President Starbucks
FDI Plan
International Business
Professor Boyd
Emily Chang, Lauren Hebert,
Kate Morneault, Caroline Turner, Lori Wong
Starbucks Corporation
●
$14.9 billion net revenue in 2013.
●
Coffee, tea, pastries, merchandise, and packaged coffees
●
Internet access, preparation of coffee, and of course a relaxed
atmosphere
●
19,767 stores worldwide
●
182,000 employees
●
“Our mission: to inspire and nurture the human spirit – one
person, one cup and one neighborhood at a time.”
Why Taiwan
● First investment in 1996
● 1,744 locations throughout the Asia Pacific region
● Starbucks Asia Pacific Support Center in Hong Kong
● 13 countries
● 27 percent revenue growth = Fastest growing
Structure of Parent Company Operations
Business Unit Organization Chart
International Issues
Labor Laws
•
Labor Standards Act
•
Employment Services Act
•
National Health Insurance Act
Financial Laws and Regulations
•
Accounting and auditing requirements
•
Taiwan’s Financial System
-MOF and CBC
Political Laws
•
•
Multiparty democratic regime
Central government has 5 branches
-Executive
-Legislative
-Judicial
-Control
-Examination Affairs
•
Three-tiered court system
-Supreme courts, high courts, and district courts
Things important to our business
•
Cultural factors affecting coffee consumption
•
Consumer preferences
-environment of coffee shops
-high end brand name vs local coffee shops
Economic Considerations
• Recently slow growth in GDP
• Stable economy
• GDP expected to grow
• Relationship with China
Political Considerations
•
• Potential issues:
•
•
Change in political party
Change in relationship with China
• No high political risks in Taiwan
Workforce Demographics
• Decreasing birth rates
• Number of people in
workforce peaked in 2012
• Unemployment rate of
4.18% in 2013
• Population growth will
peak in 2019
Labor Market
• Not difficult to find
employees
• Older employees
• Students
• Part-time
Competition
• Mister Donut
o High quality products
• 7-Eleven
o 5000 stores
• 85 Degree C
o cheaper but high quality
products
How parent policy affect new unit?
- Equal opportunity
employment policy
- Global anti-bribery
Standard
- Supplier Code of
•
•
•
•
•
FDI
Project starts in Aug 2014
Operate from Sep 2014
Create 5 stores in Taipei
Targeting at a yearly
revenue of $16,632,000 NTD
per store
o
83,160,000 NTD for all 5 stores
Pros, Cons with Uni-President
Forms President Starbucks Coffee Taiwan Limited
Benefits:
staffing
marketing, consumer behaviors
resource
Harms:
Share profits
Know-how
50:50 controls on the new unit
•
•
•
•
•
•
Uni-President Enterprises Corporation
•
•
•
JV Partner
Largest food & beverage
company in TW
40 years local experience
- reliable resources
- distribution lines
Funding & Exchanging
•
•
Fund required 15,120,000 NTD
$493,475.98 vs. $500,300.91
Determination of Success-Metrics Report
- Net Revenue
- increase by 20% each year
- Operating Income and
Operating Margin
- keep costs low
- Dollars loaded onto
Starbucks Rewards Cards
- track for marketing purposes
Budget for First 3 Years of Operation
(For 1 Store)
Year 1
Net Revenue:
Year 2
Year 3
$16,632,000.00
$19,958,400.00
$23,950,080.00
Wages
$(3,835,200.00)
$(3,835,200.00)
$(3,835,200.00)
Rent
$(6,000,000.00)
$(6,000,000.00)
$(6,000,000.00)
$(837,586.28)
0
0
Inventory Expense
$(7,702,270.00)
$(7,702,270.00)
$(7,702,270.00)
Total
$(1,743,056.28)
$2,420,930.00
$6,412,610.00
Expenses:
Equipment
International Business Development
Marketing
● 10% of market share
● Increase brand awareness
● Appeal to the local culture’s tastes
● CSR
THE END
Stonehill College
Starbucks International Business Plan
Emily Chang, Lauren Hebert, Kate Morneault, Caroline Turner, Lori Wong
International Business: BUS336
Professor Boyd
1 May 2014
Executive Summary:
Starbucks 2
Starbucks was founded in 1971 and has continuously grown and prospered since. The products that we
currently offer include coffee, tea, pastries, merchandise, and packaged coffees. Along with products, we also
provide services such as internet access, preparation of coffee, and of course a relaxed atmosphere. Our business
units in the Asia Pacific have shown the greatest revenue growth over recent years.
We are entering the Taiwan market through a joint venture with United-President of Taiwan. This will be
beneficial to Starbucks as United-President is familiar with the competitive conditions, culture, language, political
systems, and business systems of Taiwan since it is already established there. The joint venture will allow our
products to be produced by United President Enterprises Corporation, one of the largest food and beverage
companies in Taiwan, instead of importing products from the United States.
Starbucks has a few major key laws they should take into consideration when expanding the business in
Taiwan. The major laws they will want to consider include the Labor Standards Act, Employment Services Act, and
National Health Insurance Act. Starbucks will follow the IRFS accounting and auditing requirements. Taiwan’s
financial system is governed by the Ministry of Finance and Central Bank of the Republic of China in Taiwan.
Taiwan is also a multiparty democratic regime.
There are a few key considerations that may have a significant impact on the company. Important
considerations to our particular industry include cultural factors affecting coffee consumption and consumer
preferences. The geographic location of Taiwan is beneficial to our supply chain and the environment of the city
works strategically with our marketing plan. Economic considerations are favorable for Starbucks because of
increasing export and GDP growth is slow but also steady. Political considerations are favorable because the
political risks are low. In terms of workforce demographics and the labor force, Taiwan is facing societal aging but
we plan on employing mainly part time workers so it will not be a problem for the company since there are a lot of
students who often look for work. By researching and understanding our business unit’s primary competitors, Mister
Donut and 7-Eleven, our team can fully prepare the subsidiary to enter the new foreign market.
We hope to capture 10% of the market share and possibly increase this number in the future. In regards to
our brand status, we have already achieved worldwide recognition as a successful coffee provider. We highly value
our corporate social responsibility and see the importance of sustainability and social justice. Therefore, we are
making a conscious effort to ensure that our products are obtained through fair trade.
The business policies of Starbucks that our business unit should be aware of are the equal opportunity
employment policy, the global anti-bribery standard, and the supplier code of conduct. These policies involve not
discriminating against employees for race, gender, religion, or other aspects, not participating in any facilitating
payments or bribery of public officials, and ensuring that the suppliers we deal with are being fairly compensated for
all of their work. Our subsidiary fully plans on complying with all policies held by the parent company and do not
foresee any problems fulfilling these actions.
In terms of funding and currency exchanging, since the new stores project will start in August 2014 and
start operating in September 2014, Starbucks US will have around two to three months to prepare the funds.
According to our budget analysts, all 5 stores will need a total of 30,240,00 NTD for year 1. Since the project is a
50:50 joint venture, Starbucks US will need to prepare a total of 15,120,000 NTD. Since the investment is a
significant amount, we need to be aware of the translation loss from exchanging currencies. We are going to wait for
a better exchange rate, if the USD to NTD is going to increase to 30.64, the company will be able to save a
maximum of $6858.32 USD.
