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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CASE STUDY - MARTIN TEXTILES Starbucks
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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CASE STUDY - MARTIN TEXTILES Starbucks
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 - MARTIN TEXTILES Starbucks
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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CASE STUDY - MARTIN TEXTILES Starbucks
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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