The Global Strategists * OMBA 606 * Section 9023 * Week 10 

Alicia Adams-Glover * Jenny Glenn * Nona Keith-Henson * Bill Kemp 

 

South Korea	Japan
Social Infrastructure By Alicia Adams-Glover	Social Infrastructure By Jenny Glenn
Business and Workforce Culture By Bill Kemp	Business and Workforce Culture By Nona Keith-Henson

The Global Strategists are pleased to present our individual reports for Week 10. We selected these two topics in order to investigate in depth the ability of Starbucks Corporation to succeed in two cultures that are very different from the United States. 

Introduction

The foundation of Starbucks’ operations and South Korean society and culture are two inimitably different social harmonies.In evaluating social makeup of divergent societies and cultures, international business strategies propose that there are two aspects that help to assess these differences. They are individual and/or collective beliefs, and the dimension of class structure; both can adversely affect the operations of an organization (Hill, 2003). Evaluating South Korea’s social structure using these dimensions reveals the guiding principles of its social cohesion are based on the teachings of Confucianism, which focuses on group dynamic as opposed to individual progress, and is strained by the growing income disparity. The strong belief in Confucianism is a guiding rule of social order and conduct for many Koreans; it is an integral part of Korean culture that provides a system of societal commitments. In this case, Korean people (and by extension –Korean society) is more focused on the ‘collective’ whereas Starbucks (being an American company) may be perceived as ‘individualistic.’On the other hand, thereported unequal distribution of income and the downfall of the middle class threaten the social unity of its citizens.

The focus of this report is on the social infrastructure of South Korea. It assesses South Korea’s social infrastructure by using indicators such as the state of health, the stability of the education system, the unemployment and poverty rates, and the challenges of the growing aging populace.It provides a brief synopsis of the country’s attempt at contributing to the society’s social harmony through the development of social policies and safety nets. The implications, if any, on the operations of Starbucks Coffee Korea are analyzed.

Facets of South Korea’s social infrastructure and Starbucks’ integration

The first factor under review is the outlook of health in South Korea.Thanks to advancements in the medical and health sciences, the overall health conditions of South Koreans have improved over the years. Medical care services have become widely available and accessible.According to the Ministry of Health and Welfares’ report on the public’s health status, Koreans are now experiencing an increase in life expectancy (good and bad implications), better nutrition, and quality health services. The disparity of quality health services provided among the social classes is a concern as it is in many countries, such as the U.S. who struggles with similar anguish.So, how has the improved state of health transcends itself to operating efficiencies of an organization?In particular, how does the level of care provided to South Koreans affect Starbucks’ operations? Whether good, bad, or indifferent the level of care leads to a sickly society. Therefore, the stability, and availability of quality health care system are crucial to the well being of Starbucks’ employees and its customers. An inadequate system that provides little to no preventive or treatment care could mean bad health conditions for employees and customers surviving with aliments.From an employer’s standpoint, this could in turn increase employee absenteeism, call for an increase in employee allotted sick leave–in the long run an increase in health cost is probable. If people have to pay more for quality care, Starbucks will have to pay more in premiums.Conversely, if Starbucks picks up most of the tab, can it attract well-educated and skilled workers due to this benefit? Probably so, with health inflation on the rise an increase in benefits plan of health coverage for employees and dependents could be a deciding factor for someone choosing to manage a Starbucks store versus another organization. From a retail operating perspective, a sickly customer base means reduced revenue.

The effectiveness and availability of education is the second factor evaluated. Education is undoubtedly, a resource base that develops productivity and competitiveness. Along with stabilizing its currency and investment growth, education has been a leading source behind South Korea’s advancement, and rebuilding from the Asian crisis.Koreans are known to have an innate enthusiasm for education. South Korea’s literacy rate as of 2002 was 98% (CIA Factbook). The advancement of its education system is noticeable by the increase in the number of schools.According to the Educational Statistics 2002 annual report the number of schools has increased from 3,000 in 1945 to 19,124 in 2002 (Ministry of Education and Human Resource Development). The increase suggests that South Korea has placed priority in educating its people, and in building the foundation that is necessary to achieve this goal.In fulfilling Starbucks recruitment and staffing needs it depends on a country’s populace in producing an educated and skilled workforce.As noted in the overview of South Korea’s education system, the population is highly literate and produces a large number of highly educated people. However, the perceived impediment to Starbucks is somewhat complicated, a highly educated staff could pose a threat to Starbucks employee stability because it may lead to unmotivated and disloyal employees.Starbucks could be faced with unsatisfied workers, who feel they are underpaid for the level of knowledge.The impact is high employee turnover, and reduces employee retention which leads to increased recruitment and training cost, especially since Starbucks puts forth an extreme effort in educating and training its employees on providing top customer service and brewing coffee.On the other hand, the threat could be overridden by strong collectivism beliefs where loyalty is a key ethnic attribute and moving from one company to another company is discourage because of the value placed on group association. 