The business metrics that we have chosen to measure and track in our business unit are net revenue,
operating income and operating margin, and the number of new dollars loaded onto Starbucks Rewards cards. We
will define this success by the percentage of growth over the first three years of operation and using research from
our competitors and past experiences in the Asian market. We predict that our operations will undergo a twenty
percent growth rate in net revenue over the first three years, based on Starbucks’ quarterly reports from 2013. By
keeping track of the dollars loaded onto Starbucks Rewards cards, we also hope to quantify the impact our
marketing department is having on the new environment and our visibility as an organization.
Parent Company:
Starbucks 3
1. Company Overview
With every passing day, our society seems to become busier and busier. The more chaotic our lives
become, the more we demand our caffeine fix. Over the past few years, coffee drinking has continuously grown.
With the increasing demand for coffee, Starbucks has benefited in a variety of ways. Therefore, Starbucks has had
the opportunity to further grow and develop its corporation. We have seen a great opportunity to open another
business unit in Taiwan. In the past year we saw a 7% growth in sales in the United States and a 9% growth in China
and the Asia Pacific. This resulted in a $14.9 billion net revenue in 2013. The products that we currently offer
include coffee, tea, pastries, merchandise, and packaged coffees. Along with products, we also provide services such
as internet access, preparation of coffee, and of course a relaxed atmosphere. As of September 29th, 2013 we had a
total of 19,767 stores worldwide. This entails 7,049 units within the US and all other units distributed among over
fifty other countries ("Starbucks Company Profile"). We currently employ approximately 182,000 individuals. We
highly encourage diversity and inclusion. Our employees can receive a wide variety of benefits if they work twenty
or more hours a week. It could include, bonuses, 401(k) matching, discounted stock purchase options, along with
other benefits as well ("Working at Starbucks"). We strive to live out the purpose of our business daily which can be
clearly expressed in our mission statement which states, “Our mission: to inspire and nurture the human spirit – one
person, one cup and one neighborhood at a time ("Starbucks Company Profile").”
Since our first investment in the Asia Pacific region we have seen great success. In fact, our first Starbucks
location outside of North America was in Tokyo, Japan in August 1996. Since then, Starbucks has opened 1,744
locations throughout the Asia Pacific region, nearly half of these in Japan. Recognizing the growing importance of
this region to Starbucks Coffee International operations and to ensure that customers receive a consistent Starbucks
Experience, in 1999 the company invested in the region’s infrastructure by establishing the Starbucks Asia Pacific
Support Center in Hong Kong ("Asia Pacific"). In 2013, the China and Asia Pacific segment, now comprising 13
countries was our fastest growing region, with a pleasant 27 percent revenue growth ("Starbucks Corporation Fiscal
Annual 2013 Report"). Due to the success we have seen in our Asia Pacific units, we have decided to continue to
invest in this area with five more store locations in Taiwan.
2. Structure of Parent Company Operations
3. International Business strategy and Goals
Starbucks 4
a. Goals
As stated earlier, the company annual revenue is currently $14.9 billion and there are currently 182,000
Starbucks employees. Within two years, Starbucks hopes to grow at 13.2% per year in order to have an annual
revenue of 19 billion within two years. This growth illustrates an increase in revenue by $5.9 billion. If we
continue at our current growth rate then we will open 1,500 stores opening per year and therefore, we should have
approximately 209,600 employees within two years representing a growth of 27,600 employees ("Starbucks
Corporation Fiscal Annual 2013 Report").
b. Theory Foundation
Every company has a business strategy, or a “the actions that managers take to attain the goals of the firm.”
(Hill, 418). For many firms this entails “maximiz[ing] the value of the firm for its owners, [and] its shareholders”
(Hill, 418). In order to do this, managers much maximize the value of the firm by engaging in strategies that
“increase the profitability of the enterprise and its rate of profit growth over time” (Hill, 418). The profitability of a
company is the rate of return that the firm makes on its invested capital (ROIC). Profitability can be calculated by
dividing the firm’s net profits by the total invested capital. The percentage increase in net profits over time is
referred to as profit growth. To achieve our company’s goal of maximizing value for our owners and shareholders
we must achieve higher profitability and profit growth from our operations in Taiwan.
There are a variety of different ways in which managers can increase profitability. One way is by pursuing
strategies that lower costs or add value to the company’s products. This strategy eventually allows a company to
raise prices. One way a company can increase profit growth is by increasing sales in existing markets or by
expanding to new markets, domestically or internationally. International or global expansion “allows firms to
increase their profitability and rate of profit growth in ways not available to purely domestic enterprises” (Hill, 424).
There are several advantages to firms that operate internationally. One advantage is they are able to expand the
market for their domestic product since they can sell it in international markets. Another advantage is they can
“realize location economies by dispersing individual value creation activities to those locations around the globe
where they can be performed most efficiently and effectively” (Hill, 424). International expansion also allows
companies to “realize greater cost economies from experience effects by serving an expanded global market from a
central location, thereby reducing the costs of value creation” (Hill, 424). Lastly global expansion provides
companies with the ability to “earn a greater return by leveraging any valuable skills developed in foreign operations
and transferring them to other entities within the firm’s global network of operations” (Hill, 424).
While these advantages are great for a company they are limited by several constraints such the “product
offering, marketing strategy, and business strategy to differing national conditions” (Hill, 424). In other words the
“the success of many multinational companies that expand in this manner is based not just upon the goods or
services that they sell in foreign nations, but also upon the core competencies that underlie the development,
production, and marketing of those goods or services” (Hill, 424). The core competencies of a company are the
“skills within the firm that competitors cannot easily match or imitate” (Hill, 424). These skills are not limited to any
one branch or aspect of the company but can be seen throughout the company: in production, research &
development, human resources, logistics, general management, etc. Core competencies are the skills that make a
company unique and give it a competitive advantage in the market. Often times these skills are difficult for others to
match or imitate allowing the firm to succeed in ways that other companies cannot. The important factor that
companies must consider when expanding internationally is replicating their business model (Hill, 424).
Even if a firm keeps its imperative business model, there are other difficulties that can be experienced when
entering a foreign market. “Countries differ along a range of dimensions, including the economic, political, legal,
and cultural” differences (Hill, 424). These differences “can either raise or lower the costs of doing business in a
country” (Hill, 424). International trade theory states that because of differences in factor costs, certain countries can
have an advantage in the production of certain products. However not all firms will experience this success and
some many have to survive in a market that is very competitive. These firms “will benefit by basing each value
creation activity it performs at that location where economic, political, and cultural conditions, including relative
factor costs, are most conducive to the performance of that activity” (Hill, 425). Firms that have to pursue this type
of strategy experience location economies or “economies that arise from performing a value creation activity in the
Starbucks 5
optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers
permitting)” (Hill, 425). Two different effects can arise by utilizing value creation activities: it “can lower the costs
of value creation and help the firm to achieve a low-cost position, and/or it can enable a firm to differentiate its
product offering from those competitors” (Hill, 425).
Once a firm enters the global marketplace they typically face two types of competitive pressures: pressures
for cost reductions and pressures to be locally responsive. These two factors often “affect their ability to realize
location economies and experience effects, to leverage products and transfer competencies and skills within the
enterprise” (Hill, 431). The demand for cost reductions means a firm must try to minimize the cost of its units. In
contrast, being “locally responsive requires that a firm differentiate its product offering and marketing strategy from
country to country in an effort to accommodate the diverse demands arising from national differences in consumer
tastes and preferences, business practices, distribution channels, competitive conditions, and government policies”
(Hill, 432). As a result of having to be locally responsive, costs may actually rise since different countries have
different product standards. Firms may face a combination of these two factors: both, one or the other, or neither.
