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wylies99
Joined: 13 May 2006
Location: I'm one cool cat!
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 Posted: Tue Sep 02, 2008 1:30 pm Post subject: Why Can't Starbucks, McDonald's Offer Lower Prices? |
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http://www.koreatimes.co.kr/www/news/nation/2008/09/123_30459.html
09-02-2008 19:12
Why Can't Starbucks, McDonald's Offer Lower Prices?
By Jane Han
Staff Reporter
Admitting that a good cup of coffee isn't enough to lure money-tight customers, U.S. java giant Starbucks is offering special discounts and even free refills at shops in its home market and parts of Europe. But Starbucks patrons here shouldn't expect the same deal.
``South Korea is flagged as part of the Asia-Pacific market, which we consider the fastest growing in the world,'' says Joyce Park, marketing head of Starbucks Korea, who added that the business strategy is basically unneeded here.
She explained that market conditions are different everywhere and each country devises a unique model that fits its circumstances.
From July, Starbucks franchises in the U.K. and Ireland started offering a free cup of filter coffee to all customers that bought a hot drink in a bid to win back customers amid the credit squeeze. The company said the promotion will run indefinitely.
Early this year in the U.S., the coffee joint test marketed a cup of coffee priced at just $1 at select locations, and the company says more promotions and discounts will continue.
This seems like a much-needed move at a time when the java powerhouse recently posted its first quarterly net loss since it went public 16 years ago.
The situation is different here. Annual sales from Starbucks' 254 franchises nationwide totaled 134.4 billion won last year, up 23 percent from 2006. Net profit, for the first time, surpassed 10 billion won. And the local chain says store expansions will continue.
For Starbucks, these figures seem to be enough to dismiss extra work in winning more customers. But forget discounts, what about better pricing? Korean customers pay 1.6 times more than those in developed countries like the U.S., Japan and Germany, according to the Korea Consumer Agency.
Park says the higher price simply represents the high cost of living in Korea.
``From main ingredients like milk and sugar to rent payments, things are more expensive here,'' she said, stressing that Starbucks is currently absorbing much of the rising costs to prevent raising menu prices even more.
Aside from the coffee giant, McDonald's and Burger King's fast food franchises here also opt out of cheap marketing tactics.
McDonald's in the U.S. offers full sandwiches like the double cheeseburger and McChicken burger for $1, but here, the cheapest costs 1,500 won.
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Captain Corea
Joined: 28 Feb 2005
Location: Seoul
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| Posted: Tue Sep 02, 2008 2:45 pm Post subject: |
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| Quote: |
| Why Can't Starbucks, McDonald's Offer Lower Prices? |
Because they don't need to.
Yet. |
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jlb
Joined: 18 Sep 2003
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| Posted: Tue Sep 02, 2008 2:55 pm Post subject: |
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| Koreans in general seem to be quite oblivious to how expensive things are here compared to other developed countries. Like paying $5 for a cup of tea at the Coffee Bean is not so outrageous. Or $1/ apple at Emart. Same deal. |
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blaseblasphemener
Joined: 01 Jun 2006
Location: There's a voice, keeps on calling me, down the road, that's where I'll always be
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| Posted: Tue Sep 02, 2008 3:38 pm Post subject: |
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The reporter isn't aware that Mcdonald's offers a 3,500 won menu at lunch?
Lotteria doesn't have that.
but Lotteria is Korean.
True colors, reporter. |
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ardis
Joined: 20 Apr 2006
Location: Seoul
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| Posted: Tue Sep 02, 2008 3:43 pm Post subject: |
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| jlb wrote: |
| Koreans in general seem to be quite oblivious to how expensive things are here compared to other developed countries. Like paying $5 for a cup of tea at the Coffee Bean is not so outrageous. Or $1/ apple at Emart. Same deal. |
Uh, have you been to Europe lately? |
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cdninkorea
Joined: 27 Jan 2006
Location: Seoul
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| Posted: Tue Sep 02, 2008 3:54 pm Post subject: |
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Why should they lower their prices when they're making money hand over fist?
Funny story though: next time you hear about how outrageous (sp?) it is that Starbucks Korea is more expensive most anywhere else in the world, point out that prices here are set by Shinsegae, a Korean company and subsidiary of Samsung, not Starbucks America.
