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The Global Strategists (OMBA606/Section 9023) Team Members: A. Adams-Glover, J. Glenn, B. Kemp,
and N. Keith-Henson A
COMPARATIVE BUSINESS RISKS ANALYSIS OF
STARBUCKS COFFEE IN JAPAN AND KOREA |
Cup-by-cup,
the Starbucks name and image connect with millions of consumers around the
globe, beckoning consumers on three continents with its green-and-white siren
emblem. Starbucks Coffee Company and its wholly owned international subsidiary
have mastered the art of global customization, as evidenced by its aggressive
expansion into emerging foreign markets such as Japan and Korea.
This report is a culmination of the
Global Strategists’ thorough 12 week comparative analysis of the various
business risks and opportunities Starbucks Corporation faces in two dominate
countries, Japan and Korea. The Team
outlines the analysis of the structure and composition of risks in both foreign
markets, to include country similarities, economic infrastructure, financial
markets, business and workforce culture, product and service standards, social
infrastructure, political environments, anti-competitive practices, modes of
entry, and the business risks comparison tables. The potential for coffee sales in Japan is
significant. The Japanese economy is the second only to the United States with
a gross domestic product (GDP) of 481 trillion yen (U.S. $3.67 trillion) in
1998. Starbucks Coffee Japan, Ltd. is a major operator in the Japanese food
service industry and has a current market capitalization of U.S. $71.14 million
(Starbucks, 2003). Starbucks Coffee Japan faces business risks and challenges
as the company comes to the ten-year milestone of operations. Business
expansion continues with new store openings, but earnings per share are
declining and a growing concern persists about the stagnant Japanese economy.
The Global Strategists evaluated six key risk areas specifically from an
economic and a political perspective to determine the most favorable business
strategy for the next five to ten years of operations. The results of this
particular analysis concluded that an aging population was the greatest threat
to continued profitability, because a declining population has fewer customers,
and an older population may not desire expensive beverages full of caffeine. The
two next significant risks were workforce culture and hostile government
policies towards immigrant labor to make up for a reduced labor pool.
This analysis lead to a final team
recommendation, whereby based upon the business risks and opportunities the
Global Strategists find Japan provides a more stable market for Starbucks’
current and future operations with minimum risk and greater outlook for profits
than the Korean market. Therefore, it
is the Team’s final recommendation that Starbucks Coffee International, the
wholly owned subsidiary of Starbucks Coffee Company, continue market expansion
under their joint venture Starbucks Japan, Ltd., as this joint business structure has been very
effective and extremely profitable for the corporation thus far, and does not
create business vulnerabilities should the workforce culture, an aging
population, and government anti-immigration policies cause store-staffing
problems.
Have
you enjoyed the Starbucks Experience lately? Starbucks is aggressively achieving its objective of being known
as a reputable brand. This sentiment is felt all over the world and has
transcended Starbucks operations into a world-renowned coffee shop. According to the Brand Power Index of Korea
(2003) Starbucks Korea is the “number one coffee shop” (Starbucks website). A
powerful premise, yet a true one no less.
Throughout
OMBA 606, the Global Strategists team has investigated Starbucks Corporation,
its philosophy and strategic goals, as applied to business operations in South
Korea and Japan. We analyzed seven
broad operational aspects and how those aspects impact Starbucks’ operations
strategy, business structure and profitability in each country. Through our studies of Starbucks Coffee
Japan and Starbucks Coffee South Korea we have concluded that Starbucks has
created an established presence in both countries. The focus of this report is
to provide a comparative analysis of business risk in Japan and South Korea,
and recommend an expansion strategy in the chosen market. In particular, the
risk factors we evaluated included: economic and social infrastructure support
and stability, financial markets, business and workforce culture, product and
services standards, political, and anti competitive practices. This report was
written with the assumption that Starbucks has to choose either Japan or South
Korea (for the remainder of the report referred to as Korea), but not both, for
future operations. This report begins
with a general assessment of the similarities between the two countries,
followed by a comparative description of the seven aspects of Korea and Japan
listed above, a country selection, an entry mode selection, and a
conclusion.
The
country choice will be made by summarizing the strengths and weaknesses of each
of the seven aspects listed above, for each of the two countries, using the
information gathered in previous papers throughout the course. Then a relative numeric and subjective
comparison of risk and profitability to Starbucks will be performed. The country that has the most favorable
risk/profitability mix will be chosen.
The entry mode that provides Starbucks the control they require, with
the least amount of restrictions, for the lowest operational cost, that still
provides an adequate profit potential, will be the mode chosen. To determine this, the Global Strategists
will take into account tariff and non-tariff barriers to entry for the country
selected, along with the political and social environments in which they will
operate.
This
report also serves as the final presentation of the learning experience the
‘Global Strategists’ team enjoyed during this semester. To that end, this
report presents a discussion of our perspective on Jacobs’ analogies between
economics and the ecology of natural systems. Team-learning goals were
identified in the Team Work Plan paper prepared in week two of the OMBA606, and
the Team’s reflection of the successes and setbacks in achieving the learning
goals are in included in this report.
To
begin, an initial observation shows there are many similarities between the two
countries: both are located in approximately the same region on the globe
(relative to Starbucks USA); both have very high literacy rates, 98% for Korea,
and 99% for Japan (Kemp; Adams-Glover, Week 10, 2003); both are large successful
participants in global trade; both have a strong manufacturing base, but are
moving towards a service economy. Both
countries have a rich history dating back more than 1000 years. Over the course of that history the cultures
have mixed due to Japan’s rule over Korea (Week 2, 2003). As a result of that
mix Korea has emulated some business practices used successfully by the
Japanese. The Japanese used the kieretsu, and the Koreans used the chaebol. More will be discussed about this later in
the report. Both countries share
similar cultural traits such as: high ethnic homogeneity –99.9% of Koreans are
ethnic Korean, and 99+% of Japanese are ethnic Japanese; social and business
relationships maintain high power distance (Keith-Henson; Kemp, Week 10, 2003); high context communication styles are
used in business and social communication; both cultures place the well being
and harmony of the group over that of the individual (Kemp; Adams-Glover;
Keith-Henson, Week 10, 2003). Both
countries form tight-knit networks of relationships that are formed over time
and carefully maintained through active social and informal gatherings. Instant trust is not given (Kemp;
Keith-Henson, Week 10, 2003). Finally, both countries have a long history
of being tea drinkers.
