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Strategic Entrepreneurship in Taiwans Food and Catering
Industries: The Case of 85oC Cafe Shop
Paper delivered at the Sixth Annual Conference organized by the
Asian Studies
Association Hong Kong held at the Chinese University of Hong
Kong
on 4-5 May 2011
Fu-Lai Tony Yu Professor
Department of Economics and Finance Hong Kong Shue Yan
University
North Point, Hong Kong Email: [email protected]
&
Ming-Wen Hu Professor
Graduate Institute and Department of Industrial Economics,
Tamkang University,
Tamsui, Taipei 25137, Taiwan Email: [email protected]
&
Visiting scholar
Department of Economics and Finance Hong Kong Shue Yan
University
North Point, Hong Kong
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Abstract: This paper presents a theory of strategic
entrepreneurship based on the
contributions of Austrian economists. The paper argues that the
most significant
feature of Taiwanese entrepreneurs is their ability to look for
profit opportunities.
After identifying a profit opportunity, they surf on the waves
of the growing market.
They are quick to respond to the rapidly changing environment.
Some small firms in
Taiwan may not conduct long-range planning. As long as they
discover a profit
opportunity that others have not yet noticed, they will enter
the market and exploit
profit margins. Though not as innovative as Henry Ford or Gill
Gates which
revolutionizes automotive industries and information technology
industry
respectively and drastically changes the everyday lives of the
world economy,
Taiwanese entrepreneurs are excellent adopters of technology.
They are able to add
some new attributes to the product so that the product differs
slightly from the
original one and fits into the unserved market. Furthermore,
Taiwanese
entrepreneurs utilize social network extensively. By using
business network and
personal relationship, they operate in nexus and hunt in pack in
the market. Through
social network, they support each other and create a win win
situation for each
other. Hence, we can conclude that unique features of these
entrepreneurial strategies
allow Taiwanese enterprises to compete in the global markets.
This argument is
applied to understand the business success of the 85oC Caf in
which the shop
currently competes face-to-face with the world known Starbucks
caf in Taiwan.
Keywords: Strategic entrepreneurship; Taiwan, 85oC Cafe Shop;
food and catering
industries; Austrian economics
1 Introduction
The economic success of Taiwan during the post Second World War
period is
well known. Taiwan has been referred by the World Bank in 1993
to as one of the
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economies which contributes to East Asian Miracles. Explanations
on economic
success of Taiwan are not lacking.1 However, most of them
utilize neoclassical
Cobb-Douglas production function to explain Taiwans economic
growth.
Specifically, these studies, ignoring structural uncertainty and
knowledge problems,
never consider the role of entrepreneurship in economic
development. Hence, these
orthodox neoclassical studies have failed to provide us with a
satisfactory explanation
of the economic development of Taiwan. Entrepreneurship is often
regarded as a
locomotive of economic growth. A systematic investigation of the
role of
entrepreneurship in economic development is of utmost
importance. This paper
attempts to develop a theory of strategic entrepreneurship which
can be applied to
explain Taiwans economics dynamics. The organization of the
paper is as follows.
Sections 2 and 3 introduce Taiwans entrepreneurship. The
theoretical arguments are
given in Sections 4 and 5. The case study of Taiwanese
entrepreneur, namely Mr. Wu
Cheng Hsueh and his 85oC Cafe Shop will be presented in section
6 . Section 7 is the
conclusion.
2. Taiwan: an Island of Boss
It is well known that Taiwan is blessed with entrepreneurs.
According to Small
and Medium Enterprise Administration (SMEA 2004), in 2003, there
were 1,171,780
1 For example, Kuo (1997) argues that the economic success of
Taiwan is attributed
to government policies including curbing hyperinflation of the
early 1950s, utilization
of US aid, land reform, trade strategies, creation of job
opportunities, foreign direct
investment, and policies on infrastructure. Shih (1994) argues
that major factors
contributing to Taiwan's economic development include the
external environment, the
colonial legacy, the role of the state and ethnic cleavage.
