CASE STUDY - MARTIN TEXTILES Starbucks

Q1. What constitutes operation for your organization of which you are a

member, or your place of business?

Q2. Why is globalization seen as a panacea to world problems by some

and an instigator of problems by others? What responsibilities should

corporations have toward the country in which they operate? To their

country of origin?

CASE STUDY 1

MARTIN TEXTILES

Question 1

Economic cost

The production cost that is labour cost if Martin Textile shift its production to Mexico

will be reduced to less than USD2 per hour as compared to wage rate paid to its

unionised New York plant(USD12.50 per hour) and non unionised textile plant in

southeastern US(USD8 to USD10 per hour).

The production too will be able to avoid cost disadvantage that they have to face in

US due to tougher and stricter labour law, regulations and standards imposed by

US as advanced country. Further more the production will be able to take

advantage of lower labour cost allowing them to better compete with Asian and

European rival.

Benefits

NAFTA agreement that came into force in Jan 1, 1994 which one of its contents

stated that abolition by 2004 tariff on 99% goods traded between Mexico, Canada

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and US. Therefor, the production can enjoy free tariff within next 10 to 15 years and

ability to maximized its production profit.

Martin’s major customer will be able to enjoy and benefits from the lower prices of

products made in Mexico since the production has taken advantage of the lower

labour cost efficiently.

Question 2.

Social Costs

Martin Textile will have to face the situation whether the Mexican workers could be

as loyal and productive just like its present employees in New York. In Mexico the

production might be facing too low productivity, poor workmanship, high turnover

and high absenteeism of Mexican workers as faced by other US textiles companies

in Mexico. The question that should be ask is will the production able to create

good labor relationship atmosphere and which give full attention to quality as in

New York plant.

Benefits

By not focusing more on moral obligations to workers in Mexico or the welfare are

no longer the main concern of the company, the production will be able to focus

and concentrate fully on cost cutting, maximizing profits and consumer satisfaction

in United States.

Question 3

Economic and social costs and benefits independent of each other

In Martin’s case both costs and benefits are very much independent of each other.

Eventhough its seems to be dependent but not all times both cost and benefits

comes together or related to one another. Martin’s will have to decide which costs

and benefits that will benefit its company most in order for the company to survive

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in the textile business. Not to forget the NAFTA contents or tariff that might have an

impact on the agreements between the two countries.

Question 4

Most ethical action

It is most likely that Martin Textile shift all production to Mexico. A good

compensation should be given to the former workers and to maintain the key

person such as sales force, design and management function as mentioned by

John Martin and to have a rep office in US. The cost of paying the compensation

might be covered by inflow of foreign earnings(profit from Mexico Production).

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CASE STUDY 2

STARBUCKS’ FOREIGN DIRECT INVESTMENT

Question 1

Starbucks initially expanded internationally by licensing its format to foreign

operators. Starbucks will get the initial licensing fees and royalties on store

revenues in return of its international expansion. However, it soon became

disenchanted with straight licensing strategy due to a few reasons:

a. Starbucks own premium roasted coffee ingredients is a very valuable

intelectual property to Starbucks. Through licensing format Starbucks will

allow the potential foreign competitor/s to have the knowladge of Starbucks

succesful formula and technological know-how. Starbucks will lose control over

their knowladge by licensing. The technology and knowledge of Starbucks will

be assimilated by licensee firm, improve on it and use it to enter other market.

Starbucks will only play minor role in the market.

b. Licensing format would not give Starbucks the tight control over management,

marketing and strategy in the licensee firm’s country in order to maximize its

profitability. Under licensing agreement, control over marketing, strategy and

decision making will be done by liscensee firm. Where normally the decision

made is for the benefit and profit of licensee firm.

c. Although Starbuck could license its product its real competitive advantage

comes from its management skills and marketing capabilities which are often

not amenable to licensing. Licensee firm may not be able to be as efficient as

the firm could it self. As a result the licensee firm may not be able to fully exploit

the profit potential inherent in foreign market.

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Question 4

Starbuck realised that pure licensing agreement would not give Starbuck the

control needed to ensure Japanese licensee followed it succesfull formula, therefor

the company had established a join venture with Sazaby Inc in Japan. Starbuck

first foreign direct investment. After Japan, the company embarked on aggresive

foreign investment program by purchasing Seattle Coffee, a British company chain,

opened stores in Taiwan, China,Singapore,South Korea and Malaysia. Starbucks

expand aggresively to Switzerland by entering join venture with a Swiss company

Bon Appetite Group. Starbucks license its format to the Swiss company by using

the same agreement used successfully in Asia. Starbuck shifted its international

expansion from licensing to join venture and choose to be a multinational company

practising foreign direct investment with local company.

By licensing Starbuck valuable know-how cannot be protected by licensing

contract, it needs tight control over licensee firm to maximize its profitability in that

country and its skills and capabilities are not amenable to licensing.

Through join venture Starbucks benefits from local partners knowladge of host

country competitive conditions, culture, language, political system and business

system. Starbucks provides the technological know-how and products. The local

partners will provide marketing expertise and local knowladge necessary for

competing in that country.

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