Economic
infrastructure creates the support system for the business activities carried
out in a country. A country’s economic infrastructure operates in the context
of governmental policies and regulations.
Accurately assessing a country’s economic infrastructure is important
for making beneficial investment decisions (Hill, 2003). The right economic
infrastructure makes business operations manageable and profitable. The wrong
type of infrastructure may make business operations unacceptably risky. Without
the right infrastructure in the short term, Starbucks may not be able to clear
imported coffee beans through customs, transport them to the stores, grind and brew
up coffee, or prevent copycat businesses from diluting the value of the
Starbucks name. Over the longer term, if infrastructure changes occur in
Starbucks’ country of choice and it is not recognized then poor business
decisions will be made, resulting in loss of profits, market share and perhaps
failure (Glenn, Week 8, 2003).
There
are a few economic infrastructure factors that result in higher operating costs
for Starbucks in Japan such as fiscal policy towards domestic businesses,
banking practices, utility costs, and transportation logistics. Japan’s government policy is designed to be
very protective of Japanese businesses. Fiscal policy permitted cozy relationships
between government, banks, and industry that concealed true profit and loss
performance. These government and
banking relationships helped overvalue real estate holdings because Japanese
companies were inflating the value of their real estate portfolios to
compensate for other losses (Keith-Henson, Week 8; 2003). This fueled real estate speculation and
hence, rental space costs. This likely resulted in Starbucks overpaying for
business leases.
Government
policies towards food imports, contract law, or even electrical power
regulation may have a significant impact on Starbucks’ business assumptions and
operational environment. The Ministry
of Economics, Trade, and Industry regulate Japan’s power distribution and
electrical services. Though Japan
boasts excellent power distribution and electrical services throughout the
country, Starbucks may incur extra power costs because Japan is heavily
dependent on imported energy. In 2001, 57% of Japan’s total energy needs came
from imported petroleum (Glenn, Week 8; 2003).
As oil prices increase Starbucks will see higher transportation
costs. Traffic congestion is another
area that will raise Starbucks operational costs. Due to severe congestion problems in some cities, Starbucks may
have to hold larger product inventories in each store if shipments of coffee
beans, cups, food items, and other consumables are unpredictable (Glenn, Week
8; 2003).
Well-established
property rights are an essential prerequisite for business (Heyne, Boettke
& Prychitko, 2003). An important
plus for Japan is that trademark protection and contract law are well
established and well regulated. This
creates a re-assuring environment for trademarks and business
arrangements. In addition, corporations
are able to establish and operate businesses in Japan in a climate relatively
free of bribery and corruption.
We
believe the greatest potential infrastructure risk is government’s recent
inability to improve economic growth. If true economic reform does not occur
that remedy its persistent recession, the long-term drag on Japan’s economy may
begin to affect the maintenance and functionality of the country’s economic
infrastructure.
The
primary economic infrastructures in Korea that impact Starbucks’ operations are
the local real estate market, labor force, banking stability, and the
transportation system. Starbucks tends
to choose retail sites located in prime areas of high traffic as these
locations provide high visibility and customer traffic. Its stores are
strategically located near office buildings, downtown, in suburban retail
centers, airport terminals, college campuses, and busy shopping centers. As a
general rule, Starbucks leases space for retail stores, cafés, and offices, but
purchases land for roasting and distribution plants. Korea's Foreign Investment Promotion Act has opportunities for
FDI companies to receive financial incentives such as reduced rental fees, longer
leases (such as 50 year durations). Longer leases help keep down fixed
costs. Unfortunately, Starbucks cannot
benefit from these incentives because it is not a high technology or
manufacturing company (Adams-Glover, Week 8, 2003).
Substantial
liberalization of Korea’s real estate market allows Starbucks to purchase land
to expand operations without fear of restrictive foreign real estate policies.
However, Starbucks must pay an acquisition tax to the Korean government when
purchasing property. Despite the fact that Starbucks Korea is co-owned by a
Korean firm, Shinsegae Co., Ltd., Korea imposes an acquisition tax on land
purchases. The tax is imposed whether
or not the business is foreign or domestic and is calculated by using the
property’s purchase price. The standard tax rate is 2% of the purchase price.
However, if the business property is located in a “Seoul Metropolitan Area”
(SMA) it is subject to a 6% tax rate (Adams-Glover, Week 10, 2003). This tax could become costly for Starbucks Korea, since
it bases its operations in popular metropolitan sites in the greater Seoul
metropolitan area. However, Starbucks has a good chance of recouping these
costs through higher sales in these locations.
Another
possible problem Starbucks Korea must face is Korea’s historically antagonistic
relationship between workers and management. This is a cultural trait that is
prevalent throughout Korea. Starbucks
actively engages in positive and productive relations among its employees in
the U.S., and is committed to employee development, encouragement, promoting
fairness, openness, and ample opportunities. But the baristas working in
Starbucks Korean coffee houses may be subject to authoritarian leadership,
where decisions are made only from the top without considering workers
input. Korean managers are hired by
Shinsegae and will likely have these traits. This practice is not in line with
the principles of Starbucks perceived labor practices or with the general
movement towards knowledge sharing. The Korean Labor Institute acknowledges the
strain of relationships between management and employees in general. These practices produce mutual distrust and
shut down dialogue between employers and employees (Adams-Glover, Week 10,
2003). The consequences of a strained relationship between Starbucks’ Korean
workers and their management could degrade the Starbucks experience for its
customers, thwarting the company's corporate charter to promote a positive work
environment where all employees are treated with dignity and respect.
