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Emerging Social Entrepreneurial CSR Initiatives in Supply Chains Exploratory Case Studies of Four Agriculturally Based Entrepreneurs* Susan Cholette, Denise Kleinrichert, Theresa Roeder and Kenneth Sugiyama San Francisco State University, USA

OO Corporate social responsibility (CSR) OO Social entrepreneurs (SE) OO Social entrepreneurial ventures (SEVs) OO Social issues OO Supply chain management (SCM) OO Sustainability

Social entrepreneurial ventures (SEVs) experience unique social and environmental issues that challenge their missions. Underlying supply chains may be misaligned with these missions. For example, small emerging firms typically outsource most of their production and distribution functions to supply chain partners, without much leverage. What aspects of corporate social responsibility (CSR) are most actively embraced by SEVs, and what supply chain management issues do they face? How do they succeed in solving value conflicts with their social mission, and when are CSR supply chain trade-offs necessary? We investigate these questions via an exploratory multiple-cases study of four such small agriculture-dependent SEVs based in the San Francisco Bay Area. We categorise their CSR practices, finding that these SEVs prioritise assisting the community and purchasing responsibly. Each SEV has been able to address some of their challenges by using their CSR practices to capture a price premium, building closer relationships with stakeholders, and cultivating direct consumer relationships. We find that these SEVs occasionally compromise on longer-term CSR goals to maintain product quality. Typical supply chain strategies may not be effective for such SEVs because of their size. From the descriptive insights gained by studying the solutions and natural advantages small SEVs possess, as well as the trade-offs made, we propose potential managerial implications for similar emerging SEVs and make suggestions for further research on these types of companies.

Susan Cholette, PhD is a Professor of Decision Sciences in the College of Business at San Francisco State University. Previously she was a project manager at Nonstop Solutions and a supply chain consultant for Aspen Technologies. She earned her PhD in Operations Research at Stanford University and her BSE in Electrical Engineering at Princeton University. Her research focuses on supply chain efficiency and sustainability, especially for food, as published in Interfaces, International Journal of Production Research, International Journal of Production Economics, Journal of Cleaner Production, Journal of Optimization Theory & Applications, International Journal of Pricing and Revenue Management, Journal of Consumer Marketing.

u SFSU College of Business, 1600

Holloway Ave., San Francisco, CA 94132, USA

2 415-405-2173 ! [email protected] (email preferred)

  * We extend our thanks to John Curry, Matt Gregory, Mayra Orellana-Powell, and Brooke

Sinnes for generously donating their time in sharing their companies’ experiences with us. Paul Tasner served as a useful contact and sounding board. We also wish to thank our anonymous referees for their comments, which have significantly improved the paper. 40

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emerging social entrepreneurial csr initiatives in supply chains Denise Kleinrichert, PhD is an Associate Professor with specific research publications and teaching in corporate social responsibility, business ethics, social entrepreneurship and women, hospitality industry and sustainability, and supply chain analysis of start-up social entrepreneur endeavours. Earlier corporate executive experience in risk management and human resources management in the banking, health care and property/casualty insurance industries. She holds a PhD in Philosophy/Ethics and two Master’s degrees at University of South Florida, and a BA in Economics at Indiana University. She is a faculty member of the Sustainable Business faculty sub-group at the College of Business and founding colleague of the Center for Ethical and Sustainable Business (CESB) at SF State University. Theresa Roeder, PhD is an Associate Professor of Decision Sciences at the College of Business, San Francisco State University. She holds a PhD in Industrial Engineering and Operations Research from the University of California, Berkeley. Her research interests lie in the fields of computer simulation, health care analysis, and Operations Research and communications pedagogy. Kenneth Sugiyama is an MBA student candidate at San Francisco State University’s College of Business, focusing his post-graduate studies in Decision Sciences and Sustainable Business practices.

u SFSU College of Business, 1600

Holloway Ave., San Francisco, CA 94132, USA

! [email protected]

u SFSU College of Business, 1600

Holloway Ave., San Francisco, CA 94132, USA

! [email protected]

u SFSU College of Business, 1600

Holloway Ave., San Francisco, CA 94132, USA

! [email protected]

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M

ore companies of all sizes strive to become better corporate citizens. Small-to-medium sized enterprises (SMEs) are no exception. Some entrepreneurs may take on additional risks to uphold responsibilities to themselves and their stakeholders as citizens of a community. The idea of corporate citizenship involves the ethical concept of corporate social responsibility (CSR) but does not append only to ‘corporate’ endeavours. Rather, CSR is an applicable theoretical notion of the social, environmental and economic impacts of any business practices that result in direct and indirect market stakeholders’ well-being (Sethi, 1975; Brummer, 1983; Carroll, 1991; Freeman and Liedtka, 1991; Agle et al., 2008). Businesses have a ‘social licence’ afforded by communities as an informal permission to conduct business that includes ‘collaboration and mutual trust’ between ­stakeholders— in other words, by using CSR a partnership is formed that instantiates a commitment to being responsible to ‘making a difference in one’s community, one’s society and one’s country’ (Warhurst 2001, pp. 58 & 61). Social entrepreneurial ventures (SEVs) are business-construct organisations that include social and/or environmental issues and corresponding solutions in their missions (Peredo and McLean, 2006). In other words, SEVs are more inclined towards discretionary social, environmental, and economic obligations because of their mission. Moreover, SEVs are argued to hold intrinsic CSR values that form their core venture mission with a focus on improving the quality of life of stakeholders (Cornelius et al., 2008). At the same time, SEVs adopt the inherent risk, innovativeness and pre-emptive characteristics of traditional entrepreneurs (Peredo and McLean, 2006). Entrepreneurial endeavours with environmentally or socially beneficial products or services provide valuable contributions to the market. These entrepreneurs may also have a broader ethical mission as market players and citizens. Shane and Venkataraman (2000) recognise both the opportunity to enter the market and the value created by the enterprise for the entrepreneur and its stakeholders. These stakeholders include participants within the underlying supply chain. For most purposes, a company’s supply chain refers to the procurement, production, logistics activities and stages, and distribution needed to meet specific consumer demand for goods and services. Strategic supply chain considerations include pressures regarding social impacts on stakeholders, specifically in regards to ethically sourced partners (Warhurst 2001). But, are SEV supply chains in sync with SEV missions? The question is further complicated by the fact that these small SEVs often lack the clout of their larger counterparts to provoke CSR changes along the supply chain. SEVs also face significant challenges as they attempt to scale labour issues, and incur other internal and external costs than those larger firms face (VanSandt et al., 2009). Furthermore, such SEVs typically outsource part or most of their production functions due to their size. We address the ethical questions of supply chain CSR by studying some nascent SEVs to see what social, cultural, and environmental impacts they have on their stakeholders, what challenges such SEVs face, and what solutions they

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employ. We examine both theoretical and practical research of CSR and supply chain challenges that apply to small SEVs. Our analysis uses the lens of social entrepreneuring models to examine specific SEV case studies. The paper is organised as follows. We provide a brief literature review on CSR as considered within supply chains, especially with regard to entrepreneurial companies, and ask the underlying research question in the next section. Then, we present the methodology for addressing the social impact mission and practices. We go on to summarise the supply chain and other salient details for the stakeholders for four entrepreneurial companies studied. We then compare these companies’ social missions and determine similarities in their supply chain strategies, CSR emphases, and the supply chain problems encountered. Later, we consider the solutions and the trade-offs that have been implemented. Based on this analysis, we derive potential managerial implications for similar SEVs. We conclude with final remarks, inherent limitations in our current work, and suggestions for further research.

