ‘C’ and tying of wholesale pricing to the movements of the final retail price)––all of that depended on one gargantuan task: convincing key distributors and sellers of Ethiopian beans across the globe to sign license agreements and join a network of licensed distributors; in other words, to effectively change the terms of engagement in a business going for at least three centuries. (There is much to argue that Harar, Sidamo and Yirgacheffe are among the modernity’s birthpang brands, which of course gives this fast-developing story a strong tinge of meta.)
That tale another time.
That in the course of all this work Starbucks (as well as some European and Japanese companies) turned out to already own some of the sought trademarks was at first helpful as it raised the initiative’s profile. Lawfare would have left Ethiopia run over on the roadside with hardly anybody noticing, so it took to convincing a reluctant Oxfam (again, development folks usually don’t know what to do when poor producers want to play First World games on First World turf) to front for it. The Mermaid was eventually cornered. But considering that Sbux buys about 2% of Ethiopia’s annual output, the real work was still barely scratched.
What a difference
a day [two years] made. In all of this hoopla, Specialty Coffee Association of America (SCAA) traveled from opposition into neutrality and then into full (well, it comes and goes) embrace of Ethiopia and, at the tail end of Sbux finally agreeing to a licensed use of Ethiopia’s IP, it let it put on a colorful show as Africa’s first “2008 Portrait Country” in what is considered to be the world’s biggest coffee tradeshow, SCAA’s annual 10,000+ strong conference and exhibition.
Key in all of this were the early licensees, small Fair Trade importers and boutique roasters who backed the Ethiopian effort thru Sbux PR/lawfare and politicked within SCAA to turn it around as the power of these gourmet players within trade bodies has grown with the sophistication and segmentation of the specialty coffee market.
Now it was time for Ethiopians to do scale and face prospects of dealing with a network of licensees that included small gourmet-istas as well the Big Coffee, such as Proctor & Gamble and Kraft, lefty-ish giants such as Whole Foods, and old-school, old-colonial, invisible Swiss and German family companies, middle-men (who buy and resell probably all of the coffee you have tasted since you’ve been drinking it), and everybody in between.
Even if all this had been something undertaken by a Western corporation and not by one of the world’s poorest countries, it would take all they got. Ethiopians got busy producing promo videos, raising money, signing agreements, keeping the complex home turf of cooperatives and exporter groups as united as possible, and fine-tuning the umbrella brand and introducing brand guidelines (adherence to which is the sole ask of the royalty-free license agreement), all unveiled at their SCAA red carpet moment. They got themselves a brand agency, the London-based Brandhouse.
Changing the negotiating position of Ethiopian coffee farmers has held long-term benefits. Rather than all of the value being captured by 5–6 German companies, the Ethiopian coffee farmers changed the power balance.
Income improved for Ethiopian fine coffee farmers by $US 200M since June, 2007. When we add to this, a rural multiplier effect found by the World Bank to be approximately 2.0–2.5, the income return looks like this between 2008–2011.
The extra income has improved livelihoods and prospects for around 1 million Ethiopian fine coffee farmers and small traders. Also, since export prices are now based on retail values for distinctive fine coffees, not the world export/import market for commodity coffee, much greater stability in prices will be achieved in the medium term, providing farming families with the ability to plan their future.
What’s ahead? Joint promotions, indeed, in early 2012; expansion of the now 110-companies strong licensee network; trademark registrations of the umbrella brand; and two goals that seem as tricky as they are ambitious. One is dealing with Africa’s first-ever commodity exchange, ECX, based in Addis Ababa.
Speaking of the Ethiopian Commodity Exchange (ECX), take a look at it and get to know Eleni Gabre-Madhin:
Ethiopia’s fine coffees are now traded on ECX, which claims to translate price premiums to farmer incomes more directly, “meaning that supply responses from farmers are gradually increasing.”
Each promotion in markets will be designed to match supply forecasts, to the benefit of farmers, cooperatives and the licensed importers and distributors in market countries.
And then the envisioned crescendo of all this activity:
Ethiopia has decided to create a modern corporation to manage the brands, promotions and the network of distributors for the long term benefit of farmers, exporter and distributors. The corporation will be built on the lines of the famous and highly successful Ethiopian Airlines, starting in 2011 with top Ethiopian business people on the formation board. International support to this corporation will be through contracts with world class brand managers, IP specialists, experts in network management…
MEANWHILE, IN SWEDEN
If playing on a neoliberal playground, play well
Whenever dreams of brand alignment are dreamed and nation-brand equity imagined, thoughts turn to one particular, shiny place. For the purposes of our little story here, there is no need to deconstruct this part too much. That story, too, another time. Give your internal deconstructor a quick break for now and let the copy and color dance for itself. Let’s start with this press release:
Millions of people each day encounter Swedish products and services, work with Swedish companies or visit Swedish global chains. However, people are often not aware that these brands are Swedish. Swedish companies and Sweden as a whole have a great deal to gain from working together.