Financial
markets are the manager and movers of monetary obligations available within a
country. This includes, but is not
limited to, stocks, bonds, investment capital, and bank loans. This section talks about financial market issues
researched by the Global Strategists in previous papers. The stability of a financial market is
dependent on rule of law, established and enforced property rights, a stable
currency value, and an efficient market. Where an efficient market is defined
as one that allows healthy companies to survive and weak, poorly run companies
to fail (Kemp, Week 8, 2003).
When establishing business operations
in another country, that country’s culture most be understood and respected in
order to successfully operate. Consideration
must be given to religious, social, political, and language differences (Keith-Henson, Week 10, 2003). Business and workforce culture describes the
norms of interaction and priorities in a social and business context. Japan and Korea are very similar in this
respect.
Deference must be given to the superior
in casual and business relationships, with the subordinate aligning 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,’”
(Keith-Henson, Week 10, 2003 p. 13).
From a business perspective, the
manager seeks to maintain harmony in the group, but expects respect in
return. Relationships between a manager
and their employees are maintained outside of work. Frequent social gatherings will be held to develop a trust and
friendship between members of the group.
Starbucks must take care to consider Confucian principals when dealing
with Shinsegae’s leadership. A clear
understanding of each company’s position in the joint venture must be
maintained so that it is clear who the superior is and who is the subordinate
in the relationship (Kemp, Week 10, 2003).
Product and service standards are the
requirements placed on products by a country’s government to ensure minimum
levels of labeling, hygiene, and safety are observed. The Global Strategists recognize that there can be significant
risks to a product’s brand image and profitability when products are marketed
and produced, and/or sold in other countries.
Specifications for food products are typically heavily regulated in most
countries, and can requirements can vary significantly between countries. “Food invokes strong personal and cultural
responses” (Glenn, Week 4, 2003 p.5) that must be considered for profitable operations
in a foreign country. This is another
reason why Starbucks was chosen by the Global Strategists to analyze this
semester.
The Japanese government imposes strict,
exacting product and service standard requirements. The government imposes such
rules as: All coffee and tea products served in its coffee houses must be
imported, they cannot be grown locally.
Japan regulates food quality using the Food Sanitation Law. The law is
enforced by the Ministry of Labor and Welfare and covers issues such as
acceptable food items, additives, preparation equipment, and packaging. “These
regulations cover Starbucks coffee beans, espresso machines, beverage
containers, teas, and snack foods sold in the stores” (Glenn, Week 4, 2003
p.5). This amount of regulation hinders
operations because of the level of paperwork, and inspections that must be done
to comply. However, the regulations
become a help because once all requirements are met, a business can be assured
of uninterrupted operations throughout the country as the Japanese government
has low levels of corruption and a just court system (Glenn, Week 4, 2003).
Social infrastructure is the unique
social environment framework present in every country. It is what gives a country it defining
qualities. A country’s social infrastructure is defined by combination of
things: the prevalent religion(s), education level and health of the people,
laws, government policies & regulations and ethnic culture (Adams-Glover,
Glenn, Week 10, 2003). “Social infrastructure is dynamic, responding to
religious, political, and economic events.” (Glenn, Week 10, p.5, 2003). Social infrastructure plays a big part in
Starbucks marketing approach, product selection, designs and advertising
(Glenn, Week 10, 2003).
One of the obstacles facing Starbucks
in Japan is that the Japanese are traditionally a tea drinking society with
intricate tea ceremonies and traditional tea houses. It is a long standing element in their tradition. Also, the Japanese have grown used to free
desk-side tea and coffee service in large businesses. This convenient service might make it more difficult for someone
to decide to go to a Starbucks coffee house and then pay a premium. The question becomes “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?” (Glenn, Week 10, 2003 p. 5).
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.
One thing Starbucks had to do was cater
to the Japanese social need for group affiliation. To adapt to the strong desire for group affiliation in Japan,
Starbucks must alter is marketing from having its store be a place where one
can get away for a while, to a place that builds social connections (Glenn,
week 10, 2003). Manager/worker
relations in Japan differ greatly in due to the differences in power distance
(Japan has a high power distance, the U.S. has a low power distance) and
communication styles. The Japanese use
high-context communication. With Low
context communication, there are many things communicated in a conversation
that is unspoken, in low-context cultures, there is an assumption that
everything must be explicitly communicated.
Starbucks managers in Japan will expect respect and unquestioned
authority.
Education is another important element
of Korean culture. The Korean
Government makes great strides to educate its children, with 98+ percent of all
Japanese over 25 can read and write.
Higher (College) education is also valued. The high levels of education
may require higher salaries or more fringe benefits, raising Starbucks’
operating costs. There is also a
concern over rising unemployment and a steadily aging workforce and its impact
on Starbucks’ ability to find employees.
The Koreans are also tea drinkers, with tea drinking being a part of
their culture from the very beginning.
Starbucks must look to lure tea drinkers with tea products and
advertising.
Clearly, one of the most important risk
factors for any company operating in another is the political environment. If the political environment is corrupt, or
imposes tariff or non-tariff barriers, then the costs for operation may be too
high for profitable operations. The
government establishes important prerequisites such as rule of law, property
rights, and just enforcement of those rights to facilitate local and
international trade.
The
Global Strategists used a mix of quantitative calculations and qualitative
observations to decide on the country of choice for Starbucks. The quantitative
portion of the country selection was made by assigning numeric values to each
risk aspect discussed above and ranked in Table 1 below, then summing the
numbers to compute a total score for each country. A weighting factor of two was applied to the Financial Markets
and Financial Infrastructure areas because they were deemed to have a greater
impact on Starbucks’ profitability and risk. Table 1 is a risk ranking for each
of the aspects described above. If a
country received a “Very Favorable” rating a score of 4 was given, if ranked
“Favorable” then 3 points were awarded, if “Cautious” then 2 points were given,
and 1 point was assigned to a “Dangerous” rating. The country with the highest overall score is our quantitative
choice.