Literature review Corporate social responsibility and social entrepreneurship Our review of the literature on SEV supply chain challenges reflects the limited research of CSR aspects in this genre. Academic attention has primarily centred on corporations, with theories of how large businesses ought to regard their responsibilities and engage in practices. Corporate social responsibility defines a company’s obligation to meet social and environmental standards where that company’s business decisions and practices impact stakeholders such as suppliers, consumers, employees, local communities, the natural environment, and government (Freeman, 1984, 1994; Freeman and Gilbert, 1988; Anderson et al., 2007). Dacin et al. (2010) argue that existing theories of corporate entities also apply to social entrepreneurship frameworks. First we examine the literature on CSR, as broadly construed. In this paper, we deploy CSR as an umbrella term for labour (social), environmental, economic, and greater community issues. Much of the CSR literature studies the message to the marketplace and how its communication influences consumers and other stakeholders’ behaviours (Vives, 2006; Jamali and Mirshak, 2007; Pomering and Dolcinar, 2009; Vanhamme and Grobben, 2009). Vives (2006) conducted personal interviews, surveying 1,300 SMEs to determine the extents of CSR practices in Latin America, finding that ‘promoting socially responsible SMEs [is] a topic of rising importance’ and that SMEs are ‘driven more by the desire for self-realisation than by the profit motive’ (p. 40). Matten and Moon (2008) explore how perceptions of what CSR encompasses depend on location, comparing European and American companies’ claims and practices towards stakeholders and corresponding values. Schmidheiny

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(2006) argues that unique aspects of CSR are found in Latin American countries because of pervasive poverty that governments have not addressed, thus pressuring industry on the need to focus on the social aspects of CSR. In other words, companies are ‘creating a home-grown, meaningful form of CSR that addresses local issues and improves society’ (p. 22). Pretty and Ward (2001) argue that social value (capital) and human capital develop from relationships between organisations and stakeholders to promote social change based on values of trust, reciprocity, and connectedness. Not all traditional entrepreneurs prioritise environmental and social causes: Williamson et  al. (2006) survey 31 SMEs on their CSR-related sustainability practices and find the majority of these companies consider CSR to add cost. CSR efforts are practised because of regulatory compliance or customer requests. Sustainability practices involve a focused analysis of the social, environmental, and economic impacts of decision-making on various stakeholders as a tool for valuing CSR outcomes. However, many start-ups have made CSR a priority, or even their primary mission. Such firms cannot simply scale down the CSR efforts of large corporations (Jenkins, 2006; Morsing and Perrini, 2009). Tiny companies lack leverage in negotiating (Lepoutre and Heene, 2006) and face higher costs as they do not benefit from economies of scale. The more studied aspects of social entrepreneurship are found in the literature on social entrepreneurs (SE), which is primarily focused on the socioeconomic impacts of carrying out specific social change in developing country communities by creating social value, or human well-being, for stakeholders and communities (Peredo and McLean, 2006; Matten and Moon, 2008; Santos, 2012). The entrepreneurial focus is that of social and environmental change agents with a business venture, which presents a rich research perspective of the ethical implications of ‘doing well by doing good’ in the market system. SEs seek to develop value for their business venture and stimulate social change creation economically, socially and/or environmentally through products or services. The analysis of the SEV as an enterprise points to the balance of economic, social, and environmental value to a company and its stakeholders, which is referred to as sustainability. VanSandt et al. (2009) use a two company case study approach to illustrate the social venture challenges faced by social entrepreneurs Kiva.org and Babajob.com. Santos (2012) argues that SEs engage in: an innovation process in the economy that can happen in different institutional contexts, is based on value creation, and operates by its own rules and logic. It is an approach that seems well suited to address some of the most pressing problems in modern society and improve capitalism (p. 350).

Santos (2012) posits that this link between SEVs and corporate social responsibility creates ethical value in honouring relationships built between economic agents and their chosen communities of venture engagement. Lastly, Torelli et  al. (2012) consider how start-up SEVs that embrace CSR principles from the start, such as TOMS Shoes, may not face the same marketing challenges ensnaring companies who later become CSR-oriented.

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Supply chains and CSR We next consider the interaction of CSR considerations with the supply chain. Examining CSR from a supply chain context has received less consideration until recently (Maloni and Brown, 2006; Ciliberti et al., 2008). Industry mirrors academia’s inattention: a majority (53%) of firms surveyed have implemented a CSR policy, but only half of these firms extend such policies to their supply chains despite the financial rewards that can often be gained (Economist Intelligence Unit, 2008). Porter and Kramer (2006) bemoan the current corporate approach to CSR which is often unsystematic and typically lacks a coherent supply chain strategy. Studies of companies’ supply chains and operations often focus on subsets of CSR, such as environmental practices (Carter and Carter, 1998; Klassen and Whybark, 1999). Klassen and Whybark (1999) consider production, determining when companies are more likely to engage in pollution prevention or control measures. Carter and Carter (1998) find companies’ environmental purchasing efforts are facilitated when supply chain coordination is enhanced. Carter and Jennings (2002) consider a broader spectrum of CSR concerns across three supply chain functions: purchasing, transportation, and warehouse management. Seuring and Müller (2008) summarise the major sustainable supply chain literature, finding that environmental concerns receive more attention than social ones for traditional companies seeking to embrace some aspect of CSR. Mair et al. (2012) call for further study of social entrepreneurs as supply chain ‘change agents’, noting that they provide ‘opportunities and activities that leverage economic activity to pursue a social objective and implement social change’. Researchers have only recently started to explore the interactions between supply chains and CSR for small-to-medium-sized enterprises. Ciliberti et al. (2008) perform a cross-case analysis of five Italian producers partnering with suppliers from developing nations, noting that they are among the first to document the CSR practices associated with SMEs’ supply chains. Côté et al. (2008) study the supply chains of three Nova Scotia SMEs, determining where opportunities to improve environmental performance arise and where barriers occur. We narrow our focus to SEVs and explore their supply chain challenges. SEVs seek business opportunities that employ CSR by using sustainability tools to positively provide social and environmental value to key stakeholders of their venture pursuits. Conversely, SEVs may also develop or exploit innovations that larger firms may be too large and slow to capture (Christensen, 1997; Cohen and Winn, 2007). Therefore, we investigate how SEVs’ supply chain challenges are endemic. In examining the literature on the intersection of CSR and SEVs, we note that Mair et al. (2012) surmise that social change is imbedded in an SEV’s mission and product, a point supported by others (Alvord et al., 2004; Christensen et al., 2006; Steyaert and Hjorth, 2006). Therefore, supply chain challenges present differing challenges and opportunities for added SEV mission value. Researchers have analysed the challenges of traditional entrepreneurial endeavours, while only just beginning an examination of social entrepreneurial and innovation ventures over the last few years (Dacin et al., 2011). Mair et al. (2012) analysed 200 SEVs funded by two well-known foundations, Ashoka and Schwab

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Foundations, identifying the four most prevalent issues: economic (45.5%), civic engagement (38.5%), law and rights (17.5%), and the environment (14.5%). While their results do not represent specific supply chain concerns, they point to four models of social entrepreneuring (economic capital, political capital, human capital and social capital) that we may apply to specific SEV case studies that include supply chain challenges. Further, Mair et al. (2012) argue that the social mission of SEs is to change their market sector and its community in a transformative way that adds social benefit (a form of capital) to stakeholders, which lends rich context for examining supply chain impacts. Finally, we look to von Weltzien Hoivik and Melé’s (2009) global corporate citizenship analysis of SMEs and their findings based on a single case study of a Norwegian clothing company to serve as an example of theoretical applications to SEV cases. The nascent studies of social ventures frame our inquiry in the social mission values, outcomes, and context of emerging SEVs against the backdrop of their unique supply chain challenges. We aim to contribute to the body of knowledge by investigating the following research question. How do SEVs address specific supply chain issues related to their CSR mission and practices? We continue in a similar vein as these prior pioneering studies, specialising further and considering only fledgling SEVs, all of which are headquartered in the San Francisco Bay Area and sell agricultural products.