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enterprises (including large and SMEs) in Taiwan. With a
population of 23 million,
one out of twenty persons owns a company (Yu, Yan and Chen
2006). These army
of ants have been the major contributors to Taiwans economic
miracle (Economist
1998). Taiwans people exhibit a passion of being a boss. This
has something to do
with their Chinese thinking. According to the Chinese saying,
people are rather
being the leader of chickens than the follower of an ox. In
other words, although
chickens are small, one can still take the command. On the other
hand, an ox is big.
However, one is only a follower, living under the command of
other people. This
saying implies that one should be a boss, no matter how small
the business may be,
rather than working for the other person in a big company.
Furthermore, in the
Chinese tradition, parents expect their sons to continue with
the family business. The
eldest son has the obligation to expand his fathers enterprise.
As a result, males in
Taiwan are obsessed with being a boss. Moreover, when new
generations become
adults, they separate from their families. Their parents always
support them to
establish a new business whenever possible. This custom results
in the formation of
new small businesses.2
3. The Road to Become an Entrepreneur
There are three common ways of becoming a boss in Taiwan. The
first way is to
work as an apprentice in a factory and then set up a business on
their own later. The
second way is to spin off from a family business. The third way
is to form a business
partnership with friends or classmates with the same interests
or skills.
2 For a detail discussion of factors incubating entrepreneurs in
Taiwan, see Yu, Yan
and Chen (2006).
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(a) Starting out as an apprentice: In most cases, people in
Taiwan starts as an
apprentice in a factory. These apprentices are called black
hands (hands become
black and dirty due to working in a factory). After earning
enough skills as an
apprentice and saving enough money, they set up businesses and
become a boss.
Hence, this process is referred to as black hands turning into a
boss (Shieh
1993:98-99). As soon as being hired as apprentices, these black
hands start to prepare
themselves to become a boss in the future. During their
employment, they learn a
wide range of jobs in the factory. For example, in printed
circuit board, an apprentice
learns handling materials, manufacturing printed boards,
punching, packaging and
quality control. Knowing a whole range of jobs gives them skills
in establishing a
business. Furthermore, while working as employees, they have set
up good customer
relationship so that current clients will become future
customers of their own
enterprises. Some employees are also involved in business
development. The job
provides them with the knowledge of where they find customers,
buy materials,
contact businesses, etc Most importantly, the workers learn to
be the middlemen
whom they will exploit profit opportunities in future (Shieh
1993:109).3
(b) Many entrepreneurs are nurtured by their own family
businesses.4 Starting up a
new business is a gradual process. Initially, an individual
works in the business
owned by his or her parents. Some individuals may work part-time
in their family
businesses. Step by step, parents provide offspring with
business skills and prepare
them to set up their own businesses. In some cases, some jobs or
orders are too small
3 Kirzner (1973) equates entrepreneurship with a middleman.
4 As noted by Greenhalgh (1995), in most of the societies that
have been studied,
family entrepreneurship has declined in importance as
industrialization has proceeded.
However, this is not the case In Taiwan.
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for the parents firm to handle. Parents then help offspring to
set up a small company
to handle those small orders. In this way, family members start
and learn business
operation in a small unit. Though a new firm is independently
owned, it is still linked
with the family network. This business network satisfies
economies of scale and
flexibility, as well as the reduction of transaction costs due
to the trust among family
members (Shieh 1993:111-112).
(c) Forming business partnership with friends or alumni
Some Taiwanese, after graduated from Technical colleges or
universities and with
several years of work experience, may team up with their friends
or alumni in the
same fields or interests to form a joint venture. Apart from
profit, eager to test their
insight is a major factor to drive these young entrepreneurs to
form start-ups.
4. Personal Characteristics of Taiwans Entrepreneurs
The successes of enterprises in Taiwan have been built upon
certain personal
traits. Shieh (1993:96-98) identifies four personal
characteristics of Taiwanese
entrepreneurs:
(a) Dare to venture: Taiwanese entrepreneurs are dare to venture
new businesses.