Table 1
Business risk ranking comparison in South Korea (X)
and Japan (O)
|
|
Risk Ranking |
|
||||||||||||
|
Very Favorable |
Favorable |
Cautious |
Dangerous |
|
||||||||||
|
|
Japan |
Korea |
Japan |
Korea |
Japan |
Korea |
Japan |
Korea |
||||||
|
Economic infrastructure |
|
|
O |
|
|
X |
|
|
|
|||||
|
Financial markets |
|
|
O |
|
|
X |
|
|
|
|||||
|
Business and work force culture |
|
|
|
X |
O |
|
|
|
|
|||||
|
Product/Service standards |
O |
|
|
X |
|
|
|
|
|
|||||
|
Social Infrastructure -stability |
|
|
O |
|
|
X |
|
|
|
|||||
|
Social Infrastructure -Aging
population |
|
|
|
|
|
X |
O |
|
|
|||||
|
Current administration – government
policies |
|
|
|
|
O |
X |
|
|
|
|||||
|
Anti-competitive Practices/Foreign
policies |
|
|
O |
X |
|
|
|
|
|
|||||
Key: Eight risk
areas for Starbucks operations in Korea and Japan are ranked in Table
1 above. These attributes were covered
in previous OMBA606 team and individual reports. A numeric value was assigned to each rank:
Very Favorable = 4, Favorable = 3, Cautious = 2, Dangerous = 1
Using Table 1, Japan received a score of 27
and Korea 23. This reflects the total
of all eight aspects in the table for each country and adding a weighting
factor of (2x) for the economic infrastructure and financial markets because of
their criticality to Starbucks profitability.
Using this measure, Japan is our country of choice.
The
quantitative score differences between Japan and Korea does not reveal the
more glaring differences between the two countries, this is why we also have a
qualitative component as well. Qualitatively we looked at the risk factors for
each country and found that Japan’s primary risk area is the persistent
recession that still exists today in the country. The ramifications to Starbucks’ of a continued recession are
unknown because Japan’s economy has been in recession for approximately ten
years; Starbucks has been operating in Japan for only seven. This means that for as long as Starbucks has
operated in the country, Japan has been in recession yet Starbucks has done
very well. This implies there is mostly
upward potential for Starbucks future prospects in Japan, as the economy will
most likely remain the same or improve.
Also, Japan has no known looming issue lurking just across the border
(unlike North Korea for the South).
Finally, we have expressed concern over
Japan’s aging population and its impact on Starbucks’ available workforce and
clientele. In fact, this area had the
lowest ranking our risk-ranking table.
What will actually occur in the future as a result of an aging workforce
is hard to predict, will older workers stop drinking coffee or going to
Starbucks? There is no highly-likely
indicator that says the older population will stop drinking Starbucks coffee if
they started when they were younger and have been doing so for ten or twenty
years. Nor can we say that the
demographics of Japanese leisure habits will not evolve with time towards
coffee rather than away from it because of the presence of so many coffee
houses. In any case, Starbucks’ future as a result of this area is very
unclear. Korea, on the other hand, faces much more fundamental uncertainty in
the form of North Korea and the final result of the IMF’s economic changes now
being implemented. In our view, either
scenario has a reasonably high likelihood of short-term economic slowdowns in
Korea’s economy and a measurable chance that things could get really bad for a
long time. Korea presents much more
uncertainty than Japan in the political and economic areas.
Starbucks currently uses three different business structures for expansion into international markets:
joint ventures, licensing, and company-owned operations. Franchises have not been and are not part of
Starbucks future operational plans. They prefer to fully own and operate the
coffeehouses themselves, or enter into a joint partnership form of agreement
with a company or group of individuals. The joint partnership still provides
Starbucks leadership the level of control they desire to preserve quality. Table 2 quantitatively ranks each business
type from an economic and political perspective.
Table 2
Ranking of political and economic advantages to
Starbucks for each business structures considered in Japan and Korea.
|
Business Type |
Risk Ranking |
|||||||
|
Economic Advantages |
Economic Disadvantages |
Political Advantages |
Political Disadvantages |
|||||
|
Japan |
Korea |
Japan |
Korea |
Japan |
Korea |
Japan |
Korea |
|
|
Exporting |
0 |
0 |
0 |
0 |
+1 |
0 |
0 |
0 |
|
Licensing |
+1 |
+1 |
-1 |
-1 |
+2 |
+3 |
0 |
0 |
|
Franchising |
0 |
0 |
0 |
0 |
+2 |
0 |
0 |
0 |
|
Joint Venture |
+2 |
+5 |
-2 |
-2 |
+1 |
+5 |
-1 |
0 |
|
Wholly-owned
Subsidiary |
+5 |
+5 |
-1 |
-4 |
0 |
-4 |
-5 |
+1 |
Key: Risk scores
range from highest (-5) negative indicating the degree to comparative
disadvantage, to lowest (+5) positively indicating the degree of comparative
advantage, with zero (0) being a category that presents not applicable and/or
no significant country difference with regards to Starbucks’ business
expansion.
The
quantitative results were computed by adding together the economic advantages
and disadvantages for each business type.
If the result was greater than zero there is a net advantage to the
degree indicated on the table key. If
the result was less than zero than there is a net disadvantage for that
business type, for that particular country.
A net zero value is considered neutral.
For Japan, every business type produced a net zero result in the
economic area except the wholly owned subsidiary, which produced a strong
+4. In the political area, Japan scored
a net positive in all business types except the joint venture and wholly owned subsidiary.
The joint venture scored neutral, and the wholly owned subsidiary was a
distinct -5. This says that if Starbucks used the wholly owned subsidiary as
the entry vehicle, they would likely meet with stiff political resistance even
though the profit potential is great.
The table results suggest licensing to be the best entry mode for
Starbucks in Japan with either licensing or joint venture coming in second.
For
Korea, a net score of +3 for the joint venture just edges out the wholly owned
subsidiary’s score of +1 in the economic area.
For the political area, the joint venture yields a net score of +5, the
highest possible, with licensing coming in a strong second with +3. These results suggest that Starbucks should
use a joint venture as the mode of entry because of its strong political
advantages and good profit potential.