Methodology Case studies Given the aforementioned scarcity of prior research, we take an inductive approach to develop a theoretical underpinning and an appropriate starting point in the cycle of deductive and inductive studies of SEVs (Eisenhardt and Graebner, 2007). Our qualitative exploratory case study approach is similar to other supply chain-related research (Ciliberti et al., 2008; Porterfield et al., 2012). Qualitative case studies are not as prevalent within supply chain and operations management as elsewhere, but represent a valid research approach in this field (Meredith, 1998; Barratt et al., 2011). We restricted our study to a single sector. Maloni and Brown (2006) discuss the inherent difficulty of developing a universal CSR framework for all sectors and consider only the food industry. Our focus, agricultural production, touches on several environmental and social issues. Companies in this sector face difficult supply chain issues, especially as they provide physical products, which typically involve substantive procurement and logistical processes. Our case selection is guided by access to appropriate interview subjects (Yin, 2009) as we required lengthy and candid interviews with founders or other high level employees. We approached founders or other key employees involved in each SEV’s relationships with the local business community. The 46

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four companies selected sell within the San Francisco Bay Area and have either primary or secondary headquarters in the vicinity. Of the six companies originally asked to participate, four agreed: two coffee bean importers, another food producer, and a non-food producer. While arguably a small number, a four company analysis falls within the range of 4–10 subjects that Eisenhardt (1989) espouses as appropriate for preliminary examination purposes. The two coffee companies are replications (Yin, 2009): both companies source their (only) product from Central America, then process and sell in the Bay Area. In contrast, the other food producer relies on its processor to source ingredients, focusing instead on product development and marketing. The coffee and food companies replicate the food industry. The non-food company sells naturally dyed yarns, some of which are sourced locally. It contrasts with the other three companies in that its products are not edible. We assert that these four subjects represent a combination of both replication and contrary replication to provide a sufficiently broad basis to establish new theoretical insights by eliminating alternative explanations (Eisenhardt and Graebner, 2007). We recognise that our SEV study sample may be tainted by non-response bias, which may not be representative of the greater SEV population. However, Eisenhardt and Graebner (2007) allow for non-representative sampling for the development of theory. From inception all these companies have embraced CSR principles due to the founders’ visions, not merely as either a response to customer demand or as a defensive manoeuvre. These companies are truly entrepreneurial, employing fewer than a dozen full-time employees, and were founded within the past ten years. Unlike many technology start-ups, all of the SEVs in our sample are currently in production and have at least a year of direct market sales. While not all are yet profitable, none has been conceived of as a charity project, and all aim to become profitable in the foreseeable future.

Data collection and analysis We next consider the data collection and interpretation. Table 1 shows that the primary data source for each case consists of in-person interviews, two with public presentations (i.e. MBA class presentations and public product education events), with subsequent follow-up emails and phone calls as necessary. In three of the companies, the respondent is the company founder. We interviewed the Director of Supply Chain and Operations at the fourth company (Two Degrees). These respondents are the most knowledgeable about each venture’s supply chain. Formal interviews were conducted between February and April 2012, following the interview guideline shown in the Appendix. Additional interviews were later conducted by at least one other co-author. Each SEV received a copy of the interview guideline in advance. Interviews generally followed the script as befits the open-ended nature of case study interviews (Yin, 2009). Indeed, the interviews were semi-structured, with the interviewer able to modify the instrument based on the direction of the conversation, as recommended by Eisenhardt (1989). These initial interviews took approximately one hour, either The Journal of Corporate Citizenship Issue 55  September 2014 

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in person or over the phone, and were recorded with the consent of the respondents. Transcripts and an overall summary were prepared for the rest of the coauthors to read. We did not make use of dedicated content analysis software as do others (Porterfield et al., 2012), instead using MS Word’s built-in word search functionality to highlight and tally mentions of key concepts. Table 1 shows how triangulation of interview-derived data was achieved, either through use of multiple respondents, multiple interviews, or other types of interaction (Barratt et  al., 2011). Each of the remaining co-authors of the paper served as a secondary validator for one or two of the firms studied. In addition to repeated interviews with the founder of one of the companies, the third author worked at the company’s booth during an industry trade show, serving as a participant observer. A self-employed logistics specialist, Paul Tasner, consults at Two Degrees, providing the initial contact as well as serving as an additional respondent. The other three ventures are too small to allow for separate interview respondents, forcing us to rely on a single interview subject, as other researchers (Ciliberti et al., 2008) have had to do. Additional supporting evidence includes documentation from company websites, company-prepared presentations, and even samples of the products and packaging materials. Lastly, follow-up email exchanges with the primary interviewees allowed for clarification of the few discrepancies noted and the inclusion of additional directed information not provided within the initial interviews.

Case studies We briefly present an individual narrative for each company, first depicting the background, and the supply chain structure and partners. We categorise what aspects of CSR each company addresses most with respect to Mair et al.’s (2012) SEVs models (human, social and economic capital). We detail the challenges they face, any solutions that they have or plan to implement, and where they have made trade-offs. Table 2 provides background data on each company, including supply chain partnerships and consumer channels. In the ‘Comparative analysis’ section, we perform a comparative analysis of the companies, mapping the descriptive insights gathered to a predefined framework and then determining what commonalities the companies share. Although we are able to name all of the companies directly studied, due to competitive concerns and other privacy issues, we mask the identity of some of the partnering supply chain companies.

Café Casacurry Background Café Casacurry is an experimental, mid-elevation coffee grower and processor in El Salvador with an office in Alameda, CA. John Curry established the company in 2002 when he retired to El Salvador, refurbished an old coffee growing 48

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estate and discovered the region’s natural ability to produce quality coffee. He constructed an in-house processing facility in 2012 to allow for growth. Currently, the facility’s excess capacity enables Casacurry to purchase additional coffee cherries, the fruit that houses each coffee bean, before the picking and drying process, from local farmers (J. Curry, personal communication). Casacurry favours quality over quantity and pays a premium to pickers for waiting for the fruit to fully ripen to a bright red hue on the tree instead of picking unripe, green fruit.

Current practices By promoting sustainable growing practices and paying higher wages, Casacurry’s CSR practice helps improve the standard of living of local farmers. Previously, local farmers had little choice but to sell to cooperatives. Cooperatives often pursue a cost leadership strategy, indiscriminately purchasing large amounts of cherries as cheaply as possible. Under pressure from the cooperatives, most farmers grow the Robusta varietal of coffee, which produces larger yields than the indigenous Arabica varietal. An environmental cost of growing Robusta is that farmers often slash and burn forests to gain more acreage to plant coffee plants, as Robusta does not need the tree shade Arabica requires. As this destructive technique has become habitual for many coffee farmers across Latin America, Casacurry has seized an opportunity for re-education by working with ProCafe, a quasi-government agency that offers guidance to local farmers by educating them on available techniques for producing quality coffee in an environmentally friendly manner. By using ProCafe as a resource, Casacurry and local farmers gain access to otherwise unavailable capital and expertise necessary to improve harvest quality. Casacurry offers local farmers free fertiliser until they become financially capable of continuing sustainable farming practices on their own. At first, Casacurry did not have access to good fertiliser and resorted to using the waste produced during the drying of cherries into beans. Unfortunately, this practice resulted in a weak fertiliser available only once a year. Several years ago, a few growers banded together and created a high-quality fertiliser manufacturing plant, thus allowing for crop fertilisation throughout the entire growing season. Once the quality of the purchased cherries has been verified, Casacurry begins the drying process. Whereas most coffee companies use the quicker wash-dry method, Casacurry utilises the natural-drying method: cherries are air-dried on screened tables for about eight weeks, during which time someone must attend to the cherries every day. Although more time and labour intensive, Casacurry believes this method produces a superior product and lessens the dependence on natural resources. The beans are packaged and shipped to the United States via an independent transportation company. Beans are roasted into the final product at RoastCo, located in Oakland, CA. Casacurry primarily sells to restaurants and private companies, appealing to socially conscious coffee drinkers. Casacurry’s website serves as a platform The Journal of Corporate Citizenship Issue 55  September 2014 

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to educate consumers on the company’s product and mission, rather than as a sales channel. While Casacurry occasionally sells directly to consumers at cupping (coffee tasting) events, direct sales account for only a tenth of all revenue. More outreach and direct sales events are planned for the future.

