Executive Summary: Starbucks Corporation (NASDAQ: SBUX) is the world’s largest coffee producer and retailer, headquartered in Seattle, Washington. Starbucks offers a wide range of products besides coffee, ranging from pastries, snacks, and other hot and cold beverages. It also specializes in selling coffee products at groceries and retail stores. As a market entry proposal, the company aims to establish operations in one of the three following countries: Trinidad and Tobago, Dominican Republic, and Colombia, as it hopes to gain a strong ground on the booming coffee industry. Despite the close proximity of Starbucks to Central and Latin America, the company has been relatively poor in establishing markets in these regions. The first store was opened in Mexico City in 2002, followed by Lima, Peru in 2003. This region seems to be the perfect fit for Starbucks to expand due to the expanding Coffee production industry. The Colombian Coffee Bean offered by Starbucks is imported from Colombia and is one of the most successful products. Apart from the coffee industry, tourism holds tremendous promise for Starbucks to expand in this region, as approximately 20% of passenger traffic to the Caribbean region comes from the United States. These positive signs show great promise for Starbucks to expand its global picture and continue to remain as the world’s best coffee retailer. Company Overview: Time Out Magazine of San Francisco acknowledges the founders of Starbucks: Jerry Baldwin, Zev Seigl, and Gordon Bowker, who founded the company while they were students of the University of San Francisco (“Using APA”, 2011). Between 1971 and 1976, the company had only one store open in Seattle (Brewer, Brissenden, & Carmin, 2012). During the 1980s, Starbucks took advantage of the booming specialty coffee market in the United States, where its market increased from 3% to 10%

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in six years (Robichaux, 2006). One of its founders, Jerry Baldwin, even went on to purchase Peet’s Coffee, who had originally inspired him to open up Starbucks. The Loxcel Interactive Map of Starbucks states that the company operates 20,000 plus stores in 61 different countries (“Using APA”, 2012). Howard Schultz was the man behind Starbucks’ rapid growth and expansion. He started his career at Starbucks as an employee, who owned two coffee retail stores outside the company. Jerry Baldwin decided to sell the company to Howard Schultz, who rose to the occasion and began exploring new market opportunities. Since then, the company has followed a globalization strategy since 1996, where it opened its first store outside the United States in Tokyo, Japan, followed by the United Kingdom by acquiring the Seattle Coffee Company. According to the Starbucks Earnings Call in 2008, the company has managed to grow rapidly worldwide, with an estimated 900 stores opened in 2009 (“Using APA”, 2008). Products and Services: Initially, Starbucks only managed to sell espresso coffee in the early 80s, with only six stores opened within the Seattle area. When Starbucks opened its first stores outside Seattle in the Chicago and the British Columbia area, it began to roast roughly 2,000,000 pounds of coffee a year (Robichaux, 2006). Since then, Starbucks has expanded into a wide range of specialty coffee products, with dry roast coffee beans, hot and cold beverages, sandwiches, official Starbucks coffee merchandise, as well as grocery retail products, offered at very competitive prices. Starbucks has been very diverse in procuring raw materials for its products. Most of its dairy products and milk requirements come from US, Canada, and the UK. The official website of Starbucks states that it has farm support centers in Rwanda and Costa Rica; from where it gets most of its coffee

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bean produce (“Using APA”, 2009). Most of its food items, such as sandwiches and pastries, are produced and supplied locally, and none of it is processed and produced artificially, keeping up with high quality standards the company has set since its inception. Financial Overview: Starbucks went public on the NASDAQ:OMX Stock Exchange in June 1992. According to an article on Starbucks by USA Today, the Initial Public Offering comprised roughly 12% of the company’s market value, which raised approximately $25 million. The IPO proved to be extremely successful, as the share prices of the company increased 70% within a three­month timeframe (Reeves, 1992). Businessweek claims that Starbucks’ ability to grow rapidly is largely due to the lowered selling, general, and administrative costs. In 2012, it generated revenues of $13.3 billion, up $11.7 billion in 2011 (“Using APA”, 2013). Year over year, the company has managed to expand its operations globally, while generating considerable amounts of net income. In 2012, Starbucks incurred approximately $800 million in capital expenditure, mainly driven due to expansion of international operations. The company stands at a market capital of $43 billion, and has generated positive cash flows in recent years ($40 million in 2012), both indicative of the strong financial strength capable to explore new international markets. Market Overview: Starbucks holds roughly 33% of the market share in the United States. The chief target market of Starbucks lies within the age groups 25 to 40, who are responsible for roughly 50% of Starbucks’ sales. The other prime target market is the age group 18 to 24, who cover 40% of total sales. However, the younger age groups grows at a much faster rate, with roughly 4.6% more young adults consuming

