Starbuck's Home Market Is Quickly Becoming Saturated Term Paper

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Starbuck's home market is quickly becoming saturated and the company is now seeking aggressive global expansion. As part of this strategy, insights into the ability to establish and conduct business in India and Brazil are explored in this paper. Major findings are that establishing a corporate entity and the distribution and remittance of profits are similar, but that Starbucks will face dramatically higher taxes in India than in Brazil

India is one of the largest economies in the world with a large and rapidly growing consumer market of approximately 300 million people (Doing Business in India). India welcomes foreign investment. Although approval is required, it is automatic for most industries. The country currently has a stable parliamentary democracy. The country has experienced political stability in the past, but economic liberalization has been accepted as a necessity by all political parties in India.

Joint Venture companies are the most preferred and advantageous form of corporate entities for investment in India (Lawyer's Guide to Doing Business in India). This is because there are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. Foreign companies are also free to open branches in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater. The corporate income tax effective rate for domestic companies is 36.75% while the profits of branches in India of foreign companies are taxed at the higher rate of forty-two percent. Companies incorporated in India even with complete foreign ownership, are considered domestic companies under the Indian laws. Business incentives in India include:

Duty-free imports of raw materials and components.

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Tax holiday for a period of five continuous years in the first eight years from the year of commencement of production.

Exemption from taxes on export earnings even after the period of tax holiday.

Exemption from central and state taxes on production and sale.

Permission to install machinery on lease.

Freedom to borrow self-liquidating foreign currency loans at the prime rate of interest.

India has an agreement for avoidance of Double Taxation with the United States. The Indo-United States. tax treaty considerably reduces the withholding tax in India for royalties, fees for technical services, and for interest paid to the United States banks and financial institutions (Lawyers Guide to Doing Business in India). The withholding tax on dividends arising out of India is fifteen percent, if the parent company owns at least ten percent of the voting stock. The withholding tax on royalties and technical services fees is at the rate of fifteen percent. Capital gains are taxed at a rate of twenty percent. The withholding tax on rental of equipment and interest paid to United States banks and financial institutions is at the rate of ten percent. Dividends, capital gains, royalties and technical fees can be repatriated easily with the permission of the Reserve Bank of India.

Brazil has overcome more than half a century of military intervention in the governance of the country to pursue industrial and agricultural growth and development of the interior (The World FactBook 2002). Exploiting vast natural resources and a large labor pool, Brazil is….....

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"Starbuck's Home Market Is Quickly Becoming Saturated" (2003, May 22) Retrieved May 16, 2024, from
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