While being employed during the daytime, they have already tried
to set up a
business with a friend at night. As long as they can earn a
normal profit of NT$30,000
per month for their survival (equivalent to one month salary of
an university graduate
with 3 to 4 years working experience in Taiwan), they are not
afraid of being a
full-time boss (Shieh 1993:117). Some entrepreneurs bring boxes
of products along
with them to open markets in Africa. Without any connection in
the other side of the
globe, they look for businesses from door to door. All they want
is to test their
foresights.
(b) Strive to succeed: In order to succeed, entrepreneurs in
Taiwan do not mind
working hard. They make full use of their time to maximize
income. They can endure
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long working hours, often more than twelve hours per day. Small
entrepreneurs
usually involve in a wide range of jobs in their factories,
including loading cargo,
delivery, driving the truck as well as packaging.
(c) Drill down the problem: Taiwanese entrepreneurs believe that
only by drilling
down the problems can make fruitful returns. With enthusiasm in
their businesses,
entrepreneurs are keen to crack their brains to solve business
and technical problems.
They firmly believe that putting more thoughts on their
businesses will bring them
success.
(d) Willing to learn: Entrepreneurial learning is important in
the market process (Yu
2007). Entrepreneurs in Taiwan are willing to learn. They learn
to do business while
they are employed. After they set up a business, they continue
to learn new
production skills, improve knowledge, choose better materials,
reduce costs, and
catch up new ideas. They know that learning will make them
become more intelligent.
More importantly, learning that involves creativity will keep
their business
competitive. They are willing to put their novel ideas to market
tests. If their new
plans do not meet the expectations in the market and result in
loss, they will quickly
revise their plans and adapted to the new situation. Through
revisions of plans and
error elimination, they are able to reap the reward.
5. Strategic Entrepreneurship in Taiwan
Entrepreneurs in Taiwan adopt some business and management
strategies which
are similar to small businesses in other Asian latecomer
economies such as Hong
Kong and southern Guangdong in China (Yu 1997).
5.1 Entrepreneurial alertness and exploitation of profit
opportunities: The most
important feature of Taiwans entrepreneurs is their ability to
look for profit
opportunities (Shieh 1993:114; Yu, Yan and Chen 2006). However,
entrepreneurial
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alertness (Kirzner 1973) does not come out by itself. It is the
result of diligent work.
A question always lingering in those business peoples minds is:
Where is the
golden ditch (opportunity)? For example, in the electronics
industry, the first and
most frequently asked question during social gathering is
whether certain PC
connectors so far have been manufactured in Taiwan. If the
answer is negative and
that those components are imported from Japan, then they will
try to go into that
business. For an electronic component is not produced in Taiwan,
this implies that the
product can be imitated in Taiwan at lower costs and thus brings
them huge profit
margins. Also, the phrase so far no one has produced it yet
implies that imitation
needs to be done quickly. Soon many firms will join in and
render the market no
more profit. If there are competitors in the industry, then
entrepreneurs will specialize
on one niche product to get competitive edge (Shieh
1993:114).
5.2 Quick to respond: After identifying a profit opportunity,
Taiwans
entrepreneurs surf on the waves of the growing market (Shieh
1993:119-122). Some
firms do not do long-range planning. As long as they discover a
good profit
opportunity that others have not yet discovered by others, they
will enter the market
and shave off profit margins (in their own slang, it is called
robbing good air). As
other competitors pour in, they will compete by lowering prices
until good time
disappears and leave the industry (Shieh 1993:119). Therefore,
these small
enterprisers are competent in jumping on the bandwagon. For
example, a small factor
owner in the electronics industry said: I was in the audio
business. My friend
imported transducers from the United States. At that time, no
one produced
transducers in Taiwan. Then he and his friend formed a small
joint venture to produce
transducers in Taiwan. At the beginning, their firm was a
monopoly and the profit
was impressive. One company noticed our good profit in the
business. It hired away
our technicians and penetrated the market. Now there are four to
five firms working
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in the area and the profit is not as good as before (Shieh
1993:120). Entrepreneurs in
Taiwan always adapt to the rapidly changing environment. As one
entrepreneur in the
electronics industry describes, I am not too pessimistic in my
industry (PC
components) as long as there are two- to three-year good time.
