Global Trade And The Opec Essay Example | Topics and Well Written Essays - 3750 words

Global Trade And The Opec - Essay Example World spare capacity fell below 1.5 mbd - the biggest since 1976. Looking ahead, crude oil will probably stay as a primary source of energy in and beyond the next three decades necessitating large upfront investments. Likewise, traditional non-OPEC production is expected to reach its zenith in 2010 due to depletion of current fields and net declines in proven reserves. As such, a substantial quantity of the incremental capacity will have to come from OPEC which today controls around 80% of proven oil reserves. OPEC stands for Organization of the Petroleum Exporting Countries, a stable inter-governmental association composed presently of eleven oil generating and exporting nations from across three continents (America, Asia and Africa). The member countries are Algeria, Indonesia, the Islamic Republic of Iran, Iraq, Kuwait, the Socialist People's Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela. These nations have an aggregate population of about 545 million and oil is the most important commodity and foreign exchange earner. Therefore, for these countries, oil is the chief element for development - social, political and economic. The income derived from oil is used not only to spread out and inflate their economic and industrial base, it is also utilized to provide their people with jobs, education, health care and a decent standard of living. Primary objectives of the organization include: * the synchronization and bringing together of petroleum policies of member countries and ascertaining the most logical means for protecting their individual and collective interests; *the search for judicious methods to guarantee the stabilization of prices in global oil markets with the view to reduce and eventually do away with destructive and unnecessary fluctuations; and *the need to give an efficient economic and consistent supply of petroleum to consuming countries and a reasonable return of investment to those infusing capital in the petroleum industry. OPEC sets oil production quotas. For one, its Statute requires that it pursues stability and harmony in the petroleum market for the benefit of oil producers and consumers. In response to this, member countries take action on market fundamentals and forecast developments by organizing well and managing prudently their petroleum policies. One simple and probable response is production regulation. If demand increases, or some producers are producing less than what it is expected of them, OPEC can increase its oil production so as to prevent a drastic change/rise in prices. OPEC can also slow down on its production in response to market conditions. Does OPEC control the oil market or does it have the capacity to control the market and influence oil prices Member countries produce about 43% of the world's crude oil and 18% of its natural gas. However, in addition to that, OPEC's oil exports also represent about 51% of the crude oil traded worldwide. Hence, OPEC has a strong influence on the oil market, especially if it decides to reduce or increase its level of production. Crude Oil and Gasoline Prices Several significant components trigger and eventually cause the retail price of gasoline to change over different periods of time. First, price of gasoline strongly

Personal Statement Adjust(including) Essay Example | Topics and Well Written Essays - 1000 words - 6

Personal Statement Adjust(including) - Essay Example Specifically, UC system is a perfect program for me since it provides the opportunity to build the academic foundation I desire. I have gained my interest and need for further understanding of the socioeconomic disciplines from my experiences while living in the state of California (Gonzà ¡lez). Indeed, travelling across the United States has been fulfilling. In effect, the travels have enabled me to bring alive the information that I had previously read in books and always wanted to experience in my life. Specifically, my travels have led me to California, New York, Pennsylvania, Texas, and Nevada where I have had a chance to vacation. Consequently, I have acquired instrumental knowledge about the operations in each state that I have vacationed in, with each state and city visited having different elements that make them distinctive in their own way, which explains the differences in society and economies different states experienced. For example, New York City has the high transit utility in the United States and a successful financial market in the Wall Street. On the other hand, San Jose has a large freeway system to support the third densely populated city in California and the famous high technology companies located in the Silicon Valley region. I believe that travel has strengthened my experiences and complemented my understanding of the book knowledge on America. Further, my volunteering roles with the Salvation Army and the Second Harvest Bank have had a huge impact on my life. It was during this time that I realized and identified the difference between the society and the economy. In the course of my work with these two organizations, I collected, packed, and distributed materials on my way to becoming a professional volunteer. Notably, an experience regarding two locals arguing about the quantity of meals they received is forever etched in my mind since it highlighted the challenges experienced in such

Corporate Governance on the Capital Investment Decision