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Starbucks products each year (O’Farrell). As the company witnessed a growth in specialty coffee products in the 80s, it has held true ever since. Specialty food and drink products account for approximately 75% of annual sales, which coincides with its chief store locations in suburban and metropolitan areas that comprise of middle and upper­middle class people. Its uniquely modeled stores offer much more than just a coffee retailer, serving as a place for social interaction. The article “Going International: The Starbucks Way” states that most of its global market entry modes have been through joint ventures, licensing, and wholly owned subsidiaries. Almost every time, licensing has preceded joint ventures, as Starbucks wishes to maintain its strict quality standards that can be monitored through joint ventures in the long term (“Using APA”, 2010). In the case of wholly owned subsidiaries, Starbucks has established the Starbucks Coffee International Inc., which is responsible for worldwide operations (Kotha and Glassman, 2003). However, the company has witnessed moderate levels of growth in global market share. It produces approximately 640 billion cups worldwide, with only 1 in a 100 cups consumed are from Starbucks (Columbus, 2011). This is largely due to the relatively limited global expansion of the company, with most of it happening in developed and industrialized countries.

Trinidad and Tobago: Trinidad and Tobago is a strong option for a market in which Starbucks could enter. Located in the south Caribbean, Trinidad and Tobago (T&T) consists of two major islands and various other smaller islands and has a total population of 1,226,383. According to CIA research from The World Fact Book, T&T is one of the most wealthy and developed nation in the Caribbean (“Trinidad and Tobago”, 2013). In 2011, Trinidad and Tobago was removed by the Organization for Economic

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Co­operation and Development’s (OECD) DAC list which keeps track of nations that qualify for financial aid from large donors in OECD. The DAC list is considered by many to be a list of the developing nations; therefore T&T’s removal from the list would indicate that it is now a developed nation (“T&T now considered”, 2011). This greatly increases T&T’s viability as a market to enter for Starbucks as developed nations are often significantly more stable markets for international companies such as Starbucks. The governmental organization of Trinidad and Tobago is similar to that of the US and of the UK. It consists of a bicameral parliamentary system with a two­party system. It has a President which is elected by an electoral college, and a Prime Minister who is elected through a general election. The president is able to appoint the 31 seat senate, while the House of Representatives are elected by the citizens of T&T. Similar to the US and other stable nations, there is a system of checks and balances, a large portion of the government is elected by the people, and government officials serve in terms. Business culture in Trinidad and Tobago is also very similar to that of other countries in which Starbucks does business. Since it was originally a British Colony and holds on to much of the British culture, much of the culture is similar to that of the US and of the UK. Business dress is typically the same as the US, including a shirt and tie or business suit for men, and dresses, skirts, or pantsuits for women. Shaking hands and exchanging business cards is the norm for greetings as is the norm in the US. The overall similarity in business culture would help in Starbuck’s attempt to enter Trinidad and Tobago. Financially, Trinidad and Tobago is very promising. According to the World Fact Book, Trinidad and Tobago has “earned a reputation as an excellent investment site for international businesses”. T&T has the highest economic growth rates and per capita income in all of Latin America.