There are four basic strategies that a business can use regarding pressures for local responsiveness and cost
reductions when competing internationally. The four different strategies are global standardization strategy, a
localization strategy, a transnational strategy, and an international strategy. Which strategy a firm should use is
dependent upon the pressures received for each category. A globalization strategy is used to increase profitability
and profit growth by acquiring cost reduction that arise from economies of scale, learning effects, and location
economies. In other words, the firm would use a “low-cost strategy on a global scale” (Hill, 436). These firms using
this type of strategy “try not to customize their product offering and marketing strategy to local conditions.” (Hill,
436). This strategy should be utilized when there are strong pressures for cost reductions and low demands for local
responsiveness. A localization strategy is used to increase profitability through customization of the firm’s goods or
services so the taste and preferences match the different national markets. This strategy is used when consumers’
tastes and preferences differ greatly across nations and when costs are not a factor (Hill, 437). A transnational
strategy is pursued when a firm is “trying to simultaneously achieve low costs through economies, economies of
scale, and learning effects; differentiate their product offering across geographic markets to account for local
differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of
operations” (Hill, 436). It is very difficult to implement this type of strategy. An international strategy is often used
when a firm experiences low cost pressures and low pressures for local responsiveness. Companies use an
international strategy to sell their products that were first produced for their home domestic market and expanding
this sales internationally. The companies tend to have little changes in the way in which they perform or sell. An
international strategy may not be best for long term but is fine to use initially. In order to remain competitive in the
marketplace, the firm would need to implement a global standardization strategy or a transnational strategy (Hill,
438). In addition, while localization may allow a firm to be competitive in the marketplace, if a company has many
competitors it may be best to shift towards a transnational strategy to reduce its cost structure. It can be said that a
company may use one strategy initially, but as time goes on they may constantly change strategies depending on
what is going on in the marketplace and the goals of the company (Hill, 439).
Firms can utilize various entry modes such as exporting, turnkey projects, licensing, franchising,
establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host
country. Each mode has various costs and benefits which must be evaluated and analyzed in order for the firm to
choose the most effective one for them. Exporting advantages include the avoidance of the substantial costs of
establishing manufacturing operations in the host country and may help a firm to achieve experience curve and
location economies. Exporting from the firm’s home base would be a poor choice if lower-cost locations for
manufacturing the product can be found abroad (Hill, 491). Tariff barriers can also make exporting uneconomical.
A firm may also delegate activities such as marketing, sales, and service business to another company in the country
it is exporting to which results in a loss of power (Hill, 492).
In a turnkey project, a contractor agrees to handle every detail of the project for a foreign client, including
the training of operating personnel. At completion of contract, the foreign client is handed the “key” to a plant that
is ready for full operation. Turnkey projects are most common in projects that involve the use of complex expensive
Starbucks 6
production technology such as chemical, pharmaceutical, petroleum-refining, and metal-refining industries. The
knowledge necessary to assemble and run a technologically complex process is a huge asset that earns great
economic returns. These projects can also produce a smaller risk factor in comparison to conventional FDI since a
firm that enters a turnkey deal will have no long-term interest in the foreign country (Hill, 493). If the firm’s
process technology is a source of competitive advantage, then selling this technology through a turnkey project is
also selling competitive advantage to potential or actual competitors, which is a major risk to take (Hill, 494).
A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to
another entity for a specified period, and in return, the licensor receives a royalty fee from the licensee. In licensing,
a firm does not have to bear the development costs and risks associated with opening a foreign market (Hill, 494).
However, licensing does not give the firm the tight control over manufacturing, marketing, and strategy that is
required for realizing experience curve and location economies. There is also major risk associated with licensing
technological know-how to foreign companies (Hill, 495).
Franchising is a form of licensing in which the franchiser not only sells intangible property to the
franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business (Hill, 495).
Like licensing, a firm involved with franchising is relieved of many costs and risks of opening a foreign market on
its own. However, franchising may inhibit a firm’s ability to take profits out of one country to support competitive
attacks in another. There is also a lack of quality control over the various franchisees (Hill, 496).
Joint ventures are an extremely popular mode of entering a new market. It entails the establishment of a
firm that is jointly owned by two or more otherwise independent firms. The firm entering the market benefits from a
local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and
business systems. When development costs and risks of opening a foreign market are high, a firm can benefit by
sharing these costs and or risks with a local partner. In many countries, political considerations make joint ventures
the only feasible entry mode. Research suggests that joint ventures with local partners face low risk of being subject
to nationalization or other forms of adverse government interference. There are some harmful effects involved in
joint ventures as well. A firm that enters into joint venture risks giving control of technology to their partner. Joint
venture does not give a firm the tight control over subsidiaries which it might need to successfully realize their
experience curve or location economies (Hill, 497). The shared ownership arrangement can also lead to conflicts
between the investing firms if their goals and objectives change or if they take different views as to what the strategy
should be.
A wholly owned subsidiary is when a firm owns 100 percent of stock. When a firm’s competitive
advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode
because it reduces the risk of losing control over that competence. They also give a firm tight control over
operations in various countries (Hill, 498). Unfortunately, a wholly owned subsidiary is the most costly method of
serving a foreign market from a capital investment standpoint (Hill, 499).
A wholly owned subsidiary can be executed in two ways. The firm can either set up a new operation in
that country which is referred to as a greenfield venture, or it can acquire an established firm in that host nation and
use that firm to promote its products. Acquisitions are quick to execute and in most cases firms make acquisitions to
preempt their competitors. Some even consider acquisitions to be less risky than greenfield ventures (Hill, 501).
However, acquisitions can also fail for a variety of reasons. Firms often overpay for the assets of the acquired firm
and there is sometimes a clash between the cultures of the firms. Many acquisitions also fail due to inadequate preacquisition screening (Hill, 503).
A major advantage of establishing a greenfield venture is that it gives the firm a much greater ability to
build the kind of subsidiary company that it wants. However, greenfield ventures are slower to establish and are
very risky (Hill, 503).
Strategic alliances refer to cooperative agreements between potential or actual competitors. Strategic
alliances may facilitate entry into a foreign market and allow firms to share the fixed costs of developing new
products or processes. An alliance is also an extremely effective way to bring together complementary skills and
assets that neither company could easily develop on its own. In an alliance, firms must consider the fact that they
Starbucks 7
give competitors a low cost route to new technology and markets. Therefore, a firm must be careful to not give
away more than it receives. Due to this fact, the failure rate of international alliances is high (Hill, 505).
Success of an alliance depends on three factors: partner selection, alliance structure, and manner in which
alliance is managed. A good partner helps the firm achieve its strategic goals, shares the same purpose for the
alliance, and does not try to opportunistically exploit the alliance for its own needs. Alliances can be designed to
make it difficult to transfer technology that is not meant to be transferred. Contractual safeguards can also be
written into an alliance agreement in order to guard against the risk of opportunism by a partner. Both parties must
also agree in advance to swap skills and technologies that the other firm values in order to reach equitable gain.
Effective management of alliances requires building interpersonal relationships between the firms’ managers. To
maximize the learning benefits of an alliance, a firm must try to learn from its partner and then apply the knowledge
within its own organization. A firm must also understand its partner’s strengths and weaknesses (Hill, 508).
c. Entry Strategy
Our company is going to expand its operations into Taiwan using an international strategy (initially) but
more specifically a joint venture entry strategy. A joint venture “entails establishing a firm that is jointly owned by
two or more otherwise independent firms” (Hill, 497). A joint venture entry strategy is a very common method for
establishing a company in a new market. Our company will have a joint venture agreement with United-President.
