The Lao Coffee Industry: Implementing Vertical Integration for a Social Cause at Bolaven Farms
Founded in 2007, Bolaven Farms is a coffee business with a social purpose. Set up in Laos and Hong Kong, Bolaven Farms aims at providing high-quality coffee to the worldwide public while helping to alleviate poverty among coffee farmers in Laos. The business model involves a full integration of the coffee supply chain, from planting the coffee seed to selling the final branded product to wholesale and retail customers. Consequently, farmers and the company benefit from excluding intermediaries from the supply chain and keeping profit margins for themselves. The company's vision of educating farmers and providing them with higher income for their work is very compelling to the public and was quickly picked up by the media. However, the business model has yet to be tested. For one thing, once the farmers graduate from the programme, they need employment assurance and additional land to cultivate. For another, the coffee market is a mature one, with many players and a multitude of competing and lower-priced offers to choose from. People find the company's vision very inspiring, but it is also very difficult to translate into viable actions. The company has already invested US$4.0 million in the project, but is still a long way from educating the public and finding customers willing to pay premium prices for the coffee. Both ends of the supply chain need further refinement, and Say is not willing to compromise on quality or price. The case begins with an introduction of the coffee industry and its practices. A description of Laos as a business environment for Bolaven Farms follows. The case describes the development and implementation of a business model that incorporates vertical integration supported by social networks. It allows for an advanced analysis of issues related to choosing an appropriate business model and focuses on the risks related to future expansion and resulting from the strategic choices of the entrepreneur.