Throughout
OMBA606 the Global Strategists have researched various aspects of Japan, Korea,
and the considerations Starbucks had to make when choosing to begin operations
there. This paper culminated all of that information in order to determine
which of the two countries was more favorable for Starbucks. Details of the
selection process used to make our decision are provided in the sections above,
but fundamentally, the decision was based on income predictability and profit
potential. The less predictable a market is,
the higher its risk. Therefore, the
Team decided
on the country with the best risk/reward mix. The Global Strategists chose
Japan as the more favorable country for two reasons; first, Starbucks has a
stronger, more established position in Japan with more predictable future
growth prospects. Starbucks’ position
in Korea is strong, but not as established as Japan. Second, Japan’s political environment and economic structure are
well established and its political future does not have any significant
unknowns that may result in economic upheaval. In contrast, Korea is undergoing
major financial infrastructure changes mandated by the IMF that are expected to
be beneficial, but run the risk of negative economic consequences (such as
recession or depression) due to unanticipated issues. Such unknowns are never good for an expanding operation that
depends on the availability of money for leisure products, such as Starbucks.
This economic restructuring is going very well at this point, in Korea (Week 10
and 11, 2003), but it is far from complete, and there still lies many areas
that could potentially reduce or halt Korean GDP growth for an indefinite
period of time as the process progresses.
Issues such as employee downsizing to reduce costs, elimination of
failing businesses propped up by the old Korean banking and political
protection systems, restructuring of the chaebol, and other areas loom
as unknowns until the process is completed.
The
South Korean economy faces another large unknown, North Korea. As mentioned above and in previous papers
written throughout OMBA606, North Korea is in a precarious political and
economic position that could result in war (with the U.S. or other UN
countries) or unification with South Korea, or the status quo. South Korea’s president Roh Moo-hyun is
pursuing a policy of active engagement with the North Korean government in order
to prevent war or reduce the impact on South Korea’s economy in the event of
unification. Either war or unification would have a negative effect on the
South Korean economy; the question is for how long.
The
optimal structures chosen for Japan were determined quantitatively based on
data in Table 2. The results indicated
that licensing would be the best vehicle for Starbucks in Japan. Starbucks actually uses a combination of
joint venture and licensing structure for Japan, and it is working very well
for them. This type of hybrid structure
provides Starbucks control, but also allows a local business to put a local
feel in their stores. Starbucks future in Korea looks bright. The Global Strategists confidently suggest
the Starbucks proceed in the Japanese market rather than Korea.
Key Economic/Ecological Issue Discussion Jacob’s book, The nature of economies
discusses “the fitness of survival”, the idea that organisms develop a set of
restraints on their behavior that balances immediate needs with long-term
survival. The checks and balances work to adapt behaviors and actions to take
sufficient but not excessive advantage of available resources. The Global
Strategists team used this framework to organize our assignments throughout the
semester. At the beginning of the course, we studied the macroscopic
characteristics of South Korea and Japan. With each successive assignment, we
developed a more detailed understanding of the economic “ecosystem” for
Starbucks in Japan and South Korea. In both countries, Starbucks has developed
sustainable solutions for its product mix, store locations, store design, and
customer experience. The long-term challenge for Starbucks is that a business
does not have dozens of generations or thousands of years to evolve and adapt
to the environment. Unlike a natural ecosystem, Starbucks is a business with
investors looking for some level of increased cash flow each quarter. There is
already some talk in stores based in the United States of “cannibalization”,
when Starbucks locations are placed nearly adjacent to one another. Each store
competes for a limited number of customers. At some point, Starbucks will have
to find the balance point between staking out territory and developing a
sustainable strategy in each location.
OMBA-style
team assignments demonstrate a form of “fitness of survival” adaptation. Team
success depends on individual responsibility to meet group goals. Just as a
predator in the wild could eat all the available prey and be very well-off in
the short term, a team member could chose to focus on the individual
assignments and contribute little to the group reports. Since the grade is
shared, the other team members cover the additional work. The self-interested
team member enjoys several immediate benefits. The team member shares in the
group grade, and is also likely to get a better than average grade on the other
individual assignments since he or she could focus on one task instead of
several. The ecological analogy is that the selfish team member is hoarding. If
the team has more than one or two assignments, however, hoarding is a poor
strategy for the lazy team member. Mutual dependencies break down and trust is
damaged if a team member dodges an equal share of the work. Team members could
decide to adopt the same strategy and work on the individually graded
assignments at the expense of the team assignments. This is a winning path if
the grade from the individual assignments is large enough to more than offset
the poor team grade. The reliable team members may also take action to expel
the unhelpful member by appealing to the instructor. In the natural world, this
appeal to the pack leader would result in the offending team member being left
to starve. By design, a lone individual would not have enough resources to
manage both the individual and team assignment. By the time students enroll in
OMBA 606, each person has figured out the right adaptive behaviors to survive
both individual and team assignments.
After thoughtful study, this report concludes
the comparative business risks advantages and disadvantages associated with
Starbucks expansion into the Japanese market.
With the globalization of markets, greater foreign competition, and the
reduction of entry barriers, it becomes all the more important to benchmark a
company's risk indicators against other firms on a worldwide basis. Industry analysts in 1998 saw Starbucks as
being well on its way to becoming the Nike or Coca-Cola of the specialty coffee
segment. It was the only company with anything
close to national market coverage. The company's most immediate objective was
to have 2,000 stores in operation by the year 2000. In the overseas market, in 1999 there were 281 actual stores, as
of September 2002, there were 1,200 abroad and still growing (Business Week,
2002). Its longer-range objective was
to become the most recognized and respected brand of coffee in the world. The
company's efforts to greatly increase its sphere of strategic interest via its
joint ventures with Pepsi and Dreyer's, its move to sell coffee in
supermarkets, and the possibility of marketing fruit-juice drinks and candy
under the Starbucks label represented an ongoing drive on Schultz's part to
continually reinvent the way Starbucks did business. Shultz admits that while its practice of blanketing an area with
stores helps achieve market dominance, it can cut sales at existing outlets,
“we probably self-cannibalize our stores at a rate of 30% a year.” The company may possibly be at a defining
growth point, as it has reached a level that makes it harder and harder to grow
just due to the law of large numbers (Business Week, 2002). However to duplicate its enormous returns of
its first decade, Starbucks had no choice but to export its concept
aggressively on the global market, planning to increase its foreign base by
35%, but not without risks. The company makes less money on each overseas store
because most of them are operated with local partners. While that makes it
easier to start-up on foreign turf, it reduces the company’s share of the
profits to as little as 20 to 50%.
