Marketing 406 Group ProjectStarbucks & Cuba

Professor FawazMay 16th, 2016

Sam Baker, Devin Carrillo, Mari Choy, Danika Clarke, Jason Cohen, Samantha Ling, Abby Mudd, Amanda Pham

Table of Contents

Executive Summary………………………………………………………………………………………………2

Introduction of Starbucks………………………………………………………………………………….……...3

History of Starbucks……………………………………………...……………………………………….………3

Mission and Vision of Starbucks…………………………………………………..……...………………………4

Business Initiatives……………………………………………………………………………………...……...…5

Foreign Market Decisions………………………………………………………………………………....……...5

Competition……………………………………………………………………….………………….…………...6

Economic-Geographic Environment………………………………...……………………………………………7

Social-Cultural Environment……………………………………………..…………………...…………………10

Political-Legal Environment…………………………………………………...………………...………………13

Company Structure………………………………………………………………………….………..……….…15

Financial Strategies/Results, Pricing and Business Risks……………………………………………..………...18

Promotion Strategy……………………………………………………………………………..…………..……21

Product and Target Market Planning…………………………………………………...…….………….………23

Human Resources ……………………………………………………………………….……..………………..25

Distribution Strategy………………………………………………………………………....…………….…….28

Information Management Systems…………………………………………………………...……….…………29

Measuring Global Business Success…………………………………………………………………..…………30

Financial Reports……………………………………………………………………..…………….…………....32

Conclusion……………………………………………………………………………………….………….…...33

Appendix……………………………………………………………………………………..…………....…......35

Bibliography…………………………………………………………………………….……......……………...35

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Executive Summary (DEVIN)

Starbucks is an American company that specializes in high quality consumer products, functional food and beverage service, and extensive retail product lines. Our brand presence in the international realm has allowed for successful ventures both nationally and abroad. After recently penetrating the Colombian and Chinese markets, we are fully invested in broadening our scope to the Cuban community. Our mission is, “to inspire and nurture the human spirit--one person, one cup, and one neighborhood at a time.” This directly relates to our entry mode and projected brand presence in the Cuban market.

To establish the Starbucks brand as a positive addition to the Cuban coffee culture, while dominating the market share, we propose to establish a strategic alliance with the Cuban government and its affiliates. After entering, we will conduct basic market research and initiate community outreach to local organizations and municipalities. Our target market consists of tourists, international business persons, middle and upper-class Cubans and more. We are also considering future joint ventures with local organizations which include: publicly and privately owned coffee plantations, property management groups, and other distribution partners. At the heart of our entry mode is our two brick-and-mortar store locations - we will construct multiple kiosks throughout various gates at the Jose Marti International Airport and one flagship store in Old Havana - a UNESCO protected region - which is heavily populated by tourists and locals alike.

Although we build pride on standardizing our products across many international communities, we are fully prepared to specialize an extensive product line that relates directly to the Cuban culture. Sample customized products include rum infused drinks and local “Pastelito” pastries hand crafted by the famous Cuban-American chef, Alex Garcia. Other customized services include a Starbucks Cuban Cigar Lounge©, Wi-Fi mobile spots and other specialized initiatives. These products and services will be priced at a competitive level during market penetration. After successfully penetrating and expanding within the Cuban coffee market we will increase our pricing strategy to a premium pricing level, as most of our locations serve this similar pricing strategy.

Our venture to the Cuban market is comparable to our recent expansion to Colombia and Peru in the Latin American market. Our financial strategies and timeline for profits is solely based off previous ventures in similar Latin American markets. Specifically, we expect to reach profit maximization by one year of fully running kiosks in the Jose Marti International Airport and our flagship store in Old Havana. Similar to our Colombian venture, we will utilize local coffee plantations and import services. As well, we plan to expand to 10 more flagship stores in a waterfall process, after reaching profit maximization. This expansion and profit timeline is similar to our dealings in Colombia. To conclude, our well-established financial history and experience in global expansion has strengthened our efforts to inspire and nurture the Cuban-Havana community all while providing a high quality coffee experience to the Cuban people in the hopes to build substantial community relationships through our various cross-cultural partners and alliances.

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I. Introduction of your Business

Introduction of Business When Starbucks first opened its doors in 1971, the company was roasting and selling coffee from a

single store in Pike Place Market in Seattle. Over the past 45 years Starbucks has grown to be one of the most recognizable companies in the world. Known for more than its coffee, Starbucks has established itself as a company intent on quality, community, and global responsibility.

Business TypeWhile Starbucks supplies a variety of products, ranging from coffee and frappuccinos to scones and

sandwiches, the company is also known for its service and the Starbucks experience. Starbucks’ CEO Howard Schultz has supported this idea in the past, saying, “We’re not in the coffee business serving people, we’re in the people business serving, coffee.” Along with food and consistent quality service, Starbucks provides customers with a space to work, catch up with friends or just enjoy their drinks, creating a total experience for customers.

Target AudienceMaking up almost half of Starbucks’ business, the company’s target audience is men and women ages

25 to 40 that are part of a higher income bracket. The company attracts their target market through a variety of tactics. These include selling trendy products or items that feel upscale, as well as establishing themselves as a global, environmentally responsible corporation.

II. History of your Company

EstablishedIn 1971, the first Starbucks was founded in Seattle’s Pike Place Market. Jerry Baldwin, Zev Siegl, and

Gordon Bowker, the three founders of Starbucks, had the idea to sell high-quality coffee beans and coffee equipment. In 1982, Howard Schultz joined the team as the Director of Retail Operations and tried to convince the owners that they should be selling individual drinks to the consumer. He had discovered espresso bars on a trip to Milan and thought that the same concept would work in Seattle. But, he could not convince Baldwin and the others on this idea so he started his own coffee chain. Eventually in 1987, the founders sold Starbucks to Schultz, which he quickly expanded across the United States.

LocationToday, there are more than 24,000 Starbucks stores located in 70 different countries around the world.

The United States has the largest Starbucks presence with over 11,000 locations.

Number of Employees

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The company employs over 190,000 people full-time, providing medical benefits and education to many.

Current Revenue and ProfitabilityIts current revenue is estimated at $5,373 million for the first fiscal quarter of 2016. But overall the

company revenue is estimated at $19.15 billion, with a gross profit of $4.56 billion.

III. Mission and Vision

MissionStarbucks’ mission is to inspire and nurture the human spirit—one person, one cup, and one

neighborhood at a time. CEO Howard Schultz envisioned Starbucks as a place where people could separate themselves from home and work, hence the company’s long-term vision of being America’s “third place.” Starbucks came up with a “live coffee” mantra, which had three components to its branding strategy: its coffee, customer intimacy, and atmosphere. Providing high-quality coffee is one of Starbucks’ priorities and in order to do so, they outsource their coffee beans from various locations such as Africa, Central and South America, and Asia-Pacific regions. The other two brand components, customer intimacy and atmosphere, are set to create an ambience that makes customers not only want to linger and sit down for a cup of coffee, but also to return another time for another cup of coffee.

VisionStarbucks doesn’t explicitly present their vision statement, but it is essential to “establish Starbucks as

the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow”. Moving forward to Cuba, it is important for Starbucks to keep their mission and vision clear. Our Cuban expansion vision is to provide high-quality coffee to both local Cubans and tourists alike. We also hope to see our Starbucks shops to be a “third place” in Havana, where families can reunite for a cup of coffee, as well as a separation for businesspeople to negotiate business over coffee, liquor, and cigars. We plan to partner with local Cuban farms to implement Cuban culture in an American brand.

IV. Business Initiatives

Current Business Key ObjectivesStarbucks’ current business initiatives are to provide a customer with a great experience away from

home. It is the spot that people should want to go outside of work and home. Starbucks strives to bring the customer the best coffee from around the world, by growing different beans in different locations in order to perfect new blends of the beans. Starbucks also seeks provide the customer with nothing but quality in all their

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products. They continually offer higher quality food, they taste test their coffee bean blends, and they have focused to have the best customer service they can.

Future Business Key ObjectivesLooking at the future, Starbucks’ main goal is to grow internationally. They are continually looking to

expand in Europe, Asia, and the Caribbean, and just recently entered the Italian market. Their goal is to not only expand into these countries, but also to find better quality coffee from every different location they expand to. They currently offer local blends of coffee beans to gain a wide variety of quality across different cultures. They also want to expand their product line by serving alcohol, expanding their food offerings, and expanding their bottled beverages in retail stores.

V. Foreign Market Decisions (DEVIN)

State Country to Expand IntoStarbucks will be expanding their international presence to the Havana region in Cuba. Initially,

Starbucks will expand to 2 of the 15 municipalities within Cuba, with later expansion to the upper-class and beach resort area of Vedado and Miramar. Initial entry markets include: Habana Vieja – Old Havana (UNESCO heritage site and tourism hub), and the José Marti International Airport. Havana is the Capital and largest city of Cuba, attracting many tourists and travelers throughout the year.

Country Information (Statistics, Geographic Location, Market Demographics)Havana is just 90 miles from Key West and just under 230 miles from the port of Miami. The official

language of Cuba is Spanish. Most Cubans are of Roman Catholic denomination at 85% of the total population. As of 2015, the total Cuban population reached 11,031,433. The majority of the population is between 25 and 54 years old at 47.16% of all recorded citizens. Cuba’s economy is fairly stable, their reported GDP rose to $128.5 billion in 2014, which is an increase of $5 billion since 2012. The exchange rate is highly in favor of U.S. businesses. As of May 15, 2016 the exchange rate for 1.00 CUB is .0003 USD. Unemployment is also fairly low at 3.5% at most because most citizens have government or government-affiliated jobs. One set back to expanding a consumer products company to the Cuban market is the average citizen income. Income reported in 2014 is at 471 pesos or 20 dollars a month.Market Penetration Determinants

Cuba is an emerging market. As some consumer products are already succeeding in the Cuba, such as Tyson foods, Starbucks is ready to expand their business model to the Cuban market. Cuba was once known as the leading producer of coffee but as of 2011 “the total number of hectares where coffee is harvested in Cuba fell from 170,00 in 1961 to 26,935.” In a legal sense, the Cuban market is not quite ready to be fully penetrated by an American company. Although there must be congressional action (after the 2016 Presidential election) in order to fully create an international presence in Cuba, some trade licenses are being granted by the U.S. Treasury under certain circumstances. “BIS is creating a case-by-case licensing policy that will apply to exports and re-exports of items to meet the needs of the Cuban people, including exports and re-exports for such

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purposes made to state-owned enterprises and agencies and organizations of the Cuban government that provide goods and services to the Cuban people.”