It is important to know
that each industry has its life cycle and wont have good time
forever. I wont follow
the book, write out a plan and carry out my plan step by step.
No, I wont do that. For
me, if the PC market is good, then my business will be good. If
the PC market is not
good, then I shall need to struggle during bad time (Shieh
1993:119).
5.3 Creative imitation: Imitation is the key for the success for
many Asian latecomer
economies. Imitation should not be downgraded as copycats.
Instead, it involves
insightful investment & creativity (Bolton 1993:30-45).
Baumol (1968) uses a term
imitative entrepreneurs to describe those agents who put new
idea in use. In Baumols
view, imitative entrepreneurs exploit the success of others by
perfecting and
positioning them. They add some new attributes to the product so
that the product
differs slightly from the original one & fits into a
slightly different market. Baumols
arguments can explain Taiwans economic dynamics. For example,
regarding
manufacturing connectors, electronic items originally produced
in Japan need to be
plugged in the circuit board one by one. Taiwans electronics
entrepreneurs, by some
R&D, discover that these items can be plugged in with the
whole lots, and then
finished the product by cutting off the other ends. The new
method saves a lot of time
and costs (Shieh 1993:115-116). Hence, Taiwanese entrepreneurs
compete by
modifying or improving the products, or supplying something
which is still lacking in
the market. In Leibensteins view (1968), they are gap fillers or
input completers.
5.4 Utilizing social network: Taiwanese entrepreneurs operate
together in nexus.
While there are many contributing factors to Taiwanese
enterprises success, such as
sophisticated food technology, creative thinking, flexible
management and quick
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response etc., Henry Heng5, argues that business network stands
out as the most
important one. Taiwanese entrepreneurs in the market process are
able to operate as a
network or in Hengs words, hunt in a pack (Waring 2005).6
Entrepreneurs in Taiwan know that in order to survive, they need
to support each
other. They often co-invest in large projects. Behind social
activities such as karaoke
singing, wining and dining is a strong social network that
facilitates information
exchanges, develop business opportunities, or seek help in time
of trouble. Taiwanese
entrepreneurs take their obligations to help their business
friends very seriously. They
recognize that if they help their friends today, their friends
will help them back in the
future. They also believe that if someone wins, their friends
will likely win too
(Waring 2005).
6. The Case of 85o C Cafe Shop in Taiwan
5 Henry Heng is a business consultant from PSB Corporation. His
firm provides
academic and business advises to universities.
6 For instance, it is reported that a Taiwanese IT firm in
Dongguan (Pearl River Delta)
which specializes in electrical and electronics testing receives
a request from another
firm in the mainland to test a mechanical device, which he is
unable to carry out. The
boss of the firm does not turn down the request. Instead, he
replies that he can do it
and arranges for the sample to be sent for testing. He then
calls another Taiwanese
testing firm that he is familiar with the job. In this way, the
job is then done. This
business practice repeats over and over again and fully
illustrates the importance of
business network in Taiwan entrepreneurship (Waring 2005).
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Our entrepreneurial approach means that it is preferable to use
the storytelling
approach7 or case study in empirical studies. This paper
presents a case study of 85oC
Caf shop in Taiwan.
The 85oC Coffee8 company was established in Taichung City by Mr.
Wu
Cheng Hsueh in 2003. The first 85oC Caf was opened in New Taipei
City in July
2004. Within one and a half years, the enterprise expanded to
137 shops throughout
Taiwan. The franchisee chain group entered the international
market in September
2006 and opened a cafe in Sydney, Australia. In Nov 2007, the
company opened its
first store in Shanghai China, and ventured into United States
in 2008. It has now
about 325 stores in the world.