The third aspect is the level of poverty and unemployment in South Korea.In 2002, the unemployment rate was 3.1%(CIA Factbook), while the poverty rate in 2001 was 4%.Poverty and unemployment are leading indicators of a country’s specific problems without its stability other infrastructures suffers. High unemployment rate and poverty threatens the stability of South Korea’s economy and they slowdown economic growth. High unemployment results in loss of output (or gross domestic product-GDP) in the short run.This in turn leads to lower per capita GDP. The backlash of this is Koreans not having enough disposable income available to purchase Starbucks coffee.Continued periods of high unemployment and rising poverty levels could lead to social instability in the country, which in turn can lead to political crises.One only has to look as far as South America for numerous examples of these.Continued decline in GDP and/or GDP growth leaves the country with less money to invest in both economic and social infrastructure thereby impairing their ability to attract foreign investment and companies.On a positive note, as of 2002 Koreans per capita income was 19, 400, a considerable jump from 1998 (CIA Factbook).It is safe to say that it allows people the opportunity and affordability to indulge in specialty coffee.However, drastic changes in the per capita income will threaten Starbucks sales, and expansion efforts, as people will not be able to afford the purchase. This leads to further questions. For instance, can Starbucks offset this by pricing lower than the competition? Will this strategy give them the needed competitive advantage? In the end it balls down to whether or not Starbucks products are deemed affordable and whether or not South Korea is not deteriorated by an increase in families living below poverty levels and/or without jobs.

Lastly, the heighten concern regarding South Korea’s aging population should definitely not be undervalued or overlooked by Starbucks.South Korea’s aged population is expected to grow from 7% in 2000 to 10% by 2010, and 13.2% by 2020 (Korea National Statistical Office). An increasing aging society will call for more health and support from the government, as well as the companies they work for. South Korea’s increasing progression towards an aging society is cause for alarm as it is indicative of a future labor shortage.The labor shortage will increase competition among organizations in seeking and hiring employees.What options are available to Starbucks if the apprehension of an increased aged society is true?Outside from a revolving migrating workforce, the only other recourse for Starbucks is to attract younger employees at an early stage in their employment and strives for a long-term employment and commitment from them. Although, recent employee trends exhibit that the retail industrycurrently has tense competition from the manufacturing industry in attracting employees. A March 2003, Korea Labor Institute’s labor statistics report revealed that the retail and trade industry employed roughly 239,000 less than the manufacturing industry (The Korea Labor Institute, 2003). The current competitive arena of seeking and retaining qualified employees among the various industries in South Korea should already have Starbucks evaluating recruiting efforts. The threat of an aging society suggests that the historically stable and solid industries, such as manufacturing are among Starbucks’ top competitors in developing an employment-focused push that will reach different sets of potential employees.

Conclusion

Preliminary conclusions reveal two features that pose long-term critique by Starbucks. First, can an aging population keep up with the pace of Starbucks stores (the high speed of fulfilling orders) or are they better suited for managerial positions (will they posses the knowledge and sharpness that is needed to manage a segment of a global company)? Second, is the threat of another Asian crisis real, will regional disputes and inflating exchange rate risk give rise to the downturn of the economy? Parts of the answers are linked to Starbucks business culture in anticipating long-term staffing needs, while the other answers are triggered by the not yet known factors of South Korea’s (or its neighboring countries) economic subsistence. Overall, Starbucks Coffee Korea has a favorable growth rate in South Korea.