Starbucks plans to penetrate the Cuban market by building coffee production plants in the local area and benefiting the locals by creating business and opportunity for personal and governmental financial growth. Since Starbucks intends to implement community employment programs and promote Cuban agricultural production by implementing Starbucks and governmental joint ownership coffee plantations, this will directly qualify them for an export and expansion license for the American-Cuban market. This intent, as well, directly correlates to the Starbucks mission–“to inspire and nurture the human spirit–one person, one cup and one neighborhood at a time.”

How was the Market SelectedDue to the recent suppression of the Cuban-American embargo and Cuba’s emerging market status we

feel Cuba is the perfect market to penetrate in a timely manner. Because the José Marti International Airport and Old Havana acting as the largest tourist hubs in the Cuban area, the amount of traffic needed to establish the Starbucks brand in Cuba is adequately sufficient. Included, taken from recent success in Columbia - another large coffee culture region - we feel our audience with happily accept Starbucks coffee production and sales in their homes. In conclusion, due to the relevance and timeliness of the lifted embargo, Cuba is the perfect region to expand our brand in the Latin American region.

VI. Competition

Potential Competitors Starbucks’ main competitors in Cuba fall into the umbrella category of local coffee shops (Café’s).

These are generally small, stand-alone family-run stores that do little no to marketing for their product.

Competitive AdvantagesStarbucks holds a competitive advantage over these stores in various ways. Starbucks is a multinational

corporation that has recently been valued at about 86 billion dollars. They have the capital to buy strategic locations such as a coffee farms, kiosks in José Marti International Airport, or any prime commercial real estate in Havana. By placing stores in highly trafficked areas, Starbucks creates an opportunity for attracting a solid customer base. The labor costs, building materials, wages, real estate, rent, and benefits are significantly cheaper in Cuba than in the U.S., which provides Starbucks an advantage in cost efficiency. Starbucks also has the capacity to offer free Wi-Fi (should the government allow it), which is considered a luxury in Cuba.

International StrategiesStarbucks’ strategy for going to Cuba is centered on the core idea of properly assimilating into an

uncompromising coffee culture. Our plan is to utilize locally grown coffee and produce (fish, sugarcane, citrus, rum, etc.) as the main ingredients for our drinks and food menu. Highly regarded Cuban chef, Alex Garcia, will be creating the menu in an effort to create delicious, familiar, and affordable food for the consumers. Starbucks

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will also be offering alcoholic beverages made locally (i.e. sugarcane rum) and potentially variations of alcoholic coffee drinks. The variations of coffee on the menu will be consistent with what is popular in Cuba (Cortadito, Café con leché, Colado, etc.). It is important to note that Cubans are rationed out coffee every month that is normally cut with a type of legume called chicaro beans. Starbucks will market themselves as “Affordable Luxury” through being able to sell coffee of the highest quality at competitive prices. This is a result of the money saved through low operating costs and expenses in Cuba. This differentiator will drive more customers to purchase coffee from Starbucks.

We also plan to import local coffee from Cuba to stores across the U.S. through Starbucks Reserve, a program set up to search for small batch coffee across the globe and sell as a luxury blend. If demand increases in the U.S., we would consider developing a blend to incorporate into the general line of products (coffee blends) sold at Starbucks. Café’s and coffee culture in Cuba are more relaxed and focused on socializing as opposed to the ‘grab-and-go’ mentality in the U.S. This coffee-drinking culture is perfectly aligned with Starbucks’ values. We plan on developing our stores in a similar fashion to the café’s found all over Cuba while still maintaining Starbucks’ identity. We also plan on incorporating a separate smoke lounge into our stores so that those who do not wish to be around tobacco use will not be inconvenienced.

VII. Economic-Geographic Environment

Geographic FactorsCuba is an island in the Caribbean located between the Caribbean Sea and the North Atlantic Ocean.

Havana, Cuba’s capital, is roughly 228 miles from the capital of Florida, Miami, but the island itself is only 90 miles away from the tip of the Florida Keys. Cuba experiences a tropical climate with dry seasons from November to April and rainy seasons from May to October. The terrain is moderate with flat and rolling plains in most parts of the country with some hills and mountains in the southeast. One of the most common natural hazards in Cuba are droughts. Havana is experiencing a serious drinking water shortage caused by droughts and low rainfall – a government publication notes that annual rainfall fell from a historic average of 134mm to 39mm in July 2010. This not only negatively impacts the people of Cuba but also the country’s agriculture. Havana’s drinking water infrastructure has not been updated and maintained for too many years and, as a result, are in incredibly poor conditions which then impacts the country’s water distribution system. Cuban scientists reported that about 70% of water supply is lost in underground pipe leaks when the capital alone has close to 2.5 million inhabitants. In the countryside, they face the problem of water “theft” that is achieved through illegal pipe connections from the main distribution system. The stolen water is then redirected and used for agriculture when that water flow is estimated to supply 70,000 people.

In addition to the lack of adequate water supply, the tap water is often contaminated because of the outdated pipe systems and the river waters are not safe for consumption either. Incidences of digestive diseases in almost every city on the island is contributed to the contamination of over 250 rivers and tributaries. In 2012, forty-two people died from ingesting unsafe water that lead to a digestive disease. Millions of people are being affected by the polluted water according to the Ministry of Science, Technology and Environment and the Water Resources Institute at Cuba’s National Assembly. The Quibú River that runs through Havana happens to

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be one of the worst contamination cases in Cuba. The locals associate the name Quibú to be symbolic of decay and misery.

Major ProductsAmong Cuba’s natural resources such as cobalt, nickel, iron ore, chromium, copper, salt, timber, silica,

and petroleum, the country is plentiful in arable land. Cuba uses more than half of its land for its agricultural industry allocating 60.3% to arable land and 33.8% to permanent crops. Their agricultural products include: sugar, tobacco, citrus, coffee, rice, potatoes, beans, and livestock. Tobacco, sugar, and coffee are Cuba’s strengths in the agricultural industry but land was most often utilized for the cultivation of sugar because of its profitability levels. In addition, diversification of crops has been historically discouraged by foreign superpowers. More than half the daily caloric intake has to be imported to Cuba because their own agriculture system does not include an adequate variety of food sources and options when it is mostly dedicated to the production of sugar. Both the United States and the Soviet Union repressed the diversifying of agricultural production by instilling negative terms of trade if Cuba did not accept imported grain. Now, Cuba is dependent on its imports to feed its nation. The normal Cuban diet includes of mostly rice and beans eaten with fried plantains and vegetables. Beef is no longer widely eaten because of the more economical alternatives of chicken and pork. Cubans receive daily food rations from the government for staple products but those food allowances have been decreased to below-subsistence levels after the 1990s economic crisis.

While the embargo with the U.S. continued for over 50 years, Cuba continued to trade with other countries. In 2015, Cuba exported $4.41 billion in commodities to Venezuela (33.5%), Canada (15.9%), China (9.5%), and the Netherlands (4.5%) which was a decrease from their 2014 exports of $5.187 billion. Cuba takes in more imports than it exports – something that it is trying to change. Imports of commodities such as petroleum, food, machinery and equipment, and chemicals came in at $15.24 billion in 2015, which is an increase in spending from the previous year of $13.11 billion in imports.Current Economic Conditions

Cuba is a socialist economy meaning that private property is slim and the country’s means of production are collectivized and converted into social property that all Cubans collectively benefits from. Cuba’s economy was moving in decline because of the inflexibility of its socialist restraints before they compromised with their ideologies to allow private economic initiatives. Tourism started booming since 1990 and saved the economy. However, with foreign capital came foreign ideologies and cultures that did not align with Cuba’s socialist views. In an attempt to regulate and prevent ideological corruption, Cuba designated tourism to certain areas exclusive to Cubans, keeping tourists and locals separate to mitigate the spread of alternative thinking in relation to socialism.

Despite the concerns, tourism has become a steadily growing industry that has become an integral part of Cuba’s economy. Cuba’s purchasing power parity based GDP (using 2012 U.S. dollars data) was $128.5 billion in 2014, $126.9 billion in 2013, and $123.5 billion in 2012 showing a gradual growth of 3% in 2012, 2.7% in 2013, and 1.3% in 2014. Cuba’s inflation rate decreased from 5.3% in 2014 to 4.4% in 2015. In 2013, they incurred a debt of $24.65 billion which increased to $25.21 billion by 2014. The average salary in Cuba is about $20 a month. Cuba’s exchange rate has been abrupt and inconsistent starting with 1 Cuban Peso (CUP)

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per U.S. dollar in 2012 then jumping to 22.7 CUP per U.S. dollar for both the years of 2013 and 2014 and then decreasing to 18.43 CUP per U.S. dollar in 2015. However, the country currently holds two separate currencies. The first is the national currency, the CUP (Cuban Peso) and also the CUC (Cuban Convertible Peso) which is specifically used Cuba’s tourist industry. The CUC was created after the Soviet Union ended their socialist trading network with the intention to protect their country from the capitalist market. The CUC is only accepted in specific places and is fixed to the U.S. dollar, so the CUC is worth much more than the CUP and those who have access to the CUC are those who are afforded to enjoy more lavish lifestyles.