The company name is originated from the idea that 85 degree
Celsius is the
ideal temperature to drink coffee. Wu Cheng Hsueh established
his business empire
because he thinks that he can provide customers with five star
quality coffee, cake
and bakery at the affordable price.
Wu was born into a poor family in Yunlin County (Taiwan) in
1967. He
always dreamed of setting up his own company, and became rich so
that he could stay
away from poor living condition. Like many legendary figures, Wu
started from a
humble beginning. He dropped out of school at the age of 159,
and vowed to become
a rich person. With his educational background, he could only
get a job with small
salary. To make a fortune, Wu knew that he had to set up his own
business. Taiwan
has long been boasted as the Island of Bosses. Many Taiwanese
enjoying being a
7 For storytelling as economic methodology, see McCloskey
(1990).
8 See http://www.85cafe.com/ or the companys website in
Australia, http://www.
85cafe.com.au/html-au/aboutus-au.htm, or the site in the US,
http://www.85cafe.us/.
9 Later, Wu got his junior high school diploma in supplementary
evening school.
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boss. Wu is no exception. He has involved in several ventures
including, beauty shop,
footwear, marble company, a bubble tea franchise, roast chicken
fast food business,
and a Pizza franchise. Although these businesses enjoyed success
in the beginning,
Wu failed to turn any of them into a lucrative business empire
in the end. At least, not
until the operation of 85oC Caf franchise. What is special for
Wu Cheng Hsueh is the
fact that he could learn from his mistakes, instead of defeated
by them. After
numerous attempts, the 85oC Caf finally helps Wu to win the
ultimate trophy. In
whats followed, we shall examine the entrepreneurial process
conducted by Wu in
associated with his ventures chronologically.
6.1 The beauty salon: Wus first attempt
Wu is a born enterpriser. Throughout his whole life, he has only
worked as an
employee for three months after he finished his obligated
military service. He got a
job of making tennis rackets, but soon realized he preferred to
be his own boss. So he
quitted the job, and shifted into a piece rate contract
arrangement. In a freer
environment, he worked tirelessly to save money to start his own
business.
As a dropout from high school, Wu examined what kind of skills
or training he
owned in order to start a business. The answer was hardly any.
Still, he remembered
he earned some experience in hair cutting from his military
service. With the money
earned from the piece rate contract, Wu teamed up with a hair
stylist and started his
own business. Self-motivated and hardworking, Wu opened a second
branch in less
than six months. Though the shops had some customers, the
business did not make
good revenue because ladies came into the shop were not just for
their hairs, they also
wanted someone to talk to. As a result, his employees spent a
lot of time chatting with
these women. Wu learnt that this kind of business could not
yield good profit.
Therefore he started to spot other business opportunities.
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6.2 Venturing into mainland China: The footwear sole
manufacturing company
One of Wus customers in the salon introduced Wu into the
footwear sole
manufacturing industry. With money saved from the beauty salon
business, Wu
invested in a company manufacturing footwear sole. In the
mid-1980s, as the
industrial environment in Taiwan experienced vast transition:
labour shortage and the
resulting increased in wage rates, as well as the increasing
competition in the export
market from other developing countries. A lot of Taiwanese
firms, especially the
labour- intensive small and medium sized enterprises (SMEs),
thus moved to
Mainland China for resources sourcing. Wus company was no
exception. At the age
of 26, Wu moved to Guangdong Province of China, in charge of a
factory sized one
thousand workers. However, the success in the mainland was short
lived, due to the
bad debts of some fellow partner companies. Wu had no choice but
to close down his
business. Wu learnt the significance of controlling the resource
supply. Wu also learnt
that if he could deal directly with the resource owners, the
quality of resources can be
better maintained.
After Wu retreated from China in Taiwan, he helped his father in
a marble
factory. Again, he worked hard, and even learned to become a
marble master himself.
Having the technique, Wu opened a small marble company and
became a boss again.
6.3 The experience of franchise business: The bubble tea
shop
In 1992, a Wus old acquaintance from the military service, Mr.