Challenges and their solutions Casacurry’s greatest challenge has been in transporting coffee from El Salvador to the United States due to: 1) costs associated with shipping a relatively low volume of beans when compared to larger companies; 2) poor existing infrastructure in El Salvador; and 3) lack of trust in dealing with local shipping companies. For example, during its first year of importing coffee, 500 pounds of coffee beans were airfreighted to the United States at $1.25 per pound. Along the way, 100 pounds of coffee were either stolen or misplaced during transit. Other logistical problems, none as dramatic as this 20% loss, beset Casacurry until they established a relationship with a consolidating export company, which also resulted in a significant reduction in transportation costs. Downstream partners have pressured Casacurry to reduce prices. However, the company has remained firm on maintaining its higher price, emphasising that revenues are reinvested back to the pickers and farmers in El Salvador (J. Curry, personal communication). Casacurry has remained committed to empowering local farmers and farmworkers, which has resulted in Curry’s steadfast insistence on protecting their stake in the coffee business (see Maak and Stoetter (2012) for a Fundación Paraguaya case study example of Martín Burt). Casacurry demonstrates standards of CSR through Mair et al.’s (2012) Economic Capital model, enabling social change for the El Salvador community farmers and coffee cherry pickers by revitalising the country’s coffee industry and improving the economic well-being through fair labour and pay practices. In addition, Casacurry builds Social Capital and considers environmental concerns by focusing on developing human capital in rural communities of El Salvador and using farming techniques to preserve natural environmental resources (Pretty and Ward, 2001). Catracha Coffee Background Catracha Coffee is a sole-proprietorship coffee importer founded in 2009 and based in Alameda, CA. The owner, Mayra Orellana-Powell, was born and raised in the impoverished town of Santa Elena, Honduras. Santa Elena lacked a high school, which required Orellana-Powell to live with family members in a distant town in order to complete her education. Realising the region’s natural ability to produce quality coffee, she created Catracha with the vision of improving the quality of life in Honduras and promoting sustainable growing practices (M. Orellana-Powell, personal communication).

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Current practices Catracha’s business model involves directly purchasing coffee cherries from local Honduran farmers who adhere to Catracha’s standards of CSR. Farmers must agree to maintain shade tree growth in the area and not to use any artificial pesticides on the coffee plants. As with Casacurry, Catracha plays an important role in ending the destructive slash and burn cycle in the region. In return, Catracha pays farmers a premium price relative to what they would receive from selling their beans to cooperatives. Moreover, Catracha’s mission includes making ‘no compromise with the environment or with the people who work daily to produce our coffee’ (Marco Polo Silk Road, 2012). When possible, Catracha hires and pays higher-than-standard local wages to women and older workers, unusual for a country that suffers from rampant sex and age discrimination. After local harvests are purchased and collected, Catracha transports the cherries to the nearby town of Machara. The cherries are dried and processed into coffee beans, packed, and shipped to the US. The Royal Coffee Company, located in Emeryville, CA, has been able to solve one of Catracha’s greatest challenges: transporting beans to the United States efficiently. Once the coffee beans arrive in the United States, Catracha transports the beans to RoastCo. Besides roasting and offering Catracha’s coffee on their website, RoastCo has played a pivotal partnership role in Catracha’s success. Not only did RoastCo introduce Catracha to the Royal Coffee Company, but also to the owners of Blue Bottle Coffee, an emerging San Francisco coffee retailer which has started carrying Catracha’s coffee along with other single origin coffee brands. Although Catracha does not have permanent shelf space at grocery stores, the company sells through several restaurants and specialised retailers such as Blue Bottle Coffee. The company supports a number of direct-to-consumer sales channels: its own website, the RoastCo’s website, a listserv, local cupping events, and its network of extended friends and family. Challenges and their solutions Similar to Casacurry, the most challenging portion of Catracha’s supply chain is found in transporting the coffee from Honduras to the United States due to: 1) costs associated with shipping a relatively low volume of beans when compared to larger companies; 2) poor existing infrastructure in Honduras; and 3) the lack of trust in dealing with local shipping companies. As a result, Catracha has very little bargaining power and control in shipping the beans to the United States. Impressed with Catracha’s quality and mission, the Royal Coffee Company has let Catracha use its shipping infrastructure, charging Catracha the at-cost price for transporting their product into the United States. Having circumvented their prior transportation challenges with a cost-saving solution, Catracha expected to make its first profit within the next few years. Catracha’s mission incorporates three of Mair et al.’s (2012) SEV models: 1) the company’s social change focus on dignity, equal access and social justice in providing employment access and empowerment for women; 2) the inherent

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concern with the community benefits of natural environment protection; and 3) improving the economic and educational well-being of Mayra Orellana-Powell’s local rural village community. A similar ethical effort towards restoring ‘dignity, empower(ing) women and break(ing) the vicious circle of poverty’ is found in the case study of a rural-centric social venture, Gram Vikas in Orissa, India (Pless and Appel, 2012).

Two Degrees Background Two Degrees is a snack bar purveyor with a social mission to alleviate child hunger. Established in San Francisco in 2011, Two Degrees follows TOMS Shoes’ One for One business model: for every snack bar purchased, Two Degrees donates a meal to a malnourished child. The disbursement of meals is accomplished through partnerships with Valid Nutrition, Partners in Health, Shining Hope, and Akshaya Patra. Meals presently feed children in Kenya, Somalia, Malawi, Haiti, and India, and the company plans to expand its reach to other countries and impoverished communities in the United States (M. Gregory, personal communication). Current practices Two Degrees’ snack bars are sourced and produced by a third party co-packing manufacturer in Carson City, NV. The present co-packer was chosen for its ability to provide high quality snack bars at the lowest cost. Able to produce 240,000 bars daily, this co-packer has reduced Two Degrees’ manufacturing costs by half over the prior co-packer. In order to overcome the tight margins faced by all companies in the food industry, Two Degrees relies on its co-packer for all ingredient acquisition except for quinoa, which is sourced from a socially responsible cooperative in Bolivia. The co-packer has been able to provide a solution that adequately balances capacity, quality, and costs to best match Two Degrees’ sourcing needs and expectations. Although Two Degrees would like to eventually expand its mission to include ingredient acquisition, this is not currently feasible. Outsourced by their current co-packer, Two Degrees’ snack bar wrappers are supplied by CL&D Graphics, a company located in Wisconsin. The snack bars were previously wrapped by another supplier using the more ecofriendly heat-sealing method. Unfortunately, many wrappers unsealed before reaching customers, forcing Two Degrees to switch to a supplier that offered the more reliable cold-sealing method. Finally, the co-packer packages Two Degrees’ snack bars into boxes supplied by Pacific Southwest Containers, a Modesto, California-based company. The boxes containing the snack bars are packed into shipping boxes supplied by Columbia Coordinated. Two Degrees uses State Logistics as its third-party logistics (3PL) support to transport the packaged snack bars. State Logistics provides

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storage, less-than-truckload shipments, and truckload shipments to retailers, distributors, and other customers.

Challenges and solutions Although Two Degrees does not have the financial clout or leveraging power to significantly influence its vendors in ways large corporations can, the company has been able to forge a symbiotic relationship with its co-packer. For instance, when the co-packer decided to open a new manufacturing plant, Two Degrees was able to provide its expertise and input regarding expectations and how the new plant could assist Two Degrees in meeting its CSR-focused mission. The relationship has not only improved Two Degrees’ products but has also had a positive spillover outcome: when Two Degrees articulated the importance of having its chocolate sourced from suppliers engaged in fair labour practices, the co-packer not only embraced the standard but sourced this chocolate for its other customers as well. Two Degrees is an example of the Economic Capital model proposed by Mair et al. (2012), with their mission to alleviate child hunger and improve life expectancy in developing communities. Sincere Sheep Background Sincere Sheep is a socially and environmentally focused sole-proprietorship that produces naturally dyed yarn and fibres in Napa, CA. Brooke Sinnes founded the company in 2003 with the vision of working with wool produced and processed entirely by local farmers and mills and engaging in environmentally friendly dyeing practices (B. Sinnes, personal communication). Current practices Sincere Sheep’s operations start with the procurement of dyes and undyed yarn. The orders are sufficiently small that parcel post is used to receive all goods. Sincere Sheep dyes the yarn and packages it into appropriate amounts for individual sale. The product is sold via direct to consumer sales channels. Sincere Sheep purchases undyed fibre and yarn from both local (Northern California) and more distant sources. The locally sourced untreated wool is processed into yarn by one of two mills, one in California and another in Wyoming. The mill in Wyoming is currently the preferred choice as it is able to produce yarn of the desired quality and texture and also has a mission and philosophy more closely aligned with that of Sincere Sheep. In particular, the Wyoming mill actively engages in sustainable practices such as recycling wastewater and using non-toxic, citrus-based cleaning methods instead of the more common petroleum-based methods. Furthermore, the mill supports local ranchers through a variety of financial incentives.