Corporate Governance on the Capital Investment Decision ABSTRACT This paper investigates the factors that determine the sensitivity of the investment-cash flow relationship. The Q model assumption is used to relate the investment opportunities available to the managers with its liquidity constraints due to asymmetric information and managerial discretion of internally sourced free cash flow. The result purports that there is a positive relationship between the degree of the Investment-Cash flow relationship and Q, found in low or no dividend paying firms. It is evident that the results are in support of Myers Maljuf (Myers Maljuf, 1984) pecking order theory of the investment-cash flow relationship. Introduction Overview Through various studies over the years, different scholars and financial analysts have been able to establish a relationship of cash flow on firms investment spending. It was significantly proven by (Modigliani Miller, 1958) that a firms financial status is irrelevant for real investment decisions in a world of perfect and complete capital markets, after controlling for the cost of capital. In case of managerial discretion, based on (Jensen, 1986) free cash flow theory, firms increase investment (including projects with negative present value) based on the availability of cash flows with incentive of increasing firms value beyond level of optimal investment. Moreover, an agency costs also appreciate the borrower net worth by charging a premium on the external financing. The discussion above explains that the firms investment decisions are dependent on the availability of internal funds, as cost advantage over external fund is evident. While choosing an appropriate capital structure, there are certain trade-offs which affects the decision. These trade-offs include tax advantage through acquiring debt against the bankruptcy cost which advocates the use of equity. Keeping this in view, various different models have been supported to explain this corporate capital structure behavior. Pecking Order Theory, initially mitigated by (Donaldson, 1961) describes the financing practice as prioritizing the means of financing, which is necessary for the management to counter against asymmetric information. Either they should generate the funds internally or acquire funds externally through debt rather than equity. Implications to the pecking order theory involves the positive impact of leveraging on the market price, which means, financing through debt sends a positive signal into the market about the firms future prospects. Furthermore, intermediaries also undermine the role of management as the financial intermediaries such as investment banks function as the insider to the firm. Consequently, keeping an eye on the firms operations and influencing the firms capital financing decision. However, Pecking order theory of (Myers Maljuf, 1984) argues that the firms operating in imperfect or incomplete capital markets where the cost of external capital exceeds that of internal funds, the financial structure may be appropriate to the investment decisions of companies facing uncertain prospects. Gauging the level of corporate investment in any firm is based on the corporate governance; market position of a firms asset against its book value can be termed as Tobins q ratio. Identified by (Chung Pruitt, 1994), Tobins q as proportion of firms market value to replacement cost of its assets. Tobins q can be considered an effective tool for determining financial performance as the data can be collected readily from a balance sheet. When calculating Tobins q ratio, the replacement cost can be determined approximately by the book value of firms plant and equipment. Approximate q can be replaced with the actual Tobins q to make the calculations unproblematic and data can be readily available without any discrepancies. Problem Statement To study the impact of corporate governance on the capital investment decision through cash flow and Tobins q interaction in relation with Capital Investment HypothesEs H0: Firms cash flow having a significant impact on its capital investment will be linked with high Q values. (FCF Theory) HA: Firms being liquidity constrained due to least payout will have significant investment-cash flow sensitivity, and will be linked with high Q values in the market. (PO Theory) Outline of the study The report contains the contemplation of research data that will study the phenomenon of cash flows and investment discussed earlier in this paragraph. The study categorizes firms according to characteristics (such as dividend payout, size) which will help measure the level of constraints faced by firms. The study will help readers to understand the complexities of Pecking order theory and Free Cash Flows concept with regard to asymmetric information available and corporate governance which influences decision of the firms. To measure the effect that cash flow-financed (internally sourced) capital spending and Q has on firms investment, Ordinary Least Square Regression model will be used to estimate the function. To compute the influence on the Investment, instruments used are: (1) Cash Flow, (2) Approximate q, and (3) an interaction of both variables are created. Through studying the parameter estimates of interaction variable, positive influence on investment will support the Pecking Order hypothesis and negative influence will govern the Free Cash Flow hypothesis. The equation hypothesized in the next part is linear. Definitions Pecking Order Theory: (Myers Maljuf, 1984): à ¢Ã¢â€š ¬Ã…“A firm is said to follow a pecking order if it prefers internal to external financing and debt to equity if external financing is used.