The Strategic Management Implications of Understanding Fair Trade through Organizational Economics

Abstract: Purpose: The purpose of this study is to analyze the contractual relationships associated with the fair trade concept by applying organizational economics theory in order to contribute with theoretical and practical strategic management insights. The purpose stems from the underlying research problem concerning a lack of supplementary theoretical perspectives and development informing strategic decision-making in sustainability literature related to supply-chains. Methodology: A qualitative exploratory study with a multi-sourcing approach to research design has been employed to fulfill the purpose of the study. Data collection has been performed through semi-structured interviews and relevant secondary data. It was then analyzed with the deductive content analysis method, where both pattern matching and explanation building were used. Theoretical perspectives: The study is based on a developed theoretical framework incorporating agency theory, transaction cost economics theory and property rights theory. The theories are organized according to their contractual problems and focus using both classic and contemporary work. The framework also connects to other strategic management theories such as the resource-based view, Porter’s generic strategies and stakeholder theory. Empirical foundation: The study presents empirical data on the strategic decisions made concerning contractual relationships by involved organizations to meet customer demand for sustainably produced coffee. The primary data was collected from interviewing Swedish buyer organizations, researchers and a Fairtrade representative, complemented with secondary data. Conclusions: The findings illustrate how the involved organizations make use of ex-ante and ex-post contracting with the aid of Fairtrade in order to secure that quality and sustainability attributes are acceptable to meet customer demand. The study highlights the applicability, complementarity and limitations of organizational economics theory in a sustainability supply- chain setting in generating strategic management insights that can help improve managerial decision-making. A widening of the theoretical frame using the resource-based view, Porter’s generic strategies and stakeholder theory can be used to combat some of the discovered limitations, which further increases the strategic management insights.