Introduction

A key determinant of social infrastructure is the relative importance of the individual and the group (Brett; Hill, 2003). Starbucks Corporation was created in the individual-centric culture of the United States. Since 1995, the company was moved to open stores in Japan, an extremely group-centered country (Hill, 2003). The challenge for Starbucks is to succeed in a social infrastructure that in many ways is the mirror opposite of the one the company was created in. Every assumption about employee recruiting, motivation, training, and performance may have to be examined and creatively resolved. Similarly, the American coffee house culture may not translate successfully into an environment that is oriented towards family and workplace obligations. The role of women in the workplace is more restricted than in the United States; women tend to hold administrative jobs, make much less money, and experience pressure to stop working once they marry. Does this remove an entire group of people from the pool of potential Starbucks customers?

There are two uniquely Japanese attributes that raise barriers to Starbucks’ success. The first is that Japan is a tea-drinking society. Tea ceremonies, teahouses, and tea consumption are deeply venerated, socially important activities in Japanese society. The second barrier is the social custom of desk-side tea and coffee service in most large businesses and organizations. Why would a person purchase expensive Starbucks coffee individually, when the person can receive free coffee or tea in the office in a way that reinforces group membership and connection?

As of April 2003, Starbucks has opened 379 stores in Japan (Starbucks, 2003). The corporation has established a business foothold in the country. Will Starbucks continue to expand and flourish? Understanding and responding appropriately to Japanese social infrastructure will be an important part of the company’s overall success or failure.

Japan’s social infrastructure

Individual versus group affiliation cause both obvious and subtle barriers to success for Starbucks Coffee Japan Ltd. The desire for group affiliation and approval is paramount in Japanese society. This social orientation is an important consideration for Starbucks. The company desires to establish coffee shops as the buffer zone between home and work (Theodore, 2002). The coffee shop becomes a safe haven from the world, a familiar place to retreat to and reward oneself. This market positioning is a positive feature for American consumers, where solitary time is extremely important and freedom from the demands of others is prized. Individual time in Japan is viewed with a degree of suspicion and anxiety if it is not directed towards socially sanctioned goals, such as religious mediation or academic preparations. Starbucks will need to develop a market position in Japan that emphasizes the coffee shop as a meeting place for friends, families, and organizations. Instead of a place to get away from everyone, the coffee shop becomes a convenient, enjoyable place to stay connected.

Starbucks Coffee Japan Ltd. has several challenges in establishing the company as a core part of the Japanese consumer’s daily activities. The company can focus on store location, store design, and advertising to create an inviting place for group activities and social connection. A key part of the store environment is the employees. The importance of the group versus the importance of the individual is also expressed in the area of employer/employee relationships. 

Social infrastructure includes cultural perceptions of power distance. When Starbucks moved from America to Japan the company selected a foreign partner that has significantly different workplace dynamics.The classic American approach to the work place involves low power distance and low information context (Brett, 2001). Low power distance means that line workers do not perceive a great deal of social difference between themselves and senior levels of management. Workers do not automatically confer respect or obedience to people in management roles, and are willing to challenge procedures and policies. Low information context means that a large amount of detail is used to define expected behavior and to convey ideas. Low context advertising assumes that the audience does not have a common viewpoint and must be explicitly shown the benefits and features of the product being promoted. America is a culture that embraces diversity and honors the myth of the “melting pot” culture that blends together people from many countries into a capitalistic democracy. Japan is a high power, high context society (Brett, 2001), which is consistent with an ethnically homogenous, centuries-old country. 

Japan has a well-educated, disciplined workforce with a strong customer service orientation. These are positive attributes that support the in-store customer experience that Starbucks is trying to create. Starbucks will need to adapt the employee recruitment, training, compensation, and motivation policies developed in America to Japan’s high power distance, high context infrastructure. Another positive factor Starbucks can leverage to recruit a loyal workforce is the Starbucks brand name. Starbucks has one of the most recognized brands in the world with highly favorable connotations (Theodore, 2002). Employer prestige is an important factor in employment decisions, since a significant portion of an individual Japanese person’s status is conferred through professional affiliation.