President Starbucks Coffee Taiwan Limited will help with marketing and distribution of our products. The products
for Starbucks in Taiwan will be manufactured by United President Enterprises Corporation which is one of the
largest food and beverage companies in Taiwan ("Starbucks Investor Relations: Financial Release").
Having a joint venture entry into Taiwan has several advantages for our company. Starbucks will benefit from
the knowledge of United-President. United-President is familiar with the competitive conditions, culture, language,
political systems, and business systems of Taiwan since it is already established there. Our company by partnering
with a company that is already familiar with these aspects of Taiwan will not have to spend the time or resources to
figure out these cultural differences. Starbucks will have to inform the joint venture partner of the know-hows of the
company and knowledge needed for the products it produces. Starbucks will also have to train the employees to their
standards and show them how the company is run. In return, President Starbucks Coffee Taiwan Limited will
provide the marketing experience and the knowledge of how to compete in Taiwan. Starbucks will also save money
by investing in a joint venture. Many times when expanding into foreign costs, development costs and the risk of
opening in a foreign market can be large. By having a joint venture, these costs are shared between the two
companies. By producing Starbucks products in Taiwan we will be avoiding the disadvantages of exporting such as
high transportation costs, trade barriers and problems with local markets. Producing the products in Taiwan is also
cheaper than producing them in the home country of the United States since labor costs are lower in Taiwan.
d. Market Plan
As stated earlier, Starbucks has already been extremely successful the Asia Pacific. Therefore, we hope to
capture 10% of the market share and possibly increase this number in the future. In regards to our brand status, we
have already achieved worldwide recognition as a successful coffee provider. However, we hope to continue to
increase brand awareness and status through advertisements and sales. We plan on gaining customer appeal through
adding products that appeal to the local culture’s tastes. We want to ensure that we are known as a business that
provides quality coffee in a relaxing environment. We highly value our corporate social responsibility and see the
importance of sustainability and social justice. Therefore, we are making a conscious effort to ensure that our
products are obtained through fair trade. We will respect our supplier and in turn our customers will respect us.
Starbucks 8
Business Unit:
4. Business Unit Organization Chart
Starbucks 9
International Business Development
Starbucks employed approximately 182,000 people worldwide as of September 29, 2013. In the US,
Starbucks employed approximately 137,000 people, with 129,000 in company-operated stores and the remainder in
support facilities, store development, and roasting and warehousing operations ("Starbucks Corporation Fiscal
Annual 2013 Report"). According to this information, we estimate that our new FDI in Taiwan will require 1,000
employees with 940 working in company operated stores, 20 in support facilities, 20 in development, and 20 in
roasting and warehousing operations.
5. International Business Issues for our Unit
Key Laws
a. Labor Laws
There are many different labor laws our company has to consider that will affect our company to expand in
Taiwan. Our company wants to make sure that laws are followed and that everything is done ethically. In 2010,
Taiwan was experiencing a labor shortage. In order to minimize the influence of this shortage on industries, the
government has permitted the use of foreign laborers and encouraged automated production.
The most significant laws in Taiwan are the Labor Standards Act. The purpose of this act “is enacted to
provide minimum standards for working conditions, protect workers' rights and interests, strengthen employeeemployer relationships and promote social and economic development” (Labor Standards Act). There are multiple
components to this law and it is very extensive. Some of the general provisions include working hours and leave
entitlement which means that working hours must not exceed 8 hours a day and 84 hours in two weeks but overtime
hours are allowed subject to provisions. Minimum wages and overtime pay are also included among termination,
and retirement. Overtime ranges and depends on the length of overtime and the day the overtime takes place. If a
worker has worked continuously for over a year in the same enterprise they are entitled to a severance pay of up to 6
month’s salary if they are terminated. A worker can only apply for retirement if he has worked for 15 years and is at
least 55, has worked 25 years or more, has worked 10 years or more and is at least 60, is at least 65, or cannot do his
job due to a mental defect or physical disability. “To enforce the Act, other labor statutes and administrative
regulations, the Central Competent Authority shall either establish a labor inspection agency or delegate this power
Starbucks 10
to the competent authorities in the municipal cities. The local competent authority may also as necessary, dispatch
staff members to conduct inspections” (Labor Standards Act). This is a significant law Starbucks should be aware of
because not only does it ensure that ethical labor is practiced, but because any violations could result in a costly
penal provision and affect the company’s brand name. The Labor Standards Act also includes a section specifically
for child and female workers. It strictly states that it is illegal to employ any person under the age of 15, but it does
not apply if the person has graduated from junior high school as long as it is determined that the nature of the work
will result in no mental or physical harm. It also goes into certain rights that women have when it comes to safety,
health, and pregnancy. (Labor Standards Act). This will be important to Starbucks because women and students will
be employees of the company and we want to ensure that the company complies with all labor laws.
Another important Law Starbucks may want to consider is the Employment Services Act which promotes
employment with the view to enhance social and economic development. “For the purpose of ensuring national’s
equal opportunity in employment, Employer is prohibited from discriminating against any Job Applicant or
Employee on the basis of race, class, language, thought, religion, political party, place of origin, sex, marital status,
appearance, facial features, disability, or past membership in any labor union” (Employment Services Act). This will
ensure that the company will not discriminate when hiring employees. Many companies have had law suits filed
against them for discrimination and it is something Starbucks wants to avoid because we want to ensure that the
company employs ethically.
One law that Starbucks wants to really think about is the National Health Insurance Act. This insures that
all nationals will receive benefits in case of illness or injury. “According to this Act, Taiwanese citizens and foreign
workers with alien resident certificates are required to join the program under employers’ sponsorship. The 60 %, 30
%, and 10 % of the premium are paid by the employer, the employee, and the government respectively” (Doing
Business in Taiwan, 15). This is something Starbucks would want to consider in their costs when opening shops in
Taiwan. There are risks associated with the jobs that Starbucks employees have such as the baristas and the hot
coffee. Accidents are likely to occur on the job and Starbucks has to take that into consideration.
b. Financial Laws and Regulations
Different laws and regulations will impact when expanding Starbucks in Taiwan. Accounting and auditing
requirements will definitely be one financial aspect the company wants to consider. Businesses in Taiwan are
required to prepare financial statements and maintain accounting records according to the International Accounting
Standards (IFRS), which was adopted by Taiwan in 2013. Moving to the IFRS allows for companies financial
statements to be understood more easily and comparable across the board.