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Although Sincere Sheep was founded with the intent of purchasing yarn from sources within a 100-mile radius, the company currently also acquires undyed yarn from vendors in Australia, New Zealand, South America, and the United Kingdom. Not many local farmers and mills can produce yarn of the specified quality and type, and the mills that have the capacity to produce the desired yarn often charge a premium price. In order to reduce procurement and manufacturing costs, Sincere Sheep has resorted to purchasing more distantly sourced yarn while searching for additional local sources and mills so the company can eventually return to its original goal of 100% local sourcing. The dyes used by Sincere Sheep are purchased from two suppliers in the Pacific Northwest. Both vendors specialise in natural dyes manufactured in Southeast Asia and in other developing regions. The vendors have assured Sincere Sheep that they periodically inspect their partners’ manufacturing plants to insure that the dyes are produced in an environmentally appropriate manner that also supports the local communities. Sincere Sheep has only a few consumer sales channels. Yarn is sold through the company’s own website, at tradeshows, and through a small number of trusted local yarn stores. Transporting the product to the final customer is handled by parcel post delivery or by the owner driving the yarn to tradeshows and stores.

Challenges and solutions The production challenge faced by Sincere Sheep is that the natural dyeing process is more labour, energy, and water-intensive. Conventional methods use a variety of toxic chemicals to brighten colours, bond dyeing agents to the textiles, and speed up the dyeing process. The trade-off for not using these chemicals is that the textiles need to be repeatedly dyed in colouring agents for longer periods of time. These higher production costs are offset by the fact that the by-products of Sincere Sheep’s natural dyeing process are non-toxic water and other nontoxic chemicals, such as aluminium phosphate (baking soda), used to fix colours to the yarn. Sincere Sheep currently recycles its waste water in a nearby garden and continues to look for alternative ways to recycle its aluminium phosphate and other non-toxic by-products. Similarly, unlike with products dyed by conventional means, there is no concern over exposure to toxic chemicals when the products made from the yarn are used and, ultimately, discarded. Another obstacle for Sincere Sheep is locating other mills and farms aligned with Sincere Sheep’s mission and vision. Many mills and farms lack an internet presence, limiting Sincere Sheep’s ability to find likeminded vendors (B. Sinnes, personal communication). Hence, Sincere Sheep is at a buyers’ disadvantage and has had to rely on the aforementioned temporary non-local procurement. Until Sincere Sheep has more vendor options, balancing costs, quality, and sustainability will remain a challenge. Sincere Sheep’s CSR mission towards sustainability efforts in the procurement and processing of wool into yarn is reflective of the Social Capital model—the development of environmental and educational value aspects of their product line’s supply chain as the company adheres to a civic engagement mission (Mair et al., 2012). 54

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Comparative analysis CSR concerns We map our descriptive insights on the CSR practices of our SEVs to the framework developed by Maloni and Brown (2006). We select this framework because it is specific to the food industry, although we contend it also applies to Sincere Sheep, the sole nonfood provider studied. In particular, the spinning and dyeing of wool-based yarn involves many of the same agricultural considerations as food. Dyes can be organically certified, and the inherent toxicity of some non-natural dyes may pose a health concern. We modify Maloni and Brown’s (2006) framework to categorise fair trade as a special form of procurement: international buying from small scale suppliers located in the developing world that ensure fair and living wages to workers. Table 3 presents the seven categories, ranked in decreasing order, that we perceive companies have prioritised for supply chain partnerships. We tallied keywords and concepts as described in the data collection section above, with frequent or emphatic mention resulting in a higher ranking. Occasionally, respondents explicitly listed their priorities or stated whether a category warranted a CSR concern. We find the categories for community and purchasing tie for the highest priority, with environmental issues taking third consideration. The remaining four categories appear to be less active concerns for many of the sample companies. Details for each of the categories follow.

Community While all four of the subject companies invest in community CSR initiatives, their approaches differ. Two Degrees is more far-reaching in their attempts to alleviate child malnutrition around the world. The other three companies focus on aiding the local (developing) communities by providing their labourers and suppliers with some combination of education or assistance for improving raw material quality; promoting regional terroir; and through specific procurement strategies. Casacurry encourages local tourism in El Salvador by inviting clients to visit their coffee plantation. Catracha Coffee advertises their coffee as Honduran single origin and campaigns to publicise the high quality of regional Santa Elena beans. From inception, Sincere Sheep’s prime directive is sourcing all wool from within a 100-mile radius of the San Francisco Bay Area of Northern California. Even though they have had to relax this goal to gain access to the wool of sustainably raised sheep outside of California, the company still engages local vendors and explicitly labels all locally sourced products. This finding is at odds with Maloni and Brown (2006), who state that the community dimension does not appear to be a major element of the food sector’s supply chain CSR practices. However, they do encourage practitioners to support and engage the community. Dees (2012) argues that a merging

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of two cultures, the practices of charity and social problem-solving, serves to underwrite the notion that human values matter as a responsibility in social entrepreneurial endeavours.

Procurement Socially responsible procurement ties for top priority among our case study companies. Table 2 shows that all the companies’ supply chains include many partners, some international. Companies relinquish control and even visibility when they outsource so many production and distribution activities. Yet, Casacurry and Catracha Coffee still have solid relationships with their growers due to strong community connections. Both coffee importers pay growers more than local cooperatives do. Catracha Coffee even provided a bonus to growers in 2012 (M. Orellana-Powell, personal communication). Sincere Sheep pays a price premium to wool suppliers. Brooke Sinnes indicated that farmers were previously unable to cover the costs of sheep shearing. Two Degrees is more removed from their suppliers than the other three companies but has stated that their priority is to make sure their supply chain partners have fair wages and good labour conditions. Two Degrees purchase their quinoa from a socially responsible Bolivian cooperative but also rely on their co-packer to source the remaining ingredients for their bars. Two Degrees recognise that procurement is the next challenge to tackle and are developing a mission statement on natural ingredient sourcing. Meanwhile, they have convinced the co-packer to purchase chocolate from a socially responsible provider. Montgomery et al. (2012) argue that ‘pooling alliances allow organisations to share similar resources and enjoy increased purchasing power, enhance leverage over other actors in the supply chain’ (p. 377). In other words, the nature of collective social entrepreneurship provides a blueprint for market entrance and viability, as well as supporting the small footprint of emerging SEVs. Environment All of these companies are engaged environmentally, yet they focus more on the social aspects of the prior two CSR dimensions. While Two Degrees does pack bars in boxes derived from 100% post-consumer waste, this fact is not advertised on their product and is only visible when the box is flipped over. The emphasis that both Casacurry and Catracha Coffee place on avoiding slash and burn farming is environmental, but both companies seem more concerned with improving the local community by preventing environmental degradation and subsequent loss of livelihood than on meeting specific environmental goals for their own sake. While Sincere Sheep reduces the environmental impact of chemicals associated with yarn dyeing where possible, we consider the following point from the interview with Brooke Sinnes: She suspects that that the parcel post deliveries from the Wyoming mill may be air freighted, but she prefers to do business with the Wyoming mill as it is better aligned with her overall CSR goals than

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the California mill. When asked about her outgoing deliveries to consumers by parcel post, she again reiterated that her primary concern is not minimising carbon footprints, but on providing nontoxic, sustainably sourced finished goods while supporting her local community (B. Sinnes, personal communication).

Additional categories The remaining four categories receive less active attention. Some of the categories are less pertinent to these small firms. For instance, coffee and wool production methods practised by the companies’ vendors are comparatively low technology, with no use of bio-engineered seeds or other agricultural products. Only Two Degrees label their products as GMO (genetically modified organism) free, and they can do so because their co-packer has pursued this certification. None of the other three respondents expressed any concern over biotechnology. Likewise, it should not be inferred from their lack of emphasis that these companies are indifferent to health and safety concerns. A more reasonable interpretation is that their products are inherently unlikely to invoke such consumer issues. The category of animal welfare would be relevant only for Sincere Sheep, since it is the only venture to involve animal-based products. However, the interview with the founder at no point discussed animal husbandry. Both Catracha Coffee and Casacurry pay a premium to the few workers they employ, and Catracha Coffee selects its seasonal workers specifically to avoid both the gender and age discrimination endemic within Honduras. A small firm can easily monitor internal labour practices of the few workers it employs directly but faces challenges in verifying that its supply chain partners’ employees are humanely treated. As the SEVs studied essentially outsource much of their supply chain labour needs, it is understandable why procurement ranks as such a high concern.

