Impact of the Globalization on the Food and Beverage Industry - Dissertation Example

Impact of the Globalization on the Food and Beverage Industry Abstract Globalization is the current dominant trend in the world. It is infiltrating almost all aspects of our lives including our food and beverage industry. The extent to which this phenomenon impacts on our food and beverage industry is not accurately established, its effects not entirely known. Globalization impacts on the food and beverage industry in the sense that it has made the supply chain longer and more complicated – leaving the safety and quality standards of the industry less reliable. Globalization also impacts on the food and beverage industry as it prompts food companies to be more international in their cuisine and in catering to the needs of a more diverse set of people. Globalization has also ushered in a fast food culture which has affected the basic aspects of family meals and personalized services. In order to adjust well to this globalized world, the food and beverage industry is now being prompted to implement measures to track the safety of the products and ensure their quality. In effect, the pressure on the food and beverage industry is to maintain its credibility and personalized nature in this globalized world. Impact of the Globalization on the Food and Beverage Industry Introduction In the current age of globalization, almost all aspects of our lives are seemingly affected. We exist in a now borderless world where the exchange of communications, culture, politics, and products has become easier, faster, and less tedious. The food and beverage industry has also felt the effects of globalization. The demand for a more globally-based cuisine as well as a more diverse management of the food and beverage industry has been manifested in most parts of the globe. With these changes in the global scene, the food and beverage industry has been pressured to implement some changes in its management. Globalization has impacted on the food industry in different ways and it has changed the way the industry has been carried out in recent years. This paper shall discuss how the globalization, including the global supply chain, has impacted on the food and beverage industry and how this impact has changed the way the industry has conducted its business in recent years. Main Body One of the essential aspects of globalization is the global supply chain. Global supply chain refers to the “global network used to deliver products and services from raw materials to end-customers through an engineered flow of information, physical distribution, and cash” (Walker, 2005, p. 15). The process of interaction between and among suppliers and end-users takes on a longer and more globally involved process, taking on more identity and more culture before it can finally reach its end-users. In the end, what ends up in our plates is the result of many hands from different parts of the globe and we can often see how these hands and these people lend their identity to the end product. We are no longer living in a vacuum where we can deny or ignore what is happening halfway around the world, because most likely what is happening there will or is already affecting us (Tomkins, 2008). The food and beverage industry is one of those industries which have been affected by this global economic downturn. This downturn has affected consumer behaviour with commodity input costs being more volatile and retailers becoming the consumer face of the industry (Poirier, Troyer, & Ilgenfritz, 2009). And for which reason, outlets like Wal-Mart, Kroger, Publix, HEB, A&P, Safeway, Stop & Shop, and Costco seem to have blossomed in this global recession (Poirier, Troyer, & Ilgenfritz, 2009). “As consumers seek the most value from their food dollar they are spending more in the supermarket than in higher priced venues like restaurants” (Poirier, Troyer, & Ilgenfritz, 2009, p. 1). Consequently, the food processing and manufacturing sector supplying these retail outlets have been pressured to come up with ways in order to adjust to this new trend in consumer spending. Some companies have made adjustments in order to keep up with the changes in the global economy and food industry. One company adjusted its logistics strategy to accommodate a consolidation centre in order to cater to its local sales points (Poirier, Troyer, & Ilgenfritz, 2009). In the process, it opened different opportunities to accommodate its consumers through a wider range of products, improved services, and decreased costs. Globalization prompted many food and beverage companies to make their products more locally-based and to cater to the needs of the people. This was seen in some international food chains like Wal-Mart and McDonald’s adjusting their business practices on the prevalent local practices in order to make their products and services more appealing to the locals, while still maintaining its global identity (Ritzer & Atalay, 2010, p. 393). The focus became less about what is the most profitable for the company, but what would be the most affordable and quality-based service and product for the people (Poirier, Troyer, & Ilgenfritz, 2009). The globalization and the global recession forced companies to re-examine their business practice and to make the crucial adjustments in the way they market their products and the way they make profit. Due to the globalization of the food and beverage industry, food miles now extend longer. ‘Food miles’ is a new terminology which has emerged in this industrialized and globalized world. This term refers to the “total distance that food goods are transported from