Introduction

Starbucks is America based company with the operations that have spread throughout the globe

in 65 different countries. It is one of the largest coffee provider chains in the world. The

company has stores in 12 different Middle Eastern countries. It operates through the different

partners. It employees 10,000 partners to operate with. Thousands of local people are employed

through this chain. The company is well known for the standard coffee cup around the globe.

Through the licensing process a trade agreement between the partners is created. It has been

operating in Gulf since 1999. Alshaya group is the Middle Eastern partner for Starbucks through

which it operates in Oman, Lebanon, Morocco, Saudi Arabia and UAE. The company operates

keeping in mind the local customs and legal environment in mind. The legal system varies from

country to country. There are stark legal variations in the regions and they must be adopted for

the smooth running. (Starbucks, 2017) Starbucks is a brand that has been residing in the daily

lives of every coffee lover and drinker. It is has become a life style. There are numerous

engaging activities that the company involves in and makes the customers take part in so as to

keep the customers intact. This has been the point where company has been able to create

differentiation with the peers. It is not the only espresso point in North America but only one that

people prefer and remember to take for the start of their day. (Geerddy, 2016) Starbucks is a

name that is known all around the world for the coffee it provides. It has taken the Italian culture

of coffee drinking and amalgamated in to different areas of the world. The company has made its

name by providing not only good coffee but best coffee whose recipe is not kept secret. The

belief behind was that anyone can make this particular type of coffee but the specific kind of

environment in which that coffee can be enjoyed is available at Starbuck. This has led to

differentiation of the brand around the world. After so many years the brand is still existing and

continuing to grow. This exceptional marketing strategy has created some very loyal customers

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who have become a regular. Some people cannot find their morning without their first cup of

Starbucks.

Background

The company started its operations in 1971 from the city of Seattle. They started selling whole

bean coffee beans. The company grew rapidly that by the year 1982 it had five stores already in

progress of operations. Schultz became part of Starbucks at that crucial time. He joined the

company’s sales and marketing team. This led to huge expansion of the company that we see

today. Coffee is a vital part of the Italian culture. The same taste if taken to America and

provided in a good environment would definitely will become the part of daily culture. The

company since then has expanded aggressively to the extent that at one point in time it even

faced losses before finally making profits in the year 1992.

In long term the company grew by leaps and bounds. The brand name was created that had a cult

following. The company owns most of its stores in North America while rest are operated

through the partners in different countries. It is the brand with premier coffee provided to the

customer at affordable prices. The charts below depict the expansion of locations.

Starbucks store locations

6000
5000
4000
3000
2000
1000
0

Figure 1: Starbucks locations (Starbucks, 2003)

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 Industry
Starbucks operates in an industry that had 6.6% percent share which is slowly declining due to

economic crisis in America. This happened in 2009. Before this it was a decade of growth and

establishment. The population mostly preferred eating out and enjoying the luxury it could avail.

However, there is hope for the company to grow at annual rate of 3.9% per year. This potential is

for the next five years. Starbucks being a major player of the industry finds it the best

opportunity to capitalize upon. It has started to expand beyond America as well to increase the

market share and revenues for the company. The industry demand for the premium coffee is due

to certain factors. This includes the disposable income, the demographics and disposable income

of the household. The decline in the overall income of the household has reduced the industry

margins. These drivers have positive impact on the industry but with the economic deviations

there is an increase and decrease in the growth. Coffee beans are the main input of the company

and their differing prices have consistent impact on the company growth. Attitudes towards

health also play an important role in determining the demand in the industry. There is an

expected shift towards healthy eating and diet among the consumers in 2014, and this could be a

potential threat to the industry as they become more aware of issues related to weight and

obesity. There has been a proactive shift among the industry participants to tailor their menus

towards more organic and healthy products mix. (Jurevicius, 2017) The company is willing to

compete in this industry and meet even the smallest of the profit margin. This competitiveness

has been discussed below in the report for the sake of the better understanding of the report.

Legal system is also important as well as the competitiveness. This had led to bigger name of

the company. The fight is important to maintain the market share and to grow the company

globally. Starbucks competitors used to be other specialty coffee shops, like Caribou Coffee, and

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local coffee shops. But the expansion of McDonald's McCafe has brought a different level of

competition as customers look for ways to save money.