Supply chain issues, solutions, and trade-offs Given the CSR concerns of these companies, especially the importance of procurement and community issues, we consider the supply chain challenges identified, focusing on those with CSR implications. Table 4 shows the solutions and advantages that allow these companies to continue to provide products while meeting their standards. It includes trade-offs that may be operational necessities, at least for the present. In considering the supply chain challenges mentioned, we examine what supply chain issues are the most prevalent and what solutions are most commonly implemented.

Supply chain problems and concerns Not surprisingly, we share a finding from the works of Lepoutre and Heene (2006) and Ciliberti et al. (2008): the small size of all the companies studied The Journal of Corporate Citizenship Issue 55  September 2014 

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has negatively impacted some facet of their businesses. Both coffee importers are unable to fill a container and otherwise secure favourable transportation terms by themselves. Each of the founders has their own horror stories to share that seem out of place in modern business. For example, Catracha Coffee must deliver their goods to the port over an unsecured road that is dangerous due to local brigands. More prosaic concerns due to small size also arise. For example, during the short finishing process between harvest and shipping, Catracha Coffee scales up by hiring temporary workers and renting equipment that is uneconomical to purchase, given its current capacity. Sincere Sheep has no additional employees. All outreach to suppliers and consumers as well as the dyeing process is handled by the founder who often finds herself overwhelmed by the workload and need to wear multiple hats. As Two Degrees provides a significant, guaranteed donation to their non-profit partners for every bar sold, as opposed to merely donating a fraction of profits, they face the challenge of keeping production costs low enough to remain profitable themselves. Small size naturally leads to the next concern, partnership problems within the supply chain. All four companies have faced challenges from upstream and/or downstream partners. Relying on outsourcing inherently creates vulnerability to the whims and abilities of others, requiring a high degree of trust. Two Degrees, comparatively larger than the other three companies, nevertheless indicate that they lack the leverage to enforce change with their co-packer. Upstream partnership issues also arise with Sincere Sheep’s inability to source enough wool from local suppliers at the price and quality needed. Ciliberti et al. (2008) also find that the upstream challenges can be particularly daunting for smaller firms. Downstream partnership problems include the pressure that both Casacurry and Catracha Coffee are receiving from some of their buyers to lower prices and the inability to get retail shelf space (J. Curry, personal communication).

Solutions/Advantages Despite the above-mentioned problems, the companies possess advantages and have found solutions that enable them to compete. All of the companies have positioned their products with a price premium compared with competing products. Three of the companies provide products which are inherently differentiated, with Two Degrees being the sole exception. While vegan, gluten-free, GMO-free and, in the authors’ collective opinion, tasty, these snack bars face a similar lineup of high-quality snack bars on the shelves at Whole Foods. Many of their competitors, such as ClifBar, additionally have organic certifications or possess competitive advantages for both production scale and ability to reach consumers. However, Two Degrees differentiate themselves with their promise to feed another person for every bar purchased, a message that takes up a substantial amount of their labelling (Fig. 1). While all of the interviewees discuss problems with partners along the supply chain, all also mention a close relationship with one or more of their supply 58

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chain partners. Both coffee importers maintain strong partnerships with growers. Casacurry also has a favourable relationship with a local fertiliser plant, enabling them to afford to provide farmers with free fertiliser. Casacurry partners with ProCafe to provide lab equipment and other assistance with the goal of improving the quality of El Salvadorian coffee. Not only does Catracha Coffee cite strong relationships with their growers and roaster, but they have also developed a beneficial relationship with Royal Coffee, which has helped them solve many transportation and other supply chain issues. Sincere Sheep maintains supportive relationships with their California wool suppliers, through the founder’s generous compensation for wool and efforts to promote local terroir. Two Degrees cite a strong working relationship with their co-packer. Two Degrees may not have the leverage to force change, yet the co-packer has always held an open door policy and has been responsive to requests. For instance, Two Degrees convinced the co-packer to source chocolate through a supplier engaged in fair labour practices. Two Degrees also benefits from the co-packer’s commitment to certain CSR principles, such as the co-packer’s GMO-free stance, allowing Two Degrees to label their bars as GMO-free. Two Degrees has productive relationships with each of their four non-profit partners, outsourcing all of the operations associated with non-profit activities to these partners and focusing their efforts on the for-profit operations. Such close relationships facilitate the coordination that Carter and Carter (1998) find is crucial for effective purchasing practices. A complementary measure of success includes bypassing some supply chain partnerships. Sincere Sheep is able to avoid issues with pricing or channel restrictions from downstream partners by selling almost exclusively directly to the consumer via trade shows and its website. The close connection to the customer not only allows Sincere Sheep to capture a larger share of the price but also provides quick feedback as to what products sell better than others and what consumers seek. Additionally, the direct contact allows the founder to educate the consumer on the natural dyeing process and aids in differentiating her products from her competitors. Catracha Coffee is also pursuing the direct-to-consumer channel through their website and direct sales at cupping events. Two Degrees supports direct-to-consumer sales through their website, allowing the consumer to specifically target the region to which meals are sent. Two Degrees is also able to capture more of the sales price online: while a bar sells for US$1.99 at Whole Foods, Two Degrees’ website sells boxes of nine bars for US$19.95, including free shipping only when four or more boxes are purchased.

Trade-offs The companies have had to make concessions on some of the CSR dimensions. Two of the companies have admitted to temporary compromise on CSR goals in order to maintain product quality. Sincere Sheep has been forced to source from afar and prefers to work with the more distant mill because of its overall quality and CSR approach. Likewise, Two Degrees had to switch from a more The Journal of Corporate Citizenship Issue 55  September 2014 

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environmentally friendly compostable packaging solution because it proved to be unreliable, spontaneously unsealing and degrading product longevity. Sincere Sheep is fortunate in that, while natural dyes lead to less saturation or uniformly distributed colour in the yarn compared with artificially derived dyes, end consumers seem willing to tolerate a loss of quality, as defined in terms of uniformity/intensity, in a trade for natural, non-toxic dyes. None of the products studied is organically certified. Likewise, neither coffee importer is fair trade certified. While four of the five SMEs studied by Ciliberti et al. (2008) have adopted either SA8000, EMAS or ISO[9/14]001 standards, none of our study’s four SEVs has. When asked about certifications, John Curry mentioned organic certification costs US$1,000 annually per farm, forcing him to retreat to the less strict standard of ‘organically grown’ (J. Curry, personal communication). Catracha Coffee’s website explains its coffee is not fair trade certified because the barrier to entry for such certification is too high for small producers. This stance is supported by the critical review Cole (2012) provides on what is required to be fair trade. Only one of the dyes that Brooke Sinnes purchases is certified as organic. Both the founders of Casacurry and Sincere Sheep emphasised the expenses associated with certification are not justified, and that they can more effectively invest in direct CSR improvements rather than paying for paperwork (J. Curry and B. Sinnes, personal communications). On a similar note, our SEVs monitor their vendors’ supply chain practices informally. Both of the coffee vendors and the yarn provider have sufficiently close relationships with the majority of their vendors that they can rely on personal relationships. Geographical proximity means that the founders can visit the coffee growers and wool providers. However, most of the companies do not feel that they can presently divert resources to formally vet suppliers. Sincere Sheep’s founder emphasises that she feels her time is better spent finding additional suppliers that appear to share core values than pursuing paperwork to formally report such progress. Two Degrees do not feel they currently have the clout to demand that their co-packer provide reports for all of the sources used. Additionally, they admit to some ambivalence, as switching from the current vendors could increase material costs. While they plan to develop and deploy a mission statement related to socially responsible procurement, this is a future goal. In contrast, several of companies studied by Ciliberti et al. (2008) either submit self-assessment questionnaires to comply with SA8000 certification standards or perform third party audits.