the field or source of manufacture to the customer” (Saltonstall, 2009). Since the dawn of the industrial age, the possibility of transporting goods from where they are grown to where they are consumed has become bigger and farther than was originally intended. ‘Food miles’ is a term used to assess the sustainability of the food industry (Lawrence, 2010, p. 103). And, the further the product travels, the larger the threat it seems to pose to the environment (Saltonstall, 2009). International food trade has also seen a significant surge, with countries from both the East and the West, the North and the South exchanging foods and commodities with each other (Lanham, 2006. p. 5). With increased demands for fresh food, use of air transport has been increased. This mode of travel however poses increased risks to the environment with its emission of greenhouse gases. Packaging for transportation of these food products also increased the use of paper (which increased tree cutting) and plastics (Salstonstall, 2009). With increased awareness of the dangers which food miles bring to the environment, many consumers have become conscious of their food demands and it has prompted some of them to buy only those foods which were in season and to choose locally produced goods over foreign imported goods (Saltonstall, 2009). And for the food industry, the integrity of producers, processors, and distributors have also become an important requisite in the purchase of food items (Saltonstall, 2009). Profit is not anymore the main consideration in the food and beverage industry, the business has also shifted to a focus on the people and on the preservation of the planet (Laboy-Nieves, 2009, p. 14). Another impact of globalization on the food and beverage industry is on branding. Popular and reliable brands in the market have become synonymous with greater value (DNV, 2010). Building and maintaining brands however, often calls for serious and pricey investments with hardly any guarantees for success (DNV, 2010). The complicated supply chains, which have now become a trend in the globalized market, have also come to mean less control on source and processing of food products (DNV, 2010). Moreover, the supply chain management has not exactly been a reliable and profitable venture for the industry because of the high percentage of recalls and withdrawals (Arthur & Nierentz, 2007, p. 84). Considering the different products as well as suppliers and manufacturers in the supply chain, the management of the risks in the food and beverage industry has become more tedious and complicated. “Failures in the supply chain, which often leads to recalls, can not only be dangerous to public health and safety but also costly in terms of company reputation, financial penalties and shareholder value” (DNV, 2010). Food and beverage firms now have to guard against these risks else risk the reputation of their products and their brands. Consumers are now more discerning of their purchases and when they lose faith in some brands, they often do not hesitate to forsake these and shift to more reliable companies and brands (Wright & Vanhuele, 2006, p. 53). The context upon which food choices are made by consumers is based on extrinsic variables, in this case, on origin and consumer concerns about the product (Mavando & Farrell, 2003, p. 894). Globalization is significantly impacting on the food and beverage industry in terms of the adjustments it has taken in favour of the consumers (Broda & Weinstein, 2006, p. 541). Contract farming and integrated food supply chains which have now become the trend in the current globalized economy. The globalization process has managed to create and change the “opportunities open to people and it changes the availability of those opportunities” (Clarke & Wei, 2006, p. 16). These practices have relied heavily on technology, and with the fast-paced industrialization of many aspects of our lives, these are likely to continue as more biotechnologies develop (Josling, n.d). Considering the above changes, the growth in trade and in high value-added products has increased over homogeneous bulk products (Josling, n.d). In the year 2000, the trade in high value products increased up to three quarters of agricultural trade (Josling, n.d). This has mostly been due to the effects of rising incomes, with consumers veering away from unprocessed foods. However, most of the growth in high value added goods has been credited to the increasing product differentiation with producers and food retailers convincing consumers of the benefits of certain geographical locations, recipes, and brand names (Hennis, 2005, p. 16). The goods which have been considered non-marketable can now be found in foreign markets for ethnic and exotic foods. It is also encouraging to note that “Europe itself is enjoying a minor export boom in the same types of commodities, breaking out of the trap which for years had made it focus on a few undifferentiated products such as wheat, sugar, skimmed milk powder and butter which could only be sold with heavy subsidies” (Josling, n.d, p. 9). Moreover, the globalization of these products has been made easier due to fewer restrictions on tariff and trade impositions. Globalization and the global supply chain have also impacted on the food and beverage industry because of the sourcing for raw materials. The pricing for raw materials have been a major bone of contention for food manufacturers. Because of problems in our environment, the food versus fuel debate has made the problem of raw materials sourcing even greater (Getchell, 2007). The production of ethanol has been said to take up about 30% of our corn