Interview Research Project

Answer

Introduction

The organization that the focus of this assignment is Starbucks Corporation hereafter referred to only as “Starbucks”.  Founded in Seattle, Washington in the United States of America in 1971, Starbucks is a multinational corporation that deals in coffee and its various accompaniments. For safety reasons and efficiency, the corporation currently uses automated espresso machines to offer its services. Starbucks also serves a wide array of juices such as evolution fresh juices and Frappuccino beverages among others (Mu, 2015). Customers are offered various snacks that they can take with the cold and hot drinks that they purchase at Starbucks. These snacks include sandwiches, chips and crackers. The corporation also offers full and loose-leaf teas which include Teavana tea products and La Boulange Pastries. Other products that the corporation offers include beer, wine and appetizers in select “Starbucks Evenings” locations, cold sandwiches, tumblers and mugs and other assorted drink ware products.

Various types of the corporation’s products can be found in grocery stores in its target market such as bottled cold coffee drinks, branded coffee and ice cream(Mu, 2015).  The corporation controls the production process and obtains coffee beans raw materials from farmers for making its variant coffee based products. The company maintains control of distribution of its finished products to its retail outlets throughout the world.   As at 2016 Starbucks operated in 26,696 locations located in different parts of the world and had total employee compliment of over 238,000 employees.

Starbucks entry to China

The corporation is one of the most successful foreign businesses in the Chinese market. Starbucks entered the Chinese market in 1999 through joint venture partnerships. Due to the fact that Chinese culture in the east is different from the culture in the north, the corporation had to use various strategies to ensure success. This was also due to differences in consumer spending power between Chinese who live in coastal towns and those living in the inland of China.  Starbucks adopted its business to the local market and hence partnered with three regional partners to effectively move its products in China(Mu, 2015). The company partnered with Uni-President in Taiwan, Beijing Mei Da coffee in the north of China and Hong Kong based Maxim’s Caterers in the South of China. Starbucks gained important insights into the tastes and preferences of local Chinese consumers through these partnerships. Starbucks has about 2800 stores in China and is planning to hit 5,000 stores by 2021 in its expansion plan(Mu, 2015).

 China has a well-developed capital markets with over 2,602 companies listed on it’s the Shanghai Stock Exchange, investor accounts held in excess of 200 million Yuan. The total market capitalization was over 23 trillion Yuan making Chinese capital markets one of the most advanced in the world. China has imposed currency restrictions aimed at stabilizing its exchange rate with the US dollar as the dollar has been strengthening against the Chinese Yuan since 2015. The Chinese government requires banks to report any movement of cash in excess of 50,000Yuan to the People’s Bank of China. Individual transfers of 10,000 Yuan should also be disclosed to the same bank. China has also placed restriction on repatriation of profits and imposed dividend taxes which aims at restricting movement of cash out of the country. Plazibat, Raguz, & Brajevic, 2014).All repatriation of profits are supposed to abide by the rules set by the  State Administration for Foreign Exchange (SAFE) and no transactions can be  permitted before the company publishes its interim or final financial reports. In addition, a company cannot repatriate its profits unless it covers previous loses if any. Investors will also pay about 10% dividend tax on the dividends they plan to repatriate from China. In summary, the Chinese market is large enough for purposes of raising funds for investment as its capital markets is well developed and highly liquid(Mu, 2015).

A description of strategies Starbucks management could use to teach other small-business owners to break into the lucrative Chinese market

There are many ways that Starbucks management could use to teach small-business owners how to break into the Chinese market. One of the ways is through organizing workshops to sensitize small-business owners on the benefits of entering the Chinese market by enumerating the benefits that the company has gained so far from the market. The company could charge an affordable fee to ensure small- business owners who attend are committed and also to pay the costs of such seminars(Mu, 2015). Starbucks management could highlight any challenges that they could face if they decide to enter the Chinese market and suggest ways of overcoming such challenges. This strategy would motivate small-business owners to consider expanding their businesses to China.

The next strategy is by organizing tours for small-business owners to visit its operations in China and while there organize for meetings with Chinese officials in charge of foreign trade. In this way the small-business owners will be able to see for themselves how business is done in China and also learn from the Chinese officials what challenges they may face and how the incentives that the Chinese government has designed to assist foreign investors in China(Mu, 2015). These incentives could include tax waivers and tax holidays. The small-business owners will also get an opportunity to ask any questions they may have on Chinese business environment.

The next strategy could be by inviting Chinese Embassy officials in charge of commerce, trade and foreign direct investment to a luncheon to educate the small business owners about investment opportunities that exist in China and which they can exploit. One of the main challenges that small-business would face is choosing which sectors to enter in China(Mu, 2015). The Chinese officials will be able to explain to them the sectors that have a large opportunity for growth to assist them in making decisions. They will also be able to learn about the culture of the Chinese by interacting with the officials and also by asking questions in open discussions(Mu, 2015).