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Between the years of 2000 and 2007, the economic growth was over 8% which helped create a growing trade surplus as well as financial surpluses throughout the decade (“Trinidad and Tobago”, 2013). The general trend of tariffs in Trinidad and Tobago is downward sloping as it opens itself up to more free trade and FDI. Agricultural tariffs on goods such as coffee are fairly high in Trinidad and Tobago however there are two ways Starbucks could get past this (“Doing Business with Trinidad and Tobago”, 2007). T&T has created Free Trade Zones in which foreign business are exempt from taxes and fees including custom duties on capital goods, parts and raw materials, import and export licensing requirements, land building taxes, and foreign currency and property ownership restrictions (“Doing Business with Trinidad and Tobago”, 2007). If entering Trinidad and Tobago, Starbucks would be able to either enter into one of the existing free trade zones or would be able to apply to create a new free trade zone around the Starbucks locations in T&T. Dominican Republic: The Dominican Republic is one of the few countries that we have chosen that is a good fit for Starbucks to enter in the Caribbean area. Although the Dominican Republic is still a developing country, it has the second largest economy in Caribbean and Central America, and the 9th largest in Latin America (TheCoffeeHunters, 2012). The country has a PPP of $9,400 (IndexMundi, 2013), and shows a promising growing trend. The head of World Bank Group’s Economic Development Center, Maurizio Bussolo believed that Dominican Republic could be a developed country by 2025, if they kept up the growth pace of recent years (DominicanToday, 2012). The Dominican Republic has been an agricultural country for a long time, its economy used to be supported by exporting sugar, coffee and tobacco. This is one of the reason that Dominican Republic is still not a developed country. With the

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industrial Free Zone put into place, and Free Trade Agreements passed, the economy of Dominican Republic began to grow (Mongabay, 2009) One of the industries that boost the Dominican Republic the most was the tourism business. It is the second most visited country in the Caribbean area. And this is one of the reasons we picked Dominican Republic for Starbucks to enter. With more and more tourist entering the country, it does not just boost the economy; it also helps the country to embrace globalization. By this, it will make Starbucks more acceptable and more desirable. It is necessary to have globalization to make Starbucks more acceptable in Dominican Republic because it is a coffee producing country. The Dominican Republic can produce up to 500,000 bags of coffee bean per year. Less than 20% of these coffee beans are exported, which shows how high the coffee consumption rate the Dominican Republic has (TheCoffeeHunters, 2012). We would choose the capital of the Dominican Republic, Santo Domingo to open the first Starbucks in the Dominican Republic, and the target consumer will be both visitors and locals. Although we do not expect to make profit as soon as we enter, we believe the situation will improve as the country keep developing. Starbucks will not see the usual competitors like Costa Coffee in Dominican Republic. In fact, they will not see any competitor, the reason for that is Dominican Republic is a coffee bean producing country. The Dominicans are not used to the concept of going to a coffee store for a cup of coffee. However, this will be changed as more visitors visited the Dominican Republic and bring them these ideas. The potential target consumers for starbucks is approximate 50% of the people from age 18­40, and approximately 57.5% of the population in the Dominican Republic are from age 15­54 (CIAWorldFactBook, 2012). The Dominican Republic has been seeking for foreign companies to enter, and opening up free zones is one of the things they did to attract businesses. The Dominican

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Republic was ranked fourth in the world for free zone facilities. Foreigner Companies get exemption from several taxes like Corporate Income Taxes, Incorporation and Capital Increase Taxes, and others. As an agricultural based country, the Dominican Republic generally follows the WTO standard but puts tariffs on eight agricultural commodities, rice, sugar, chicken parts, pork, corn, onions, milk powder and garlic (TradeCommissioner, 2012). Republic of Colombia: Colombia is one of the fastest growing Caribbean countries and a member of the world trade

organization (WTO) and the US­ Colombia free trade agreement, which was put forward by the U.S Congress and implemented in 2012. It has a stable political environment and a growing market for coffee consumption, which are good for Starbucks to enter. According to globaltrade.net(2012), “In order to lower security concerns, the Colombian government has dramatically reduced terrorist attacks, kidnapping and crime, which has allowed it to become the one of the most stable countries in the region. They have also been trying to set up FTA’s (Free Trade Areas) with neighbor countries.”(Doing business in Colombia, 2012). According to the CIA world factbook, Colombia has signed or is negotiating FTAs with countries such as Canada, Chile, Mexico, EU, Japan etc. (Colombia, 2012) The country’s regulations regarding trade and business are based on property law, which encourage the firms to enter the market and compete fairly. In Colombia, there are many coffee growers who have been planting coffee for generations. It

makes coffee growing and consuming a waking up opportunity. In light of “Coffee Colombia: Waking up to an opportunity” (2013), “In 2010, Colombia produced 8.9 million 60 kilo bags of production. Coffee production represents 16% of the national agricultural GDP. In the past five years, at least 37% of Colombian coffee exports were shipped to the U.S.” Therefore, if Starbucks enters Colombia, it