Taiwan’s financial system is governed by the Ministry of Finance(MOF) and Central Bank of the Republic
of China in Taiwan(CBC). Taiwan has four main banking institutions which include domestic commercial banks,
foreign banks, specialized banks, and local co-operative institutions. Domestic commercial banks typically deal with
acceptance of deposits, making loans, serve as paying and collecting agents, and handling foreign exchange which
will be necessary for our company when exchanging currencies.
c. Political Laws/Common Law/ Statutory Law
Taiwan is a multiparty democratic regime headed by a popularly elected president and a unicameral
legislature (The Legal System of Taiwan). The central government is divided up into five different branches or
yuans, which are executive, legislative, judicial, control, and examination affairs. “The Executive Yuan President is
appointed by the R.O.C. President. His duty is to enforce the laws passed by the Legislative Yuan” (Taiwan’s
Branches of Government). “The Legislative Yuan, which consists mostly of members who are elected from separate
voting districts and who serve three-year terms. Their duties are the usual legislative duties of passing laws and
overseeing administration. Legislators have power to recommend impeachment of the president to the National
Assembly subject to a two-thirds majority. There is no limit on the number of terms a legislator may serve”
(Taiwan’s Branches of Government). The judicial yuan consists of two parts. The first part is made up of fifteen
grand justices who are nominated by the R.O.C president and their duties include interpreting and removing
inconsistencies in the constitution and settling jurisdictional disputes involving the national and local governments
(Taiwan’s Branches of Government). “The second part of the Judicial Yuan is the hierarchy of national judges who
handle criminal and civil cases. As the result of legislation, there are three levels in the hierarchy: a lower court, a
Starbucks 11
court of appeals, and a court of highest appeal” (Taiwan’s Branches of Government). “The Control Yuan exercises
the powers of impeachment, censure, and audit” (Five Government Branches). “The examination yuan’s task is to
administer civil service examinations and decide employment matters, including discharge and salaries”(Taiwan’s
Branches of Government. Taiwan has a three-tiered court system made up of the Supreme Court, the High Courts,
and the District Courts (The Legal System of Taiwan). The Supreme Court serves as the court of final appeal similar
to the United States. High courts are established in special regions or provinces and deal with civil and criminal
trials. District courts are the lowest courts which are located in counties and cities and deal with smaller cases and
claims.
Key Considerations
a. Things important to particular industry/business
It is important for Starbucks to recognize the culture of Taiwan and one thing that has become more
prominent is that Taiwan has become a coffee drinking culture where 75% of people drink at least one cup of coffee
per day (ChinaPost). Although it is popular, it is still more expensive for coffee and seen more as a luxury item
when it comes to food. The company has to keep in mind whether or not people in the area where stores will be
opening, if they will be willing to spend more money on coffee for the higher end brand name versus coffee from a
local coffee shop. Also the Starbucks environment is different than most coffee shops. People do work there,
socialize and spend time in the coffee shop. It will be competing with local coffee shops as well, and their
environment is different and the company will need to consider whether the type of people in the area are willing to
utilize their time in the coffee shop or if they would rather go for the grab and go type of coffee shops.
b. Geographic and environmental interests and conditions
Taiwan is in a strategic place geographically due to its location in the Asia Pacific and its close proximity
to suppliers. Starbucks only does business with suppliers who have been approved by C.A.F.E. Practices, Fairtrade,
or other externally audited companies (Responsibly Grown and Fair Trade Coffee). After inspecting this approved
list, our team has found that there are approved suppliers in Vietnam (Responsibly Grown and Fair Trade Coffee).
This will make the shipping costs and other importing costs more manageable than they would be in another
location. Also, since we have had relations with these farmers and suppliers before, our company already has paved
the way for new relations with our new operation. Our subsidiary will have the advantage of background knowledge
on these suppliers' importing and exporting practices and can use this to gain a competitive advantage over other
coffee shops in the area.
In terms of our team's environmental interest, the area we have chosen to open our subsidiary is very
conducive to sales. Setting up operations in Taipei will allow for great amounts of foot traffic from the city and
great visibility for marketing purposes. We have chosen urban areas in places where consumers will be likely to be
demanding coffee, such as near businesses and universities. By taking advantage of the city environment that we
are entering and the strategic placement of suppliers, our team expects successful visibility of our operations and a
growth in sales in consequence of this.
c. Economic Considerations
Taiwan in regards to purchasing power is currently twenty first in the world (CIA). Taiwan over the last
few years have experienced a slow growth in GDP but the economy is stable which makes it good to open up more
stores in Taiwan. Since Taiwan’s GDP is expected to grow over the next 1-2 years due to an increase in external
demand, exports will be the key to increasing economic growth. As a result of the continuous stable economic
growth, we believe that the expansion of Starbucks in Taiwan will be successful (Starbucks-Taiwan). “In August
2012, Taiwan Central Bank signed a memorandum of understanding on cross-Strait currency settlement with its
Chinese counterpart. The MOU allows for the direct settlement of Chinese RMB and the New Taiwan dollar across
the Strait, which could help develop Taiwan into a local RMB hub”(The World Factbook). Close economic links
with China can allow for greater opportunities for Taiwan’s economy, but also poses new challenges as the island
becomes more economically dependent on China while political differences remain unresolved.
d. Political Considerations
Before deciding on where to open up a business, it is important that the compare is aware of the political
system of the specific country in which they would like to start the business in. When considering certain countries,
Starbucks 12
things such as bribing political officials may be a risk to the company. “The report recommended that businesses
increase their investment commitment in Taiwan, because its efforts to reinforce overseas trade and economic ties,
promote free trade agreements and maintain friendly ties with China over the next five years would help lower the
country's risk profile” (Meng-ju and Hsu). Two political issues that may have been a concern to companies would be
regulatory changes due to a change in political party and a potential change in the relationship that Taiwan has with
China. Ma Ying-jeou, president of Taiwan who was re-elected in 2012, pursued a closer relationship with China and
has set up new trade agreements. “The government has privatized and deregulated much of the economy and is
seeking to improve economic ties with Mainland China which would greatly improve Taiwan’s economic
prospects” (AMB Country Risk Report). Taiwan overall does not have high political risks which means that doing
business in Taiwan will not really have political risks that will impact the company negatively.
e. Workforce Demographics
Taiwan’s workforce demographics are important to look at especially because of the economic impact of
societal aging that they are facing. There are current trends of decreasing birth rates which increases the average age
of the population. The number of people in the workforce peaked in 2012, ranging from ages 14 to 65. The aging
population will decrease the workforce labor supply which will influence the economy since there will not be as
many people in the workplace. In 2013, Taiwan had an unemployment rate of 4.18%. (Taiwan’s Unemployment).
According to statistics, Taiwan’s population is still growing and will continue to grow and peak in 2019 but will
begin to decrease after. This will not affect Starbucks too greatly because students and people will continue to need
part time jobs which is what our newer stores are looking for in terms of employment because it is cheaper than full
time employment and can help reduce costs when starting out the new stores.
f. Labor Market
The labor market in Taiwan will not be a problem when trying to find employees even with the workforce
demographics involving the aging of the population. “In order to postpone the day of retirement, many of Taiwan's
"grey hair" generation are taking jobs in fast-food restaurants, supermarkets and convenience stores, and more often
than not, offering services with more enthusiasm than their younger colleagues”(Zhe). Even if the majority of the
workforce is older, that does not necessarily mean that the employees will not be as efficient as opposed to a
younger workforce. The older employees may have more experience, and even more motivation. “They have parents
in their 80s or 90s to take care of, as well as children to support who are fresh out of college and not getting paid
very much. Worst of all, because young graduates are facing this low-salary dilemma, some have chosen not to work
at all, which makes their middle-aged parents the sole breadwinners for the family" (Zhe). Since the new stores that
are opening up are more focused on employing part time, labor will not be too strenuous. Even for students who
need part time jobs, there will be opportunities for them to work as well.
g. Competition
Before entering a new market, it is important to research any competitors the new operation will have to
compete with in the area. By preparing our subsidiary and researching the competition, the subsidiary will have an
easier time integrating itself into the community and increasing its market share. In the case of Taipei, the
competitors our team will focus our analysis on are Mister Donut and 7-Eleven.