Ko Wen-Ho
opened a bubble tea shop called Easy Way, Ko invited Wu to join
the franchise. Wu
soon realized that business franchising is a profitable method
to expand business.
When Kos bubble tea shop went international, Wu was invited to
take charge of
marketing Easy Way in Taiwan.
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One of Wus talents was his keen to spot the demand and the
market trend. He
spent a lot of time mingling with people, making new
acquaintances. He kept alert to
the change in the world market. As soon as he could identify a
product or service that
could attract consumers, he quickly ventured on it without
hesitation. This is why
whenever he opened a new business, the business soon became a
popular one. Some
people describe Wu as a destructive innovator10, for he would
introduce something
new to replace the old business. In fact, Wu was simply ahead of
other people in
terms of identifying profit opportunities in the market.
6.4 The Pizza franchise
The bubble tea shop taught Wu about business franchising. Since
Wu was one of
the partners in the bubble tea enterprise, there was always a
conflict of opinions on
how to run the business. Hence, Wu felt that he would rather be
the one who was
really in charge. Wu then ventured into a fried chicken fast
food business. However it
was short lived too due to too many competitors, and his product
lacked an identity
and image. He then understood that to be successful, he must be
able to find a market
niche in the highly competitive food and catering
Industries.
Wu searched for this niche market and came up with the idea of
selling small
sized pizza. He perceived that small sized pizza fitted into the
market where
individual serving has become popular in modern Taiwan society.
He named the new
business Hot to Home Pizza. When the Hot to Home Pizza first
opened, people
were waiting in line to get Wus novel small sized pizza. Wu
immediately received a
lot of requests for franchising. The business expanded rapidly
at the beginning, but
10 Schumpeter (1934) used the term creative destruction to refer
to the impact of
entrepreneurship on the traditional economy.
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soon experienced a slump. Wu discovered that this was due to
supply outnumbered
the demand. Without any sustainable competitive advantage11, his
business could
easily be copied by imitators. Having been in the business for
such a long time, Wu
knew the traits of Taiwanese entrepreneurs. Taiwanese, including
Wu himself, loved
to jump on the bandwagon and rushed to a hot business to be a
quick second. It is
worthwhile to mention that when Wu copied others success, he
modified it with
some new features. That is why, Wus business often exhibited
leadership in the
market.
Wu understood that he could not forever indulge in the joy of
the success.
When the market became saturated, he had to seek for a new
venture. Many of the
franchisee blamed Wu for only trying to squeeze profit from
franchise payment. For
Wu, he just wanted to prevent from further loss once the market
is saturated.
The defeat in Pizza business taught Wu a lot. First of all, the
novelty of his
product, namely small sized pizza, could only guarantee a
success for a very short
period of time. The Pizza market quickly became matured. To
prolong the product
cycle, Wu needed to continue to invest in product innovation.
Secondly, he learned
that he should put more money on his next venture. Previously,
lacking fund in
start-up, Wu could only confine to small sized businesses. Now
Wu could invest in
R&D so that the company could enjoy profit in long run.
Thirdly, Wu learnt that he
needed to maintain the core competence (Prahalad and Hamel 1990)
of his business,
so that a quick response to customers demand could be achieved.
For example, in
Hot to Home Pizza, the dough was outsourced. The quality of the
dough was beyond
11 A firm is said to have a competitive advantage when it is
implementing a value
creating strategy not simultaneously being implemented by any
current or potential
player (Barney 1991: 99).
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Wus control. Alternatively, dough could be produced in house.
Vertical integration
meant capital investment in technology and R&D.
6.5 The 85oC caf: Trumpeting success
In order to recuperate from the setback, Wu took a holiday trip
to Japan. Wu was
very impressed by the quality service he received during his
trip. Wu realized that
people would appreciate good service. In Japan, Wu also found
that a lot of boutique
restaurants were owned by former five star hotel chefs. A new
business opportunity
sparkled in Wus mind. Wu returned to Taiwan with new
ambition.