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can not only cut the cost for transporting the qualified coffee beans but also reach new coffee consumers by opening stores. Coffee sold by local grocery stores is a part of coffee consumption. According to

knowledgewharton.com(2013), “Previously, most consumers purchased coffee in grocery stores, where the process of differentiating Colombian coffee was relatively straightforward.”(Coffee in Columbia: waking up opportunity,2013) So, local grocery stores offer substantial amounts of competition. People can easily buy brewed coffee from private retail stores. But in terms of big retail outlets like Costa Coffee, there is no such competitor yet in Colombia. In fact, most of coffee produced in Colombia has been used for exports. According to Latinamericacurrentnews.com (2012), “44% of coffee consumed in Colombia is imported.” So, if Starbucks can enter Colombia and utilize the coffee beans, it can easily grab many customers and gain first mover advantage in coffee producing industry. In terms of the coffee consumption habits, Colombia is similar to America. People in

Colombia have been growing coffee for decades. They pride themselves on their production for high quality coffee beans. At the same time, people there love drinking coffee and coffee doesn’t seem to affect them. According to “5 little difference in Colombia Culture”(2012), coffees usually make people stay up late, however, people in Colombia meet for coffees late in the evening and they often consume up to 10 cups during their working days. This reflects that coffee is a large part of Colombian culture and means that there is a large market in Colombia for a coffee shop such as Starbucks. In order to eliminate corruption, Colombia government enforced many anti­corruption projects. According to www.casals.com, “An 8 million anticorruption project in Colombia in December 2006 has increased transparency, and public management in Colombia government institutions.” (“Reducing corruption in Colombia”, 2012) The program activities include improve citizens’ knowledge about their

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right to demand government transparency, technical assistance and training to strengthen internal control, audit engaged in anticorruption governmental reforms, and a small grants program for citizens groups and local nongovernmental organization. Country Selection: After reviewing the three aforementioned countries, we came to the conclusion that it would be most beneficial for Starbucks to enter Trinidad and Tobago. While the other countries may represent larger markets, the sound infrastructure, cultural similarities, and recent impressive economic performance suggests that Trinidad and Tobago would be a better market to enter. T&T is a country that just recently found itself with newly acquired levels of wealth and GDP per capita (Trinidad and Tobago, 2013). It is now believed to be a fully developed nation and therefore has been elevated to a new level nationhood. For these reasons, it can be argued that T&T citizens are now ready for a “prestige” coffee shop. The majority of citizens’ wealth has increased in the past decade and many of them are now able to increase the amount they spend on luxury or prestige goods. This is essential to Starbucks as it tends to market itself as a “prestige” coffee shop that is of a higher quality and price than other coffee shops. The similar business culture and overall cultural similarities between Trinidad and Tobago and the US will allow Starbucks to enter T&T with more ease. Starbucks will be able to lower their cost of entry because it will have to change very little of its business instead of having a large pressure to make sure its products, business behavior, and marketing program is sensitive to the local culture. The similar culture will also shorten the amount of time it will take for Starbucks to attain a profit in T&T, as less time will be spent testing how the local culture reacts to different tactics (Doing Business with Trinidad and Tobago, 2007).

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The stability of both the government and general infrastructure of Trinidad and Tobago is also a huge benefit of entry. The government of T&T is based on democracy and often ensures that the overall structure of the nation is stable as all citizens self interests go into supporting what is best for the overall country. This means Starbucks will most likely not have to worry about any sudden changes in government or governmental stances. The market economy of Trinidad and Tobago also makes it easier for Starbucks, an international business, to do business in T&T(Trinidad and Tobago, 2013). Trinidad and Tobago’s reputation of sound infrastructure is also beneficial to a Starbucks entrance. Utilities in cities and other moderately populated areas are reliable and while have been problems with water supply in rural areas, the government is actively working on improving the infrastructure in those areas (Economy of Trinidad and Tobago).