Legal Environment in Oman

The legal system in Oman is based on two things that is the civil code as well as the Islamic

Sharia’s law. The regulatory framework is developed on the basis of the 1996 Basic Statute of

the state. The foreign companies can establish the operations in Oman using one of the following

options that are listed:

 Joint stock company

 Limited Liability Company

 Commercial Agency

 Commercial Representative office

 Branch

Starbucks and Legal Framework

In some areas of Oman a separate legal framework operates to deal with franchises. In Oman

franchises are considered as another form of commercial Agency.

Commercial Agency

Foreign companies such as Starbucks operates in the local environment through the commercial

agents. These agreements are formally registered with the ministry of commerce and industry

under the law of the commercial agency law. For legally valid franchising relationship it is

necessary by the law of Oman that the franchise enters into agreement with the franchisor. In the

case of the Starbucks and Alshya group had the legal agreement done for the smooth running of

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operations. It is registered at the Commercial Agents registry at the Ministry of the Commerce

and Industry. Some of the important features of the document are:

 The fee that needs to be paid to the franchisor by the franchisee

 The services which the franchisor shall provide to franchisee like training and marketing

aspects that needs to remain consistent across the globe.

 The scope of the franchise rights

 The performance targets that are set are reasonable and achievable.

 The governing and jurisdiction laws

Taxation Policies

Oman’s law tends to tax the worldwide income of Omani entities. The branches in Oman and all

the permanent establishments that have been made in the country. The income tax is imposed

upon any income that exceeds 30,000 rupees. The tax rate is of 12 percent. However the

petroleum companies pay a tax of about 55% after the sales of the petroleum products.

By the permanent entities it is meant that the companies that have been wholly established in the

country by a foreign person. That person fully or partly operates the operations in Oman. This

also includes the places of offices, factories, workshops and other branches. The places of

display or collection of information for the business purposes are not included in the permanent

establishments. (Oman, 2017)

Payroll structure and Accounting

The preparation of the financial statement have to be done on the international standards by all

the corporations that are operating in the country of Oman. The day the company is registered in

Oman the financial period for the company starts. This covers the time period of 18 months.

After these 18 months a fixed period is determined by the company which is based on 12

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monthly basis. If the company wishes to change this period it should be initially contact the

General taxation ministry of finance. Accounting records have to be maintained in the local

currency but the companies are permitted to operate in the currency of their choice. The

permission is granted through the ministry of finance. The companies need to compile with all

the labor and wages laws of the country. It is the requirement that the wages are paid in the local

currency and through bank transfer facility. This has to be done in the local bank account facility.

The employers can however face financial penalties from the government in case of failing to

compile with the wages law. The problems can also arise with the visa renewals and license to

operate in Oman.

Starbucks takes special care to follow the local laws and customs to maintain consistent results.

The operations of the company have expanded over the period past five years and to maintain the

peace and tranquility of the operations the company strictly operates in terms of Wages law to

avoid any civil suit. (Oman, 2015)

Dispute Settlement

There are multiple disputes that are at times faced in the corporate sector. They can be resolved

through the courts. There are three types of the courts that operate in Oman:

 The court of first Instance

 The court of appeal

 The supreme court

The company has civil law implemented in the country. Hence unlike common law jurisdiction

case law does not act binding upon the standard. The court is also not liable to make future

decisions based on the previous ones. The previous cases do not serve as perfect guide for the

legal system to frame future systems. The court preceding however are done in Arabic and so

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there are many different rules regarding who can attend the cases. Arbitration is a well-

developed tool for the dispute resolution especially in the cases where large scale companies are

operating. (Oman, 2016)

Franchise disclosure Document

It is best that every franchise obtain detailed information regarding the franchisors. The US

franchisors information is quite easily available. The FDD documents do not have much value in

the foreign but locally it is valued within the country. Though franchisor executives define

franchising as a relationship which is a form of partnership, franchise agreements are complex

documents which define the relationship and carefully outline the rights, duties and cures of

franchisees. A lawyer with a cultured understanding of international franchising can help to

understand, assess and discuss a franchise agreement.