crops by the year 2010 based on USDA estimates (Getchell, 2007). Because of this increased demand for corn, farmers have shifted their production to corn, leaving soy beans and wheat with lesser production rates and higher prices in the market (Getchell, 2007). The European Union has indicated about 6% of their diesel fuel must be biodiesel; and in the United States, some states have called for atleast 10% ethanol in their gasoline (Getchell, 2007). Their laws have also called on the increased use of ethanol for their future gas supplies (Dworkin & Fallow, 2006, p. 641). With these demands, corn supplies for food consumption have been decreased. Added to the droughts which set in due to global warming, the forecast seems to be even grimmer for our food supplies (Getchell, 2007). In order to fulfil the laws of supply and demand, the sale of food commodities have been increased (Getchell, 2007). In Mexico, in order to regulate their supply and demand of corn, they also increased their price cap for tortillas at $0.35/pound (Getchell, 2007). Many food companies are considering the impact of the diverse growing regions, as well as the diversification of foreign currencies as they angle for leverage in the raw materials supply (Getchell, 2007). Land for organic farming requires more time in order to be certified as organic (Getchell, 2007). And lands in South America are considered to be future sources of organic crops (Getchell, 2007). The following scenario may now lead to foreign companies increasing their raw food supply to the US or the US having to look for closer sources for their raw materials (Getchell, 2007). Decisions in this regard may however be based on the quality and costs of raw materials, not just on labour (Haber, 2000, p. 116). For the food and beverage industry, the need to diversify their sources of raw materials is imperative. Food supplies are not anymore exclusively locally based, and in order to manage food sources without having to circumvent the demands of the global supply chain, the food and beverage industry has to implement its adjustments to food sources while still fulfilling the needs of the consumer for quality and safe goods. The food scare involving chilli powder contaminated with the red dye in Sudan was one of the incidents which tested the application of the traceability legislation of January 2005 (Scott, 2006). The dye was apparently banned from food products in the EU in 2003, however, it was seen in a batch of imported chilli powder used to make Worcestershire sauce (Scott, 2006). Because of this incident, the Food Standards Agency demanded that the product be withdrawn from supermarket shelves (Umali-Deininger, 2007). Eventually, the problems on the contaminated batch was later traced to a contaminated shipment coming entering the UK in 2002 coming from India (Scott, 2006). While some manufacturing companies are still running their business using manual traceability systems, the demand for a more sophisticated and more accurate traceability system has been increased considering that the global supply chain has made the food and beverage industry more complicated. The tracking process for food products has been adjusted in order to accommodate the demands of the consumer and food companies (Motorola, 2008, p. 4). Many companies have come up with remedies like real-time visibility of food and drink inventories in order to ensure that they can monitor the food during transit and in the progression of the chain. “Using real-time reporting and alerting mechanisms, food and drink suppliers can optimize their distribution centre processes by being proactive instead of reactive in addressing logistical issues and managing the flow of products and orders” (Scott, 2006). Real time visibility gives the suppliers and transporters a chance to check the expiration of perishable goods and to give them time to notify marketing or sales agents to dispense these products through sales and consequently, minimize losses and food waste (Scott, 2006). Through real-time visibility, it is also possible for food and drink suppliers to implement cross-docking opportunities in order to send items directly to the customer and to fill in demands (Scott, 2006). Through real-time visibility, the global food supply chain has been managed well and the demands and changes of consumers have made it possible to fill in or to turn-back food supplies quickly. The food and beverage industry has also collaborated with its suppliers in order to maximize the benefits of real-time visibility (Scott, 2006). Through the establishment of real-time methods of information exchange and synchronized business processes, the end-to-end supply chain management has been made possible (Scott, 2006). Through other means like Performance Management and Trading Partner Management tools, the food and drink suppliers have now been able to exchange their data in real-time with their vendors and customers and to execute transactions the soonest possible time (Scott, 2006). Through these measures, the food and beverage industry can now sit favourably as far as stock options go, and as far as sales and customer services are concerned (Scott, 2006). These measures allow the food and beverage industry to remain solid and to flourish in this globalized economy. With the globalization of the food and beverage industry, the phenomenon known as the McDonaldization of society has found more relevance in society. In almost all corners of the globe, there is a McDonald’s fast food outlet. This phenomenon has created an era of less personalization in services which somehow often diminishes the culture and the art which can be