InfrastructuresCuba’s infrastructure is severely unstable, inadequate, and outdated. One of the areas that desperately

needs attention is Cuba’s transportation system. The problem stemmed from questionable administrative decisions made by Cuba’s Ministry of Transportation where they purchased buses from China but demanded that they be equipped with U.S. engines. In doing so, they made themselves reliant on U.S. goods – yet the embargo was still in place. Every time an engine broke down, Cuba had to order new engines or parts through a third party country who would then purchase from the U.S. on Cuba’s behalf. Not only were prices extremely high because of the reshipment from the third party country to Cuba, but the spare parts also took a very long time to reach its final destination. At times, half of Havana’s public buses were out of circulation because the broken buses had to wait for the shipment of their parts to arrive and could not operate without them. In an attempt to facilitate greater means of transportation, the government granted a large number of vehicle owners licenses to operate as private cabs. This did improve the public transportation system, however, Cuba did not establish regulations for these private cabs such as a standard fare or the routes that cab drivers needed to circulate. This came at the expense of the passenger who may have the need for a cab but would not have access to it because there was no circulation schedule or routes and is then also held at the whim of the driver who could decide however much they wanted to charge the passenger.

Cuba was ahead of the game in 1959 and was one of the most advanced countries in Latin America at the time. Most of the infrastructure, however, has not been updated since the revolution. Communication systems have been strictly regulated and repressive of new technology. By the time 2000 rolled around, Cuba had the same number of phone lines as it did in 1959. Currently, fixed telephone lines account for 1.26 million subscribers which make up 11 subscriptions per 100 inhabitants and mobile cellular phones accounted for 2.5 million users with 23 subscriptions per 100 inhabitants. The government owns and controls all broadcast media – operating national and local television networks and stations, and overseeing national and local radio. Private ownership of electronic media was forbidden. It was not until this summer of 2015 that internet access became available to the public outside of tourists and government officials. Since then, the government has set up several hotspots around the country that require a pay-as-you-go access card to gain entry to the internet. Access cards are sold by government owned phone company, ETECSA (Empresa de Telecomunicaciones de Cuba S.A.), with costs of $2 per each one hour of internet usage. In November 2015, President Obama allowed U.S. companies to invest in Cuba. While they are implementing public internet, it still remains out of most people’s reach. Most of the accessible internet now in Cuba is limited to Cuban approved internet including a national email system, government websites, and a few other options – providing the people only with a filtered and

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regulated internet access. In relation to the internet, Cuba ranks among some of the least free countries in the world. From a scale of 0 to 100, 0 being “Free” and 100 being “Not Free”, Cuba is ranked at 84. While internet users make up 3 million, which is 27.5% of the population in 2014, only about 5% of the Cuban population has access to the full global internet – one of the lowest penetration rates in the world.

VIII. Social-Cultural Environment

Demographic TrendsIn 2015, over 11 million people resided in Cuba, and the biggest city in Cuba, Havana (the capital), is

home to 2.137 million of Cuba’s total population. Cuba’s population is growing with more births than deaths, and a younger population of youth and teenagers than retired citizens. While 47.16% are between the ages of 25 and 54, 23.6% are older than 54, and 29.25% are younger than 25. Most Cubans are expected to live until 78 years old, and most of them retire between 55 to 65 years old, depending on the labor field and length of labor contributions. Around 3% of Cubans are unemployed, but that percentage is higher in ages 15-24 (around 5.6%). The State Sector employs 72.3% of the labor force, emphasizing the relationship the government has in business and commerce. As for gender, Cuba has .99 men to 1 women, making the population very evenly weighed. A total of 64.1% of Cubans are white, while 26.6% are mestizo (European and Amerindian descent), and 9.3% are black. A total of 27.2% of Cubans are considered Obese.

Cultural AnalysisWhile Cuba’s national language is Spanish, there are two (less common) languages that are also spoken:

Creole and Lucumi. While Cuba’s Spanish is universally understood, there are slang terms that are different, and has also adapted English terminology known as Miami-Cuban Spanish. The language can be differentiated by the level of education received (the extent of vocabulary), and how formal the conversation is meant to sound.Cuba’s culture is more invested in social face-to-face interactions rather than technology and cell phone supported relationships. A total of 22.5% of the population owns a cell phone and the internet is only used by 27.5% of the country. Private citizens are not allowed to purchase computers and need access that is authorized by the government. Some Cubans purchase passwords and codes from the black market, which can help them use the internet (in a very limited manner). Foreigners do have some access to the internet from big hotels but are still controlled by the government.Since Cuba doesn’t use the internet often, they enjoy spending time and relaxing with friends and family. These social interactions are always centered around coffee, and considered an essential task, or daily ritual in their lives. They typically drink a small cup of very strong coffee in the morning, after meals, and at social occasions. Visitors are always offered a cup of coffee since it is considered a necessity rather than a treat. Cubans are also very interested in ballet, boxing (where they have achieved the greatest success in The Olympics), and their favorite, baseball. They are enamoured with baseball, and while they don’t rank very highly on a global scale, they treat baseball players like celebrities. While they love discussing baseball, they typically do this with little privacy. Socializing is always done out in public (in the streets, or in lines) and Cubans are used to being in

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close quarters with each other. Often, they share body space and are very affectionate because they are focused on the collectivity and community that socialism emphasizes so much.Much of the beauty of the architecture has been preserved from the 1920s to the 1950s. Modernismo was the main style or architecture in the 1920s, and a common depiction of this style is the Palacio Velasco (shown on the left). Art Deco also was popular in the 1920s, especially in regards to Havana. This style used symbolic images, repeating patterns and ziggurat form to create structures (on the right, the Bacardi building is a prime example of Art Deco). Lastly, Modernism in the 1950s, which showcased strong lines. These three styles of buildings are very unique to Cuba because most of the buildings have stayed in this style. Cuba is very proud of themselves as a country, and their architecture is very symbolic to them.

Cuba has a drastic split between the poor and the wealthy. While they are a socialist country, there are some businesses that are private that can increase wealth. People who have places can also rent them out to create more wealth. Having possession of American goods is also seen as a higher social level.There are three major Cuban symbols that relate mostly to the difficult history they have had. The National Anthem represents independence, their National Flag represents their struggles against Spain, and finally, their Flag of July 26 Movement symbolizes the July

26 Movement (which was a resistance to their government’s dictatorship as well as the angst towards the U.S. for supporting the dictatorship).Education is crucial to Cubans, and some argue that they are offered too much of it. United Nations Educational, Scientific and Cultural Organization (UNESCO) ranks Cuba as one of the highest educated countries in South America, despite being one of the most undeveloped countries in the region. They spend 12.8% of their GDP on their education, allowing Cuba to be the second highest investor towards education behind Lesotho. In 2015, 99.8% of Cuba was literate, which is a huge achievement. Cubans go through around 14 years of schooling and education.While Cuba has been a very traditional Catholic country, there are many different types of faith and different levels of involvement. In 2015, around 44% of Cubans said they weren’t religious, 27% said they were Catholic and 13% practiced Santeria.

Social InstitutionsEssentially, social institutions can be broken up into five different parts: family, education, religion, economic, and political. One of the most important of the five is family. Cuban families are very similar to those in the rest of Latin America, where they are nuclear families that are involved in each other’s lives. The grandparents typically take care after the grandchildren while their parents are working. Family life in Latin America is very strong and aims to take care of every person in the family. Divorce rates are rising, and one parent households are not uncommon, but there is some importance to taking care of every family member and holding them dear to the heart. As mentioned above, education is crucial. Cuba has the highest literacy rate, and schooling focuses on teaching reading, writing, arithmetic, technology, social sciences, and languages. Religion was also mentioned earlier,

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and while the island is predominately Catholic, they don’t practice the religion as much. Men, women and children attend mass, but there hasn’t been any new churches built for a while, so many churches are old or even outside in a yard. The economic and political institutions (mentioned in more detail below) are that of an independent socialist government with the Communist Party being the only party in control. Most of the labor force is controlled by the government and is highly bureaucratic in nature. Cuba is known for their education and healthcare, as their political agenda is geared towards making these programs the best they can be. Historically, America has held an embargo over Cuba, which Cuba has claimed to be the fault in their economic prosperity.

Informal Trade BarriersCuba’s business culture shares some similarities from the U.S., while it has many differences as well. Most people work during the week from 8am to 5pm, but being on time is less stressed due to the transportation systems provided in Cuba. Most businesses hold their meetings during lunch time, where they dress casually. Personal relationships are stressed (especially within the government), and if a dinner appointment is made, Cubans don’t discuss business at dinner, but merely allow an opportunity to strengthen the personal relationship. Since Cubans aren’t always on time, foreigners sometimes wait for an hour and no disrespect is meant by it. When negotiating with Cubans, they play the long game and will continue to argue until you’re exhausted and cave in.Cubans like to be addressed with direct eye contact, and it is safest to shake hands first and address the person with their last name. They are a mix of both a high and a low context culture because both are very important (as communication is stressed in business transactions). However, they are more of a high context culture since everyone just understands without much being said. While Cubans love long and exhausting arguments, they don’t love open conflict so they minimize conflict by implying them rather than expressing them in a direct manner. The culture does not practice individualism, and focuses on the whole or relationships between the two parties over anything else. When someone is speaking for the company, it needs to be kept in mind that they need to represent the company rather than the individual. However, Cuba employes more males in higher positions in the business world as some companies feel uneasy dealing with female representatives. Cubans also focus on the short term and live their lives day to day with a relaxed approach towards structure. Cuba is full of proud nationalists who take pride in a lot of their country’s accomplishments (including healthcare and education). Often times, to help a conversation, one can compliment the culture and its successes or more personal things such as family, but it is smart to avoid talking about politics.

IX. Political-Legal Environment

Government and PoliticsThe Regime in Cuba can be defined as a socialist state, where communist ideology rules and where Raul Castro is currently the president of Cuba. Raul’s brother, Fidel, has been a very public politician, and while he is no longer president, he still impacts the political landscape with Raul’s help. The Castros have been a long ruling family, and they helped with the revolution in the beginning of the creation of modern day Cuba. The president

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is elected every 5 years, has executive powers, and is in charge of the government and the military. Cuba had relations with over 160 countries and is involved in many global organizations (see figure below). They also work with a lot of environmental agreements such as the Antarctic Treaty, the Kyoto Protocol, Endangered Species and many more.