Disputes settled by Starbucks

Starbucks has been in conflicting situation early and have managed to sustain the company

credibility despite these issues. The company entered into dispute when a conflict was raised

between the Kraft and Starbucks. Kraft is the company that started having dispute with Starbucks

over the distribution of the packaged coffee of the Starbucks in the grocery stores. Starbucks was

charged as it was considered that they had breached the agreement with craft. They had to pay

fine of about 2.75 billion rupees. The agreement between the companies was made in 1998. The

company offered 750 million dollars to end the agreement in the 2010. The company wanted

more flexible routine to sell the coffee pods that had become a sensation in the market. The

company’s agreement limited the company to selling the pods. Starbucks was in danger of

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leaving behind. It was being left behind in the market share in comparison to Green Mountain

Coffe’s Keuring. Kraft on the other hand had an objection to the preset deal termination.

Starbucks however still broke the deal which resulted in a legal suit. The share in the market

increased for the coffee pods by 18.4%. There was much profit earned through grocery stores

products. This also included the bottle drinks. In the next two years the share climbed up to 47

percent. The parties’ dispute was taken to the arbitration when the decision couldn’t be settled

between both the parties. The Starbucks had issues with the arbitration decision and hence it

appealed. It cannot be completely decided that how a business negotiation will be handled or end

in advance. The changing market trends and situation have a direct impact on these things.

(Shonk, 2016)

Legal Framework of Starbucks

The legal team of Starbucks is highly professional and holds high business ethics. The team

protects the Starbucks and operates with collaboration with the other business partners. It

operates across many different fields like commercial, corporate securities and intellectual

property, labor and employment issues, licensing and franchising. The litigation problems are

also handled by this team. The real state, regulatory framework of the government in which the

company plans upon operating, compliance and equal opportunities, the administration and

operations in fact all sorts of problems. The Starbucks has a strong belief in conducting the

business ethically and the compliance program helps in making ethical decisions at work. The

program creates awareness through the material it distributes to all outlets. The standard system

of operations is intact. The partners of the chain are all supported in regard of reporting the issues

at hand. The choice communication channel is purely natural. Majority of the issues include the

employee relations. This is one of the most common issues that one faces in retail business.

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 Public Policy and Internal Standards

The company has the view that it is imperative to take a stand upon the issues that are faced by

the business. This actually depicts what the company actually stands for. The company strongly

advocates the public and private policies. This is important for the safeguard of the company

health and operations. There is a list of responsibilities that the company works upon to be

enhanced. This starts from the procurement of the coffee to the delivery of it. All the rules and

regulations are made in accordance with the company policy. (Madan, 2016)

 Social Responsibility: The way company conducts its business ethically is included in

this side. In addition it also includes which policy would impact the business in what

particular manner. It also make sure that the right sort of information reaches the

customer through proper channel which enables them to make informed decisions.

 Workplace: The basic commitment of the company for the human rights is the major

component of the way the business is done at Starbucks. No discrimination is made on

any basis. In addition the healthcare is provided to all partners equally. This is one of the

supreme focuses for the company.

 Ethical Sourcing: The supplier when ethical operates it becomes the value for the

company. There are fixed sustainable guidelines for the coffee producers from whom the

company procures. The animal welfare is another key area that company puts its focus

upon. The company also exercise zero tolerance for the forced labor and human

trafficking along with the stand against deforestation in any of the supply chains.

(HASKOVA, 2015)

Conclusion

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 All these aspects make the company the one of the leading coffee chains of the world.

There have been legal conflicts in which the company had to face the penalties in the

past. Still company has managed to maintain the stream of business with the dignity and

aura that is expected of the name it has. The company has been operating for more than

three decades now and it has expanded exponentially in this time. The company went

through many different legal perspectives as it moved from one end of the world to the

second. Oman is an Islamic state has entirely different business operation systems as

compared with the rest of the European state. The legal framework of the country is

explicitly shared by the state for the foreign investors to be aware of. Starbucks on the

other hand has made a legal department that centrally operates to handle all of its

subsidiaries. A clear charter is prepared which enables the company to maintain the

consistent system throughout all channels. This reduces confusion and issues that would

be difficult to handle if there is no central body. Having said that the company still bends

and amends the system depending upon the location it is operating. The regulatory

framework of particular state is quiet important. n sum, we believe that there are many

chapters yet to come in Starbucks’ compelling growth story. The equity, while not a steal

at recent levels, seems appealing relative to its prospects, too, trading at about 25 times

forward share earnings. With this in mind, we think that long-term investors with an eye

toward 2017-2019 would do well to accumulate the stock.

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