Around late 2002 and early 2003, Taiwan was hard hit by the
highly contagious
SARS virus. People dared not going into public places for fear
of contamination.
There was thus a huge slump in businesses of restaurants,
department stores, and so
on. Wu noticed, however, that there people waited in line
outside five-star
hotels/restaurants for affordable take away meals or bakeries!
This observation,
together with the experience in Japan inspired Wu to come up
with the idea that
people would not mind to spend money on quality foods or
services as long as they
could afford. He decided to open his own version of Starbucks
caf for general
public12. He also made sure that he would not repeat his
mistakes. This time, he
12 This was also vividly described in the web site of 85oC Caf
US branches: In
Taiwan, a boss took a group of young businessmen for afternoon
tea after a business
meeting. They went to a five-star hotel to celebrate their
business success. Looking
into of cafe, the boss observed that there was a huge difference
between two worlds.
Inside, life was posh and relaxed whereas outside was busy and
rushed. Upon entering
the cafe, he also found that the prices were too high for
businesspeople to enjoy their
favourite drink on a whim. At that moment, he decided to build a
cafe which breaks
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managed the business patiently and invested in quality service
so that others were
unable to imitate his business.
First, Wu invited his old acquaintance which was a chief pastry
chef of a five
star hotel in Taipei to join his venture. Teamed up with three
other highly skilled
pastry chefs, the 85oC Caf was established. The shop served
quality cakes and
breads. To compete with Starbucks caf, Wu insisted on using
premium Guatemalan
coffee beans. Wu made sure that all things served in the new
franchise with high
culinary standards at affordable prices. Thus, the 85 oC Caf
successfully gained the
consumers hearts and Wu revolutionized the food and catering
industries in Taiwan.
As the caf was widely accepted, Wu applied his previous
franchising
experience to 85oC. The franchisee chain was a huge success. The
Caf under
franchising expanded rapidly throughout Taiwan. In seventeen
months, there were
eighty chain caf shops, and the business was still spreading.
His previous experience
from pizza business told Wu that he needed to protect his
business. Otherwise, the
economic rent would disappear because imitators could enter and
share his fruits13.
Wu invested three billion NT dollars (approximately one million
US dollars) to set up
his own center factory and logistic channel. He wanted to make
sure that no follower
could copy his success.
In less than three years, the turnover of the company reached 19
billion NT
dollars. It took six years for Starbucks caf in Taiwan to reach
the same figure. Today,
85oC Caf Company has become the largest coffee franchise in
Taiwan. The
down that the wall and allows ordinary people to enjoy 5-star
holiday cafe at the
affordable price. Thus 85oC Cafes journey begins
(http://www.85cafe.us/).
13 This is resource base theory of the firm (Wernerfelt, 1984,
p172; Rumelt, 1984,
p557-558).
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17
company has also gained success in Australia, the US, and
mainland China. In
September 2006, one of Wus friends operated the first 85oC
franchise shop in
Sydney, Australia. This marked the time when 85oC Caf company
penetrated
international market. In November 2007, Wu opened the first
store in China at
Fuzhou Road, Shanghai. In 2008, a branch was opened in Irvine,
California. Now the
company has four branches in three continents.
It is amazing that in the country that offers Starbucks to the
world, a single
Taiwanese 85oC Caf shop in Irvine (USA) could earn an average
0.74 million US
dollars monthly revenue.14 That was the highest score among all
the branches of
85oC Caf in the world. By October 2009, total revenue from
overseas branch shops
had suppressed the proceeds from Taiwan. In November 2010, the
franchisee chain
group has become a listing company in Taiwan15. The new goal set
by Mr. Wu is to
open at least 100 new branches in China and 20 more shops in the
US by the end of
2011.