[SI] is a public agency that promotes interest and confidence in Sweden around the world. This includes cooperation with Swedish companies and brands. SI aims to unify Swedes, Swedish companies, universities and a number of other actors in the international promotion.
And then this:
Brands of Sweden is a brand platform … [that] profiles Sweden and Swedish businesses internationally and is to be used in official contexts were commercial brands and companies normally cannot participate.
Through Brands of Sweden, Swedish companies are offered a neutral platform with a strong reputation and a long-term quality assurance—a less commercial image to simultaneously position both the participating companies and Sweden. Brands of Sweden intends to strengthen the importance of Swedish companies and brands by creating a common, positive link to Sweden.
Do listen to two minutes of Simon Anholt dazzle the Irish chamber of commerce last year. Truly irresistible champagne Kool-Aid:
In battles of Old v New World, the developing one has no side
And that’s true, despite what any of the other two say.
There is a big, long, nasty war going on. It was brewing for decades and has been fought all out roughly since GATT became WTO. The booty is as delicious as Mozzarella, Parmesan, Prosciutto, Feta, Champagne, Darjeeling, and weapons of choice are Geographical Indications, certification marks, and trademarks. Europe has the first, U.S. the second, and corporations the third. The game is, per usual, about simple power, but it gets complicated to the level of, indeed, rocket science.
TRIPs (Trade-Related Aspects of Intellectual Property) has been a contested battleground for two groups of powerful owners: EU member countries who seek stronger protection of Geographical Indications (GIs), and the New World players such as the U.S., Australia and Argentina, who aim to prevent them from doing so as this would mean invalidation of existing trademarks for many New World corporations, for their products bearing GI names but not produced in GI regions. In some ways it is Kraft v Nestle, as they own half the things you eat. It’s a densely layered little onion which ever way you look.
In this fight, the EU has claimed a natural allegiance with the developing world and often has received their support within WIPO. The benefits of doing the EU’s bidding, however, have been questioned by recent practice. Our Ethiopians, per above, helped reveal the contradiction. Business rationale and desire for exclusive licensing privileges led them to claim nothing-more-nothing-less than trademark rights for its heritage coffee brands in all of their key markets, EU, U.S and Japan. Current U.S. trademark law has been pretty much devastating to heritage brands and traditional knowledge (TK) and certification marks (U.S. own bulwark against GIs it doesn’t recognize) prove economically ineffective for the developing world’s exporters just as those from the EU (ask India’s Darjeeling tea growers).
But (a big but), it is also becoming clear that the GI status for non-European TK is unattainable. Consider that of all of Asia (the mother of “Old World”), Latin America and Africa, only our good old, shrewd Juan Valdez and the Colombians have been successful in getting Europeans to treat it as a GI. The Global South is realizing that it has no side in the U.S.-EU IP wars and that it urgently needs an independent path to advocacy, policy and practice.
The international IP regime awaits fundamental reforms as the developing world’s producers and creators begin to implement strategies for owning and exploiting intangible assets in the domestic markets of rich countries, traditional IP exporters.
Same question as before: what happens when others want to play First World games on First World turf?
All kinds of things.
FAUST, GANDHI & NEHRU
Two of us have to go
One can imagine Fijis, Bosnias, Ethiopias, and LDCs, in an internal monologue of the Gandhi-Nehru type. If they go for Gandhi (who, as decades and socialist-capitalist failures roll on, ages well) and resist infatuation with a certain kind of “modernity,” instead embrace conservative sustainability and radical local self-governance, then they better not play with neolibearlism’s strangest fruit – intellectual property and various other manifestations of intellectual capital.
But the Gandhi moment is impossible, even for Gandhi. Or isn’t it? That‘s for sure above the paygrade of this story. To repeat, almost like an adult’s advice to a teenager on proper use of credit cards or 1940s home tutorial on electricity (good servant, bad master, etc.), if you have no choice but to play on neoliberal playground, play well. Industrialization dreams few dream these days, if any. Fiji certainly can’t. Your First World startup, dear First World reader, will not be sending an assembly line their way. We all know where you’ll go.