Mister Donut was originally an American company, which, after several acquisitions, has now become a
recognizable brand in many Asian countries (Welcome to Mister Donut). Mister Donut is also known for their high
quality products—something that PresidentStarbucks will have to keep in consideration while developing its own
marketing technique. 7-Eleven, in comparison, is a much larger threat to our subsidiary. They have almost five
thousand stores in Taiwan and are open twenty-four hours a day (7 Reasons Why We Love 7-Eleven in Taiwan).
However, although the company sells coffees and teas, this is not there primary business. Because of this, the team
remains confident that our subsidiary will appeal to consumers who wish to consume their beverage in a friendly
environment instead of a convenience store. Although the competition may be difficult at first, we remain confident
that our subsidiary will be successful in Taipei within its first three years of operation.
6. International Business Policies Impact on Business Unit
When entering a new market, especially one that has a different culture, it is important to ensure all policies
and procedures the parent company has can be translated to the foreign subsidiary in a way that is compatible in the
Starbucks 13
new environment. Luckily, in the case of Starbucks starting up new operations in Taipei there are no major conflicts
in this area. However, there are several key policies it will be important to keep in mind moving forward in this
process, the most important being Starbucks’ equal opportunity employment policy, global anti-bribery standard,
and supplier code of conduct.
Starbucks’ equal opportunity employment policy states that, “All partners and applicants will be treated
fairly, without regard to race, color, religion, sex, national origin, age, disability, sexual orientation, marital status,
veteran status, gender identity and expression, genetic information, or any other basis protected by local, state, or
federal law,” (Policies). It further states that any violation of this policy, whether it is in regards to hiring, transfers,
promotions, or any other aspect of the business, will result in serious disciplinary action that may result in
termination (Policies). This is an important aspect of not only the Starbucks Corporation but an important aspect of
the American culture. Equality is something strongly protected and encouraged in the United States.
Fortunately, we do not foresee any immediate difficulties in enacting this policy in Taiwan. While the family
structure may be different in regards to which parent goes into the workforce, our company will continue to uphold
the values of the parent corporation and pay special mind to any cultural biases that may arise from employees. In
the case of the equal employment opportunity policy, President Starbucks will implement this policy fully.
The next major policy of the parent company that our group must keep in mind moving forward with this
expansion project is that of Starbucks’ Global anti-bribery standard. This is a serious issue in regards to doing
business internationally will be taken seriously by our subsidiary. The most applicable portion of the parent
company’s anti-bribery standard is the matter of facilitating payments. Starbucks’ has stated that no partners may
pay facilitating payment, with the only exception being in that of an emergency situation that poses a threat to
someone’s health or safety. Even then, however, the payment must be reported immediately to Starbucks’ chief
compliance officer (Policies).
This strict view on bribery has been enforced in all other international business proceedings done by
Starbucks’ in the past and our subsidiary will be no different. To ensure the subsidiary’s complete compliance with
this policy, extensive research will be done on the operation’s competition in the area and the methods they used to
enter the market. If not enough information is available, the team will also look at Starbucks’ historical records in
regards to other operations they have opening in the area and follow that procedure. In this instance, partnering with
UniPresident will also be an invaluable resource, since they will have a better understanding of the type of situation
the subsidiary will be entering politically and bureaucratically. By following the advice of UniPresident and taking
into consideration our own research, we are confident that our team will be able to comply with Starbucks’ global
anti-bribery standard and not make any facilitating payments.
Lastly, the supplier code of conduct is an aspect of its business that Starbucks’ prides itself on. This Code
involves a wide array of policies and standards aimed at all aspects of the supply chain in order to ensure that the
coffee, tea, and cocoa that Starbucks’ provides is of the best quality and was not produced at the expense of anyone
along that supply chain. Some of the main aspects of this code involve Coffee and Farmer Equity (or C.A.F.E.)
Practices, Cocoa Practices, and the Starbucks Social Responsibility Standards for Manufactured Goods and
Services. All suppliers involved with the Starbucks Corporation are required to sign this code of conduct before
Starbucks will do business with them. The suppliers are then also subject to audits by Starbucks in order to ensure
that the code they signed off on is actually being put into effect (Policies).
As evidenced by the above policy, Starbucks takes the quality of its supplies as well as its suppliers’ quality
of life very seriously. Its policies in this regard have a huge impact on the parent company’s mission statement and
marketing techniques, since many consumers are now aware of how their product choices influence the whole
market system. Because of this, the operation in Taipei will ensure that any and all suppliers that are hired during
the course of this enterprise fully comply with the supplier code of conduct. Suppliers who already have relations
with Starbucks and have signed the document already will be primarily used, taking into account their geographic
distance from the operation in Taiwan. The team does not foresee any issues with the enforcement of this policy and
intends to implement it immediately upon the commencement of operations.
As a business, PresidentStarbucks fully intends to abide by all policies and procedures set down by the
parent company. The aforementioned policies are the most important of those in place at Starbucks, but our
Starbucks 14
subsidiary will be sure to obey the full array of policies in place already and that may be put in place in the future, so
long as these policies do not directly conflict with the culture in which the subsidiary is active
7. Financial plan for FDI
Since Starbucks is a company based in the United States that doesn’t have in depth knowledge about an
Asian country like Taiwan, the company sets its Foreign Direct Investment strategy to be joint venturing with one of
the largest food and beverage company, Uni-President Enterprises Corporation, in Taiwan. With this international
business strategy, Starbucks can establish its Taiwanese units both time and cost efficiently, which will allow the
company to focus on delivering the essentials of producing high quality coffee experiences in Taiwan.
The joint venture partner, Uni-President Enterprise Corporation is a well-established Taiwanese food and
beverage company that operates the organization with “Three Goods and One Fairness: Good Quality, Good
Credibility, Good Service and Fair Prices.”[1] With Uni- President’s forty-year experience in the food industry and
its goal of becoming one of the largest foods company in Asia and ultimately the whole world, Starbucks could
benefit well from 4 main reasons. First, Uni- President’s understanding of the local consumer behaviors such as
where consumers spend money and what they want to buy at a favorable price. Second, the company’s efficient
marketing plans such as where to advertise and how to promote with the minimum costs. Third, since Uni-President
holds most of the reliable resources and distributes well, Starbucks can utilize Uni-President’s specialty to provide
the ready to go products in Taiwan. Lastly, Starbucks could minimize its staff(operation?) cost by appointing main
executives from the United States and letting Uni-President to take charge in staffing because they know how the
Taiwanese working culture is and they already have a well staffing policy. In that case, the main executives from the
parent company can emphasize on bringing the authentic Starbucks experience to Taiwan and prepare for expanding
the Taiwanese market. Joint venture strategy allows both parties to create the company, President Starbucks Coffee
Taiwan Limited, and this business unit will be able to generate the significant amount of revenue because of its
niche characteristic.