It is not always easy to penetrate and operate in an entirely
new market. For
instance, the first 85oC Caf shop in China was closed down by
government in a few
days after its opening. Wu perceived that there was nothing
wrong with the managing
strategy or decision making. However, he admitted that the
company were not
familiar with the local laws and regulations. Chinas business
environment is utterly
different from Taiwan. Wu realized that he must carefully review
the legal
environment in China before further expansion. When the 85oC Caf
shop in
Shanghai Fuzhou Road reopened, the proceed from the first three
months was about
14 The story was reported by a newspaper Orange County Register
in the US, and
85oC Caf was described as Taiwanese Starbucks.
15 The name of the listing company is Gourmet Master.
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18
four times of the companys original expectation. It earned a
total of 1.8 million RMB
in three months operation.
Furthermore, Wu allowed no business franchisee in mainland China
- a major
difference between Wus operation strategy in China and other
countries. All shops in
China are run by the company directly. Wu wanted to maintain the
quality of the
product and service, as well as for the brand image. Wu wanted
to keep close watch at
this big market. Without profit sharing as business franchising,
Wu needed to solve
the incentive problem in his business. He did it by making his
staff members a
wealthy employee. For in Wus mind, workers were the most
valuable asset of the
company. Wu was generous to his employees. He let the team share
the companys
profit. He allowed his staff holding up to 50% of the company
total shares16.
In terms of logistics, Wu also copied his Taiwans model to
mainland China.
He set up the companys own factory centre and logistic channel
in China. This did
not only help maintain quality, but also cut costs. Furthermore,
Wu knew the
importance of R&D. Each month, about ten new products
(coffee mix, breads or
cakes) were created by the research team and then tested in the
market. If the new
products were proved fruitful, they would replace the non
popular ones. It was
reported that three products were replaced each month.
Wu strive to open at least one thousand branch stores in China
in the next six
years. Wu notice that his competitors such as Korean Paris
Bagutte and Black
Talk from Singapore also served fine coffee and bakery in China.
However, in Wus
view, these competitors have expanded too slow, and behaved too
conservative.
Therefore, Wus strategy is to quickly expand his empire before
his rivals does. For
16 For a classic discussion on shirking, opportunistic
behaviour, monitoring costs and
incentive systems, see Alchian and Demetz (1972).
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19
Wu, there is only one true competitor: Starbucks. Interestingly
enough, Starbucks
coffee company had licensed a Taiwanese Corporation for its
operation in China.
This is Uni-President Enterprises Corporation (UPEC). The
business empire was
founded in southern Taiwan in 1967. The Corporation itself is of
the same age as Wu.
UPEC is also the representative of Starbucks Coffee in Taiwan.
In Taiwan, it was the
85oC Caf that rules the caf market. Given uncertainty and fierce
competition, who
will win the ultimate battle remains to be answered.
7. Conclusion
This paper has presented a model of strategic entrepreneurship
which can be
used to understand Taiwans economic dynamics. The paper
identifies four personal
characteristics of Taiwanese entrepreneurs and four major
entrepreneurial strategies
adopted in Taiwans enterprises. The paper argues that the most
significant feature of
Taiwanese entrepreneurs is their ability to look for profit
opportunities. They are
quick to respond to the rapidly changing environment. As long as
they discover a
profit opportunity that others have not yet discovered, they
will enter the market and
exploit profit margins. Taiwanese entrepreneurs are creative
imitators and behave as
strategic followers. They improve and add some new attributes to
the product so that
the product differs slightly from the original one and fits into
a different market.
Furthermore, Taiwanese entrepreneurs utilize social network
extensively. By using
business network and personal relationship, they operate in
nexus and hunt in pack in
the market. Through social network, they support each other and
create a win win
gain for each other. Hence, we can conclude that unique features
of these
entrepreneurial strategies allow Taiwanese enterprises to
compete and earn world
class brand name for their products in the global markets. This
argument is applied to
understand the business success of the 85oC Cafe Shop in which
the caf currently
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20
competes face-to-face with the world known coffee shop Starbucks
in Taiwan. This
paper concludes that our theory of strategic entrepreneurship is
fruitful in
understanding the business successes of enterprises in
Taiwan.
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