Cuba is headed by the PCC (Partido Comunista de Cuba/Communist Party of Cuba), which controls the

legislative branch, as well as all the government positions. While the constitution protects citizens against corruption by offering citizens independent courts, many Cubans do not get due process (especially when defying the government). The communist government uses heavy surveillance and a strong military presence to ensure the safety and security of travelers and citizens. Cuba does not report their crime rates, but most experiences reported have been petty crime (such as theft of unattended items, or pickpocketing). Cuba has also opened up the option for some retailers to be “self-employed” entrepreneurs, which breaks the strict regime of only having employees that work the government. Since this is a communist state with poor relations regarding the U.S., some of the regulations for bringing a U.S. business to Cuba can be strict now, but there has been some change in diplomatic ties from the Obama-Castro regime. Obama recently visited Cuba (the first president since Calvin Coolidge), and while Obama is in support of creating relations between the two countries, congress still needs to approve ending the embargo and the PCC still needs to embrace it. The two countries just regained their relations with one another by opening up embassies (they ended relations around 1961), and both countries seem to be interested in ending the embargo that Cuba has blamed as it’s source of difficulty. With relationships becoming better between the two countries, there is a large possibility that the two countries can do business with each other.

Formal Trade BarriersStarbucks is an American company and there is currently an embargo between the U.S. and Cuba. The countries have been working to gain a more positive relationship, but there are still legal sanctions for businesses when it comes to expanding into Cuba. A business has to gain a specific license from the OFAC (Office of Foreign Assets Controls) in order to open up business in Cuba. As far as currency goes, the Cuban government demands that non-convertible Cuban Pesos (24CUP=1USD) or Cuban Convertible Pesos (1CUC=1USD) are used in transactions, as the U.S. dollar is not accepted for transactions. Currently, Cuba taxes up to 30% for

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corporations, but they can be as high as 35% for completely foreign capital. There are taxes on sales and transfer of property, as well as an income tax.As for tariffs, Cuba’s average is around 7.7%, posing an issue for a lot of exports. Cuba has a centrally focused economy, and reflects their limitations to the global marketplace in their tariffs. In 2013, their tariff rate was 9.49% with manufactured goods, and seems to continue to be around there.As for ownership regulations, there has been an increase in the private sector; 20% of the Cuban workforce currently work in the private sector because regulations are expanding where private businesses can be.

While you can technically be a foreign company and own 100% of your business, the reality is that the government has control. Because it is a socialist country, the Cuban government owns all the factors of production (the manufacturing facilities, the distribution centers, who you can hire, and the access to agriculture). Since it is a socialist government, this does relinquish some of the power and authority over the 100% foreign ownership.

Promoting Global BusinessCuba has offered a lot of changes in order to entice more businesses to open their doors in Cuba. In

2014, Cuba changed their Foreign Investments Act so that the profit tax decreased to 15%, compared to the 30% it originally was. Cuba allows full foreign ownership, eliminated the tax on labor, allows joint-ventures to get 8 years of tax-free profits, and helps recognize foreign businesses’ intellectual property. The law is more favorable to companies that aren’t 100% foreign owned (by favoring joint ventures in tax incentive), and allows profits and dividends to be transferred to other countries without being taxed. This low tax rate, as well as legal protection, is what Cuba is offering to incentivize foreign investment in a communist state.

Intellectual PropertyCurrently, Starbucks, under international copyright laws and U.S. laws, is protected in regards to their logo, sound files, graphics, data, pictures, software and text (such as Frappuccino). Starbucks, the Starbucks logo, Seattle’s Best Coffee, and Tazo Tea are official trademarks for the brand, are have the option to be licensed out. Ethiopia’s government had a deal to license out the brand, which signifies that Starbucks will work with the government to license out their image and product. They also own the copyright materials for their packaging and training. Starbucks has also purchased many internet domains such as starbucks.com and starbucks.net. They have also created patents for the machine that brews the coffee (as well as the method), products like chocolate confection and scones, the system for brewing hot water, lighting fixtures, and the cups. With the current situation, U.S. businesses (such as Starbucks) can get a general license for trademarks, by allowing a business to register, prosecute or oppose a trademark, copyright or patent. However, this doesn’t have court enforcement on the trademark which creates an obstacle for Starbucks to enforce their intellectual property.

Recently, U.S. banks will directly transfer money to Cuba (as opposed to third party transactions), which helps reduce complications for trademarks. It seems that both the U.S. and Cuba have issues with regards to intellectual property (the U.S. doesn’t enforce some Cuban brands, while Cuba seems to be selective by enforcing brands like Coke, but not Seinfield). With a different political climate, things may change so that all companies have legal protection. Since Starbucks is a large corporation, they shouldn’t have as much trouble

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with protecting their intellectual property, because large companies are more protected. However, registering Starbucks trademarks under all legal routes (such as Spanish and English) is crucial, and the time to register intellectual property should be as soon as possible to ensure the rights to the intellectual property.

X. Company Structure

Strategic PlanningUpon making a decision to enter Cuba, we have developed a number of strategic goals to help us achieve success. We want to develop a menu of drinks and food items that complement the Cuban culture and highlight classic Cuban drinks and food items. We also aim to offer the same quality service that we are known for and create an experience that is both polished and reminiscent of classic Havana.

Our target market goal is to attract higher income Cuban businessmen and women and subsequently attract their families and the rest of the community. Additionally, we want to target tourists who are familiar with Starbucks who can find comfort at our airport location as well as a unique experience at our Havana location. To benefit our customers we aim to provide an affordable luxury that the Cuban community has not had access to in the present. We will offer drinks and food items of a high quality and a ‘home away from home’ environment that encourages relaxation and socializing. In the U.S. today Starbucks owns about 42.4% of the coffee market. In Chile, Starbucks owns about 21.1% of the coffee house market. With these numbers, we project that we can gain around 7% of the market share in the first year of operation and grow to around 25% of the market share in the next decade in Cuba. The ROI (Return of Investment) should be around 8% in the first year of operation and grow to be around 15% by 2020. These projections came from our Chile operations.

To satisfy employees, Starbucks will carry over our current company culture. We will work with the Cuban government to decide on a fair wage for our employees. We will provide a reliable career opportunity for locals. We hope to excel when it comes to social contributions. Continuing the company’s mission of improving communities, we will hold community outreach events, encourage employees to engage in community service, and make a positive influence where we can.

Entry ModesSeeing that Cuba is a new market for American businesses, and that there are still a number of regulations determining how companies do business in Cuba, there are a lot of elements that play a role in determining our entry mode. The simplest and fastest entry into Cuba would be through exporting packaged goods. In order to sell packaged bags of Starbucks beans, the company will have to acquire an OFAC general license that permits the exportation of goods to Cuba. There are several benefits that come with choosing to export Starbucks coffee to Cuba. It would introduce Cubans to the Starbucks product, it is more immediate than other modes of entry and it could serve as a method to test the market with minimal risk. However, exporting would not allow the Cuban people to fully experience our products and service. Additionally, the prospects of selling coffee in Cuban markets and stores is unclear. Cuban people receive a coffee ration and their limited spending power may make the spending of money on additional packaged coffee unappealing. Overall, exporting coffee may be

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a good initial entry into the market, especially taking into consideration that it is the only immediate option available, but is not ideal for Starbucks in Cuba in the long run. A franchise or a turnkey project in Cuba is probably not the best route. We currently have franchise locations in Europe but still operate for the most part through other methods. There are a number of requirements to be a Starbucks franchise, including planning to open a multiple number of stores. Considering the risk of the Cuban market, our desire to open only a few stores in Cuba, and the difficulty of opening privately operated businesses in Cuba, a franchise or a fully set-up turnkey business would not be a good option. Licensing is a more viable option, but is still not ideal. While a licensing agreement would bring the Starbucks experience to Cuba, it may be difficult to find a business to operate Starbucks stores. There is an abundance of cafes in Havana that appear to be mostly single operations instead of coffee chains. When selecting a partner for a licensing agreement, we are particular in making sure that the company’s values align with own own as well as their ability to uphold our standard of service. Without a company that has experience operating a chain, it would be hard to grow in Cuba while ensuring that quality will be upheld.While we initially considered a joint venture, but we have decided that it would not be the best route. A joint venture would require Starbucks to join with another company to a fuller extent than we are comfortable with. Instead of joining with companies entirely we have decided that we should partner with the government and other mutually beneficial associations. A strategic partnership, or multiple partnerships, in Cuba would be the most beneficial mode of entry for Starbucks. To operate a joint venture in Cuba, Starbucks would partner with a state-owned company. First, we will need to establish a relationship with the Cuban government. Ideally, we will extend our partnerships to a coffee farmer in Cuba to sell local beans as well as to local sugar cane farmers. However, many of these farmers operate singularly and are wary of relations with big companies or the Cuban government. If Starbucks was able to find a suitable partner in Cuba, the next step would be to open a store in Havana as well as in José Martí International Airport. Partnerships would allow for more involvement than a franchise or licensing agreement which is optimal for Starbucks to develop since the Cuban government is resistant toward Americanization.The last entry mode would be a wholly-owned venture. While many of our stores are company-owned, it is not a likely option in Cuba. At this point in time, U.S. businesses are not able to operate a wholly-owned venture in Cuba and it is unclear when and if this will change. Additionally, Starbucks operates most of its international stores through partnerships or licensing deals so opening a company-owned store in a high-risk economic and political environment would not be the company’s best option. The cost for all of Starbucks’ entry mode options, except for exporting coffee, is time and uncertainty. While the United States and Cuba are working towards normalized relations between the countries, the timeline of when it would be possible to open a physical location is still unclear. All of these options come with a fair amount of risk. The Cuban government has the ultimate say on business operations and Starbucks’ could easily incur a loss if the economy reverts to its former state.

Strategic AllianceCuba is a proud country with a strong culture and a tightly controlled economy, we want to align ourselves with a number of Cuban businesses in order to benefit the country and exhibit our respect for their country. As

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mentioned above, we are primarily interested in a partnership with Cuban coffee bean farmers. Cuba is known for its coffee and Starbucks values highlighting a country’s individual coffee culture when opening international locations. We will also need to partner with the government, or at least a state-owned company, in order to operate, find partners (employees), and determine crucial elements such as hourly wage.