Nehru won over Indians back then with dreams of 50 years of development in 5 (and Gandhi quietly went away to die) and there is still little doubt that he would do it again. The only problem is that that kind of prosperity gospel, though both debatable and plausible for a place like India, never added up for Fijis of this world. Today, even less so. Put simply, Fiji, as a dot in the sea of blue, cannot compete on price as it will never be the cheapest alternative. Nor can it do scale as it is tiny. But it can compete on specialness; because it is pretty special. Foreigners who flock to Fiji don’t do it because it’s easily reachable. People who buy Fiji Water don’t buy it because it is the cheapest water. It’s a mine of intangibles. Those in the know, like our story’s main protagonists, know.
So do today’s Nehrus, such as the cadre in Beijing, sitting on the dream’s update. What is it?
In a quote (emphasis mine):
No big marquee brands means China is stuck doing the global grunt work in factory cities while designers and engineers overseas reap the profits. Much of Apple’s iPhone, for example, is made in China. But if a high-end version costs $750, China is lucky to hold on to $25. For a pair of Nikes, it’s four pennies on the dollar.
“We’ve lost a bucketload of money to foreigners because they have brands and we don’t,” complained Fan Chunyong, the secretary general of the China Industrial Overseas Development and Planning Association. “Our clothes are Italian, French, German, so the profits are all leaving China. . . . We need to create brands, and fast.”
And a graph (scrible mine):
If I still have you with me, by now you are probably comfortable with murkiness. As another husband-wife duo, not the Resnicks but the Comaroffs, John and Jean, says:
Ethno-commodity is a very strange thing indeed. Flying in the face of many conventional assumptions about price and value, its very appeal lies in the fact it seems to resist ordinary economic rationality.
Ethnicity, Inc. is indeed a strange little pamphlet. One shall dive into it on other occasions. Let’s pick up where we left off with Fiji. Good place would be to again raise a good question:
If a company’s intangible assets are taken into account during its appraisal, why shouldn’t the same be done when considering local partnerships? Precisely because those intangibles have a lot to do with their local partners.
IP colonist’s deed, you see, is a refined affair, kind of like a white collar crime. It’s clear what happens to you if are caught with a minor possession of drugs, less so if you dabble in derivatives.
Even the First World startup dreamer understands that outsourcing her manufacturing to an Indonesian supplier who rules their industrial zones like Turkish jails is her part of the Faustian bargain with the Dark Side. She can go elsewhere and probably encounter the same situation (if she wants to learn too much, that is) and also know that her former supplier already replaced her orders with someone else’s.
She will spend her life making sure that anyone and anything showered with her affection does not get anywhere close to it. But to change what troubles the conscious would require a kumbaya suspension of reality, changing the world and all that. It’s business, hunny bunny, and this is how it’s done. Her crime is just one of modernity’s side effects; like, say, her son’s depression. Leave the meditation on those items for other people’s grad school papers and silly degrees.
An IP colonist, however, does not have that escape route. Fiji, David Gilmour and the Resnicks, show why.
If Fiji wanted to embark on what China has its sights set on, or Ethiopian fine coffee producers are struggling to put together, it would stumble upon its intangibles already half seized.
Fiji, the brand, has already been taken. It’s owned and managed by a Los Angeles couple. Fiji is, of course, no Sweden, a motherboard and a country-brand with many global ingredient brands. But it doesn’t even have the option to tread on that path. It’s a country in service of one private brand.
IP colonist is nothing if not thorough. What started out as a trademark application for the phrase “From the islands of FIJI,” without a claim to the word Fiji itself, has slowly gotten even better, even sharper:
Fiji Water … has trademarked the word “FIJI” (in capital letters) in numerous countries. (Some rejected the application, but not the United States.)
The company got itself regional marketing-channel managers, Fiji’s foreign service:
“Learning from the lessons of products, we must brand ourselves,” Fiji’s ambassador in Washington told a news site for diplomats in 2006, adding that he was working with the Resnicks to try to increase Fiji Water’s US sales. A Fiji Water bottle sits at the top of the embassy’s home page, and the government has even created a Fiji Water postage-stamp series—the $3 stamp features children clutching the trademark bottles.
The ‘bitter-sweetest’ of ironies is Fiji, the country, going after these targets, while the IP colonist sits on top of the page:
…rival Fijian bottlers daring to use their country’s name for marketing. “It would have cost too much money for us to fight in court,” says Mohammed Altaaf, the owner of Aqua Pacific water, which ended up taking the word “Fiji” out of its name.
Actually, with threats of lawfare, others are muscled into limiting association with Fiji to small print on the back of products, specifically to not be visible as shelf-talkers.
For instance, read this short little news item. The last sentence is interesting:
In the suit, which was scheduled to go to trial June 24, Island Chill owner Jay Prakash Dayal asked a federal judge to determine that the company is not infringing on Fiji Water’s trademark by advertising its water as being from Fiji and that the company is not engaging in unfair business practices.