Discussion Practical implications/managerial insights Although this research is far from conclusive, the descriptive insights can guide other social entrepreneurs. Table 5 summarises the points and indicates which companies follow which items. 60

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By targeting products that improve from CSR initiatives, companies like Casacurry and Catracha Coffee offer a superior product over what is provided by cooperatives while simultaneously improving growers’ living standards. Likewise, Sincere Sheep differentiates their products from other yarn purveyors through their commitment to natural dyes and terroir, benefiting both local farmers and the environment. Two Degrees’ products may not be as distinctive from the competition, but they demonstrate added value through their unambiguous promise to provide nourishment to others. Direct contact with the consumer is an important success factor. By selling at cupping events Catracha Coffee educates consumers about the coffee and Catracha’s efforts to improve growers’ lives. Sincere Sheep teaches tradeshow shoppers about natural dyes and wool sourcing. Even if companies do not pursue significant direct-to-consumer sales, they can still raise awareness and build brand loyalty through speaking directly to consumers. Lounsbury and Glynn (2001) likewise note that social entrepreneurs use events such as product tastings and festivals to introduce their products and tell stories about their ventures’ development, supply chain challenges, and sustainability in order to brand their CSR distinctiveness. Companies approaching CSR often face an overwhelming number of options. SEVs should focus on those aspects of CSR that are the most relevant to their business, a concept reiterated by Porter and Kramer (2006). While attempting to better the world is laudable, such efforts fail if the company goes bankrupt. At worst, these companies must be able to offer a similar product that is at most slightly more expensive than a competitor’s product. (Here, again, consumer education is of critical importance.) Challenges arise when quality and CSR conflict. For example, Two Degrees had to switch to a less environmentally friendly packaging method because the previous packaging degraded quality. Short-term compromise on long-term plans may be necessary. Both Two Degrees and Sincere Sheep have been forced to deviate from long-term goals due to economic infeasibility. Once these companies are more established, they may be able to incur more costs or leverage economies of scale to reach their ultimate goals. Companies may accumulate both recognition and clout, increasing their influence over supply chain partners. Additionally, technological advances may lead to fulfilling long-term goals: packaging technology is constantly improving, which may enable Two Degrees’ transition back to heat-sealing. Lastly, fellow social entrepreneurs may establish companies with better partnership opportunities. Forming beneficial partnerships appears a critical success factor for small businesses. Entrepreneurs should attempt to make use of their partners’ size and reach while leveraging their own expertise. For example, Catracha Coffee’s partnership with the Royal Coffee Company has significantly reduced shipping costs from Honduras to the United States. Two Degrees directed their co-packer to a socially responsible source for chocolate, benefiting the co-packer by helping other clients and amplifying the influence that Two Degrees would otherwise have on their own. Two Degrees’ success supports Cohen and Winn (2007)’s argument that entrepreneurs are well positioned to be change agents

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in discovering supply chain CSR opportunities and sharing them with their partners. Finally, it may not be necessary to immediately pursue all certifications. Entrepreneurs’ passions can be communicated directly, especially for companies that sell directly to end consumers. SEVs may not require third party validation that larger companies need to communicate their CSR credentials to potential consumers and supply chain partners.

Limitations and suggestions for further research Exploratory case studies inherently have extensive caveats on how results should be interpreted. The long interview script and the contacts necessary to recruit interviewees led to a small sample size. While we are able to generalise some of our descriptive insights, we did not achieve theoretical saturation. Results from this exploratory research cannot be generalised to all agriculturally based entrepreneurs with strong commitments to CSR, let alone to a broader population. These tentative findings could be put to the test with either a deductive case study featuring more subjects, or a larger-scale survey of SEVs within this sector. Further inductive case studies could provide guidance for more deductive research. A shorter and more structured internet-based questionnaire could be distributed to a larger, more geographically dispersed sampling frame obtained from email addresses gathered from various trade organisations’ membership directories, such as the California Sustainable Winegrowing Alliance. Of course, even a larger and more systematic study will face limitations: Jenkins (2006) discusses the difficulty of quantifying the magnitude of direct benefits resulting from CSR initiatives, let alone secondary benefits. We provide no metrics or other quantitative data in our study. Our interviewees have generously consented to allowing use of company names in publication, unlike the other two cross-case studies on SME supply chains that were referenced (Ciliberti et al., 2008; Côté et al., 2008), and they have been candid in their descriptions of their challenges and trade-offs. Asking for financial disclosures and costing information would have trespassed beyond the bounds of reasonableness. Gathering outside data necessary to conduct quantitative analyses was beyond the scope of this exploratory research. In fact, we suspect that, despite restricting our study to the agricultural sector, even this frame may be too broad to generate meaningful quantitative data. A systematic study of a specific agricultural sector, such as coffee production and distribution, may shed more light on the challenges for that particular sub-sector. Quantitative analysis could be undertaken to explore the trade-offs of CSR practices. For example, a life-cycle analysis might better quantify the environmental savings of naturally dyeing wool fibres, weighing them against the potentially larger water footprint and need for more labour-intensive production processes. A third research direction considers how SEVs in other industries fulfil their key values. A complementary question to investigate is whether other industries offer similar opportunities to the agricultural sector. In particular, can social 62

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entrepreneurs leverage relationships and products of higher quality resulting from CSR practices and, thus, command the price premium necessary to compete with larger firms, especially those focused solely on the single bottom line? Are there industry characteristics that are more or less well-suited to turning CSR practices into SEV advantages? Lastly, while some SEVs may remain small, niche players, others may expand. Traditional business start-ups clearly differ from their larger counterparts in terms of their ability to innovate (Christensen, 1997; Murphy and Coombs, 2009). Thus, a valid question to consider is how SEVs change their CSR practices as they grow. As SEVs gain more reach to both suppliers and consumers, do they need to follow a different approach? When do growing companies lose the ability to rely on personal connections with supply chain partners and require a more systematic approach? At what point may certifications and adherences to official standards become de rigueur for SEVs? A study following the evolution of SEVs would prove useful to researchers and practitioners alike.

Final remarks While not always able to grab the popular press headlines, or the attention of mass markets or their supply chain partners, SEVs can nonetheless succeed despite or even because of their commitment to CSR principles. The SEVs examined in this study support Morsing and Perrini (2009)’s statement that entrepreneurs are poised to leverage their adaptability and specific niche market to embed CSR principles into their supply chain, especially those principles that are most relevant for particular types of business. These principles are embedded with Werhane (2008)’s self-reflection model of moral imagination, or ‘the ability to discover, evaluate and act upon possibilities not merely determined by a particular circumstance, or limited by a set of operating mental models, or merely framed by a set of rules’ (p. 466). For each of the SEVs studied, the strongest CSR categories are community involvement and responsible procurement. In moving away from traditional market models, an SEV’s commitment to social responsibility can be a successful new, although challenging, model of ally-building ventures among reciprocating partners (Pfeffer, 1993; Kleinrichert, 2008). The four SEVs studied share certain commonalities across their supply chain strategies. All have faced problems due to their small size and lack of clout with supply chain partners, both upstream and downstream. While environmentalism is a concern for our SEVs, two social dimensions of sustainability (labour and community) have been of primary concern at the early stages of company development. Each of the companies has been able to mitigate some of their inherent market disadvantages through strong supply chain partnerships, in part resulting from their support to the community and their ability to sell a product differentiated from the rest of the market. Market segmentation has been especially developed through direct-to-consumer sales channels. The Journal of Corporate Citizenship Issue 55  September 2014 

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Although it would be unwise to assume that results from the case studies of our four SEVs are broadly generalisable, this study provides some tentative insights into challenges faced and solutions employed by similar agricultural start-ups. Our research adds to the small body of extant literature exploring the interactions between CSR and supply chain management for social entrepreneurial ventures. These findings can be used to direct more systematic studies of social ventures of varying sizes in this and other industries. Table 1  Sources of evidence Casacurry

Catracha

Two Degrees

Sincere Sheep

Primary interview respondent/ role, interviews by co-author 4

John Curry, Founder

Mayra OrellanaPowell, Founder, sole full-time employee

Matt Gregory, Director of Supply Chain and Operations

Brooke Sinnes, Founder and sole employee

Triangulation of interview data, respondent and co-author

Separate discussion with Founder by co-author 2

Separate discussion with Founder by co-author 2

Discussion with consultant for Two Degrees by co-author 1

Separate discussions with Founder by co-author 3, participant observation by co-author 3