Really though, it's nothing to get angry about: firms all over the world charge the maximum they can, just as all of us work for the highest salary we can find (unless benefits like an enjoyable job compensate for a lower salary). |
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itaewonguy
Joined: 25 Mar 2003
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| Posted: Tue Sep 02, 2008 4:21 pm Post subject: |
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| cdninkorea wrote: |
Funny story though: next time you hear about how outrageous (sp?) it is that Starbucks Korea is more expensive most anywhere else in the world, point out that prices here are set by Shinsegae, a Korean company and subsidiary of Samsung, not Starbucks America.
). |
thats right, and I doubt Starbucks American mind at all if shinsegae charge those prices as it means more percentage for HQ! |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Tue Sep 02, 2008 5:01 pm Post subject: |
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| itaewonguy wrote: |
| cdninkorea wrote: |
Funny story though: next time you hear about how outrageous (sp?) it is that Starbucks Korea is more expensive most anywhere else in the world, point out that prices here are set by Shinsegae, a Korean company and subsidiary of Samsung, not Starbucks America.
). |
thats right, and I doubt Starbucks American mind at all if shinsegae charge those prices as it means more percentage for HQ! |
EXACTLY!!!
Koreans have no one to blame but themselves. Wonder why the imports are so expensive? Thank your own government, which is not truly democratic, and is controlled by a group of rich folks who want a cut of everything, just as it always has been.
Korea suffers from SERIOUS issues with nepotism, "good old boy" networks, and shady business practices endorsed by the government.
You should hear my wife talk. She works for a multinational company, and she'll fill your ear full of how tough it is to market and sell a product here due to quirky little rules that exist for no reason other than to milk money so somebody's family or friend can make a chunk doing nothing. All of that attached crap that companies have to pay for here just drives up costs.
An example: My wife's company (pharmaceutical/health care) sells some products at one of the local chain convenience stores you see on every corner. According to laws here, they can't put a display up unless it is manned by a part-time work specifically for that display (like a Doumi girl hocking product in a short skirt). Now, how many Doumi's do you see working in your neighborhood convenience store? NONE. What the company must do, however, is pay a cut to a broker agency who sets up "ghost workers" who are supposedly manning the product in the store. Of course, the workers are never there, but they provide lists of their part-time workers who are employed selling that product. It's just a list of people, and my wife's international company is forced to pay for it, or else they cannot sell their product in the convenience store.
This law most likely exists for no reason other than to provide a way for someone's family member to own a business making tons of money doing virtually nothing.
Korea is FULL of this kind of crap, and it's another reason why prices are so high here. That doesn't even get into how these companies have to partner with chaebols like Samsung, Lotte, etc., and turn over a chunk of their profits to them. Yet another way Koreans with money make profits doing jack-all.
And guess what... within a short time, one of those chaebols is going to make a knock-off (Angel In Us Coffee, for example) of that international product at a lower price, and try to control ALL of the business/money while they force out the company they leeched off of.
Predatory practices like this are why multinational companies are leaving and have no interest in investing here. Sony Pictures, the last foreign movie marketer, just announced they're leaving Korea as of yesterday, by the way. Paramount, Fox, and everyone else left in 2006.
International companies like Starbucks take the heat for higher prices, but the truth is they're just trying to cover the losses incurred by having to pay off the rich Koreans who have total control over business in this country and enact these stupid rules. The more I learn about business in Korea, the more I hate Korean politics and rich people who sit on their fat ass and do nothing. To make matters worse, they are perfectly content to hide behind the rampant anti everyone else nationalism Koreans exhibit as they blame the world for their problems.
So the average Korean whines about having to pay high prices, while they totally turn a blind eye to the fact that the screwing is being done by their own rich people. |
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Huh Kyung-young
Mod Team
Joined: 06 Jul 2008
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| Posted: Tue Sep 02, 2008 5:12 pm Post subject: |
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| blaseblasphemener wrote: |
The reporter isn't aware that Mcdonald's offers a 3,500 won menu at lunch?
Lotteria doesn't have that.
but Lotteria is Korean.
True colors, reporter. |
Lotteria also offers lunch sets for 3,500 won. European Frico Cheese, Paprika Bacon Beef, Hanwoo Bulgogi Burger, and one or two more. |
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Ilsanman
Joined: 15 Aug 2003
Location: Bucheon, Korea
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| Posted: Tue Sep 02, 2008 5:27 pm Post subject: |
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4000 last I checked.