gained from the food and beverage industry (Keel, 2010). Although the McDonaldization of society implies a more convenient way of doing things and of carrying out one’s business, these systems also tend to produce irrational outcomes. Irrational in this sense means people denying their basic humanity (Keel, 2010). Undeniably, the lines in these fast-foods can be very long and these food chains can easily render the most convenient service for us – fitting our fast-paced and hectic lifestyle. However, “these rational systems don’t save us money; we might spend less, but we do more work. The food we east is often less nourishing, loaded with stabilizers and flavour enhancers, fast, salt, and sugar” (Keel, 2010). And these types of food often contribute to the health problems in our society. Children from Eastern cultures exposed to Western culture are now accustomed to Westernized habits and in turn have increased their dependence in this McDonaldized system (Counihan & Van Esterik, 1997, p. 508). And the loss of their personal identity is a major concern among their parents. Moreover, it is apparent to note that the very essence of families sitting down together for family meals has been unseated by this culture and by the harmful effects of globalization (Turner & Rojek, 2001, p. 197). The concept of the communal meal and the ritual of cooking, eating together, and sharing stories with each other has been set aside by this McDonald’s culture – a culture which is already exerting its influence in more than just our food and our eating habits, but in other aspects of our lives as well (Keel, 2010). Globalization has also impacted on the food and beverage industry in terms of the involvement of a more international cuisine (Beardsworth & Keil, 1996, p. 158). Ethnic cuisines from countries like Mexico, Italy, China, and France have now been richly enjoyed by many Americans and Westerners who have now started to pay attention to the international cuisine (Siemering, 2004). Some cuisines have also become more international than their original state. Peru for example has been influenced not only by its Indian and Spanish ancestry, but also by its Japanese and Chinese workers who have mingled with the locals (Siemering, 2004). Other cuisines from other countries have made their appearance in restaurants serving exotic cuisines; and expatriate communities have helped in ensuring that a broader clientele for these cuisines have been made available in their local setting (Siemering, 2004). It is still important to note that in order for such changes in the cuisine to succeed, such initiatives “must embrace globalization, yet treat it with a local focus” (Brotherton, 2003, p. 146). In the United States, the increase in the number of immigrants has certainly made their nation an even more diverse and eclectic food market. And the globalized and extended food chain has made the cost of bringing in products to satisfy the diverse palates of Americans and immigrants alike more affordable and more efficient for the local population to access (Beckley, 2007, p. 16). Conclusion Globalization and the globalized supply chain are impacting heavily on the food and beverage industry. First and foremost, the global food supply chain has become more complex and more extended. With these effects, the people have become more conscious about the food they eat and the products they patronize. There are risks and gaps in the supply chain which impact on the safety and quality of goods that the consumers guard in relation to health risks. With these risks, the food and beverage industry has set forth many safeguards in order to secure the safety and quality of their goods – to cater to a globalized market and to meet the demands of consumers. The sourcing of raw materials for our food commodities has also gained a wider market; however, the pricing has not necessarily been decreased because of the longer supply food chain which each commodity now goes through. Nevertheless, the food trading process is vibrant and is actively evolving with the continuing trends in globalization. The food and beverage industry has found a bigger market, in terms of demand, supply, and cuisine. What once was exclusively on one side of the globe has now become more accessible. Consequently, globalization has made our food and beverage industry more culturally diverse and more open to change. Recommendations Recommendations for the food and beverage industry include the installment of improved traceability systems along the global supply chain. These improvements can be implemented in order to ensure that the food and beverages remain fresh and safe for human consumption. Food companies can also improve the tracking of their products in the global supply food chain by monitoring the progress of the commodities from the suppliers to the middlemen and on to the wholesalers. Consequently, these companies can confidently maintain the integrity of their brands and their products in general. In order to keep up with this globalized world, the food and beverage companies need to adapt a more international cuisine and marketing. They have to cater to a more international crowd in order to ensure the longevity of their business and to ensure that there is a constant cultural exchange among the people. Finally, the food and beverage industry has to impose measures which help ensure that the family-based culture of this fast-food infested world is maintained. These measures can be done by making these fast-food chains more personalized in services and less focused on the speed and convenience of services. 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