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Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions

Case Study

1.0 Introduction
Starbucks Corporation is a worldwide roaster, marketer and retailer of specialty
coffee. It head office based at Seattle, Washington, United States. The first store
was opened in Seattles Pike Place Market by three students of University of San
Francisco, Jerry Baldwin, Zev Siegi and Gordon Bowker. Starbucks Corporation
was established in 1985, and from a single store, Starbucks had developed to
become the world second-largest restaurant or caf chain globally after
McDonalds in 2012. It current chairman and CEO is Howard Schultz. Starbucks
Corporation is now operating approximately 10,194 company-operated stores and
9,573 licensed stores in more than 60 countries worldwide, and 735 stores in the
United Kingdom. It main products include coffee, handcrafted beverages,
merchandise and fresh food like sandwiches and salads. Subsidiaries of this highly
successful company in the United Kingdom had encountered a tax scandal in the
year of 2012.
2.0 Comparison of the contributions of the key business functions to the
organisational changes
2.1 Finance
As reported in BBC news at 16
October 2012, Starbucks paid just 8.6 million of
UK tax in last 14 years. This report added, Starbucks had made over 3 billion in
UK sales since 1998 but had paid less than 1% in corporation tax. (Gompertz,
2012). With huge amount of sales, it definitely impossible for a corporation paid
just amount of tax which less than 1%. In the conflict of business ethics and
corporate objectives, the American company had implemented transfer pricing
method through buying coffee beans from a Swiss subsidiary, to minimize its tax
bills in the UK. Besides, it transferred some of the money to a sister company in
the Netherlands in the form of royalty payments, and also paid high interest for
borrowing money for other parts of the business. (Peston, 2012). Starbucks in the
UK reported made of loss of 52 million, 34 million and 33 million in the years of
2009 to 2011 respectively. However, the CFO Alstead told investors that
Starbucks were profitable. After this tax scandal had been exposed to the public,
due to the trust between the company and its customers and the society, and also
pressure from those anti-tax avoidance protesters, the company had decided to
Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

pay the corporation and would not claim for deduction. The company had paid 10
million of corporate tax in 2013 by two installments, and planned to pay 10 million
in 2014. This is the strategy of the company to recover the trust between company
and customers, to avoid boycott from its customers and also gaining back trust
and confidence from the shareholders and investors.
2.2 Marketing
In term of marketing, before the tax scandal been known by the public, Starbucks
did not aggressively market the company and its products to boost sales. Factors
that the company relied on to drive the sales were the image and reputation of the
company or brand itself. I hardly can see advertisement from Starbucks. The
company were still able to achieve presentable sales because of the loyalty of
customers toward the brand. The exposure of this tax scandal had more or less
influence its reputation. In order to gain back the confidence of customers, the
company had worked on its marketing strategy. One of the examples is Starbucks
had improved its membership privilege, from using a member card, and now
customers can buy a cup of coffee, check and top-up the balance using an
Android application, called Mobile Pay. (UK Starbucks Website, 2013).
2.3 Operations
Starbucks Corporation is developing and expanding rapidly worldwide. Apart from
company-owned stores, franchise stores are the main factor that contributed to the
rapid expansion of this specialty coffee brand around the world. Before 2013,
Starbucks operates its own stores and via licenses in UK. After that, the company
had opened its first franchised store in South of England in end of 2012. This had
opened up an opportunity for local people to be able to contribute their knowledge
in operating a Starbucks store. Franchising helps Starbucks to get into a market
easily for example small town in the UK, as the local people have knowledge in
terms of local culture and certain behaviour.
2.4 Human Resources
Human resources are valuable capital for a company. In July 2012, Starbucks
employees have been asked to sign revised employment terms, which include the
addition of a contributory pension scheme, the removal of paid lunch breaks, and
Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