Plus those burgers suck.
I wish McDonalds also offered a healthy lady set. 2 burgers, fries, and 2 cokes.
| Huh Kyung-young wrote: |
| blaseblasphemener wrote: |
The reporter isn't aware that Mcdonald's offers a 3,500 won menu at lunch?
Lotteria doesn't have that.
but Lotteria is Korean.
True colors, reporter. |
Lotteria also offers lunch sets for 3,500 won. European Frico Cheese, Paprika Bacon Beef, Hanwoo Bulgogi Burger, and one or two more. |
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bassexpander
Joined: 13 Sep 2007
Location: Someplace you'd rather be.
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| Posted: Tue Sep 02, 2008 5:28 pm Post subject: |
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This is one of the best articles I've ever read about investing in Korea:
http://www.escapeartist.com/efam19/Investing_in_Korea.html
Everyone should read this. It really hits home.
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Investing in Korea
Investing in Korean companies may take several forms. Most forms of investment in Korean companies are quite hazardous. There are only two means whereby an investment is not completely frivolous. Some background in the general attitude and schemes Korean businessmen employ must be covered to understand where they are coming from in their thinking. A historical background will expose the roots of their thinking. And, some examples will show how that thinking manifests itself in actual deals.
The general population is most gracious, considerate, and caring. But, they do not represent the business community. The business community is feudalistic and deeply Confucian; a Plutocracy. This is a very old business paradigm. One must consider that the Japanese invaded and occupied Korea for about 50 years. There is a deeply seated resentment toward the Japanese, because of many abuses. Despite their resentments, the Koreans employ the old Japanese style of business in combination with their 5000 year old traditional business style. This separates the majority from the business lords and landowners.
A semantic error can occur when referring to "businessman". Anyone who owns a small business or shop considers himself a businessman. In the West, these same people would be called shop owners, merchants, and small business entities. There is a distinct difference in business knowledge and power distribution between these people and the much smaller group who control the land and the wealth of the nation. The smaller group of power and control corporation owners will be referred to as "businessmen" in this article. Another semantic error is most Korean corporations are really chaebels. So, when we speak of Korean corporations, we are really talking about chaebels.
As a consequence of the Americans winning the Second World War, the Koreans were liberated from the Japanese. However, the old traditional ways were deeply rooted and business continued as usual. Even after the Korean War, nothing really changed. The present day businessmen were raised in the old traditional values without the benefit of modern or Western education. In fact, many of them were lucky to be literate. Most of them were children at the time of the Korean War. So, they embrace the values and traditions of their parents. Their first exposure to the 20th century was gratis the United States.
To complicate matters further, when the Japanese deposed the King of Korea, the royal family just went underground. They maintained a silent and shadowy hold through the various family connections and Confucian hierarchy. Despite the fact that they are reputed to be a democracy, the royal family still maintains power and control through the "High Society People" by means of family control of the large corporations or chaebels, using democracy as a fa�ade.
One must consider that Korea has been the traditional battlefield for the Chinese and the Japanese for centuries. Each would invade the other using Korea as the staging ground because of its strategic location. The Koreans developed a tenacious grasp of their heritage and traditions as a direct consequence of outside interference over the centuries. It is no wonder that they hold onto those values as if their very lives depend upon it. In many cases, it did. These are the foundations of their present day attitudes toward all foreigners. Now that they are in control of their own country, they exhibit isolationism and nationalism to extreme.
So, how does a chaebel work? They are incorporated under Korean law. The majority stockholder is usually a senior family member. There are three sets of books. One set is reserved for the taxman, who gets paid under the table at tax time. The second set is reserved for the stockholders to view. The third set is the actual cash record. The senior family member and majority stockholder may be the only one who ever sees this record. There are several articles in "The Economist" that cover this territory.
Personal and corporate expenditures are most often mixed out of the same bank accounts. Any surplus is withdrawn and distributed among family members in a clandestine way. These cash transactions are frequently carried out under fictitious names. This makes tracing any of the money virtually impossible. It is not unusual to find large estates owned by people who do not exist.
There are no spreadsheets or financial documents that indicate the health of the business. If you were going to purchase the company, there is no convenient means to make a valuation of the company. The usual method of operation is depletion of the cash reserves into hidden accounts and assets, such as property. The company operates on cash flow until there is a downturn. A corporate president may become extremely upset over minor cash flow disruptions. He cannot reveal his hidden assets and cash, but must still pay bills and wages. Then, loans are sot from friendly bankers to make up for the deficit.