In terms of the foreign exchange plan, President Starbucks is estimated to have a total cost of NTD
30,240,000 in year one for creating 5 new business units. Since the FDI is a joint venture between Starbucks United
States and Uni-President that both parties own 50% of the President Starbucks, which each party is responsible for
50% of the cost to invest in. Hence, Starbucks United States is projecting at a total cost of NTD 15,120,000 for the
first year. Due to marketing reason that as the weather gets colder, Taiwanese customers tend to consume more hot
beverage, therefore, the project is not going to start until August 2014, and will start operating the new 5 stores in
September 2014. This gives Starbucks US three months to prepare the fund. In order to minimize its amount of fund,
the company will wait and start exchanging USD to NTD at a more favorable rate. According to Yahoo Finance, the
52 weeks exchange rate for 1 USD is ranged from 29.2705 NTD to 30.7345 NTD; the average rate between the two
currencies is around 1 USD to 30.33 NTD; and the highest rate within the past 3 months is around 1 USD to 30.64
NTD. The company will wait until USD appreciates and aims at the rate around 30.33 to 30.6. For example, if
Starbucks US exchange today at the rate of 30.22, the company will need to prepare a total of $500,300.91 USD;
whereas, wait and exchange at the rate of 30.64 and only need to prepare 493,472.58 USD. If the company can
exchange at a more favorable rate like 30.64, it will save the company a total of $6,858.32 USD. Starbucks US
might also consider pursuing other hedging products to minimize its exchange loss.
Starbucks 15
In terms of staffing, Uni-President will be in charge of most staffing in Taiwan because they understand the
Taiwanese culture more. Starbucks United States will only be sending the higher level management team to the
Taiwanese units to ensure the real Starbucks can be authentically presented to the Taiwanese customers. The CEO,
CFO and a designing team will be appointed from Starbucks US. The COO, Marketing Managers, Accounting
Audits, Human Resource Managers and other staffs will be selected by Uni-President. Research in Taiwan shows
that a store manager’s wage will be around 38,000 NTD a month and the wage for an assistant manager will be
around 35,000 NTD a month. Also, one way to minimize human resource cost will be hiring part-time workers,
which will cost 120 NTD an hour. Since a store is going to be operating from 7am to 9pm, equivalent to 14 hours,
and will need at least 5 workers (3 baristas, 1 cleaning staff, and 1 dish-washing staff); the total part time cost will
be 246,600NTD. Starbucks US estimated that Uni-president will spend a total of 319,600 NTD monthly on just one
store.
Section 8: International Business Metrics Report
Business metrics are any financial unit used to understand the relative success or failure of a business.
They are used by analysts to compare companies, by investors making decisions about a company, the board of
directors, and many other individuals with a stake in the organization. By understanding the business metrics report
of a company, it is possible to quantify the company’s success in its current endeavors and forecast, to some extent,
its success in the future.
After the background research on the country our subsidiary will be entering is completed and the FDI plan
has been approved, it is important to set up a structure that will measure the subsidiary’s success in this new
endeavor. The parent company Starbucks, being a well-established company with numerous operations worldwide
already, has a structure in place that quantifies success for all aspects of the organization. Since our subsidiary will
be a part of this structure, we feel that it would behoove us to follow this structure so that we may fit in to Starbucks’
financial reporting more easily and will be able to fully understand our part in this global company.
According to Starbucks’ first quarterly financial report ended December 29, 2013, the organization chooses
to report on its success in both a consolidated and regional manner; that is to say that the company as a whole has
reported metrics as well as the different divisions within the company, such as the China/Asia Pacific region that our
subsidiary will be a part of. The main factors reported are the net revenues, operating income, operating margin,
earnings per share, number of new stores opened, and dollars loaded on Starbucks Rewards cards. By using these
same reporting factors in regards to our subsidiary in Taiwan, we can fully understand the success of our subsidiary
after each quarter of operations (Quarterly Report).
When our subsidiary is first established, we will expect some initial losses due to the cost of starting a new
business and the learning curve that will take effect here. Because of this, we will report the subsidiary’s metrics on
a quarterly basis to headquarters so as to show our improvements over the course of the year. As the subsidiary
becomes more established within the community, we expect to see an increase in sales, which the metrics will
reflect. However, sales are not the only contributing factor to our operation’s success and it is important to fully
understand the significance of each metric as we report on it.
Starbucks 16
Reporting the revenue, or sales, recorded for the subsidiary can give a basic understanding of the relative
success of the business in regards to other Starbucks in the China/Asia Pacific sector as well as giving the subsidiary
a starting point upon which to improve. The revenue after the first quarter, however, may not offset costs at first due
to the initial costs of investment that must be offset before a profit can be realized. This is why the operating income
is also reported, which takes into account these operating costs and gives the company a clearer view of the
operation’s success.
The operating margin is the amount the company makes for each dollar of sales. This is calculated by
dividing the revenue by the operating income, leaving a percentage of money that goes directly to the company
(Operating Margin Definition | Investopedia.). The higher the operating margin is, the better the company will most
likely do. As of December 2013, the consolidated operating margin for Starbucks was 19.2%, an increase from the
previous quarter (Quarterly Report). This means that approximately $0.19 from each sale goes to Starbucks, before
deducting taxes and other expenses. In our region, the percentage is slightly higher, which we will take into account
when interpreting the subsidiary’s data.
Since the subsidiary we are establishing in Taipei is on a small scale, it is not feasible to factor in the
earnings per share or the number of new stores opened. However, it may be useful to look at the number of people
in the target population who sign up for Starbucks rewards in the subsidiary’s area. This could give our company a
clearer understanding of the number of people reached as time goes on. It may also help with any marketing
campaigns the subsidiary may embark upon, the gathering of customer data, and tracking the impact the subsidiary
has on the market it is entering. By understanding these metrics and interpreting them correctly, our subsidiary will
be able to more quickly adapt to the new environment and ingratiate itself into the community it is operating in.
The next step after defining the metrics we wish to report on is deciding how to gather the data for these
metrics. Each metric will have data that must be collected in a different way due to the wide range of topics that
they cover, starting with net revenue. This data will be collected from our sites by the keeping track of the sales
through the cash registers and then checking that the amount of inventory sold matches our findings. Since many of
our goods are perishables, we will check inventory by keeping count of the cups sold as well as other merchandise
and then reconciling this with the paper receipts we collect.
The other aspects of the metrics report can be calculated using balance sheet data with the exception of the
Starbucks rewards card points. This can be tracked through the use of the company website and will help the
subsidiary’s marketing team to quantify the impact they are having on the community. By using this data, our
enterprise can track its success and level of integration into the new market while creating meaningful statistics to
report back to the parent company.
Starbucks 17
Brief Financial Balance Sheet (for 1 store):
Net Revenue:
Expenses:
Wages
Rent
Equipment
Inventory Expense
Total
Year 1
$16,632,000.00
$(3,835,200.00)
$(6,000,000.00)
$(837,586.28)
$(7,702,270.00)
$(1,743,056.28)
Year 2
$19,958,400.00
Year 3
$23,950,080.00
$(3,835,200.00)
$(6,000,000.00)
0
$(7,702,270.00)
$2,420,930.00
$(3,835,200.00)
$(6,000,000.00)
0
$(7,702,270.00)
$6,412,610.00
Section 9: Qualitative Description of Metrics Report
In order to gain a clear understanding of how our subsidiary is performing in the new Taiwanese
environment, it is important to first set standards of success within the metrics system. These defined amounts will
be dependent on market research from the area as well as previous understandings of other subsidiary’s successes
and accounting information from other operations around the world. The metrics that will be focused on most
heavily are net revenue, operating income, and dollars loaded onto Starbucks rewards cards.
The estimated first year net revenue that our subsidiary is hoping to achieve approximately 17,000,000
Taiwanese dollars per franchise opened. This estimate was calculated using the revenues from stores worldwide and
adjusting for the currency difference. If by the end of the first year of operations our subsidiary has reached this
estimate, we will consider the first quarter a success, allowing for a difference of 1,000,000 Taiwanese dollars to
account for the learning curve of the new business. In the following two years, our company hopes to surpass this
estimate, including the adjustment for inflation, by increasing profits by twenty percent each successive quarter.