à ¢Ã¢â€š ¬? Free Cash Flow Theory According to (Jensen, 1986), à ¢Ã¢â€š ¬Ã…“free cash flow theory, high cash flow and low debt create agency costs associated with conflicts between manager and share holder over the payout of this free cash, which is the cash left after the firm has invested in all available positive net present value projects.à ¢Ã¢â€š ¬? Capital Structure à ¢Ã¢â€š ¬Ã…“A careful and systematic analysis of how claims against a corporations assets can or should be determined, assessed, and accounted for.à ¢Ã¢â€š ¬? (Riahi-Belkaoui, 1999) Capital Investment Decision à ¢Ã¢â€š ¬Ã…“Capital Investment decisions are those decisions that involve current outlay in return for a stream of benefit in future years.à ¢Ã¢â€š ¬? (Drury, 2006) Tobins q à ¢Ã¢â€š ¬Ã…“Tobins q is a measure of investors expectations concerning a firms future profit potential. It is defined as the ratio of the market value of a firm to the replacement cost of its assets.à ¢Ã¢â€š ¬? (Strecker, 2009) Literature Review Vogt (Vogt, 1994) explained the capital spending behavior of companies with respect to change in dividend cash paid, cash flows, sales, and market value of assets. The regression equation models the variables to proportion of fixed assets, and distributes the firms data in segments of Dividend Payout Groups and Asset Groups. Primarily, Dividend Cash has a strong negative impact on capital spending; it explains that in order to finance additional fixed investment firm needs to sock cash by reducing their dividend. Cash flow, Sales, and Q Ratio having a positive coefficient demonstrates that with an increase in future cash flows, the firm will improve its capital spending. A relationship has been developed between the firms investment decision and the firms financial status by Cleary (Cleary, 1999), financial status has been studied with respect to the liquidity constraints. The data is classified into groups through a discriminant analysis on basis of dividend payout policy. Groups taken into study have made possible to identify firms which are more financially constrained more likely to be investment-cash flow sensitive, furthermore, availability of internal sources of funds have a greater impact on firms with high credit worthiness, and vice versa. It has been proposed that the various ownership structures make managerial decision based on the interaction between investment and the firms liquidity constraints. The study conducted by Dedoussis Papadaki (Dedoussis Papadaki, 2010) mentioned that the management can be held separate from its ownership, even on basis of the nationality of the company. On the other hand, it also explained that the relative shareholding of CEO and the controlling shareholders can also be the basis of separation. The sample used in the study was separated and grouped on basis of dividend payout, asset size of the firm, age of the firm, source of control, and kind of ownership. On the given sampling criterion; greater asset size firms, older firms, lower Q (high investment opportunity), and high dividend payout firms showed higher cash flow sensitivity towards investment. Findings support that the Low Q, small, and new firms under the generalized model are facing asymmetric information problems. Indeed these firms are expected a priori to face financing problems that affect the cost of their external financing. On the other hand, low Q, old and low dividend firms are more likely to face managerial discretion problems that result to over-investment. The impact of Tobins Q is mainly used to determine the investment opportunity of the firm. In this article, marginal Tobins Q has been taken to evaluate the firms investment and Research Development expenditures. The asymmetric information (AI) hypothesis proposed that firms provided with a profitable investment-project may not be able to source it through internal cash flows and the high financial cost of borrowing funds externally due to lack of awareness of firms investment opportunity in the capital market. On the other hand, agency or managerial discretion (MD) hypothesis constructs the investment-cash flow relationship on the assumption that managers are well qualified in context with proficiency they obtain from managing a huge and fast paced firm and thus exceeding the wealth shareholders beyond their expectations. (Gugler, Mueller, Yurtoglu, 2004) Taking in viewpoint the impact of capital structure on the capital investment decision, firms investment demands is the more susceptible towards cost-of-capital or tax-based capital incentive. Whereas, capital structure seems irrelevant as against internal sources of funds can be effectively substituted with sources of funds generated externally. The size of the investment project can be a deterministic factor towards it. Fazzari, Hubbard, Peterson, Blinder, Poterba (Fazzari, Hubbard, Peterson, Blinder, Poterba, 1988) explicates that cash flow/investment relationship is more sensitive when taken in reference with firms dividend behavior. Comparison based on firms having more or less liquidity constraints can be further improved when compared on a division based on the scale of the firms, i.e. young or small firms versus large ones. This way the researchers can address the problem of firms lacking the asymmetric information. Under the impression where capital investments decisions mainly pertains to the capital structure or choosing the appropriate source of investment, Schaller (Schaller, 1993) conducted three different empirical tests to determine that information