Website

cafecasacurry .com

catrachacoffee twodegreesfood Sinceresheep .com .com .com

Additional documents, evidence examined

Presentation slide deck, follow-up emails, packaging samples

Listserv newsletter, Presentation slide deck follow-up emails, packaging samples

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Follow-up emails, Snack bar packaging and display trays

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Follow-up emails, Yarn samples

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Restaurants Onsite at private corporations Cupping/other events

Consumer channels

Own Website Whole Foods; few speciality retailers Onsite at private corporations College bookstores, other campus venues

Quinoa sourced (Bolivia) Co-packer (NV) sources other ingredients, fabricates bars Packaging (WI) Cardboard boxes (OR) Shipping trays (CA) 3PL (CA)

Individual growers meeting quality/CSR standards (Honduras) Bean drying (Honduras) Shipping by Royal Coffee Co. (SF Bay Area) Roaster (SF Bay Area)

Individual growers meeting quality/CSR standards (El Salvador) Fertiliser producer (El Salvador) Bean drying (El Salvador) Export/ Consolidator (El Salvador) Roaster (SF Bay Area)

Primary SC partners and processes by location (presented approximately by stage)

Own Website RoastCo Website Listserv Blue Bottle; other speciality retailers Cupping/other events Friends/family network

No

12, many part-time or consulting

Will Hauser and Lauren Walters

Yes, growing some beans, finish drying process, and packaging

Mayra Orellana-Powell

2011

In-house production? Yes, growing some beans, If so, what process/es? and drying process

John Curry

Founder/s

2009

San Francisco

Two Degrees Snack Bar Purveyor

Owner only, additional seasonal workers

2006

Founded

Honduras/San Francisco Bay Area

Catracha Coffee Coffee Importer

Number of employee/s 3 full-time, additional seasonal workers

El Salvador/San Francisco Bay Area

HQ location/s

Casacurry Coffee Importer

Table 2  Company background and supply chain structure

Own Website Tradeshows Select stores

Wool producers (CA, Australia & NZ, UK, various S. American countries) 2 mills (CA, WY) spin yarn 2 dye suppliers (WA) Dyeing process in-house (CA)

Yes, dyeing process

Owner only

Brooke Sinnes

Initial launch 2003, restarted in 2010

Napa Valley

Sincere Sheep Yarn Purveyor

emerging social entrepreneurial csr initiatives in supply chains

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Respectful working conditions; higher wage practices

Labour/Human Rights

Respectful hiring and wage practices for local women and elderly to help with post-harvest processing

Natural drying; no pesticide usage

Display boxes have 100% post-consumer recycled content

 

Natural drying and pesticide usage; safe work environments

Health/Safety

Discouraging ‘slash and burn’ farming

Quinoa and chocolate are sourced from socially responsible producers Company working to guarantee similar sourcing for other ingredients

Animal Welfare

Discouraging ‘slash and burn’ farming Utilising a more ecologically friendly drying method

Environment

Farmers receive higher prices, bonuses

Partnering with charities to provide meals to undernourished children

Two Degrees

Bars labelled as non-GMO

Farmers receive higher prices than selling to a coop

Procurement/ Fair trade

Educating local community Promoting awareness of region as high quality Promoting tourism

Catracha Coffee

Biotechnology Concerns

Educating local community Promoting awareness of region as high quality Promoting tourism

Local/Global Community

Casacurry

Table 3 Actions taken by subject companies, as organised and sorted by CSR categories

 

 

 

Natural dyes are nontoxic

Using natural dyes Recycling dye wastewater Using 100% biodegradable packing materials

Providing a higher price to farmers for wool, enabling them to cover their costs Dye suppliers ensure social and environmental standards met by dye manufacturers

Supporting local farmers

Sincere Sheep

susan cholette, denise kleinrichert, theresa roeder, kenneth sugiyama

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Table 4  Problems, solutions and trade-offs for subject companies Casacurry

Catracha Coffee

Two Degrees

Sincere Sheep

Small volumes, unable to fill a container Lack of visibility/ control in transportation Farmers’ bad habits need to be unlearned Current bean drying process is slower and more labour intensive Limited retail outlets Downstream pushback to drop prices

Small volumes create higher costs across SC Lack of visibility/ control in transportation— worried about drugs being co-shipped Limited retail outlets Downstream pushback to drop prices

Little leverage with co-packer over sourcing concerns Due to meal donations, need to keep costs down to remain competitive

Local sources not providing enough quality wool, costs higher Natural dyeing more costly, less uniform/ intense In house processes, sales and marketing handled by a single person

Solutions/ CSR initiatives result Advantages in higher quality products earning price premiums Close relationship with farmers, fertiliser plant Partnership with ProCafe for farmers’ education Partnerships in promoting local entrepreneurial retail and restaurant business

CSR initiatives result in higher quality products earning price premiums Close relationship with farmers, local community Partnership with Royal Coffee shipping Partnerships in promoting local entrepreneurial retail and restaurant business Significant direct-toconsumer sales

Consumers understand CSR message, pay price premiums Close relationship with co-packer Strong partnerships with non-profits, enabling focus on only one Supply Chain Direct-toconsumer website allowing for targeted donations

While natural dyeing may not be as uniform, consumers still willing to pay more Close relationships with local wool providers Direct-toconsumer sales Yarn is inherently nontoxic compared to conventional dyes

Trade-offs

Not fair trade certified due to costs/stringent requirements Not organically certified, due to certification cost

Switched to less sustainable packaging due to quality issues (product life) Lack of stronger influence over co-packer may keep costs lower as co-packer’s sourcing is likely driven more by cost than CSR issues

Switched from 100% local sourcing Using a distant mill partner more in sync with CSR values than local mill Only one dye provider has organic certification, looking for new sources with similar CSR values, even if not certified

Supply Chain Problems/ Concerns

Not fair trade certified due to costs/stringent requirements Not organically certified, due to certification cost

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Table 5  Practical implications and company participation Practical Implications

Casacurry

Catracha Coffee

Two Degrees

Sincere Sheep

Targeting products that improve from CSR initiatives

X

X

X

X

Focus on business-relevant CSR aspects

X

X

X

X

Beneficial partnerships

X

X

X

X

X

X

X

X

X

Direct contact with consumer Short-term compromise Certifications may not be necessary

X

X

X

Figure 1  Product image Source: twodegreesfoods.com

Appendix: interview outline 1.  Introduction   a.  Questions re: company background i. When was the company founded? ii. Why was the company founded? iii. What is the mission/vision of the company? iv. How is company’s mission/vision aligned with its environment?   b.  Questions re: industry standards and competition i. What is the industry standard for CSR practices, if any? ii. Who are competitors? iii. Get specifics on addressing any environmental and/or social responsibility issues, and tie in these responses with industry standard. 68

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  c. What is the general business model of the company? (Goal is to get a ­general sense of supply chain to better direct questions later.) i. What are the opportunities? ii. What are the general challenges? (Will get in to more depth later.) 2.  Questions re: supply chain/vendors   a.  Have interviewee describe the company’s supply chain (SC).   b.  For each SC stage, identify vendors/subcontractors i. Name and location (if possible)? ii. Responsibilities of said vendor/subcontractor? iii. Transparency of said vendor/subcontractor?   c. How deep can the firm see into the supply chain? (tie-in to above question.) i. Do the vendors have a similar CSR philosophy aligned to the ­company? (Can they tell?) ii. Does the company have influence on their vendors’ manufacturing processes or other business practices? 1. If yes, can specific examples be provided? 2. If no, is not having influence a concern for the company? iii. Is there a barrier to visibility, and if so what is it?   d.  Questions re: consumer stages i. How is the final product sold to consumers? ii. How is the product shipped to consumers? 3.  Challenges   a.  Review any challenges, especially SC-related, brought up in interview.   b.  How do the challenges impact the company CSR efforts?   c.  Are there any challenges that have not already been mentioned?   d. Are there any challenges that the company has not yet faced but would be likely for this or similar CSR-focused companies to encounter?   e. How have these challenges been addressed, if at all? 4.  Closing   a. Is there anything that would further help the company achieve their CSR mission not yet discussed?   b.  Are there any questions that should have been asked?   c.  Would follow-up questions at a later date be acceptable?

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