Asia’s Rapid Transformation and the Starbucks Effect – December 2007

Over the past several years, I’ve had the opportunity to visit Asia a number of times for personal and business travel.   Before and after graduate school, I spent several months backpacking through thirteen nations in the region.  For the last two years, I’ve been traveling there for work, although I usually pack in a few extra days to visit friends or to stop for a quick vacation.  In October of this year, I traveled to Beijing to attend the board meeting of an auto parts company in which my firm has an investment.  I figured that since I was in the general area   it made sense to check in on another investment in the Philippines, and then spend a few days of downtime in Kuala Lumpur, Malaysia. 

Since I’ve been traveling regularly to China and Asia since 2002, I have been able to track some of the tremendous changes that have been taking root since that time.  While it sounds a bit trite, in my opinion, the tenor of these changes is captured in the explosive growth of Starbucks locations.  A few years ago, Starbucks was a rare luxury in Beijing that seemed aimed at expatriates.  These days, store are everywhere and are packed with native Chinese, many of whom seem to like the Green Tea Latte (highly recommended, although I’ve got to admit that it feels more authentic to buy it in Asia than at the Target in Biddeford).   The same thing goes for Malaysia and the Philippines.  Although I hadn’t had the chance to visit these countries before this year, I was shocked at the sheer number of Starbucks in both places.  For example, in Manila, I faced the dilemma of choosing between the store in my hotel and one located directly across the street.  

Before I go any further, I should clarify something: I am not a huge fan of Starbucks coffee.   I tend to be more of a Dunkin’ Donuts type of guy.  During high school, my friends and I basically lived at the Dunkie’s in Sanford (this was back in the stone ages when there was just one store for the entire Sanford-Springvale metro area).  We were also regulars at the gone-but-not-forgotten Sweet Sensations in Springvale due to their large selection of Green Mountain Coffee.  Still, I admire Starbucks tremendously, because I think it really says something when a retailer can convince people in places like China and the Philippines, let alone Manhattan, to spend the equivalent of several US dollars on a cup of coffee.  The ability of a company like Starbucks to flourish in these places is a clear indicator that economic prosperity is supporting the emergence of a robust and aspirational middle class.   

I’m not suggesting that having a bunch of Starbucks stores makes a country a better place.  Rather, I see this phenomenon as a leading indicator that parts of Asia are changing in a fundamental and irrevocable way.  For example, China is going through a period of rapid transformation due to breakneck growth in its economy and the upcoming 2008 Beijing Olympics.  From every indication, 2008 will be the year that China truly steps onto the world stage in a big way.  I see the recent controversy surrounding tainted Chinese imports as a small blip that serves as good rhetoric for protectionist politicians.  I doubt that Americans are willing to forego the savings offered by less expensive imports from China.  In any case, I’m not sure where one can find a vast array of items that are “Made in America” these days, but it’s certainly not at America’s largest retailers.  In fact, according to NPR, 80% of toys sold in the US are imported from China.   

Of course, it’s not particularly surprising that a massive city like Beijing would have a flock of Starbucks stores in 2007.  I was much more intrigued to see the stores dotting central Manila.  The economic changes that support the emergence of a Starbucks class in the Philippines are largely due to the overnight growth of the call center industry and high wages it offers to its well-educated employees.  Since the Philippines was once a United States territory, many citizens speak excellent American-accented English, making the island a natural hub for offshoring for US clients.  I was in the city to visit our investment in such a call center provider, and I was impressed to find a legion of young people who are creating an incipient middle class. 

In his “Golden Arches Theory of Conflict Prevention,” the writer and columnist Thomas Friedman wrote that the arrival of a McDonald’s to a country has an interesting correlation with world peace.  In fact, he asserted at the time that there had never been a war between two countries with McDonald’s restaurants.  While there are exceptions to the rule (i.e., the US intervention in Panama in 1989), I’ll take a page from Friedman’s book and suggest that the arrival of Starbucks to a country has something to tell us about how to follow the trail of affluence as it reaches new countries and peoples.  Of course, I do see a personal downside to this trend:  I tried to buy a Green Tea Latte is Manhattan’s Chinatown neighborhood just this morning and they were all sold out.

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