We should also consider a partnership with a local cigar-manufacturer to sell cigars outside the store or on an outdoor patio. Cigars are prominent in Cuban society and also one of their main goods. While Starbucks putting its name on tobacco products could have a serious negative impact on their image in the U.S., partnering with a third party to sell cigars at a Havana location could be an excellent business opportunity for operating in Cuba.

Since we have recently began to sell alcohol in the United States they should consider the sale of alcoholic drinks in Cuba. This could open up the opportunity to partner with a local rum distributer. Selling drinks that incorporate rum would pay homage to Cuban heritage and play into the social aspect of Cuban cafes. However, Starbucks is a company that upholds its values and would have to find partners who they believed in and respect in order to move forward in selling cigars or alcoholic beverages. Starbucks should also look into partnering with a non-profit organization in Cuba or a community outreach program to give back to the local community in addition to the community service they do independently. Overall, Cuba is a country where having more partnerships would be highly beneficial in both establishing Starbucks in the community and building a reputation as a company that respects Cuba as much as its citizens.

Finally, we will pursue a potential partnership with Google to bring internet to our Cuban locations in a more accessible manner than was available before. There will be some potential problems seeing that the Cuban government likes to have control over internet access. However, we think it will benefit the community as a whole and that we will be able to sort something out.

XI. Financial Strategies/Results, Pricing and Business Risks (DEVIN)

FinancialAccording to Statista, Starbucks revenue reached 19.16 billion in 2015. From September of 2013 to

September of 2015 Starbuck’s Net Profit Margin, Operating Profit Margin, and Gross Profit Margin have all increased. Specifically, Starbuck’s Net Profit Margin increased to 14.39% in September of 2015. According to Starbucks Financial report, their net revenue after all operating expenses, interest, taxes and preferred stock dividends - but not common stock dividends - have been deducted, totals approximately 4.914 billion for 2015. In the U.S. Starbucks dominates the market share at 42.4%. After successfully entering the Colombian market in July of 2014 with their first brick and mortar store in the region, Starbucks plans on opening 50 stores within the next 5 years in the market. Their success from entering yet another emerging Latin America market provides direct insight to their projected success in the Cuban market. With 23,768 company-operated stores worldwide, most of Starbuck’s revenue source comes from company-operated restaurants at 79% of SUBX’s revenues at the end of 2014. With net revenues of all 23,768 company-operated stores at 3.886 billion, the average store makes approximately $163,497 in net revenues annually. Our market-entry decision in Cuba is to establish company-operated restaurants in key markets. Therefore, the general net revenue of an average company-

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operated Starbucks is a relevant indication of Starbuck’s success in Cuba. Starbuck’s total operating expenses for 2015 reached 4.027 million. Due to Cuba’s close proximity to Florida and the company-operated “Sandy Run” roasting plant in South Carolina, distribution costs are not expected to substantially alter total operating expenses. We expect similar outcomes to our recent expansion to Colombia. Since opening the first store in Columbia, Starbucks has expanded to 10 stores in the Colombian-metropolitan area. We will follow this model and expect to expand to 10 stores within the next two years after market penetration. Our profitability timeline is approximately one-year after breaking ground.

Pricing StrategiesThe economic environment in Cuba is, on average, not the most favorable. Income reported in 2014 was

at 471 pesos, or 20 dollars, a month. But, as of May 15, 2016 the exchange rate for 1.00 CUP is .0003 USD. Included, foreigners and investors use the Cuban Convertible Peso (CUC), which is pegged to the dollar 1:1 and worth 25 times more than the Cuban peso. As for local production costs and real-estate expenses, the current exchange rate is in Starbuck’s favor. With regards to setting our pricing strategy, we have three key factors to look into before setting the price:

a. Company goals – To penetrate the Cuban market and establish the Starbucks brand as a common good. Included, our company goal is to dominate the market share for International coffee producers.b. Competition – Pricing for market penetration – Our initial pricing strategy will be competitor-based. Although we will face only local competitors, our pricing strategy will be fairly competitive while operating at a standard that does not compromise product and service quality. For example, a cup of coffee at a Cuban café costs $3.00 CUC and an alcoholic drink starts at $6.00– our price for specialty alcoholic coffee drinks will range from $5.99+, while a basic “Cubano” will range from $2.99 - $3.05 depending on competitor’s current prices. This pricing strategy will only be implemented in the Old-Havana location. The Jose International Airport will utilize a premium price, as we expect competition to be low and demand to be high.c. Customer Demand – Pricing at a premium – After approximately 1 year of market penetration pricing, we will alter our pricing strategy at a premium level, offering high quality products and services for international travellers and wealthy Cubans. We will do this by differentiating our marketing efforts and in-store features by providing high quality tasting bars and communal spaces, each of which are an integral aspect of Cuban life. With locations in densely populated and high-traffic regions (airport and Old Havana), demand for our product from locals and tourists will influence this premium price level. Although the premium price is contingent upon customer demand, the newly emerging market for business and tourism in Cuba makes for an attractive setting for implementing a premium price after market penetration.We also have to manage price escalation. In order to manage that, we will find ways to cut production

and export costs by establishing local production farms and roasting factories (after market penetration). The production farms and roasting factories will also serve as an international distribution center to other Latin American regions such as Puerto Rico, Colombia, Nicaragua, Brazil and more. We will also position the

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Starbucks brand as a premium Cuban coffee producer and service. This premium position will help combat negative effects of the premium pricing strategy after market penetration.

Business RisksLooking at the economic and financial risks there are two main sections that are considered risks. As an

emerging market, Cuba will have an increased amount of tourism and new business development. This potential growth will cause an increase in inflationary rates and will subsequently cause an increase in prices of Starbuck’s goods in Cuba and wages for Cuban workers. In order to combat this, we can potentially shift our production elsewhere, while wages and prices are at the lower inflated price. Another financial risk is the general level of income in Cuba. In order to combat this, we will differentiate our market and focus on a target market that can afford Starbuck’s products on a regular basis. As stated before, we will focus on wealthy Cubans and international travellers at our two initial locations - The Jose International Airport and Old Havana. We will still use a competitive pricing strategy during market penetration.

There are also Social/Cultural Risks associated with Starbucks going to Cuba. Coffee consumption is a common practice in modern Cuban culture. Unfortunately, most Cuban’s are not familiar with the advanced technologies used to produce high quality coffee and espresso drinks. Starbucks has incorporated advanced technologies in their international stores to create high-quality espresso drinks and coffee combinations. According to a press release by Starbucks International, “The Clover® Brewing System is one of the most significant innovations in coffee brewing since the introduction of the espresso machine, and is only available in select Starbucks stores globally. It allows customers to discover new layers and dimensions within a coffee’s familiar aroma, flavor, body and acidity, brewed fresh by the cup.” This advanced brewing technology might be hard for local Cubans to warm up to, as we will be the first advanced coffee brewer of its kind in the Cuban/Havana region. To combat this, we plan on incorporating an education program in which each barista will go through a training process to fully understand how Starbuck’s artfully crafts their products. Therefore, each fully trained barista will feel comfortable educating the Cuban locals and travellers about the Starbucks process and the importance of technology in creating high quality consumer goods.

Included, Starbuck’s plans to diversify their product line by incorporating common Cuban drinks such as the “Cubano” and other common products such as rum infused drinks and “Pastelito” pastries. Cuban’s receive a monthly ration of coffee (usually low quality) from the Cuban government. The Cuban’s coffee ration is similar to that of the United State’s food stamps and EBT program, except they receive actual consumption goods instead of a valued replacement. Included, most Cubans purchase store-bought coffee beans as well and mix the beans with their rationed beans to create a fuller, more quality-rich coffee. This may be a problem, as we will be competing with other distributors and coffee establishments to position our product as the leading source for high quality beans. To combat this, we plan on utilizing our strategic alliance with the Cuban government upon market entry, and offer a community outreach program that implements Starbucks produced coffee beans in the Cuban’s monthly ration. This will help the Starbucks brand to be positioned as a community-centered and quality-focused consumer goods producer and leading coffee supplier.

Due to the nature of the host country, there are also political and legal risks to understand. The United State’s relationship with Cuba is not the most desirable. Its inconsistency and lack of trust between the U.S. and

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the Communist Party of Cuba is a major factor in our global partnership decisions. As we will partner with the Cuban government in a strategic alliance operation, we hope to build a strong business relationship with the Cuban government on grounds with Starbucks’ core mission, while implementing community outreach initiatives and educational programs that support the values both of Starbucks and of the United State’s’ constitutional structure. The embargo is not fully lifted and will need approval by the next elected president, and thereafter passed by Congress in a majority vote in order to fully expand to Cuban territory. Although this plays a major role in our overall timeline of market entry, there are many ways Starbucks can combat this. First, Starbucks must get a travel license approved by the Department of Treasury (not the U.S. Embassy in Havana) that allows Starbucks to travel to Cuba with their goal being to support the Cuban people, which includes the following but is not limited to: humanitarian projects, education services, professional research, workshops, and intergovernmental organizations.

Therefore, Starbucks may apply for immediate travel to the Cuban/Havana region for professional research and community outreach to study Cuban culture, research target markets, establish the Starbucks brand and start a line of communication with the Cuban government. With this said, Starbuck’s may only start the market research portion of their expansion goal before the next U.S. president is elected and a decision is made regarding the embargo. This will set our timeline back and is completely circumstantial from there on.

XII. Promotion Strategy

Promotional Goals We plan to have multiple Starbucks kiosks in the Havana airport to showcase our brand to incoming

tourists and locals returning home. With a location at different gates it provides us with maximum exposure to our targets. Globally recognized tourists will be easily drawn to a familiar product in Cuba.

We also plan to have advertisements in international airports globally, allowing the customer to know that there is a Starbucks waiting for them when they step off the plane. In addition to this, we will have signs and print ads in magazines on international flights, directing customers to the nearest Starbucks location.

