Starbucks

An international company’s life

Ágost Benkhard
Mátyás Pálosi
Péter Tamás Kovács

2 May 2013
 The origins

• Jerry Baldwin, Zev Siegl, Gordon Bowker –

1971 March 30
• 46 stores – 1986
• Howard Schultz buys the company- 1987
• Grown to 140 outlets – 1992

• The first Starbucks location outside North

America opened in Tokyo, Japan - 1996
 Becoming international
•Entered the U.K. market - 1998
•Opened its first store in South
America, Peru – 2003
•Opened its first store in Russia –
2007

•As of November 16, 2012,

Starbucks is present in 61 countries
Statistics - Facilities
Statistics - Employment

Employees: 149,000 (2011)

 Statistics – Financial numbers*

Revenue US$ 13.29 billion

Operating income US$ 1.99 billion
Net income US$ 1.38 billion
Total assets US$ 8.21 billion
Total equity US$ 5.10 billion

*From 2012
 The management

Howard Mark Schultz

(born July 19, 1953)

•Network worth: 1.5 billion $

•Schultz buys Starbucks - 1987

•Schultz regained his status as
CEO - 2008
 The policy
„Starbucks is committed to full compliance
with the laws, rules and regulations of the
countries in which it operates. You must
comply with all applicable laws, rules and
regulations when performing your duties.”

„Starbucks is committed to the highest ethical

standards in all business transactions.
Partners must follow all applicable laws,
rules and regulations when conducting
Starbucks business.”
 Dimensions of diversity

• Different legal systems

• Different govermental policies

• International regulations both in USA, EU,

etc...
The American regulation - FCPA
Foreign Corrupt Practices Act of 1977
• (1) any foreign official for purposes of—
• (A)(i) influencing any act or decision of such foreign official in his official capacity,
• (ii) inducing such foreign official to do or omit to do any act in violation of the lawful
duty of such official, or
• (iii) securing any improper advantage; or
• (B) inducing such foreign official to use his influence with a foreign government or
instrumentality thereof to affect or influence any act or decision of such government or
instrumentality...
International Institutions - OECD

• founded in 1961
• forum of countries committed
to democracy and the free-market economy
• improve policy and implement „soft law"—
non-binding instruments that can
occasionally lead to binding treaties
• OECD Guidelines for Multinational
Enterprises
Starbucks UK tax scandal
 History
• Starbucks entered the UK market in 1998
• Since 1998 765 coffee shops were opened,
boosting 3 billion pounds in sales, but paid
only 8.6 million pounds of income tax
• Over the past three years, Starbucks has
reported no profit, and paid no income tax,
on sales of 1.2 billion pounds in the UK
 Troubleshooting
(2010-2012 figures)
• McDonalds
– Sales: 3.6 billion pounds
– Tax paid: 80 million pounds
• Kentucky Fried Chicken
– Sales: 1.1 billion pounds
– Tax paid: 36 million pounds
• Starbucks:
– Sales: 1.2 billion pounds
– Tax paid: 0
 Issues
• In 2007, Starbucks reported its seventh
consecutive loss
• In the same year Starbucks COO said that
UK profits will finance expansions
 Issues II.
• UK model is referred to the management as
a good model, while on paper Starbucks UK
never had taxable profits
• “example to follow for operations back
home in the United States”
• Starbucks' practice "is certainly profoundly
against the interests of the countries where
they operate and is extremely unfair ... they
are trying to play the taxman, game him. It
is disgraceful."
 How?
• “A LOSSMAKER WITH FAT MARGINS”
• 1) Royalties on intellectual property
– Charging subsidiaries fat royalties for using it
(6%)
– These payments reduce taxable income in the
UK
– Income goes to Starbucks Coffee EMEA BV
• 2) Allocate some funds generated in the UK
to other subsidiaries in its supply chain
– Switzerland-based firm, Starbucks Coffee
Trading Co. – arm’s length principle
 Solution and learning points
• Starbucks legally shifted profits and losses
between its affiliated companies -no
GAAR - government issue
• Legal compliance is not enough – KYC
rules are ever so important
• Voluntary extra tax contribution - £10 M
Thank you for your kind
attention!