The next strategy is by organizing a workshop with Starbucks joint venture partners and inviting the small-business owners to attend. In such a workshop, the small- business owners will have an opportunity to hear firsthand the challenges that they are likely to face from the Chinese businessmen themselves. The Chinese business men will also recommend ways of overcoming those challenges. The Chinese business men will also explain ways that the small-business owners can use to grow their businesses when they invest in China. The Chinese business men will be able to explain to them the culture differences that exist between the culture that the small-business men are used to and the culture of the Chinese. They will also help to understand what culture adjustments they need to make to be able to succeed in China.

The various types of research small businesses will need to complete and various methods of financing international trade

             To make the best decision on financing the company, the small business will need to do a thorough market research. This type of research will enable the business owner to identify what type of advertisements will have the highest impact to his business in China. The research will identify the size of the market which will inform the amount of investment required. The market research will also show the amount of money to be spent on distribution of the products. This will enable the small business to determine the initial costs of moving its operations to China.  The next type of research is related to laws, licenses and statutory requirements of starting a business in China for foreign companies. This will guide in determining the costs of obtaining various approvals that will enable the company to get authorization to operate (Cassia & Magno, 2015).

The next type of research is research around the socio-cultural environment of China and its impact on the small business. This type of research will enable the small business to determine the cost of adjusting to the new culture in China. There are various methods of financing international trade that a small business can use. One of the methods is approaching a financial institution to obtain a loan. Since a loan has to be secured, the company can offer some of its existing assets as collateral for the loan. The next method of securing financing is by approaching shareholders to inject shareholders loan into the business. This strategy is usually one of the best since shareholders are usually willing to give favourable terms for repayment of the facilities they extend (Zhang, Shan, & Wang, 2013). The next strategy is by disposing some of the company’s assets and especially assets that are redundant. These are assets that are either not being utilized by the business or are additional assets acquired for purposes that are no longer being pursued by the small business. The next strategy is by using retained earnings held by the company in its balance sheet. Retained earnings are basically accumulated profits retained at the end of each year after paying dividends to shareholders. This is one of the cheapest sources of financing for a company (Dado, Wiktor & Zbikowska, 2015).

 The next source is by raising equity financing to finance the small business entry into the Chinese market. The company can raise equity financing by selling shares to the public in the home country through the stock exchange in an initial public share offer. The small business can also undertake a rights issue to existing shareholders in a bid to raise new equity funds to expand to the Chinese market. The company may also approach angel investors and high net worth individuals in a private placement to raise equity financing(Mu, 2015). Lastly the company could approach the government and other charitable organizations in the home country or in China for donations and grants and especially where they are offering solutions to solve social-economic problems in China. For example, if the small business is dealing in products that are aimed at reversing the negative effects of climate change such as investing in renewable energy it may find it easy to raise financing from international organizations that are focusing on that particular aspect(Mu, 2015).

Recommendation on whether to enter the lucrative Chinese market

Based on the information collected so far there is a convincing business case for venturing into the Chinese market. The first reason is that China is one of the leading economies in the world with a highly developed capital markets.  The small business will have a huge opportunity to raise funds to finance expansion from the Chinese capital markets should the need arise. The capital markets offers the small investor a good exit route if the need arises in future. One of the easiest exit strategy is selling shares to the public. With a large and well developed capital markets, the small business owner will find it easy to exit the Chinese market(Mu, 2015). The company has put in measures to enable foreign investors to repatriate profits their home country. It is apparent that the Chinese government appreciates the fact that investors moving to China do so to earn capital gains on their investment. They have as a consequence put in place a framework to enable the investors to repatriate those gains to their home country. Starbucks success in China is also another motivation for recommending to the small business to venture to China. Starbucks has over 2800 stores in China and has projected to grow them to 5000 by the year 2021(Mu, 2015).

The fact that Starbucks has committed to inject more funds into its business operations is a clear indication that the Chinese market is a lucrative market that small businesses should not overlook. Starbucks has also been in China since 1999 which is long enough to show that the economic environment in China is conducive for businesses to thrive and grow. The next factor is that the Chinese are willing to enter into joint venture partnerships with foreign companies willing to invest in China. This is an incentive to the small business as it shows that the Chinese are friendly towards foreigners and value their contribution to their national economy(Mu, 2015). China also has rising middle class which offers a large market for new investors to tap into to make a good return for their invested capital. Considering these factors, the small should consider moving into China as it offers huge opportunities for growth.