asymmetries have a huge influence on the firms investment behavior. Differences among the informational base of investors and creditors was also considered a capital market imperfection. Ownership status and age of the firms has an impact on the cost of equity financing, mature firms pay comparatively less price for it than young firms. Same aspect goes for the firms with concentrated with comparison to dispersed ownership. Borrowing is considered a more rational source for investment-projects. Pledgeable assets generate greater borrowing capacity, which afterwards makes firms invest more in pledgeable assets. As suggested by Almeida Campello (Almeida Campello, 2007), such a phenomenon can be termed as a credit multiplier. In case of financially constrained firms, a multiplier relates to the sensitivity of firms investment-cash flow relationship that is reflected as the increase in the tangible assets of the firm. Therefore, it is proposed that with fewer tangible assets firms are more likely to be financially constrained. The sensitivity of investment-cash flow relationship is evidently influenced by the tangibility of a firm, as latter discussed. Managers while making capital investment decision considers externally-sourced funds costlier, therefore, overconfident managers over assessing the profitability of an investment-project invests more when having abundant internal funds to utilize. However, deciding not to source externally in case where they are short of internal funds to generate. There has been an evidence of significant relationship between the managerial discretion and investment-cash flow sensitivity. Equity concentrated firms are more likely to be influenced by overconfident managers, unless compensation tools can be used to reduce the effects of managerial overconfidence. (Malmendier Tate, 2005) Goyal Yamada (Goyal Yamada, 2004) have explained the impact of asset pricing in the stock market against investment-cash flow sensitivity. Overvalued stock prices triggers an increased in investment spending and are cut back when stock are being undervalued, consequently, inflated prices collateral assets attract higher level of external financing. Inflationary pressures primarily determined by the economic monetary policy impacts on the variation of cost on external financing, though it reflects highly on cost of external financing, marginally impacts less on the investment-cash flow sensitivity. It has been observable that less financially constrained firms have significantly higher investment-cash flow sensitivity. Characterizations of firms based on financial constraint can sometimes create confusion. Firms having unusually high cash holdings can either be characterized as unconstrained based on the opportunities it has to invest or constrained based on the assumption that it needs to have a precautionary savings to invest in future investment projects. Therefore, financial constraints cannot be used as an influential determinant for investment-cash flow sensitivity. (Kaplan Zingales, 1997) Hu Schiantrlli (Hu Schiantarelli, 1998) put into picture the effect of general economic factors and various firms characteristics on the value of the firms net worth. Mainly financial status is the most important determinant for the level of asymmetric information problem that managers face. A strong balance sheet position can reflect good sign of firms performance which enhances the market value of the firms asset to its stake holders, mainly investors and creditors. Q models assumption also assists in determining the sensitivity of the investment-cash flow relationship, where the indicators determine the investment opportunity and the sources of funds to choose from. Understanding the market influence in proxy of q can also give a clear picture to the movements in the firms investment over a period. Net worth of firms helps manager determine if the sourcing of funds externally is a viable option in contrast to the investment opportunity which underlies. (Hubbard, 1998) Research conducted on the investment-cash flow sensitivity addresses many aspects of the firms financial strength. Further study by Calomiris Hubbard (Calomiris Hubbard, 1995) shows that when firms tax taken under investigation also reflected a significant influence on the volume of spending on investment-projects. They explored the impact of surtax margin, as a tax experiment, on the cost of internal and external funds. Surtax when levied on undistributed profits, obligate the firms to incur certain cost on the internal funds. This effects the managers decision to invest and is also reflected on the investment-cash flow sensitivity against the surtax margin. As a result to evade burden of higher cost on internal funds, firms with high surtax-margin exhibits elevated sensitivity in investment-cash flow relationship. Quan (Quan, 2002) discusses the Pecking Order theory with reference to the Modigliana-Miller proposition that works under the assumption of perfect market. Here it is stated that value of the firm is irrelevant and based on a few limitations the choice of financing can be determined via gauging the strength of the firm. These factors pertain to the imperfect market and influence the managers to make their capital investment decision. Once the assumptions are released the financing structure shows a clear picture. The association between Free Cash Flow theory and Agency theory has always been under the limelight when there is a question of retaining the undistributed profits. FCF Theory taken under consideration gives out an option to the