But the companies settled, and Island Chill agreed to remove the flower from the bottles label, and only reference the waters source, Fiji, on the back of the label.
The idea behind settlement was to stop war between the companies and let everybody continue to compete fairly and sell water, said Marc Hankin, Island Chills lawyer.
Island Chill told the Fiji Times the change in trademark is only for its US market.
But it’s not just about the nuts and bolts of formal IP ownership. There is other intellectual capital, too. If they get a call from Resnicks, their liaisons or lawyers, Western retail chains, say 7-11, will run from any distribution agreement with a small untested Fiji producer, be it water, soda, chips, or face lotion, if it smells like complication and unnecessary trouble.
Pretty nice partnership, from the company’s perspective, wouldn’t you say?
Fiji got 300 jobs. Which is good. For people working those jobs, phenomenal.
To think this is anything close to appropriate – considering what local partners brought to the table, a motherboard of intangibles – would require local partners to not know their Rubies in the Orchard.
And that’s exactly how IP colonialism works.
There is one source of headache for the company that usually gets talked about when it gets bad press: the supreme irony of Fiji Water bottles in every U.S. supermarket while people around the company’s water plant, and Fiji in general, have no clean, safe water supply. Hence:
[T]he company created the Vatukaloko Trust Fund, a charity targeting several villages surrounding its plant. It won’t say how much it has given to the trust, but court proceedings indicate that it has agreed to donate 0.15% of its Fijian operation’s net revenues; a company official testified that the total was about $100,000 in 2007.
Notice that this not the Sbux brand-equity-compassion machine where this is directly being written into brand architecture. Fiji Water has no plans to scream on a bullhorn how wonderful it is. (Remember, it’s a people-free brand.) This is strictly to keep things orderly around the plant. Just for comparison sake: in 2008, Fiji Water’s marketing budget alone was at $10 million (Brandweek). When it likes something, it goes for it:
It recently dropped $250,000 to become a founding partner of the new Salt Lake City soccer stadium.
But perhaps the height of the you-should-not-know-your-rubies-in-the-orchard moment came late last year. The audacity of such a bluff can only happen when you think the other side is so clueless that you can say anything. Here is how the story came on your favorite channel:
Fiji Water reopened its operations in the South Pacific nation of Fiji on Wednesday – just two days after closing its bottling plant and laying off 400 workers in a row over a major government tax increase.
The U.S.-owned company said after meeting with Fiji’s leaders it has agreed to “comply” with the hefty tax hike imposed on it by Fiji’s military-led regime.
The prime minister, Commodore Frank Bainimarama, said earlier he was ready to call tenders from international groups interested in taking over the artesian water bores that Fiji Water uses to extract one of the world’s most popular bottled water brands.
On Monday the company, owned by California entrepreneurs Lynda and Stewart Resnick, said it was closing its facility in Fiji, canceling orders from suppliers and putting on hold several construction contracts in the country.
After its lawyers met Tuesday with Bainimarama and Fiji’s Attorney General, Aiyaz Sayed Khaiyum, the company said it a short statement that “Fiji Water will reopen its bottling plant, effective Wednesday morning, Dec. 1, at its regular start up time of 8 a.m. Through our discussions, we have also agreed to comply with Fiji’s new water tax law.”
Since the company’s beginning with David Gilmour in 1995, it has enjoyed a tax-free status. From a friendly military junta he got both the 99-years on the land and tax free-status that at the time was justified because, Mr. Gilmour claimed, the whole project was a risky business proposition and Fiji had nothing to lose, only to gain. Once cornered to pay, after almost 15 years of tax-free status, Fiji Water threatened to leave. It let rumors spread that it was considering New Zealand as its new home.
An old-school colonist would have probably done that. Labor is labor. An IP colonist has a bit harder time separating from assets that underwrite her retail value.
If there ever was one born for it
Recall Fiji’s U.S. embassy website. Why not have the rest of the palette filled out with success stories, instead of stock photography?
RUBIES IN THE ORCHARD
Why not be the hero you always wanted to be? Like, for real.
One thing would be easy: to satirize everything. And, truth be told, Mrs. Resnick does have the markings of a ready-made Saturday-Night-Live character. If I kept your attention this long, I may as well entertain you for two minutes. You may recall this from earlier:
But satire quickly turns into self-righteous hipsterism. Why not take the rubies-in-the-orchard mantra seriously for a second.