changes to sick leave and maternity benefits. (Paterson, 2012). Around 7,500
staffs were affected under these changes. In overall, the changes were tend to
benefits Starbucks employees more, one of the changes was the introduction of a
contributory pension scheme, where staffs can contribute 1 to 3 percent of their
salary depending on their positions. This can be considered as one of the benefits
offered by the company to protect the retirement of Starbucks staffs. Relate it
back to the tax scandal, what was done by Starbucks would definitely recover the
sense of belonging of the staffs and keep them in the company.
3.0 Key Stakeholders of the Company
Stakeholders refer to any group or individual who can affect or is affected by the
achievement of an organizations purpose. (Freeman,1984). In this case of
Starbucks, the key stakeholders include the government, investors, customers and
the society. I have plotted each of them accordingly on the Power-Interest Grid.
(Refer to Appendix 1.1)
The government considered as the party with high power and low interest.
Government has the power to adopt regulation and laws, and also issuing license
and permits for company. The interest of government is low in this case because it
did not have the evidence to prove the wrongdoing by Starbucks, at the same time
it is due to there are a lot more companies that generate more revenue than
Starbucks Corporation. Next, investors are party with high power and interest.
They invested in the company, thus they have power to make decision, at the
same time concern on company performance and operation.
Customers, own low power and interest in this case. The tax scandal did not really
affect the purchasing of the products by customers, and they did not have the
power to influence any party in this case. Lastly is the society with low power but
high interest. Due to the UK is a welfare state, tax collection are important for
social welfare. People are concern on government income, because the
government use the income, for tax especially to spend for social welfare benefits.

Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

4.0 Key Issues in Managing Stakeholders
4.1 Government
Government considered as the key stakeholder in this case because government
raises revenues through taxes, in welfare state like United Kingdom especially.
(Lawrence & Weber, 2011). The corporate tax rate in UK depends on how much
profit the company makes and may change in 1
April each year. For the tax rate
refer to Appendix 1.2. Starbucks Corporation in the UK did not pay tax from the
year 2009 to 2012, as it was achieving profit for the few years. The UK
government was unable to take any legal actions due to lack of evidence.
4.2 Investors / Shareholders
Investors or shareholders are the individuals who invested money into the
company. In this case they were reported that Starbucks Corporation was
profitable. Thus it is impossible to say that they were not aware of the tax-
avoidance activity. They were considered as main in this tax scandal because they
were noticed by the CFO Alstead that company was actually profitable, while it
was reported to the government that it was making loses.
4.3 Customers
Tax-avoidance of Starbucks Corporation did not bring direct effects to its
customers. However, customers are also part of the society. Some customers had
also joined the protest that happened in 2012. There is a possibility where the
customers will boycott the brand to show their anger on the scandal. Thus, the
company had introduced few promotions to calm the customers down and recover
the reputation.
4.4 Society
United Kingdom is known as a welfare state which means it is a system whereby
the state undertakes to protect the health and well-being of its citizens. Again,
people concern on tax collection because the amount of money are to be used for
social welfare purposes. Thus, people will protest if there are corporates which
refuse to pay taxes, to protect the social benefits for the society.
Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

5.0 SWOT Analysis
Analysis of Strengths, Weaknesses, Opportunities and Threats (SWOT) of
Starbucks Corporation can refer to Appendix 1.3. In brief, its core strength is clear
positioning and image in market as the largest coffeehouse chain worldwide, while
its main weakness is high price that cannot be afforded by customers who in the
range of middle and low income, mostly in developing nations. Main opportunity
that can be explored by Starbucks Corporation is expand to emerging economies
with large population like China. Lastly, its threats include existence of competition
and trademark infringement.
6.0 Assessment of its Prospects for the Future
Starbucks CEO, Howard Schultz once revealed in an interview in September 2013,
The company plans to introduce some new design concepts, including a modern,
modular drive-through made from reconfigured shipping containers. Now,
Starbucks has more than 19,000 stores around the world. Thousands more are
planned in Latin America and Asia combined. (Wolfe, 2013). In my opinion, build
up a group of loyal customers and form a positive corporate reputation are ways
that can benefits the company for long term. The company need to work hard to
gain back the confidence from public. Besides, the top management have to
spread the message or warning to all the Starbucks subsidiaries for not repeating
the fraud. Countries in Asia like China, are definitely the region that can be
targeted as main target to expand the business, as the living style of Asian are
upgrading and people have learn how to enjoy life with a cup of specialty coffee.
7.0 Conclusion
From the perspective of society, tax-avoidance seems to be unethical, especially
in the welfare state like the UK, where the government is replying on tax income to
support the community welfare. In contrast, from the perspective of corporate, it is
difficult to obtain profit, although with the high sales, thus avoid from the payment
of tax seems reasonable. In this conflict, what I would say is the rules had been set,
thus it is the responsibility of the corporate to fulfil its obligation, towards the
country and the society. Tax scandal like what they had in Starbucks in UK should
not exist in either one of the countries. Achieve profit in ethical manner and
Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

concern on interest of each stakeholders, is the only way to become a real
successful corporate.