We want to immerse the Starbucks brand into the Cuban culture. By supporting local events and businesses we hope to establish a relationship with Cuban locals. While incorporating local businesses and farms in our supply chain, we feel that locals will begin to accept Starbucks as benefit to their society. We plan to sponsor concerts and sporting events, such as a baseball little league, to reach a large target market while also gaining brand recognition and media exposure. By targeting events like boxing and baseball many Cubans will become accustomed to our brand. We aim to reach out to not only locals and tourists of Havana, but the rest of the world. This international recognition will provide us with more exposure to the market.

If the allowance of marketing becomes more lenient, we will then take action to implement other promotional efforts. Viazul is a bus service that is meant to transport tourists to all major stops in Latin America. The Viazul bus service only accepts dollars, meaning that it is out of the price point for most locals to use. If allowed, we would like to put an advertisement on this bus as it makes stops through Havana, Varadero, Baracoa and Trinidad.

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Business EnvironmentUpon entering Cuba, Starbucks plans to not only to create awareness of our product, but focus on

spreading our brand. Many stores are government run, which means that there is little need for advertisements because there are no competitors. The ads that they do have are mostly print ads in shop windows. Other forms of promotion mainly rely on word of mouth. No billboards are allowed and limited Wi-Fi access for most individuals eliminates the possibility of online advertising. Those who do advertise do so discreetly to avoid drawing attention from the government.

Our goal is to provide free Wi-Fi in our stores, as all Starbucks worldwide. We plan to strategically align with a company like Google to provide this service. Since Wi-Fi is so limited in Cuba, and controlled by the government, we want Wi-Fi to add to the customer experience in stores. Businessmen looking to send a quick email, or tourists trying to upload a photo to their social media, will be at ease. We are creating an environment that people want to be in and spend their time in.

Media PlanNot only is Starbucks media budget significantly less that other companies in the food/beverage

industry, but their means of advertising is seen as somewhat untraditional. They take a more basic approach, and spend less than 2% of sales on advertising. Our media plan budget will come from a percentage of sales but will be much lower than this overall 2% because of the restrictions put on by the government.

Although advertising is so limited by the government, we plan to use every method we can. Locally we will advertise through print ads and Radio Taíno, a local station focused on tourism that broadcasts commercial ads. Our brand will also be associated with our co-sponsored events.

Starbucks is known for sponsoring events local events and hosting their own parties to promote drinks. We intend to keep this plan with our new venture in Cuba. With our new location, we hope to create a buzz in the international media to also provide us with free advertising. While integrating some aspects of Cuban culture into our stores, we will provide a unique Starbucks experience different from anywhere else in the world.

Promotional StrategyWith little to no competitors in the Cuban coffee market, we want to dominate, and create as much

exposure while we can. Upon entrance, Starbucks will implement a push strategy to gain this attention. We want the Starbucks brand to become top of mind in Cuba when people think coffee. Once our brand is established, we will switch to a pull strategy by continuing common Starbucks strategy such as promotional deals as well as the rewards program. XIII. Product and Target Market Planning

Product ConceptCoffee is essential in Cuban culture and because of that, we plan to make a few adjustments in our

product mix by integrating authentic Cuban coffees and foods to our Cuban Starbucks menu. We hope to collaborate with Cuban farmers and use their native grown sugarcane in our Starbucks drinks.

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As for the Starbucks food menu for Cuba, we chose to use the Colombian menu as reference since its Starbucks location is the newest in Latin America and delivers high quality products and services. We plan to incorporate standardized products as well as customized products in order to indulge Starbucks into the Cuban culture. Specialized products will include but are not limited to exotic fruit bowls, various Cubano sandwiches, various cakes and pastries, flan, and turrónes. Exotic fruit bowls are a popular staple dessert food that Cubans like to snack on. Turrónes are a special chocolate and coconut fudge-like candy that Cubans like to gift as holiday gifts.

In addition to the Starbucks menu, we also plan on designing general merchandise with a Cuban twist to sell in our stores. Some of these merchandise include packaged coffee beans, significant Cuban building designs imprinted on tumblers along with the Starbucks logo, Starbucks t-shirts, and Cuban espresso makers specially designed by Starbucks. We also plan to test market various teas by exporting small batches from the United States to Cuba. By doing so, we could receive projections and grasp a better understanding of which products our Cuban customers prefer. If certain products fail, Starbucks will not have a heavy financial strain, because the product is rather cheap to make.

In addition, we are planning to integrate alcoholic beverages and tobacco options. The legal drinking age in Cuba is 16 years old and it is very common for businesspeople to drink alcohol and smoke cigars while making important business negotiations. In our Havana store, we are mainly targeting business people and we plan to offer them a facility to do business. Furthermore, the embargo lift has enabled American airlines to fly directly into Cuba and because of this, the country is currently experiencing a beer shortage due to the increasing number of thirsty American tourists. With such a high demand in beer in Havana, this is an excellent opportunity for Starbucks to integrate various Cuban-style alcoholic drinks, such as beer, rum, mojitos, and other cocktails. A sample menu (designed in English for our tourists – there will be a Spanish menu for locals) for drinks, food, and alcoholic beverages is shown on the right.

As mentioned before, we are also considering to integrate tobacco into our Starbucks location in Cuba because it is very common for Cubans to smoke both casually and during business meetings. However, since tobacco is usually associated negatively in our country of origin, we plan to partner with a third party tobacco distributor to limit issues with the United States. We will essentially allow our Starbucks locations in Cuba to have designated smoking rooms, where the businesspeople (smokers) can separate themselves from other customers (non-smokers).

Product Life Cycle

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Since coffee has been a staple drink for such a long time, it has already reached its maturity stage. In addition, coffee is such an important part of the Cuban culture so we won’t expect it to decline or become obsolete upon entering.

Branding and PackagingStarbucks has created and maintained a strong brand image throughout the years and is well-known all

around the world. Aside from brewing the best coffee for its customers, it is also known to have a fun company culture. The company strives to create family-type relationships with its customers, suppliers, and subsidiaries, and refers anyone who is involved with company as “partners.” Subsidiaries include Teavana, La Boulange, Evolution Fresh, Seattle’s Best Coffee, and Tazo Tea. Starbucks is also known to be very involved in the community with the goal to make the world a better place.

Starbucks’ logo is very distinctive and we do not plan on drastically changing the packaging. Our Starbucks graphic design team will keep the Starbucks packaging but add a Cuban flair to the merchandise that we will sell in our stores. Since we will be opening multiple airport kiosks, the logo will stand out and attract tourists as it will be a familiar sight for when they travel to an unfamiliar place. Since we plan on roasting outsourced coffee beans in the United States, we will also package the coffee beans so that when exported to Cuba, they will be ready to be used to brew coffee in stores or sold in Cuban grocery stores.

Target MarketOur plan is to open two main Starbucks locations in Cuba. We will be using the sprinkler model by

opening multiple kiosks in José Martí International Airport, while using the waterfall model for the brick and mortar in the heart of Cuba’s capital, Havana. Our target market for the airport location is tourists. Because of the recent diplomatic pursuits between Cuba and the U.S., American tourists are now allowed to travel in and out of Cuba and we want to take advantage of this opportunity. We hope to attract adventurous tourists who desire a mixture of home and exotic coffee in a foreign country. We also want to allow American tourists the opportunity to try the famous Cuban coffee beans, and create a desire to try the international blends.

On the other hand, our target market for the Starbucks location in Havana is mainly businesspeople. The overall company goal is for Starbucks to be people’s “third place,” as the first place is home and the second place is work. We plan to build a specialized place for businesspeople that is separate from the main ordering area, where Starbucks can provide a sit down area perfect for negotiating business plans over a cup of coffee, some liquor, and cigars.

XIV. Human Resources

Staffing Starbucks’ staffing strategy follows a simple model: “To have the right people hiring the right people.” In recruiting new employees, Starbucks provides its hiring managers with interview guidelines that lists behaviors for ideal candidates in each position offered at Starbucks. These include: baristas, shift supervisors, assistant store managers, store managers, district managers, and regional directors.

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Baristas are the front-line of Starbucks – they are the first impression on the customer and they help guide the customer through the Starbucks Experience. It is important for them to not only be able to process beverage orders and use the cash register, but also to personally connect with and uplift every customer. Shift supervisors are in charge of in-store operations, running the team, and making operational decisions while acting as a role model of high-quality service towards customers for the team. Assistant store managers work on developing their retail management skills through hands-on training to build their supervisory experience and learn how to lead teams as the store manager does. Store managers connect with customers and the broader community; they run and grow the business, lead teams, and build Starbucks to be a communal meeting place. District managers are responsible for all stores in their district and the building of local strategies to manage their performance by knowing their markets, communities, and their customers. Regional directors provide leadership for roughly 90-100 stores and drive long-term growth and business development for new and existing stores. They bring the Starbucks brand to life, integrating Starbucks into each neighborhood and becoming part of the community.