The bankers never qualify their clients. Most loans are made on the basis of friendship and family connections. The loans are rarely, if ever, secured loans. Occasionally, the corporate assets are used as security. Since the corporations are frequently in debt in excess of their value and the real wealth has been spirited away, these loans can never be repaid.
Since OEM (Original Equipment Manufacturer) deals with foreigners are the most common in Korea, we will start with one example of how things might work. Suppose that an American company has developed a technology and manufactures it. They become interested in a Korean company for production to reduce labor and other related costs. An interested Korean will open negotiations. The Korean government may give the Korean businessman a factory apartment, including utilities, for free for a limited time. Or, the Korean government may give the Korean businessman a loan that does not have to be repaid under a certain set of conditions. To the American, the Korean has an on going business in a small factory. It cost the Korean businessman nothing to set up. The American company gives the Korean businessman 40% of the price of the contract to purchase parts and materials.
Now, things start to get interesting. The contract may only be for two years, at which time it must be renewed. The Korean company completes delivery of the products. After one year, there is a large amount of money on the "investor" set of books. With this in hand, he gets his friends to invest. With the additional cash, he runs down to the bank and gets a large loan from his local banker family friend. All of the money just evaporates. Now, the cash flow from product shipments to the US is only covering wages and loan interest.
The second year ends and it is time for contract renewal. The Korean company is having financial problems at this point. So, they raise the price on the contract. The Americans agree. The same process repeats itself for the next two years to the immense enrichment of the company owner and his family. But the next time it happens, the Americans back away and take their business to China. Now, the company is bankrupt. The bank has a bad debt and the stockholders may have incurred some liability for the loans. Everyone loses except the company owner and his family. He may drink and cry in public, but he is only unhappy that the cycle did not repeat again. If you were a stockholder, you may be interested in where all of the money went. You will never find out. This is one reason why corporate bankruptcies are very common.
Another example is the medical company that bought a hospital in Korea. The deal was for cash. Once the transaction was completed, the party selling the hospital opens a new hospital across the street. All of the doctors and hospital staff move across the street. Since the Koreans are very loyal and respectful of their physicians, they move across the street as well. Now, the medical company has an empty building with no staff. One might think that new staff and physicians could be hired and the patronage of the old patients renewed. The patient's loyalty to their doctors will prevail. No new patients ever appeared. The entire investment was lost.
A Korean business man spent four years developing a relationship with a Malaysian. The Malaysian finally agrees to a joint venture in Malaysia. But, he wants a contract with guarantees in the event of breach. He also wants to use modern accounting methods and have a means to keep track of the money. The Korean backs away making lame excuses. The real reason is that he did not want anything in writing, especially a contract. His remark was, "You must understand the Korean way. This is how we do business in Korea. You don't trust me." He openly displayed insult over the Malaysian distrust. It was an affront to his honor and reputation. Actually, he would have disappeared all of the cash and the Malaysian was smart enough to know what the Korean was about. The deal never happened for good reason.
During the last economic crisis in Korea, Hyundai received a loan from the IMF. One of the conditions was that Hyundai use modern accounting methods and that the banks involved exercise modern loan qualifications. Hyundai agreed to all of the demands and conditions of the IMF loan. Then, it was business as usual. Hyundai is on the rocks again and one of the major American motor manufacturers withdrew. The pit is bigger and deeper than ever before, with the assistance of IMF money.
Don't even think about investing in a Korean Internet company. There is only Korean software in Korea. If there is no Korean version of an application or Internet development tool, it does no exist in Korea. Except for some government agencies and large multinational corporations, there are very few bilingual web sites. They say you must learn Korean, if you want to see their web sites. When asked if they are interested in international business and exposure, they express their self-sufficiency. The vast majority of Korean web sites are built by hand with a text editor or modified copies of code taken off of the Internet. Starting your own company and doing it your way will result in problems with the government due to competition with government owned communication systems and government owned Internet construction companies, such as Kornet. If AT&T can get burned, you probably can too. If the locals don't take your money, the government will.
