Monday, October 28, 2013

Starbucks and its Customers Both Paying a Higher Price in China

At a Starbucks in Zhuhai, Guangdong province, I spoke with a number of employees during their team meeting a few days ago.

One of the items on the agenda was planning for the upcoming Halloween holiday. In some ways, the workers reminded me of a young woman I met in Nanning who enjoyed working at another American company--McDonald's.

Starbucks was especially on my mind because it recently had the honor of being the latest foreign company to receive the wrath of the China Central Television Network (CCTV). As Adam Minter wrote in Bloomberg's World View blog:
What did Starbucks Corp. ever do to the Chinese Communist Party?

That’s the question China’s latte-sipping set is asking in the wake of a now-notorious investigation, first aired on national television Sunday, that revealed -- among other examples of allegedly shameless profiteering -- that a tall latte costs about 45 cents more at a Starbucks in Beijing than it does at one in London, and that Starbucks’s profit margins in the Asia-Pacific region exceed those of any other in which the company operates.

The story has dominated China, with major international news media outlets subsequently picking up on it.
Read the rest of Minter's post here. The big issue here isn't Starbucks unfairly charging customers in China more than elsewhere. Instead, the CTTV's report is another example of the additional challenges non-Chinese companies can face in China, even if they are offering something strongly desired by many Chinese consumers and providing better-than-average opportunities for Chinese workers.

Nonetheless, I would welcome another CCTV report on Chinese paying more for a foreign brand's beverage. After all, "imported wines to China are subject to taxes that amount to about 48% of the declared value." That usually works out to costing to a bit more than 45 cents. Wine consumption in China is rapidly growing, so wouldn't many Chinese be happy for foreign wines to cost less? And the tax is entirely controlled by the Chinese government. How can you lose, CCTV?*

*Yes, reducing the tax wouldn't necessarily guarantee a drop in wine prices. But if prices didn't fall after a big change in taxes, CCTV could conduct another investigation!

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