Japanese government social policies

Government policies on banking, investment, and personal finance affect the success of Starbucks stock offerings and ancillary financial products like the Starbucks store card (Theodore, 2002). Starbucks picked a good time to enter the Japanese market because Japan was moving to deregulate financial markets in the 1990’s (Hill, 2003). Deregulation affected the financial options available to the individual Japanese investor and opened up opportunities to invest in more attractive instruments than savings accounts and bonds (Hill, 2003). Starbucks opened a corporate office in Japan in 1995; in 2001 Starbucks Coffee Japan, Ltd held its initial public offering and raised $149 million (U.S.) (Musero, 2001).Which exchange were the Starbucks shares sold through? NASDAQ Japan Inc. (Musero, 2001). There is no better example than the globalization of finance and the new openness of the Japanese capital markets than an American-founded company’s foreign division going public on an American-founded exchange’s foreign branch.

If the government supports universal literacy and funds a network of universities and colleges, the population will tend to have a higher education than in a country where the government does not support education. The Japanese government is thoroughly involved in all aspects of both child and adult education and provides a standardized national curriculum for elementary and secondary education (MEXT, 2003). This is in complete contrast to the American approach to education, where the curriculum is controlled at the state and local school district level with occasional efforts to mandate national standardized testing (U.S. Department of Education, 2003). Japanese people have a 99% literacy rate; by comparison, the American literacy rate is 97% (CIA, 2003). High education levels and literacy rates is a benefit for Starbucks in Japan. Print advertising may be used in countries with a high literacy rate, enhancing the visibility of advertising messages broadcast from radio, television, or Internet advertising.

On the other hand, government policies on immigration may cause store-staffing problems in a nation with an aging population. The American solution to an aging native population is to draw on immigrant and naturalized labor. This solution is not feasible in Japan. Historically the Japanese government has placed tight restrictions on immigration, and naturalization is very difficult (Economist, 2000). The risk is that an aging population implies a declining number of people willing to become barristas to run the stores (Dawson, 1999). Will Japanese customers feel the same social comfort and connection if foreign workers operate the stores? Can Starbucks innovate on the Japanese affection for technology and robots to create automated solutions for coffee making? This aspect of Japan’s social infrastructure may be difficult for Starbucks to overcome. 

Transportation systems are another part of social infrastructure that is heavily influenced by government policy. Starbucks can take advantage of extensive Japanese mass transit systems to locate stores in areas of high foot traffic. The Starbucks web site recognizes the distinction between American and Japanese transportation patterns. American stores are locations are sorted by city and street address, which matches a society that relies on private cars for transportation. Japanese stores may be sorted by city and street address, or by train stop. A majority of Japan’s Starbucks stores are located near train stations. In this respect, Japan provides a better social infrastructure for expansion than the United States does.

Conclusion

The central question for the next five to ten years is how to sustain growth. How does Starbucks grow beyond a niche market? A few hints of slowing momentum have been observed in company’s sales and earnings figures (Nation’s restaurant news, 2002). There are real business risks if the Japanese economy continues to stagnate and unemployment increases. The Japanese saving rate may rise in response to uncertainty about employment. If the savings rate increases, it usually causes a corresponding decline in consumer spending (the money has to come from somewhere). Is time in the coffee shop important enough to the Japanese consumer to sustain the expense in the face of a bad economy?Starbucks may be able to position their stores as a less-expensive alternative to a restaurant. Will an increasingly older population want to drink beverages with a high level of caffeine?Starbucks may need to develop new beverages containing teas and herbs that appeal to health concerns. 

How will Starbucks successfully compete for a decreasing pool of Japanese workers without driving compensation to an unsustainable level? Starbucks may be able to reduce staff while preserving the level of service and product taste consistency by innovating with automated coffee making solutions. A country that invented an automated sushi-making machine would be a good place to experiment with automated coffee brewing and serving machinery. 

There is another interesting aspect to the interaction between Japanese government policies and changes in the nation’s social infrastructure. The emphasis of many government policies is to preserve social order and stability. Japan as a whole is a group-oriented society and can seem insular and changeless. Starbucks must be prepared to accommodate abrupt shifts in social expectations and desires that seem to emerge unexpectedly. Change may express itself overtly after a long period of underlying reflection and consensus building that was not obvious to observers from a low-context business culture.