There is a famous story in Korea about a Korean businessman who fell into disfavor with the chaebels. He was found to be too competitive with one of the major chaebels. His company was heavily cutting into the profits of one of their monopolies. The government went after him and his business, tooth and nail. After much scandal and notoriety, it was discovered that he had registered the company as a foreign entity incorporated in Hong Kong. Due to international complications that corporate seizure would have precipitated, he became untouchable. As the story goes, if the Korean government had expelled the company from Korea without the ability to seize the assets, it would have destabilized the economy. If they can do this to one of their own, consider what they can do to you.
Deals that would be called "Bad Faith" or fraud in the West, are very common in Korea. Remember, you are a foreigner. They do not see it as unethical.
If you start your own company in Korea, follow these rules:
1) Do not allow majority stock ownership by Koreans.
2) Do not appear to compete with government owned monopolies.
3) Do not compete with any of the major corporations (chaebels).
4) Do not make complicated financial entanglements with Korean banks.
5) Do not allow them to understand your technology.
6) Do not give them access to client lists and marketing data.
7) Do not share technical documents.
 Do not sign your name on any piece of paper that is not a legal contract.
Can you conduct business in Korea? Yes. But, you must go through KOTRA. They will help to keep things above board. Contracts will be difficult to negotiate. Disputes will probably arise for which KOTRA is prepared. They will help you to keep from getting skinned. Maintain majority stock ownership. And, keep any sensitive documents out of the country or hidden and locked. If you are going into a product area where one of the chaebels or their associates is already engaged, get them involved as a minority stockholder. Always involve your embassy in any deal. KOTRA is equipped to deal with it. And, you must maintain on site control. You cannot just come back once every six months to see how things are going.
Many of the new international business laws in Korea have changed in favor of foreign investors by pressure from the IMF. This is where KOTRA comes into play. They will definitely help to keep an even playing field. But, you must keep your eyes open to avoid the pitfalls, even then. But, whatever you do, do not invest in a chaebel. You would be better off donating your money to a reputable charity.
You have two choices. One is a joint venture Western style, and follow the rules listed above. Go through your embassy and KOTRA or forget it. The other is to register as a foreign entity. You must still get your embassy and KOTRA involved to protect yourself.
One saving grace is that many of the young people have been educated in the West. They are fully aware of the problems and understand modern fiscal practices. Once they begin to take over control from their relatives, the business climate can be expected to change for the better. However, you may trust human behavior to gravitate toward conditions of power and control. Abuse is a repeating cycle in any culture.
The Korean way is a very old way. It is predicated upon preserving the Korean traditional values and their old feudalistic and Confucian hierarchy. It is a Plutocracy. It is a classic example of Power and Control. Many of the young people openly demonstrate against it and are dealt with harshly. The majority of Korean people know what is going on, and guardedly express disgust with the chaebels. They all know that democracy in Korea is a facade. My recommendation is, if you are not a professional that understands Korean culture, do not get involved. The Koreans are a very proud people. Be careful not to insult them with your understanding of reality. |
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Unposter
Joined: 04 Jun 2006
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| Posted: Tue Sep 02, 2008 6:26 pm Post subject: |
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| Wow Bassexpander! Some very interesting reading! It definately gives some food for thought. Though, I wish the article would spell chaebols differently. |
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komtengi
Joined: 30 Sep 2003
Location: Slummin it up in Haebangchon
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| Posted: Tue Sep 02, 2008 6:46 pm Post subject: |
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mcdonalds are also attempting to phase out mcnuggets
the only sauce they now offer is sweet and sour, and soon will all be gone
his after getting rid of the fillet of fish  |
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OnTheOtherSide
Joined: 29 Feb 2008
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| Posted: Tue Sep 02, 2008 7:02 pm Post subject: |
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McDonalds is abslutely disgusting. I don't see how people can eat there.
I would only eat there if I was broke and pinching every penny. Or if i'm in the middle of nowhere and it's the only food available. Otherwise i'll eat quality food. |
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billybrobby
Joined: 09 Dec 2004
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| Posted: Tue Sep 02, 2008 7:17 pm Post subject: |
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| OnTheOtherSide wrote: |
McDonalds is abslutely disgusting. I don't see how people can eat there.
I would only eat there if I was broke and pinching every penny. Or if i'm in the middle of nowhere and it's the only food available. Otherwise i'll eat quality food. |
Can't we get some kind of software to automatically add comments like this whenever McDonald's is mentioned in a thread? Then quality food eaters like this guy could spend their time doing something more important. |
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