References List
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach.
Marshfield, MA: Pitman.
Gompertz, S. Starbucks 'paid just 8.6m UK tax in 14 years. BBC News.
(Reported on 16 October 2012). Viewed: 2
April 2014. Available at:
Lawrence, A. T. and Weber, J. (2011). The Corporation and Its Stakeholders.
Business and Society: Stakeholders, Ethics and Public Policy. 13
Paterson, J. (2012). Starbucks makes changes to staff benefits. Employment
Benefits. Viewed: 3
April 2014. Available at:
Peston, R. Starbucks 'planning changes to tax policy. BBC News. (Reported on 3
December 2012). Viewed at 2
April 2014. Available at:
UK Starbucks Official Website. (2013). Starbucks Android App. Viewed: 2
2014. Available at:
Wolfe, A. (2013). Howard Schultz: What Next, Starbucks?. The Wall Street

Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study


Appendix 1.1: The Power-Interest Grid.

Appendix 1.2: Corporate tax rate in the UK from 2011-2014.

Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

Strengths Weaknesses
1. Largest coffeehouse chain
worldwide, with firm foundation of
around 20,000 stores and also own
approximately 40 years of
experience in coffee industry.
2. Strong market position and global
brand recognition. Although there
are more and more coffee shops
established worldwide, Starbucks
still grow well because it is offering
specialty coffee with special flavour
and high quality.
3. Good relationship with loyal
customers, and try all the time to
attract potential customers.
Launched membership card and
offer privileges for loyal customers
from time to time.
4. Innovative. Starbucks keeps
launching variety of new products,
including coffees, teas and fresh
foods. The company launched type
and flavour of products regarding
the culture of particular country, to
suit the consumers preferences.
1. Products pricing which cannot be
afforded by customers at middle
and low range of incomes,
especially those who stay in
developing nations.
2. Prices of coffee beans will
influence companys performance.
This increase of raw materials to
make coffee will definitely affect the
profit of the company.
3. The clash of coffee culture between
United States or certain European
countries with the Eastern
countries like countries in Asia.
Starbucks will have to conduct
study and research properly before
conducting its international
expansion strategy.
4. Overdependence in the United
States market. Although Starbucks
Corporation owns stores in around
60 countries worldwide, the U.S
market is still its core market. Thus,
the changes in U.S. economy bring
huge impact on the performance of
Starbucks Corporation.

Name: Ng Jing Lun UOG ID: 000807805 BUSI 1311 Intro to Business Functions
Case Study

Opportunities Threats
1. Increase product offering. Starbucks
can expand its product mix in order
to target and satisfy more
2. Extend supplier range. This is
significant for the operation of
Starbucks Corporation, for not to
rely on limited suppliers to avoid the
shortage of raw materials during
bad weather.
3. Expansion into emerging markets.
Starbucks can explore new
emerging market and not to too rely
on U.S. market. The company can
entered into new market by joint
venture and through offering
4. The Starbucks mobile application in
Android market should be launched
in worldwide as fast as possible,
especially those developing
countries, because the users of
smartphones and tablets in those
countries are increasing rapidly.
1. Increased competition. More and
more coffee shops established
worldwide and they are challenging
the Starbucks Corporation as the
world-leading coffee shops chain.
Besides, many cafes and theme
restaurants are serving specialty
coffee with good quality as well.
2. Saturated markets in the developed
economies. In order to solve this
problem, the company will need to
keep exploring new market and
accumulate more loyal customers,
to ensure the stable growth of the
3. Trademark infringements. There is
possibility where people can come
out with similar of Starbucks
products. This issue had to be
concerned seriously by the
management of the company to
maintain the uniqueness of
Starbucks products.
4. Rises in the costs of coffee and
dairy products. There is significant
increase in price of coffee beans
globally, and Starbucks cannot
control it. A good cost-saving
strategy has to be set to maintain
the profit growth of the company.

Appendix 1.3: SWOT analysis of Starbucks Corporation.