The ten-year or longer strategic question of Starbucks’ business prospects hinges on social influence. Can Starbucks influence social expectations and behaviors to raise coffee rituals to a place equivalent to tea ceremonies? Japan is a tea-drinking society. Tea ceremonies, teahouses, and tea consumption are deeply venerated, socially important activities in Japanese society. Perhaps Starbucks should aspire to emulate Pepsi and create a Japanese coffee generation – thus embedding the coffee shop culture into Japan’s social infrastructure for the next millennium.

Introduction

To understand a country, one must know the culture.Without a cultural understanding, a company can easily make critical errors that result in foreign operations, which may never be profitable or even fail.In order to determine whether or not South Korea was a suitable market for its products, Starbucks had to take the time to learn whether or not Korean business norms and social culture would embrace the Starbucks coffee house experience.This paper discusses the culture of South Korea (referred from this point forward as Korea) in a social and business context, and provides an assessment of the impact its cultural traits may have on Starbucks’ Korean business operations. 

Korea is a country with a strong nationalist and ethnic identity built over centuries as protection from suffering endured under the rule of various occupying regimes.This paper will discuss Korea’s social culture, business culture, work ethic, and their effects on Starbucks’ operations and future profitability.The paper begins with a general description of Korea's social culture, followed by its business culture.Next is a brief exploration of Starbucks’ choice of a joint venture with a Korean firm as the mode of entry into Korea.Finally, the conclusion will suggest areas strength or potential problems that face Starbucks in the future as a result of Korea’s unique, social, political, and cultural character. 

Korean Social Culture

Korean Business Culture & Relationships and Work Ethic

Korean business culture and relationships function much the same way the social culture interacts.There is great importance placed on respect and deference towards one with a higher status.In a Korean household, Confucian philosophy calls for the father to be the stern but benevolent figure to the family.The father is the breadwinner and provider for the family.The same principals are applied to business relationships, which are very hierarchical and authoritarian.The company owner functions as the paternal role model for his employees, meeting their needs while providing just authority. In return for this type of leadership, the employees are expected to respect the wishes of the owner.The same dynamics exist for the superior subordinate relationship as well (Mensik, Grainger & Chatterjee, 2003).In both cases, the owner/superior makes great efforts to maintain harmony in their work environment.In order to establish a relationship, Korean culture requires much time and energy be given to nurturing that relationship.This nurturing includes many informal gatherings in which both parties can interact in a casual non-business atmosphere.In this way, trust is slowly developed.Starbucks began “negotiations” with Shinsegae in 1997, and perhaps earlier.However, they did not open the first coffee house until the end of 1999 (Starbucks, 2003).During that time, Starbucks had to form a relationship of trust with Shinsegae and the Korean government.Korean workers work long hours for their employer.The work ethic comes from the Confucian philosophy of perseverance.It is understood that perseverance will inevitably allow one to reach their goals.Starbucks’ operations would benefit from this mentality, as it would supply them with productive, hard working employees who are looking to advance within the company.Perception of company status is also important.Korean workers will want to work for Starbucks if it is perceived as a high status company.Starbucks holds the premier position in the gourmet coffee house market in Korea.

Starbucks’ Joint Venture in Korea

At the time Starbucks was considering entering the Korean market (circa 1996), they would have seen a largely government controlled banking structures, a strongly nationalistic and ethnocentric society, and tightly knit business relationships.They would have been evaluating Starbucks prior to the economic crisis that occurred in 1997.At the time they were assessing the business environment towards foreigners they would have seen a government that was riding on a high of success that the chaebols had enjoyed to that point on the global marketplace.The IMF had not yet mandated the now liberal limits on foreign business ownership in Korea.When evaluating their options of entry (licensing, franchising, or joint ventures) Starbucks would have had to choose a method that would penetrate the formidable barrier the banks and government formed.This could have been done with a franchise, but Starbucks would not have sufficient control over operations and strategy using this approach.A joint venture would have been their best method of entrance.Hill (2003) explains that joint ventures can provide many advantages to a company wishing to enter a foreign market.A venture with a successful foreign company brings with it access to proven business knowledge in that country, commercial and governmental contacts, improved perception on the part of the government and the people about the products being sold by the foreign company, and most likely, more favorable treatment by that country’s government and banks.The local company can also be a great help in finding the appropriate way to market products in that country.In 1997 Starbucks began negotiations with Shinsegae Co Ltd., a large successful corporation that owned the largest retail discount store chain, and third largest department store chain in Korea (Park, 2002).Shinsegae brought to the table a proven record of success in Korean retail, a native understanding of Korean business customs, and a proven network of commercial and government contacts.By observing the rapid expansion of its stores in Korea since the first opened in 1999, Starbucks has shown that the choice of a joint venture has proven successful.Hill (2003) cautions that the potential pitfalls of a joint venture include loss of important core technologies to the company with which the venture was made.If poorly constructed, Shinsegae could walk away with Starbuck’s formula for coffee house success.Starbucks must ensure they understand the legal elements that must be in place to ensure Shinsegae does not acquire or adopt its trade secrets.In addition, Hill (2003) cautions that as the joint venture matures, the relationships and perceived power base may shift in the eyes of the joint venture company.They may begin to diverge from a unified strategy and approach to ones that differ greatly.Shinsegae may feel that they understand Starbucks’ philosophy of growth and strategy but have the upper hand on implementation.Starbucks must take great care in continually establishing who the superior is and who the subordinate in the relationship is.It is unknown what percentage of ownership Starbucks has in the joint venture, but if it is 50/50 Starbucks may see a trend towards increased control by Shinsegae.

