Transcript Hungary
Hungary for Starbucks? Francisco Cavazos Dipannwita Chakraborty Da-Jiun Chen Rema Ramakrishnan Background Hungary was part of polyglot Austro-Hungarian, which collapsed during World War I. Fell under Communist rule following World War II. In 1956, a revolt was met with a massive military intervention by Moscow. Background In 1968, under the leadership of Janos Kadar, Hungary began liberalizing its economy, introducing so-called New Economic Mechanism In 1990, Hungary held its first multiparty elections and initiated a free market economy. In 1999, joined NATO. In 2004, joined the EU. Geography Location: Central Europe Capital: Budapest Area: 93,030 sq km, slightly smaller than Indiana. Climate: dry continental climate, with cold winter and warm summers. Natural Resources: Bauxite, Coal, Natural Gas, Fertile Soils, Arable Land People Population: 10,032,375 (estimate 2004) Age Structure 80% 70% 60% 50% 40% 30% 20% 10% 0% 0-14 years 15-64 years 65 years and over People Median age: Total: 38.4 years Male: 35.4 years Female: 41.1 years Literacy: Total population: 99.4% Male: 99.5% Female: 99.3% Way of Life Rural nature Fewer than ten cities have a population of more than 100,000 Cities are surrounded by village-type settlements Huge number of commuters Way of Life Over 50% of the population pursues agriculture in addition to their main occupation. Higher level of consumption of goods and services, as compared with other former Communist countries. Social Problems: High incidence of alcoholism Racial discrimination and persecution Privatization Ownership structure of companies (% in assets) 1992 1993 1994 1995 1996 1997 25.1 29 32.9 35.2 34.7 38.2 Foreign owners 0.1 16.1 18.9 28.4 31.5 35.3 Total private ownership 35.2 45.1 51.8 63.6 66.2 73.5 Total state and other 64.8 54.9 48.2 36.4 33.8 26.5 Total domestic private owners Source: Pitti, Zoltán (1998) Social services Health care and pension funds are financed by employer-employee contributions totaling approximately 10 percent of the annual wages of each worker. Health insurance is obligatory, and most medical treatment is free. Guaranteed minimum wage. Social Services Eligible to receive retirement pensions Men: age 60 Women: age 55 Social insurance provides for prenatal and maternity benefits. compensation for unemployment. old age and disability pensions. aid to orphans and widows. Currency and Exchange Rate Currency: forint (HUF) Exchange rate: 189.09 (forint per US dollar) Post-Communist period Hungarian government actively sought foreign investment Encouraged foreign firms to take over privatized firms Today-80% of Hungary’s output is produced by private sector Péter Medgyessy’s government is following a policy of shedding state ownership Companies to be privatized: financial institutions (e.g. Posta Bank), MOL (The Hungarian Oil and Gas Company Foreign ownership National Development Program and the Smart Hungary program: aimed at facilitating foreign investment Manufacturing Local 33% Foreign 67% Telecommunications 100% ownership permitted, exceptions:defense, national airline Local 10% Foreign 90% Land ownership The 1994 Land Law: restricts foreign ownership to 6000 sq. meters Leases are allowed up to 300 hectares for 10 years Restrictions hold until 7 years following EU membership Business Environment Ownership more concentrated than in US Hungarian accounting standards are significantly different from international standards Dispute settlement Independent judiciary and well-developed legal system Hungary has accepted binding international arbitration in cases of dispute between state and foreign investors Well developed commercial law Regulations Regulatory process Income tax levels Relatively open and transparent 40% individual 18% corporate Price regulation Pharmaceuticals,energy Political environment Political violence Almost negligent, peaceful transition to democracy Corruption Very low—good legal system in place Isolated incidents but not pervasive "Good coffee should be black like the devil, hot like hell, and sweet like a kiss." Hungarian saying Tradition Traditional and growing modern trends Early 1900s New York Palace coffee shop Significant role in cultural life Hub of most lively social events Used by most influential and significant writers Tradition Café Gerbeaud Opened 1858 Over 600 people Oldest in 1824 Rebirth of Café era Hungarian Coffee Market 2001: Coffee sales up 6% from 1997-2001 2002: Retail outlets accounted for almost 73% 2003: Hot drink market up 2.1% Growth Reduction of 12% luxury tax Growing disposable incomes Number of foodservice outlets Western lifestyle Better quality products Growing consumer sophistication Expected Growth By 2008 – Expected growth of 7.3% in volume Sales growth of 9.3% valued at HuF114.6 billion Niche markets Green Tea Decaffeinated coffee Instant cappuccino History and Objective History 1971 1984 Howard Schultz, vice president Objective To establish Starbucks as the most recognized and respected brand in the world Growth of Starbucks Dominant retailer, roaster, and a brand of specialty coffee in North America 4.1 billion net revenue 8% annual store sales growth 1000 stores in Asia Pacific region More than 7000 locations worldwide 9 on Fortune Magazine’s Most admired companies list Starbucks: SWOT Analysis Strengths Strong Brand Name recognition Large retail distribution system Quality Product Extensive product list Strong financial history Strong Human Resource Weaknesses Prices high relative to competition Strong dependence on suppliers Starbucks: SWOT Analysis Opportunities Expansion into overseas markets Expansion into untapped U.S. markets. Expansion of brand name into new products or business lines Threats Economic condition may make consumers unwilling to pay high prices Political conditions abroad may limit expansion May be reaching saturation point in some U.S. markets International Market Barriers to enter Hungary Competition: Countless coffee shops in Hungary Trend in Hungary: Every café serves alcohol Ambience: Elegant and sophisticated Supply/Demand: Additional cafés would cause surplus Price: Lower comparative price Price Comparison Hungary Coffee Shops Price Starbucks Espresso $1.30 Espresso Cappuccino $1.99 Cappuccino Coffee with milk &whipped cream $1.99 Coffee with milk& whipped cream Price $1.75 $ 3.45 $3.95 Hot Chocolate $1.99 Hot Chocolate Ice Coffee $2.60 Ice Coffee Frappe $3.33 Frappe Frappe ( with vanilla ice cream ) $3.00 Frappe ( with vanilla ice cream ) $ 2.70 $ 3.95 $ 3.95 $ 3.95 Recommendation Do not enter the Hungarian market. Questions Any questions?