China has been developing in a staggering pace in the past decade, so as the pricing of products in Chinese market. The rapid economic growth helps China become the second largest economy body while accelerates the inflation in the domestic market. Many issues started emerging as the CPI continuously increasing and eventually led to social instability. Therefore, the Chinese government has to take actions towards both local and foreign companies for the pricing issue.
Following after Apple, Volkswagen AG, Nestle and other major foreign companies, Startbucks recently has caught the state media’s attention. The official China Central Television (CCTV) criticized Starbucks Corp. for its high pricing in China in its recent nationwide broadcast. According to CCTV, Starbucks has been charging about 50% more for some products in China than in the U.S., U.K. and other major countries. For example, a medium-size latte in the Capital city Beijing costs 27 yuan ($4.43), which is 30% more than at a Starbucks in Chicago. Due to its high pricing in China, Starbucks has been able to yield 32% margin while 21.1% in U.S. and only 1.9% in Europe, Middle East and Africa. Although Starbucks defending itself by emphasizing its high costs in China, such as labor, logistics, real estate and infrastructure investment, the state media and state-based experts firmly believe that Starbucks is charging Chinese customers unfairly.
This case once again shows the riskiness of investing in a foreign country, especially when government or state media start to step into it – Apple amend its warranty and customer-feedback practices after CCTV accused its difference in practices in other countries; Volkswagen AG promised to make improvement after being exposed in the state media about its car safety issues; Nestle lowered its price of infant-formula after the government began an investigation of its competitive practices. Considering what happened to these major foreign companies, Starbucks probably will make adjustments to its pricing soon. In order to survive, compete with and stand out among others in the overseas market, a company has to be flexible and willing to make adjustment when needed. This principle is exactly what Startbucks need to follow at this moment.