Conclusion

The Korean culture is strongly nationalistic with a population that is well-educated, hard working, progressive, and conservative.It has shown is progressiveness by remaining receptive to global business and the difficult changes it has imposed on the country.On the surface, the many positive traits just listed suggest Starbucks has bright profitable future prospects there.There is no denying that Starbucks has gotten off to a strong start, but, Starbucks must continually monitor the sentiment of the Korean people towards American products, increasing competition, market saturation, and the amount of disposable income in Korean pocketbooks for leisure products.

There are many factors that could have a severe adverse effect on Korea’s economy in future years.Chief among these concerns lie with North Korea. North Korea is a volatile unknown.Their economy is badly depressed and the people suffer from illness and lack of food.Because of these issues and shrinking government coffers North Korea and is at a point where they may unify with South Korea.To add more confusion, North Korea continues to maintain a bellicose nuclear stance that could result in war with the United States or the United Nations.If unification or war were to occur the result would be major short term negative affects on South Korean GDP growth.Korean consumer sentiment would decline, as would consumer spending because its people would not know how things were going to turn out, so they would increase their savings rate.This would mean that spending on non-necessity items such as Gourmet coffee would definitely be in jeopardy.Another result or unification or war would be a strong surge in nationalism, which could result in a temporary rejection of things that are not Korean.This too would have a dramatic effect on Starbucks’ profitability.Starbucks has the additional risk of maintaining the joint venture between itself and Shinsegae.This relationship could deteriorate as operations grow and mature in Korea.As Hill (2003) mentions, the challenge there will be to keep the right mixture of power between Shinsegae and Starbucks while keeping the overall expansion philosophy aligned.

Korea also runs the risk of economic decline if the government improperly handles the IMF mandated privatization, and corporate restructuring efforts now underway.Korean perceptions of heavy-handed IMF policies on the economy, businesses, and jobs could trigger a nationalist backlash in the country.The result could be boycotts of local businesses that iconify American economic hegemony.Fortunately, all indications are that the Korean economy is weathering the IMF changes well.Consumer confidence is high, and unemployment is a manageable 3.0%.Consumer consumption continues to grow, and consumer confidence is at an all time high.After the decline in GDP in 1998, GDP growth has been positive and increasing ever since.The projected GDP growth for 2002 was a robust 6.0% (Chan, 2002).The apparent shift towards a service economy also bodes well for Starbucks.

All in all, the shifts in Korea’s economy caused by globalization and IMF mandates indicate future growth and stability.Starbucks must be wary of political unrest caused by North Korea and should have a contingency plan in place in the event of war or unification.Starbucks must also nurture their successful joint venture with Shinsegae to ensure success in the future.Prospects remain bright in Korea.