In order to sustain the company's
growth and make Starbucks a strong global brand, Schultz believed that the
company had to challenge the status quo, be innovative, take risks, and alter
its vision of who it was, what it did, and where it was headed. Under his
guidance, management was posing a number of fundamental strategic questions:
What could Starbucks do to make its stores an even more elegant "third
place" that welcomed, rewarded, and surprised customers? What new products
and new experiences could the company provide that would uniquely belong to or
be associated with Starbucks? What could coffee be—besides being hot or liquid?
How could Starbucks reach people who were not coffee drinkers? What strategic
paths should Starbucks pursue to achieve its objective of becoming the most
recognized and respected brand of coffee in the world?
Starbucks Coffee Company and its wholly
owned international subsidiaries have mastered the art of global Customization,
which called for strategic adjustments to their marketing mix according to the
cultural, regional, and national differences that they encountered in Japan. Schultz has put strong emphasis on achieving
both good strategic and good financial performance. In the late 1980s he put
strategic objectives (rapid expansion into new geographic markets and building
the requisite organizational infrastructure) ahead of profitability, arguing
that profits would soon follow (which it did). During the 1992-1997 periods,
the company's strategic and financial performance was solid and the company
achieved its objectives of 2,000 stores by the year 2000 and aggressive
expansion into foreign markets (Glenn, Keith-Henson, Week 11, 2003).
Although the coffee conglomerate is
still in the early stages of a plan to colonize the globe, there are plenty of
minefields ahead, and now Starbucks is waking up to the ‘grande’ challenge
faced by corporations bent on becoming global powerhouses, hence the phrase, “Think globally, Act locally,” which
basically describes the successful presence Starbucks enjoys today in every
major emerging global market, such as Japan.
Glenn,
J., Keith-Henson, N., Kemp W., Adams-Glover, A. (OMBA 606 Week 2, 2003). Team
Paper. OMBA 606: Organizations and the Global Environment.
Glenn,
J., Keith-Henson, N., Kemp W., Adams-Glover, A. (OMBA 606 Week 4, 2003). Team
Paper. OMBA 606: Organizations and the Global Environment.
Glenn,
J., Keith-Henson, N., Kemp W., Adams-Glover, A. (OMBA 606 Week 8, 2003). Team
Paper. OMBA 606: Organizations and the Global Environment.
Glenn,
J., Keith-Henson, N., Kemp W., Adams-Glover, A. (OMBA 606 Week 10, 2003). Team
Paper. OMBA 606: Organizations and the Global Environment.
Glenn,
J., Keith-Henson, N., Kemp W., Adams-Glover, A. (OMBA 606 Week 11, 2003). Team
Paper. OMBA 606: Organizations and the Global Environment.
Bibliography
Business Week Online. (September
9, 2002). Planet Starbucks - to keep up the growth, it must go global quickly.
New York: McGraw-Hill. Retrieved March 12, 2003, from http://www.businessweek.com/print/magazine/content.02_36
Heyne, P., Boettke, P., &
Prychitko, D. (2003). The economic way of thinking (10th ed.). Upper
Saddle River, NJ: Prentice-Hall, Inc.
Hill, C. (2003). International
business with Global Resource CD, PowerWeb and World Map (4th ed.). New
York: McGraw Hill p. 202-205.
Jacobs,
J. (2000). The nature of economies. New York: Random House.
Starbucks Coffee Corporation Awards and Accolades.
Retrieved May 15, 2003 from http://www.starbucks.com/aboutus/recognition.asp.
Starbucks Coffee Company.
International development. Retrieved
May 9, 2003, from http://www.starbucks.com/aboutus/internationaldev.asp
Starbucks Coffee Japan Ltd.
company website. Retrieved March 12, 2003, from http://www.starbucks.co.jp/ja/home.htm
Starbucks Japan stung by earnings, sales slump. (2002, November 18). Nation’s restaurant news (36) 46. Retrieved from the World Wide Web from on May 1, 2003 from MdUSA database Business Source Premier. Theodore, S. (2002, October). Expanding the coffee experience: Starbucks keeps sales brewing with new products, innovation and global expansion. Beverage industry (93)10. Retrieved from the World Wide Web from on April 27, 2003 from MdUSA database Business and company resource center.
U.S.
Department of State, Bureau of East Asian and Pacific Affairs. (June, 2002).
Background Note: Japan. Retrieved From the World Wide Web from http://www.state.gov/r/pa/ei/bgn/4142.htm#gov on April
9, 2003.
_____________________________________________________________________________________________
Appendix
Team Assessment Report Overview
The
Global Strategists embarked on its OMBA 606 journey as a team February 24,
2003. The dynamics within the team have been outstanding despite the
constraints of time and distance. The Global Strategists diligently and
consistently worked hard in supporting and achieving the overall goals,
behaviors, and objectives of the team. Although, the team did not meet their
goal of obtaining a grade of 90% or better on the first team assignment, it is
note worthy to mention that they worked proactively to address their
shortcomings and accomplished the goal in the remainder of the assignments. The
attainment of the goal was made possible from the positive synergy of the team
members. In addition, the most significant achievement was the in-depth level
of understanding and knowledge gained about business practices, cultural differences,
and economic performance of our chosen countries - Japan and South Korea. In
keeping with the origin of the team’s name the Global Strategists applied a
global thinking approach in developing individual and collective reports, as
well as strategizing the recommendation for the appropriate business vehicles
entry and foreign market expansion plans for Starbucks Coffee in both Japan and
South Korea.