Every Starbucks employee is called a partner, which is a way for the company to let their workforce know that they are valued and respected. According to Starbucks’ mission statement, “We're called partners, because it's not just a job, it's our passion ... We always treat each other with respect and dignity. And we hold each other to that standard." The culture that results from Starbucks’ strong mission statement and value system creates a work environment of respect, open communication, and positivity. This is what draws people to work at Starbucks locations around the world and what keeps them there after they are hired. As opposed to an ethnocentric or polycentric approach, Starbucks adopts a geocentric international orientation, which supports a greater understanding of the global business environment. An ethnocentric approach to staffing is when all positions in an international business are filled with parent-country nationals (or expatriates). It is beneficial to companies because it ensures that their international strategy remains congruent with company plans. However, this method presents a drawback in that the employees are lacking in the same cultural knowledge as those born and raised in the host country. A polycentric staffing approach utilizes host-country nationals to fill key positions at the international business unit. This allows for easy integration into host-country culture but may bring difficulties between home and host-country operations and methods of management. A geocentric staffing policy seeks the best people for each position throughout the organization abroad, regardless of nationality, allowing the company to reap benefits from the most suitable candidate for each position and creates a unifying culture and informal management network that is ideal for international strategies. In a move forward towards opening Starbucks in Cuba, we will first recruit members of our staff in the U.S. who either have Cuban heritage/backgrounds or are interested in relocating and transferring to work in Cuba. Seeking already trained employees with cultural knowledge specific to Cuba is essential in integrating Starbucks into the Cuban community. Starbucks is known for its successful practice of sending some of their best-trained and knowledgeable baristas from established markets to new markets in order to train new employees. Not only do they train new employees, but also act as brand ambassadors to help establish Starbucks’ culture abroad and ensure that customer service meets their global standards. While we can bring over our own trained expatriates to Cuba to help manage our stores and run our training programs, we do not have the liberty of hiring our own employees in Cuba. As a socialist country with

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communist ideologies, the Cuban government is given control over the delegation of employment in the labor force. As of 2014, Cuba’s labor force was measured at 5,383,687 million according to The World Bank and comprises of people ages 15 and older who meet the international labor organization definition of the economically active population including both the employed and the unemployed. Upon entering our host country, we will comply with local Cuban laws with respect to government determination of our labor force, but with the intent to achieve a geocentric staffing policy with a mix expatriates and local Cubans. Training and Development

Starbucks’ corporation spends quality time with every partner (employee) behind the espresso bar, teaching them how to make the highest quality drinks for customers. Customers are at the core of Starbucks’ consideration and strategy, so it is important that all their leaders have experience engaging with Starbucks’ customers. Every employee is taken through a coffee-tasting as part of training and cultural Starbucks ritual, in which they discover where the beans originate from and discuss the aromas and taste notes of that particular blend of coffee. New hires are introduced to the Barista Basics Training Program where they are provided with the initial training on the essential skills required in the role of a barista such as how to craft Starbucks beverages and how to interact with customers. Skills are taught and learned though on-the-job training and through the use of simple and intuitive tools. For baristas who move up to become shift supervisor, they are then taken through the Shift Supervisor Training Program in which they focus on the basics of people management. With the combination of classroom lecture and in-store training, they go through activities of training new partners, development of supervisory skills, cash controller responsibilities, and ensuring the delivery of the Starbucks Experience for customers in addition to supporting the store manager in running an effective store. The Retail Management/Assistant Store Manager Training Program focuses on effective management practices. Again, with the combined delivery method of classroom and in-store training and application, employees are taken through topics on motivation, delegation, problem solving, improving performance, managing the Starbucks Experience, and maximizing profits. As one moves up to the District Manager Training Program, an employee is lead through foundational training that prepares them to take on the role as a new district manager. This program is delivered over the period of fifteen weeks and combines paper and online training modules, in-store skill practice, and one-to-one delivery. Performance Appraisal A performance appraisal is a review on an employee’s job performance and productivity within a company. At Starbucks, performance appraisals are given every 6 months by the store manager. An interview is conducted between the store manager and the barista; sometimes the assistant store manager sits in on an interview to learn how one is conducted. At Starbucks, during the performance appraisal process, the employee first self-reflects and reviews their own performance. This allows the store manager to compare between his/her own review with the employee’s review to see where the employee is at comparatively. Starbucks uses a 360-degree feedback approach in which both the employee and the store manager gives feedback to one another. This approach does not always work in companies because managers do not often take criticism from lower level employees well, but because of the intimate environment Starbucks employees work in, they are able to

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build a community and tight relationships among one another and, as a result, are more receptive to giving and receiving feedback from one another.

The Customer Comment Card is also an indicator used during performance appraisals that asks the customer about their overall experience at Starbucks and their thoughts on both the employees, the service, and the products offered. Customers’ inputs are extremely valuable to Starbucks. Not only is the customer’s opinion and experience a top priority for Starbucks, but also because the card method is a way of measuring employee performance objectively. High performing employees are awarded with compensation. Bonuses are given to the “Employee of the Month” as well as those employees who surpass the monthly target sales number. The target sales number is called a “budget” and each employee is expected to reach that number. However, if an employee’s sales are higher than the set sales target, then the difference between the amount of their sales and the target will be their bonus. Compensation

As with our labor force, under a socialist country, the government determines the wages and salaries of the employees we will hire in Cuba. While we cannot offer a competitive wage for our employees as we do in the U.S., where we offer higher compensation than the current minimum wage and opportunities for pay raises, we will still make efforts to advocate for our Cuban employees who we view as our partners. As a strong and recognized multinational corporation, we will request higher wages from the government for our partners. We desire to promote positive community change, even if it is something as small as allowing our staff to have higher wages to improve Cuban lifestyles and standards of living. Starbucks operating in the U.S. offers their employees with many benefits including health care, stock options, and other benefits that would not be transferrable over to Starbucks’ Cuban employees. This is mainly because of Cuba‘s socialist society where the government covers or highly subsidizes many benefits such as healthcare, food allowances, education, and utility bills. While Starbucks cannot offer the same benefits to Cuban partners as they do with their partners in the U.S., we can still offer small tokens of benefits to show our appreciation for our staff. It is important that we look for methods to incentivize our Cuban partners because we will not have the advantage of hand-picking the individuals that we see would most exemplify the Starbucks Experience in their work and would best fit into the company community and culture. Because this decision making is left in the hands of the government, we will adapt to the host country’s standards and work with what we are given.

Cubans are highly educated and much more literate than other developing countries, with a total population literacy of 99.8% in 2015, and a labor force with secondary education at a rate of 50.60% in 2008. As a result, we will value the employees assigned to us by the government and view them as strong candidates that will be able to smoothly move through our training programs. As with the tradition held in the U.S., we will be offering our partners in Cuba a free pound of coffee every week to allow them to taste different blends, refine their taste for coffee, and grow their coffee passion. We believe this benefit will run well with the Cuban culture that already has a deep appreciation for coffee. To incentivize our partners to work their best for company, we hope to offer our employees higher wages, pending government approval.

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XV. Distribution Strategy

Infrastructure Analysis Using company appointed coffee buyers, Starbucks selects the finest quality of coffee beans from producers in Latin America, Africa, and Asia. Starbucks refuses to outsource the procurement of beans so that it can guarantee high quality standards right from the selection of which coffee beans to serve. The beans are purchased while they are still green (or unroasted coffee beans) directly from the farms. They are then transported to storage sites where they are sent to one of five roasting plants in the U.S. (Pennsylvania, South Carolina, Nevada, Washington, and Georgia). The beans are roasted using Starbucks’ patented roasting method and packaged at the roasting plant and then sent to distribution centers (only a few are company-owned as Starbucks prefers to contract the services to other logistic companies). Starbucks primarily sells their products in their own or licensed stores.

With respect to Cuba, Starbucks’ coffee buyers will establish strategic relationships and partnerships with local coffee farms (after extensive research as to who meets or surpasses company standards). We plan to maintain high quality standards through direct involvement of the company right from the base level of selecting the finest coffee Cuba has to offer. The South Carolina roasting plant is closest in proximity to Cuba and will lead to cheaper shipping costs.

Distribution BarriersThe distribution barriers we will face entering Cuba are primarily related to the nature of its government. Cuba does provide incentive for foreign investment: full foreign ownership, no tax on labor, joint-ventures benefit from 8 years of tax-free profits, and profits/dividends can be transferred to another country tax-free. However, since Cuba is a socialist country, the government owns all factors of production. This means that Cuba controls the manufacturing facilities, distribution centers, HR centers, and even the agriculture. Starbucks may own 100% of its business, but the partnership with the government necessary for doing business in Cuba, can lead to conflict of interest. Starbucks may face the possibility that the next president will not sign off the lifting of the embargo (the removal of the embargo is pending approval of the next president). If this were to occur, Cuba would remain an uninhabitable place for U.S. based companies. Cuba’s average tariff rate of 7.7% also poses an issue for exporting goods.

Distribution ChannelStarbucks uses multiple channels of distribution for its products. We sell products through direct retail in company-owned stores. A variety of products are sold through some of the leading retailers in the U.S. Starbucks also has distribution agreements with office coffee suppliers, hotels, and airlines. In Cuba, we plan on selling products in our Havana location and airport location. A small amount of our U.S. coffee blends will be exported to Cuba for a soft launch in select Cuban grocery stores in an effort to measure the potential in the retail market. If the U.S. coffee blends are successful, we will consider for a sustainable plan of entry into Cuban retailers.

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International IntermediariesAn international intermediary exists because manufacturers sometimes lack the capacity to engage in exporting directly. Starbucks has the capacity to facilitate its own exports but the Cuban government may feel the need to play the role of the intermediary because it controls the distribution of any product throughout the country.

XVI. Information Management Systems

Global Information NeedsFor Starbucks going to Cuba, it is crucial to obtain information for the management team to make good

decisions. The two most important pieces information will be inventory tracking and customer preferences. Inventory tracking will be essential to determine what products are being bought the most and for how much. This information will be needed so that management can adjust their purchase orders to meet the demand. It is also essential for the fact that it will allow management the most efficient amount of product to order to keep cost as low as possible for holding time. Customer preference data will be needed so that management can determine which items to keep on the menu and which to omit, if any. Starbucks will be bringing the classic Starbucks drinks to Cuba along with customized Cuban-style drinks. The customer base will include tourist and locals (mainly business people), so understanding the preferences of both will be essential for success. This information will also be useful to know what percentages of tourist to locals make up the customer base.

We will also like to see how the customers react to our smoking lounge. In Cuba, the smoking lounge should not be a problem; however, with having a large base of customers coming from America, it will be in our best interest to keep an eye on the situation.

Global Information SourcesExternal: We will gather information from our customers through surveys. If we are able to succeed in

bringing free Wi-Fi to our stores, then we will integrate a quick survey that customers can fill out when logging into our Internet, asking something about the drinks or food. It is after completion of the survey, internet access will be granted. If we are not able to succeed in bringing internet to our stores, then we will settle with traditional paper surveys. In addition, we will also have people in the store walking around and asking for customer opinions, focusing attention towards tourist opinions on the smoke lounge. This type of interaction with customers will also give us a better feel of what customers think of the store as well. Utilizing human interaction is more personal and will grant us with more qualitative research to help us understand our market more effectively.

Internal: Starbucks will gather the customer preference information through sales figures. The registers will be made to collect and tell the quantity of each product sold everyday. This will not only help with inventory tracking, but also what the popular items are in order to focus our promotions on. This will also show some less popular items that can be considered to be taken off the menu.