Introduction

Establishment of a company in Japan requires a deep analysis of their business and regulatory practices with due consideration to the political, social/language, religious, customary and cultural differences. Initial market entry is a challenging process, sometimes more difficult than actually doing business itself, as the organizational structure of the workforce and public relation arena differ greatly from those in North America. Statutes are imposed on businesses, such as those set by the Ministry of Finance (annual report filings), legal affairs, and the tax authorities. Albeit the challenge, Starbucks Coffee Chief Global Strategist and Chairman, Howard Shultz decided to take the challenge via conducting their first foreign investment in Japan, which demanded various start-up and growth strategies. To accomplish this feat, Shultz formed a joint venture with a local Japanese retailer, Sazaby, Inc. This proved to be a wise operational strategy that afforded Starbucks the opportunity to rely on someone already ‘inside’ per se, with background knowledge of Japan’s multi-layered and intricate business culture, which in itself has been developing and forming new layers for thousands of years. Sabazy was charged with taking over responsibility for growing Starbucks’ presence in Japan, which he commanded successfully, as evidenced by the August 1996 grand opening of the first store located in the Ginza district of Tokyo, then replicating stores across the country totaling 200 stores by January 2001 and plans to operate 500 stores by the end of March 2004 (Hill, 2003).

This paper outlines the Japanese value system and business ethics with respect to the operational aspects of Starbucks Coffee, and how we, in the United States, think of Japanese culture.Typically one of the first images that comes to mind are those that we see in the movies; an ancient Samurai warrior wielding his heavy sword, or a young Geisha pouring tea and serving sushi in a Japanese Steakhouse.Each of these elements play an important role in the entire concept of Japans’ culture as a whole, its entire meaning and history is far more complex, however, Starbucks Coffee International has met this challenge with spectacular success, despite the people’s preference for tea, Starbucks has rose from obscurity to be one of the best known brands in Japan. 

Japanese Business Culture and the Starbucks Foundation

For thousands of years, Japanese culture has mystified the Western hemisphere with its majesty and beauty, and as one of the world’s top economic powers we’ve happily adopted their culture into our society. However, the Japanese have very different work and business ethics, and its unique cultural identity affects how companies exploring foreign opportunities manage global public relations. A global understanding of Japan’s public relations (P.R.) is a workforce requirement for Starbucks as worldwide information on the company; its image and financials are readily accessible on the Internet making its mark as a ‘brand’ name.The structure of the business world impacts the acceptance of public relations into Japanese society, for example a popular word used amongst employees is “Karoshi,” which translates to mean ‘death from overwork (Business and Economy). To refute this dire connotation, Starbucks Coffee has instituted an international foundation to ensure that its employees maintain a work/life balance. The Mission of The Starbucks Foundation is to create hope, discovery and opportunity in communities where Starbucks partners, employees, live and work. Contributing positively to the community and environment is Starbucks ‘Commitment to Origins,’ which addresses social and environmental issues in order to help sustain the people and places that produce Starbucks coffees. 

In Japan, social ranking and status play a part in many major institutions that one goes through in a lifetime, and ones’ age is not kept hush-hush as it is here in the States, some companies even distribute internal newsletters listing the age of all employees. Vertical ranking, mainly age based, determines everything from the location of desks in a classroom, to the order in which cups of tea are distributed in a restaurant. These rankings are even pervasive in the Japanese language, for which age is addressed differently depending on whether the individual is older or younger (McCargo, 2000).In business and personal relations, the individual deemed inferior must allay their own wants, thoughts, and opinions to that of the superior, so as not to cause the superior individual to lose face or be humiliated. The Japanese believe that appearance, or ‘tatemae,’ is more important than the reality ‘honne,’ hence the heavy use of make-up as seen on Geisha Girls and their native wardrobe, which to the American workforce this may appear as hypocritical or negative, but in Japan this is normal ethical behavior (Japan Travel Guide.com). 

The Starbucks Foundation also addresses the Japanese concept of “wa,” meaning group harmony, whereby the value of the common greater good is more important than one's own needs. This principle is applied early in the value learning system, basically commencing at school age, to the teen and social groups, then in the workplace (Business and Economy).Starbucks business philosophy is that nobody understands the needs of a community like the people who live and work there, where partners are encouraged to get involved with local youth organizations and apply for grants on behalf of their neighborhood programs. Thereby approaching this cultural aspect hands-on at ground level allowing Starbucks to meet the particular needs of the people in the communities they serve by helping to build strong relationships with their neighbors. 