Overall,
the Global Strategists has exceeded expectations set by the team goals,
behaviors, and learning objectives. The team’s performance went beyond the
group’s expectations for quality and quantity of work performed. The team’s
performance was consistently commendable. In an attempt to enumerate the
overall achievement of the team, this report assesses in detail how effectively
the Global Strategists achieved team behaviors and learning objectives. It also provides a team performance
assessment for each week’s assignment and an overall average of team performance,
along with team member comments regarding our work and our progress from one
assignment to the next.
Evaluation of Team Behaviors
Our
team mission and values established a gateway into the desired and required
behaviors that would help the team obtain its mission and goals. The effectiveness
of Global Strategists attainment of desired team behaviors is rated on a scale
from 1-4 (1 = Excellent; 2 = Good; 3 = Mediocre; 4 = Unsatisfactory.) The
members established the following team behaviors:
Behavior #1: Members
will maintain a continuous and open channel of communication using the
following two channels: Email correspondence and the study group conference
area.
TEAM RATING = 1
Members of the Global Strategists expressed their
ideas in an open, candid, and consistent manner, and invited response and/or
dissent from each member. Team members elicited necessary information in order
to fully understand the assignment requirements and assigned responsibilities.
We effectively and efficiently utilized email and the study group conference
area as a means to communicate on a weekly and often daily basis. We often used email as our initial
correspondence, some times neglecting to post the thread of communication in
our study conference area. However,
throughout the course of the semester this process improved and a workplace for
each week was created to help facilitate the course work for that week, as well
as inform our professors of our progress and development strategy for our
assignments.
Behavior #2: Members
will show respect for others ideas and communicate in a considerate manner.
TEAM RATING = 1
The Global Strategists adhered to the highest
standards of respect and consideration of others as individuals as well as
others ideas. Group effort was considered as more important than their own individual
efforts. Members were sensitive to the needs and opinions of other group
members.
Behavior #3: Members
will carry out all assigned work in a professional manner.
TEAM RATING = 1
The Members interacted in a professional manner at
all times. This professionalism helped
the team accomplished its work in a highly effective manner. Our planning allowed us to effectively
follow through and deliver proficient work.
Behavior #4: Members will respond timely to team correspondence and
adhere to established deadlines.
TEAM RATING = 2
The Global Strategists generally did a good job at
adhering to established deadlines and responding timely to team
correspondence. However, in more than
one situation the team had to adjust deadlines by a day or two. It was at this
time that team members realized that a large amount of time was allotted for
reviewing assignments as opposed to researching and writing; therefore, an
adjustment to the assignment schedule was made. This in turn, served as a
better timeframe for delivering first drafts.
There were incidents where additional time was still needed, due to
unforeseen circumstances. This did not
impact the quality of work submitted and all team members approved additional
time.
Behavior #5: Members will actively participate and contribute to
all team assignments.
TEAM RATING = 1
Team members actively participated and contributed to
all team assignments. Often times
members volunteered additional help when felt another team member needed
assistance. The team was successfully
and efficient in balancing individual responsibilities with team
responsibilities. Members contributed important skills and abilities to the
total team effort.
Evaluation of Learning Objectives
Our
business strategies provided a solid framework, which allowed us to build upon
and extend our learning objectives to each assignment. For example, business
strategy #1 “gain knowledge related to Starbucks effectively succeeding in
Japan and South Korea markets and learn of varying laws and cultures.” Our
learning process began in week 2’s assignment with our studies of Starbucks
Corporation operations, and specifics about Japan and South Korea. The
framework of this strategy helped us to build and develop a solid market
recommendation. The effectiveness of Global Strategists attainment of its
learning objectives is rated on a scale from 1-4 (1 = Excellent; 2 = Good; 3 =
Mediocre; 4 = Unsatisfactory.) The team established the following learning
objectives:
Team members meet their
objective of developing an understanding of the affects of global business and
multinational corporations. Throughout the semester, the team improved its
learning and understanding of forces such as globalization, and intercultural
awareness impact on business operations.
Objective #2: Apply the
exercises and readings in the class to collect and provide information on
Starbucks, our chosen Multinational Corporation and South Korea and Japan, our
chosen countries.
The Global Strategist
struggled with this initially as our first team report was descriptive and
lacked our analytical detail. However,
over the course of the term team members addressed this concern and effectively
applied assigned exercises and readings to each assignment. Our critical thinking and analytical work
was enhanced.
The Global Strategist
met its learning objective of expanding its awareness of global business.
Each member
participated openly and honestly and shared opinions, knowledge, and experience
with others. We often shared references and learning experiences, as well as
shared comments given to a student by our professor – all in an effort to help
each other critically think of ways that he/she could improve on the next
assignment. Other teamwork support and contribution was shown when team members
reviewed each other’s submission. Additional
inquiries were presented as a means of providing thought provoking probes that
were used to help the individual think of areas to improve on certain topics.
One of our strongest qualities was the dedication of group effort and support.
Members worked closely together in completing individual and subgroup reports.
For example in week 11 our collaboration resulted in the team successfully
fulfilling the subgroup report requirements and organizing unified reports of
Starbucks business risk in Japan and South Korea.
Performance Assessment
Throughout
the course of the semester the Global Strategists assessed the team’s
performance after completion of each weeks team assignment. The assessment
process is comprised of a rating system from 1 - 4. (1 = Excellent; 2 = Good; 3
= Mediocre; 4 = Unsatisfactory.) The team as a whole is given a score based on
the established assessment guidelines for each assignment. The chart below
diagrams the ratings per week along with comments provided by each team member.
The ratings on all four assignments are averaged together to reach a final
score for the team. The team applied the following criteria to evaluate our
performance on each assignment:
1. Did the team member’s
submissions adhere to both the assessment guidelines and the specified
instructions for format of assignment?
2. Did the team member
actively participate and contribute to all assignments?
3. Did the team member
communicate frequently and effectively?
4. Did the team member
adhere to assigned deadlines?