Technology for Managing Information

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Starbucks currently uses cloud computing to store information. This is easy because then many people can access the information around the world, and we would make sure to encrypt all the information so we can ensure our customers’ safety and our information. By working with the government, we hope to be able to use the internet as a company and continue saving and storing information with cloud computing.

XVII. Measuring Global Business Success

Financial GainsStarbucks Coffee Chile, S.A. will be used for this financial analysis. Chile is being utilized as it has the

most available financial information for a similar market to Cuba. Starbucks Coffee Chile, S.A. has been very profitable, in the last 12 months showing $4,301.7 Million in EBITDA and with great profit margin of 68.5%. Revenue has grown economically over the past 12 months at 41.6%. With some large investments, however, they are still looking to continue revenue growth for the next 5 years around 10% per year. The ROI looks promising if they were publicly traded looking to be able to pay 80 cents per share in dividends and looking to increase every year by about 8%.

Using all of this information, the Cuban expansion should be profitable. Being conservative with the projections, the company should be making a profit in 2017 with and ROI of 10%. The gross profit margin should be right around 62% and the sales will probably start around 25 million in the first year. Sales will grow 10-12% each year until 2020 as more tourist will be rushing to Cuba with the new travel laws. The quick return on investment is possible due to the low cost of going to Cuba and the almost guaranteed sales with tourism and the love for coffee by Cubans.

Economic BenefitsStarbucks entrance into Cuba will create jobs not only in hiring employees for their retail stores, but also

in hiring locals to help with construction and/or renovation of target retail locations. Coffee growers and produce farmers that present lucrative value to Starbucks will need to meet the quality and quantity requirements of our corporation and will hire extra hands in order to do so. It may be possible for Starbucks to help with the development of infrastructure within the country. However, this would only include infrastructure that would enhance the efficiency of our business (e.g. new roads that we use as routes for shipping, expanding farmland for coffee growers or enhancing their equipment). Starbucks is always seeking ways to create more efficient use of natural resources (and pride themselves on their methods for energy conservation) and can share this knowledge with the Cuban government and the facilities involved with production and sale of coffee products. This is especially important considering the scarcity of clean water within the country. The Cuban government actually limits foreign companies from overpaying (with regards to the norm in Cuba) employees. Starbucks may be able to compensate well in comparison to other companies, but no wages will be given that could definitively alter the country's economy. However, through the other economic benefits listed above, the country may see an increase in GDP which could potentially lead to an increase in personal income.

Social Benefits

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This particular project increases the rate of employment by working alongside Cuban coffee bean farmers, as well as employing more to work the storefront. Cuba has tried to increase their ability to allow citizens to have access (limited access) to the internet, and by bringing a well known company to Cuba with a dedication to provide free Wi-Fi, Starbucks can assist the government in helping to increase the access to internet, with more agreements between Starbucks and the Cuban government. Starbucks could offer computers or Wi-Fi to help the government provide more internet, and in return Starbucks would extend their brand image of being a second home to the customer. Starbucks can also help train employees and help them to gain better skills to improve the workforce. Since the country is socialist, expanding health care and improving benefits is regulated by the state, and therefore Starbucks can’t quite add much value in this aspect. However, Starbucks will maintain a high social benefit by not overworking employees, and treating them as an essential part of Starbucks’ operation.

Social CostsOne of the social costs would be the decrease of natural resources such as water. Coffee beans (and coffee) use water to create the product, and the increase of demand and the increase of production could affect Cuba’s water sources. Because the locations selected won’t be drive through coffee shops, pollution won’t be a major social cost to Cuba. Since Starbucks is such a global business, they change and alter their business to cater to the local traditions, and therefore the product offerings reflect the local’s choices and culture. The possibility of offering internet or Wi-Fi could alter the culture of the Cuban lifestyle, and perhaps changes the way the Cuban government acts. The Cuban culture embraces coffee, which won’t change any of the traditions in Cuba.

XVIII. Financial Reports

Projection of Sales The financial projections for Starbucks in Cuba were derived from Chile, the most similar market with

available financials. The sales growth for Cuba is amazing. The first year we project that there will be well over 25 million in sales with the next 5 years having double digit increases in growth. Looking at when Chile started, they made a profit right away and in 2015 had net income of just under a million dollars. Bloomberg is projecting Starbucks Chile to have revenue growth of 12.2% for the next 3 years then drop to about 8%. This makes us believe that we can have double digit sales growth for the next 5 years. In 2017 we see a 10% increase in sales, 2018 a 12%, 2019 12.2%, and in 2020 a 12%. These projections are very conservative in our opinion and we believe with the Cuban market just opening up, our projections have the potential to be much higher.

Cost of Globalization

The cost to expand into Cuba will total around 7.6 million. Each store cost around $450,000 to open. There will be three kiosks in the airport and one brick-and-mortar store in Havana. This cost includes all the equipment needed for the kitchen and coffee makers. The next cost will be hiring the staff which will cost around $9,600 (40 employees x $20 a month x 12 months)annually for store workers and around 1 million for executive salaries. The 7.7% import tariff will cost us around $20,000 on equipment being brought in. The cost

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to renovate the Havana store will be around $750,000. The airport graphics will be around $5,000. Real estate cost are still not available but a safe bet would be around $50 per square foot in the Havana airport and around $10 per square foot for downtown Havana. Total airport square feet will be around 1875 and the downtown store will be around 1,800 square feet. Total retail cost budgeting to be $111,750 per month and $1,341,000 per year. Since we will be joint venturing with a local farm we do not have to pay taxes for the first 8 years in Cuba. The cost to bring WI-FI will depend on the contract with Google and the goverment fees. However, to be aggressive with the projection it will be around 1.5 million including the fees, infrastructure, and service. We will also set aside a 1 million dollar fund to invest in a farm. The other cost to include will be our community outreach cost around 1.2 million.

XVIIII. Conclusion

Successes/FailuresBy entering Cuba, we will expect to have had plenty of success. First, our airport kiosks and our Old

Havana location have a high possibility of operating at a huge profit. By looking at similar countries in the neighboring area, Starbucks could have a high return on investing in the Cuban market. A majority of our sales in these locations should be from the classic American Starbucks drinks due to a mass amount of new American-tourist traffic. The sprinkler effect will be very useful in being able to position ourselves throughout the airport and take up the market share before any of the competition can enter the market. Because we are first to market there, it is an advantage to take the best locations and help create a strong brand in Cuba.

Getting government approval for free Wi-Fi will be a difficult task because it might change the culture and potentially counteract the government’s authority. Creating a strategic alliance with Google has a high potential because they have started to work in Cuba by creating a patent on the name, which shows that they are very interested in expanding into Cuba. The free internet will bring us a ton of business from locals, growing our name and market share. Since we are providing a new service to the country, this will definitely be a successful move. We will look to open two more stores in Havana and potentially expand outside of the capital if we continue to hit the projected profit margins.

We originally had high hopes for the smoke lounge, since it is popular amongst Cubans to casually smoke cigars while negotiating business. However, tobacco distributors do not align with Starbucks’ values. Currently, Starbucks does not want to take on debt from the tobacco companies, showing their solidarity towards a smoke-free facility. Additionally, it has a strong potential to hurt our image in our country of origin due to the taboo nature of tobacco in the United States.

On the other hand, working with the Cuban coffee and sugarcane farmers have been mutually beneficial, and definitely a success of this venture. We have the ability to increase the revenue of the local farmers while obtaining high-quality, local ingredients. This will appeal to the Cuban government, since it is beneficial to the country’s economy, as well as customers who enjoy the idea of a genuine Cuban experience. While Cubans

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don’t have a high income, we have found it successful that we can make a lot of the products there, and reduce the cost to make and sell the product.

A failure would be that since Starbucks’ can’t hire employees of their choosing, it risks the brand image by being represented by employees that don’t embody Starbucks’ values. We face an uphill battle in training them since we can’t incentivize certain behavior with monetary value, and we don’t have the luxury of picking the best candidates. We also know that it will be a difficult operation to work with a government that holds so much power over our business. By opening a Starbucks in Cuba, we need to have the full support of the Castro regime in order to have the best chance of succeeding in Cuba.

A potential failure we could also run into is finding a coffee farm that fits our quality and our values. Since it is extremely beneficial to have a joint venture in Cuba (for tax benefits), finding the farm to create a joint venture will take a lot of time.

Recommendations We recommend that we move forward with plans to penetrate the Cuban market by the end of 2016. With the potential success that we will have in Cuba, we plan to expand to two more locations by the end of year 2018. This should increase ROI to 20% by year end 2019. We recommend that Starbucks invests a lot into offering a Wi-Fi zone, which will encourages more tourists to visit, and helps create unity in the brand image. Bringing more internet and laying more fiber optic wires will be an expensive, but it is nothing we can not afford.Contingent upon the OFAC’s approval, we feel like Starbucks needs to enter the market as soon as it is possible because there isn’t much competition, it is a developing market, and other similar countries have seen success. Our success is based on the strong partnership we can create with the Cuban government to help stimulate the Cuban market, and internally create a stronger global business. Even though we may not own our own land, it will be tremendous for the company image to go and attempt to better the Cuban economy with our business and the people with our community outreach programs. The worst thing that could happen is the government taking away our business and the loss of $7.6 million. We recommend that in the case of failure, Starbucks can either take all their products and leave the country, or potentially eliminate their retail locations and continue to grow Cuban coffee beans and introduce these beans to other markets (such as Chile, Puerto Rico, or the United States). The best case scenario is that we continue to grow beans in Cuba since they are known for their coffee beans, and sell them in different locations, but if those beans don’t sell, we can take our inventory and leave Cuba. While this may damage the brand, we feel like there are so many locations globally, and the Cuban locations won’t attract too much press. If they do, we want to communicate that we had offered a lot of social benefits by helping their workers, developing better growing techniques for coffee, and even donating coffee.

However, the profits we can produce for ourselves and the economy in Cuba is worth the risk, because entering the blue ocean market with a product and company that fits the values, culture, and lifestyle of Cuba has potential to be successful and create a sustainable future between Starbucks and Cuba.

XX. Appendix

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N/A

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