Once upon a time, in 1986 to be precise, the Resnicks bought a California pistachio orchard that also contained some pomegranate trees. They debated whether to get rid of them. Lynda Resnick decided not to do that and continued growing them:
They discovered that the “Wonderful” [who, what do you think, named it?] variety of pomegranate was naturally sweet and juicy and grew exceptionally well in the central Californian climate. The fresh fruit was soon embraced by retailers. But the season for the fresh fruit is short (October – January), and the Resnicks needed to find a way to make the delicious-tasting fruit available to consumers year-round. They began to experiment with juicing the pomegranates. In 1996, in response to the folklore and references in ancient texts about the fruit’s healing powers, the Resnicks engaged Dr. Michael Aviram to begin research on the antioxidant power of pomegranates. In 2000, medical research was published indicating the beneficial effects of drinking eight ounces of pomegranate juice a day.
With the research in hand, Lynda Resnick came up with the POM Wonderful logo and her in-house design team developed an hourglass-shape bottle. POM Wonderful pomegranate juice was first marketed in 2002.
Despite building small business empires with citrus, almonds, pistachios, flower delivery, etc., pomegranates feature significantly in Mrs. Resnick’s own narrative. She christened them Rubies in the Orchard. Her personal memoir/meditation bares the same name. In which she advises on her readers how to find and keep and grow “your own, metaphorical rubies in the orchard.”
As before, this is not a pile-on. Keep the company, do well with Fiji Water, do even better if you can. It’s not easy. But the Vatukaloko Trust Fund schemes won’t do, not for IP colonists. This whole story, again, has nothing to say on what possible cocktail of incentives, pressure, idealism and shame could have Apple and St. Steve’s disciples change this iHell.
But in instances where companies do not just go abroad for Exploitation 1.0 (the old colonial biz model of getting labor and physical resources from rights-free global ghettos, ala Congo’s Coltan for Sony’s Play Station) but to actually get intangibles that underwrite their products’ retail value in Western markets where intangible value is king these days, in those cases cognitive dissonance should no longer be bearable.
Lynda Resnick, the educator and inspirational speaker, and her company’s British-colonial-officer-style condescension cannot stand together:
“They don’t have a ton of options for economic development,” Mooney [Fiji Water’s VP for Sustainable Growth] told U.S. News & World Report, “but bottled water is one of them. “When someone buys a bottle of Fiji, they’re buying prosperity for the country.” Without Fiji Water, he said, “Fiji is kind of screwed.”
It may take Tahrirs, Syntagmas, Zuccottis and all sorts of other parks and squares – orange, velvet, saffron, green and the rest of the palette of revolutions – to correct the old business model, but in cases of IP colonists an updated CSR standard will suffice.
# When you partner with locals in order to extract intangibles, you can no longer pretend that that is not what you’re doing.
# Your local partners should grow (and options are many) with you, the way you do, with intangible value and brand equity, not just production margins.
# If that is too tall of an order, and you still do everything to avoid it, the very least a company must do is (to pull out of Development’s phrasebook for a second) build capacity for brand ownership and management and (now the top biz buzzword) help leverage your brand into other export income opportunities for your local partners.
In other words, build a small band of supply chain analysts, brand managers, licensing gurus, and help them learn how to own, manage, and both exploit and create intangible value that gets rewarded with solid retail tags in developed markets: equip them with the know-how to capture the kind of share of retail value biz and b-school textbooks consider standard: 40-50%. Just like FIJI Water does.
It could be fun, too. Fly in Arianna Huffington, all marketing VPs and chief creative officers, and the rest of who’s-who in Mondo Marketing you’ve known for decades, for workshops, wisdom and inspiration (and some minor brandwashing opps for some of them, sure). Simon Anholt, too. Show the guests a good time in paradise and shoot a lot of good video of optimistic young brown people in good suits.
In addition to the Vatukaloko Trust Fund (apparently “0.15% of its Fijian operation’s net revenues,” but who knows) and perhaps even instead of it, give what amounts to pennies to finance feasibility studies of Fiji’s New-Economy cadre you help educate so they can secure implementation financing for their best projects. There is even a roadmap for that:
I think all this, or a variation on the theme, is in Mrs. Resnick. The world perhaps can be half-saved by pinko-liberals who got old, wise, rich, a little bit tired, and very very skeptical about the feasibility of saving the world. Do do they need much to reignite the old flame? These 30 seconds below are as revealing as they are awkward. We haven’t been waiting for Obama, we’ve been waiting for Mrs. Resnick.
Soon enough invitations from the Church of TED would come and we would be listening to some strange, amazing stories coming out of Fiji, all told by a glowing Lynda Resnick.
IP colonist no longer. A social entrepreneur.