Appendix Company Overview: The following graphs suggest the revenue curve of Starbucks in comparison to the employment levels in the United States. These statistics indicate the nature of the suburban/metropolitan target

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market where Starbucks has its prime locations:

Table 1: This table shows the list of stores currently operating under Starbucks. It has a total of 20,366 stores worldwide, with most of the stores are based in United States, comprising approximately 65% of the total volume. The booming coffee retail market in China has reflected positively on Starbucks, with

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their market share growing by roughly 10% per year.

Country US CA JP GB CN KR MX TW PH TR TH DE ID MY HK AE FR SG ES BR KW

Stores 13123 1299 977 793 732 473 363 282 204 174 164 163 137 133 126 104 81 80 79 77 73

% Total 64.44 6.38 4.8 3.89 3.59 2.32 1.78 1.38 1 0.85 0.81 0.8 0.67 0.65 0.62 0.51 0.4 0.39 0.39 0.38 0.36

% Increase since 8­Sept­2012 1.4 2 0.6 0.4 10.2 4.2 1.9 2.1 2 1.1 3.7 3.7 1.5 1.5 4 3.8 6.2 1.3 1.3 6.5 ­1.4 13

SA AR RU CH PE GR CL NZ PL IE NL AU EG PR LB BH CZ AT QA BE CY JO MO RO

66 63 59 52 46 44 41 34 30 27 26 24 24 20 18 14 14 12 12 9 9 9 9 9

0.32 0.31 0.29 0.26 0.23 0.22 0.2 0.17 0.15 0.13 0.13 0.12 0.12 0.1 0.09 0.07 0.07 0.06 0.06 0.04 0.04 0.04 0.04 0.04

0 9.5 6.8 1.9 4.3 0 2.4 0 3.3 0 0 0 0 0 0 7.1 0 0 0 11.1 0 0 22.2 0

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BS HU PT OM BG SV AW DK IN MA SE FI GT CR CW NO IL JE

8 7 7 6 4 4 3 3 3 3 3 2 2 1 1 1 0 0

0.04 0.03 0.03 0.03 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0 0 0 0 0

0 0 0 0 0 0 0 0 100 0 0 50 0 0 0 0 9E+99 9E+99

Trinidad and Tobago: The following is comprised of supplementary information that was taken into consideration when

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reviewing Trinidad and Tobago as a market for Starbucks to enter.

Figure 1: This graph shows the exponential growth of GDP per Capita in Trinidad and Tobago since it gained its independence in 1962. Although it has leveled off to a degree in recent years, this rapid rate of growth in GDP per capita is a promising sign of a strong economy.

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Figure 2: This graph shows the percentage of total population in Trinidad and Tobago that a certain age group consists of. The peaks of percentage all occur between age 20 and 54, which is Starbucks stated target market. This would reinforce the idea that Trinidad and Tobago is a good nation for Starbucks to enter as most of the population consists of the Starbucks target market. (Trinidad and Tobago, 2013) Dominican Republic: The following is comprised of supplementary information that was taken into consideration when reviewing the Dominican Republic as a market for Starbucks to enter. As you can see the table, the country’s PPP has been growing since 2008.

In addition to the growth of PPP, labors in the Dominican Republic are now shifting to services based jobs instead of agriculture. Although, agriculture is still the main sector for the Dominican Republic, labor shifting is a good sign for Starbucks to enter the country.

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Colombia: The following is comprised of supplementary information that was taken into consideration when reviewing Colombia as a market for Starbucks to enter.

● Growing market

● Most of coffee production have been used for exporting.

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● Coffee production is an important part of the economy. In 2010, Colombia produced 8.9 million 60­kilo bags of green coffee, which represents the first stage of coffee production. This crop was valued at US$2.3 billion. In economic terms, this means that coffee production represents 16% of the national agricultural GDP. According to the FNC, in the past five years, at least 37% of Colombian coffee exports were shipped to the U.S., while Germany received more than 10%. ● Good age structure

Over 52% of the population aged from 25 to 64, which means the potential market for starbucks is relatively big.

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