This percentage was chosen based on the quarterly report of Starbucks’ net revenue from its other operations in
China and the Asia Pacific regions (Quarterly Report).
The operating income for the subsidiary is very dependent upon the net revenue, but the metric is a vital
part of understanding the franchise’s success all the same. As explained previously, the operating income is the
amount of sales a company makes subtracted by the variable costs of operation, such as the wages of employees
(Operating Margin Definition | Investopedia.). Because of this, the best way to keep our operating income at a
healthy level is the keep our costs down, although not the point where quality is neglected. According to the
quarterly report of operating income in Starbucks’ China/Asia Pacific region, the operating income in those areas
has increased by twelve percent in the last quarter (Quarterly Report).
As a new operation, we expect to grow at a fast rate at first after penetrating the market. After we have
become established, however, the subsidiary’s goal will be to match the region’s increasing operating income with a
two percent margin of success to account for the learning curve and any other extenuating circumstances. By
keeping in line with other Starbucks’ operations in terms of growth and by keeping a watchful eye on our
competitor’s growth in the region, the subsidiary will remain competitive in the market and become a success
monetarily within the first three years of operation.
Finally, the amount of dollars loaded on to the Starbucks rewards cards will be a determinant of the
subsidiary’s international marketing effect. By tracking the amount of dollars loaded on to cards, the team can
quantify the impact it is having on the market and the consumers we are trying to reach. This can be done through
the use of a President Starbucks website specific to the operations we are setting up so as to collect the most relevant
information to our stores. In terms of quantifying this metric’s success, the subsidiary must use time series data in
order to understand the impact as opposed to the other methods, which use a hard, numbers-based approach. This
means that after our first quarter of operations and the promotions that will be used to espouse the company, the
number of total dollars on Starbucks rewards cards will be noted. The managers and marketing team on location can
then decide on an acceptable percentage of growth in this number that will be aimed at for the next quarter, and so
Starbucks 18
forth for each quarter. This amount can then be reported back to the board at the end of each fiscal year so as to fully
understand the impact this factor is having on overall sales and market penetration.
As the subsidiary in Taiwan grows, the goal values of these metrics may change. Our project team will
keep this in consideration as the venture moves forward and will expect reports from regional managers and market
researchers so that our company will be forward thinking and competitive within its field. This will also keep the
subsidiary striving for excellence in all aspects of the business and encourage all managers and employees to meet
the company’s goals. Through comprehensive research and constant evaluation, the metrics chosen to define
success within the subsidiary will create meaningful financial information for all members involved in this venture.
Starbucks 19
Appendix A: Key Considerations
Cultural Factor
Parent Country
Country/Region of Business Unit
Religion
Christianity
Buddhism & Taoism
Education
Private & Public Schools:
88
%
School-age
9 % Private Schools
3 % Home-Schooled
--------------------------------------85 % Secondary Diploma
30 % Post-Secondary Diploma
Literacy rate 96.1% age 15+
children (CIA fact book)
Economics
The Gross Domestic Product (GDP) in the
United States was worth 15684.80 billion US
dollars in 2012. The GDP value of the United
States represents 25.30 percent of the world
economy. This was a 1.9% growth rate from the
previous year.
Increasing trend. Worth 473.97 billion
US dollars in 2012.The GDP value of
Taiwan represents 0.76 percent of the
world economy.
Monetary Unit
American Dollar
New Taiwan Dollar
Politics
democracy, free market, capitalism
WTO, NAFTA
democracy, capitalist, free market (same
as US), WTO, APEC
Family
Traditional family structure in the United States
is two married individuals providing care and
stability for biological offspring. Recently family
has included same-sex marriage, teenage
pregnancy, divorce, single-parent families,
adoption, remarried with kids from previous
marriage
In a traditional family, age, gender and
generation determine the role that each
family member plays.
The father is called upon to be the
breadwinner and his authority is
unquestioned. Mothers were expected to
be the primary caregivers. The family’s
reputation is very important.
The
behavior of each member reflects on the
entire family. When differences of
opinion occur, family members hide their
feelings so that they will not offend
others.
Class Structure
Lower class, working class, lower-middle class, Lower class, working class, lower-middle
upper-middle class, upper class
class, middle class, upper-middle class
Language
English and Spanish
History
Relatively young country with a melting pot of 103 yrs old (newly created country)
cultures. Individualist culture
collective culture
Mandarin, Taiwanese
Starbucks 20
Natural
Resources
Coal, lead, copper, phosphates, molybdenum, Gold, copper, limestone, natural gas,
rare earth elements, bauxite, gold, natural gas, marble, asbestos, and small deposits of
timber, petroleum, zinc, silver, potash, tungsten, coal
and
uranium.
Has the world’s largest goal reserve which
accounts for about 27 % of the world’s coal
Workforce
(unemployment,
industries,
demographics)
US unemployment rate hit a new five-year low of Unemployment Rate in Taiwan decreased
6.6 percent in January of 2014
to 4.07 percent in January of 2014 from
4.12 percent in December of 2013. It
reached an all time high of 6.13 Percent
in August of 2009
Fastest growing industries: solar power, video
games, 3rd party admin. and insurance claims
adjusters, environmental consulting, correctional
facilities, biotechnology, e-commerce, wind
power, internet publishing, voice over internet
protocol providers.
Industries:
electronics,
communications
and
information
technology
products,
petroleum,
refining,
armaments,
chemicals, textiles, iron and steel,
machinery, cement, food processing,
vehicles,
consumer
products,
pharmaceuticals
Federal minimum wage = $7.75
Minimum Wages in Taiwan increased to
18780 TWD in 2012 from 17280 TWD
in 2011.
Capital: Washington D.C.
Area: 3,794,100 square miles (9,826,675 sq km)
Bordering Countries:Canada and Mexico
Coastline: 12,380 miles (19,924 km)
Highest Point: Denali (also called Mount
McKinley) at 20,335 feet (6,198 m)
Lowest Point: Death Valley at -282 feet (-86 m)
The United States of America is the third largest
country in the world based on population and
land area. The United States also has the world's
largest economy and is one of the most
influential nations in the world
Capital: Taipei City
Area: 35,980 sq km
Legal
US GAAP Accounting Standards
Business Structure considerations (sole
proprietor, corporation LLC, etc)
-Common Law System
-Labor laws (min wage, overtime pay, etc)
-Health and Safety Codes
Civil Law System
Diversity
White 63.7%
Taiwanese
Geography
The Republic of China today consists of
the island of Taiwan, an island 100 mi
(161 km) off the Asian mainland in the
Pacific; two off-shore islands, Kinmen
(Quemoy) and Matsu; and the nearby
islets of the Pescadores chain. It is
slightly larger than the combined areas of
Massachusetts and Connecticut.
(including
Hakka)
84%,
Starbucks 21
Population
Black or African American 12.2%
American Indian and Alaska Native 0.7
Asian 4.7
Native Hawaiian and Pacific Islander: 0.15
Two or more races: 1.9
Some other race: 0.2
Hispanic or Latino: 16.3
mainland Chinese 14%, indigenous 2%
316,438,601 (July 2013 est.)
23,299,716 (July 2013 est.)
Starbucks 22
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