5. Did the team member
achieve the identified learning objectives?
|
Week |
Team Assessment Criteria Rating |
Comments |
||||||||
|
1 |
2 |
3 |
4 |
5 |
||||||
|
Two |
1 |
|
|
|
|
Criteria 1: All team members felt that all
instructions and assignment guidelines were met Criteria 2: There was good team member dialog. All team members of the Global Strategist
participated and contributed according to individual responsibilities
established by the team. Everyone is willing
to lend an extra hand whenever needed. Criteria 3: Team members communicated effectively and
regularly. All opinions were heard
and considered. Response delays due
to time zone differences occasionally occurred. Criteria 4: All team
members felt that all deadlines specified in the Teamwork plan were met. Criteria 5: Team members
worked hard to achieve learning objectives but fell short in some areas. Professor feedback made clear that more
specificity was required in the teamwork plan. The team made progress on
learning objectives, but received only an 80% score |
||||
|
|
1 |
|
|
|
||||||
|
|
|
1.25 |
|
|
||||||
|
|
|
|
1 |
|
||||||
|
|
|
|
|
2 |
||||||
|
Four |
1
|
|
|
|
|
Criteria 1: All team members felt that all guidelines
and assignment formats were met. Criteria 2: There were very good discussions among
team members over various issues. All
team members participated and contributed according to individual
responsibilities established by the team.
Everyone is willing to lend an extra hand whenever needed. Everyone
pitched-in where and whenever necessary to improve our team work plan,
website and reports, Criteria 3: Team members communicated effectively and
regularly. All opinions were heard
and considered. Discussion impacts
due to time zone differences between team members played a much smaller role
than week 2 Criteria 4: We had some
struggles meeting the assigned due dates.
Interim deadlines were not met in all cases due to the pace of the
course, but final publishing deadlines were met. The team had to change the
initial submission due date back in order to accommodate the additional
workload and research needed for the week.
Overall, the team pulled together to complete the assignment on time. Criteria 5: Team learning
and understanding improved. The team
has not met all the learning objectives, but considerable strides have been
made and each member has improved from the previous team assignment. Every team member gets more from every
assignment. A certain synergy is
forming. |
||||
|
|
1 |
|
|
|
||||||
|
|
|
1 |
|
|
||||||
|
|
|
|
2 |
|
||||||
|
|
|
|
|
2 |
||||||
|
Eight |
1 |
|
|
|
|
Criteria 1: We have a
good grasp of this aspect of the work.
We have mastered this part of our work. The team adhered to week 8’s assignment guidelines and format Criteria 2: We had
difficulty providing timely feedback due to illness in two team members'
families. Despite, the obstacles
presented due to family sickness the team participated and contributed at a
level that did not comprise the overall team goal. Criteria 3: We do a
good job of using WT and email to stay coordinated, although email is our
primary form of communication. The team communicated very frequently and
effectively by making everyone aware of potential obstacles immediately. Criteria 4: Our team performance has fallen a little further
behind on each assignment. We may be in trouble with the back-to-back-to-back
pace of weeks 10 through 12 if we don't improve. Deadlines were missed badly in some cases due to family sickness. Due
to family sickness and the time constraints associated, the team did not meet
all of the assigned deadlines; however, notices of missing deadlines were
known immediately. Criteria 5: I think we covered the material thoroughly and
expanded our understanding of Starbucks business operations. Team learning
objectives were met. More attention
to week 8's learning objectives would have strengthened the overall team's
performance. |
||||
|
|
2.5 |
|
|
|
||||||
|
|
|
1 |
|
|
||||||
|
|
|
|
2.75 |
|
||||||
|
|
|
|
|
1.25 |
||||||
|
Ten |
1 |
|
|
|
|
Criteria 1: All
instructions and assignment guidelines were met Criteria
2: Each member participated and contributed in accordance to
assigned responsibilities. We have good participation, but too much is
crammed in at the end of the week. Criteria
3: Communication continues to be an area of team strength. I
didn’t give this criterion a 1 because of how much our schedule slipped. Communication and feedback this week was effective.
Criteria
4: As predicted in the previous
weeks’ evaluations, we continue to have a hard time sticking to our original
deadlines. We pull through in the end because of our team communication
skills and commitment to one another, but the just-in-time paper writing
affects our time for reflection and editing.
Our timing is far from optimal, but we produce good results. The first draft assigned deadlines have
always been a problem for the team; however, is doesn’t affect the final
submission. Criteria
5: It is hard to determine of the
team achieved their learning goals, but the individuals certainly did. |
||||
|
|
2.125 |
|
|
|
||||||
|
|
|
1.75 |
|
|
||||||
|
|
|
|
2.25 |
|
||||||
|
|
|
|
|
1.75 |
||||||
|
Eleven |
1 |
|
|
|
|
Criteria 1: All
instructions and assignment guidelines were met Criteria
2: As Dr. Ross pointed out; we were able to effectively coordinate
the write-ups in the two sub-reports so that the papers represented a
coherent point of view. Everyone did
the best they could. Criteria
3: There was a short lapse in communication this week; however,
team quickly regained focus and completed assigned responsibilities. Criteria
4: Schedule went out the window
due to life events. We rallied for an all-nighter finish. This continues to be an issue for us. The
first draft assigned deadlines have always been a problem for the team;
however, this doesn’t affect the final submission. Criteria 5: We saved our best results for our final sub-team
reports. Considering the different business risks in the context of two
countries integrated all of the financial, economic, and infrastructure
research and reading we had done over the course of the semester. Our subgroup reports demonstrated our
understanding of business risks in South Korea and Japan. The learning
objective of understanding the affects of global businesses and multinational
corporations was achieved. The effort
helped to solidify the research done throughout the class. |
||||
|
|
1.25 |
|
|
|
||||||
|
|
|
1.25 |
|
|
||||||
|
|
|
|
2.5 |
|
||||||
|
|
|
|
|
1.125 |
||||||
|
Overall Team Average |
1 |
|
|
|
|
|
||||
|
|
1.575 |
|
|
|
||||||
|
|
|
1.25 |
|
|
||||||
|
|
|
|
2.1 |
|
||||||
|
|
|
|
|
1.625 |
||||||
Notes:
The numbers shown under the team assessment criteria are the numeric average of
all team-member’s individual scores. The comments are a compilation of all team
member comments for each week. Duplicated comments are shown once.