The Organizational Structure of Japanese Businesses

The Japanese business world has its own unique set of values and behavioral patterns. In public relations, these modes of behavior must be taken into account when working with Japanese business partners. In Japan, mutual dependence is a way of life, referred to as “amae,” meaning the boss owes a certain amount of protection to the employee, and that s/he assumes a direct responsibility for the welfare of their employees (Business and Economy).Protection is in the form of higher compensation for years of service in conjunction with benefits such as company paid housing, and encouraging employees to take off on weekends and holidays, in both the industrial and retail sectors (McCargo, 2000).The longer an employee’s tenure (as mid-life career changes are taboo), the more overall benefits s/he shall receive, in return, employee loyalty is high. The popular American term “job-hopping” is not a viable concept to most executive corporate males in Japan, as they tend to believe in ‘lifetime employment’ within large companies. Companies tend to staff relatives and close friends more so than an individual for which they are unfamiliar or have no business relationship. As competition amongst companies grows certain aspects of this so called loyalty can be seen as unfavorable, causing the employee to passively accept transfers to undesirable locations, or often not taking advantage of holiday entitlements (McCargo, 2000). In response to this concept Starbucks Coffee Japan was the first company in the country to introduce a Stock Option Plan along with a discounted stock purchase plan for its employees.In addition, Starbucks offers a retirement savings plan, a managerial bonus, discounts on coffee and other products, and a progressive compensation and benefits package (Starbucks.com).

The Japanese value harmony and conflict management, whereby they tend to concentrate on situation management therefore preventing conflict and crisis in the workplace, by the common business practice of socializing after hours with co-workers to establish credibility and friendship, for the purpose of increasing profitability (Japan Information Network), hence the new business buzzword “nomunication,” which combines the Japanese word “nomu” meaning ‘to drink’ with the word ‘communication,’ simply because it is ethically acceptable for Japanese employees to socialize, unpaid, for long periods of time discussing business. Both terms are of high importance to Japanese corporations where the emphasis is placed on situation-based communication to provide operational incentive guidelines. 

Japan is home to two world leading industrial corporations, Fuji and Mitsubishi, however most of the workforce is skeptical about their companies' paternalistic hierarchies and do not benefit from the lifetime employment concept. Despite the fact that high-tech industrial companies contribute greatly to the nation's economy, most of Japan's industry relies on small to medium-sized companies with limited operations (McCargo, 2000).

Summary

Japan is ranked as the second most technologically powerful economy in the world after the United States (U.S.) and third largest economy in the world after the U.S. and China.The Japanese pride themselves with a strong work ethic, mastery of high technology and a comparatively small defense allocation. However, public relations and media advertising are often overlooked in Japanese commercial transactions, basically due to the high value Japanese place on modesty and the fact that they are inundated with ads. They believe that if an individual discusses their own products and quality it lessens the credibility more so than another person or organization commending their products and company (Japan Information Network).

In Japan, the primary model of advertising used is the ‘personal influence’ model, because the culture requires that business partners build stable relationships by communicating with them in informal settings. The art of practicing “giri,” which translates to mean the things people must do or the correct way of behavior for smooth social life (O'Hara-Devereaux and Johansen, 1994).Starbucks Coffee believes that this starts at childhood and has since addressed this concept with what began as a simple idea to what is now a positive environment of lifelong learning for children, called JumpStart, via The Starbucks Foundation through literacy grants, and the language of hope.By collectively nurturing youth – seen as future potential employees -- they can help create a more just, compassionate and sustainable world today and in the future. 

Overall, Starbucks Coffee has not only adopted the traditional Japanese business and work ethics, but has made a significant impact on their society as demonstrated by the company’s unprecedented rapid growth. According to Yuji Tsunoda, president of Starbucks Coffee Japan, the Starbucks Experience has received recognition from top Japanese publications and business organizations for its world-class customer service, uncompromising commitment to quality coffee and the unbridled passion of its partners (Starbucks.com).In less than five years, Starbucks became one of the most recognized and respected global retail brands in Japan, and as they strengthen their market presence, they are mindful of the importance of earning the trust and respect of their customers. Given the early success and unparalleled brand equity in the Japanese market, Starbucks Coffee Japan will continue to exceed the expectations of their customers by offering them an experience that goes ‘beyond’ a cup of coffee.

References

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