management to hold on to excess cash sacrificing the shareholders opportunity cost. These excess funds can be generated to better internal operational efficiency or at managers discrepancy to source its investment-projects. (Wang, 2010) Research Methods The chapter explains the model used in the given research study. The study focuses on analyzing the influence of Cash Flows and Tobins q on Corporate Investment. The equation represented by a dependent variable as a ratio of capital spending to the beginning net fixed asset (I/K) predicted by independent variables: (1) ratio of cash flow to the beginning gross fixed asset (CF/K), and (2) beginning Tobins q (Q). Method of Data Collection Main source of collecting the required data is from secondary sources. It includes the Balance Sheet Analysis of Joint Stock Company listed in Karachi Stock Exchange provided by State Bank of Pakistan consisting of data of our relevant variables. The data was taken in annual terms to conduct this research. Sampling Technique The Convenience sampling or grab or opportunity sampling would be use in this research. Sample population selected because it is readily available and convenient. Sample Size The sample period taken under study covers 8-years period beginning at the start of 2000 and ending at the close of 2008. The data was taken from a sample of 70 (non-banking and non-financial) companies which are listed on Karachi Stock Exchange and included in KSE-100 index. Research Model Statistical technique Ordinary Least Square Regression technique is used to study the impact of variables included in the study. It helps studies the relationship between a dependent variable and several independent variable. It also assumes the relationship to be linear or à ¢Ã¢â€š ¬Ã…“straight line,à ¢Ã¢â€š ¬? where the values of predictors lies directly proportional to Criterion variable. SPSS Software is used to develop the regression model and evaluate the influence of predictors on dependent variable. Results Findings and interpretation of results Aggregate Sample: Table : Represents the model summary of regression estimates for the full sample of 69 firms The predictors, i.e. main effects of Cash Flow and Tobins q and an interaction variable of both combined, included in the model explains 78.5% of Investment (Table 1) shown mentioned as R Square. Least variation in Adjusted R Square suggests that the variable to observation ratio in the given model is sufficient. Casewise diagnostic was also conducted to eliminate the outliers in the data to improve the results. Table : Studies the F-statistics to test whether the model predicts the dependent variable significantly The F-statistics (Table 2) is significant and it determines the regression model with the given predictors can significantly predict the outcomes at a 0.05 significance level. Table : The parameter estimation for full sample of 69 firms with respect to dependent variable, t-statistics is used to test the null hypothesis ÃŽÂ ²1 = ÃŽÂ ²2 = ÃŽÂ ²3 = 0 The coefficient values of all predators included in the test are significant at a 0.05 significant level (Table 3), which shows that they have a strong influence on the investment of the firm. The standard coefficient shows that Cash Flows have a much greater impact on Investment than market value on the firm, which is exemplified through Tobins q. Dividend Payout groups: Table : Presents the sample statistics for 69 KSE listed (non-banking and non-financial) companies which are included in the KSE-100 index. The three rows distribute the statistics into High, Medium, and Low payout policies. Average dividend-to-income ratios of greater than 0.35, between 0.35 and 0.10, and less than 0.10 define High, Low, and Medium dividend-payout firms, respectively. While studying the dividend-payout groups (Table 4), the descriptive helps to identify characteristics to confirm whether the data being studied has the authenticity and the behavior pattern which commonly related to the groups assigned. The values of Investment, Cash Flow, and Tobins q associated with the groups are in complete correspondence with the hypothetical occurrence. Firms having a higher (lower) dividend payout have greater (lower) market value, and lower(higher) level of cash flows and investments. Table : Represents the model summary of regression estimates of 69 firms split by High, Medium, and Low dividend-payout policies. The model helps explains 81.9%, 66.7%, and 80% data in High, Medium, and Low dividend-payout firms (Table 5), shown in R Square. Least variation in Adjusted R Square suggests that the number of observations is sufficient with respect to variables in each group separately. Table : Studies the F-statistics to test the null hypothesis of ÃŽÂ ²1, H = ÃŽÂ ²1, M = ÃŽÂ ²1, L The F-statistics (Table 6) in each dividend payout group is significant and it determines that each regression model with the given predictors can significantly predict the outcomes at a 0.05 significance level. Table : Shows the parameter estimation for each payout groups with respect to dependent variable, t-statistics is used to test the null hypothesis ÃŽÂ ²1 = ÃŽÂ ²2 = ÃŽÂ ²3 = 0 The coefficient values of predators in High and Low dividend payout groups are all significant at a 0.05 significant level (Table 7), which shows that they have a strong influence on the investment of the firm. Except for Medium dividend payout group, which has insignificant coefficient values of Tobins q, showing no impact on the investment. The standard coefficient shows that Cash Flows have a much greater impact on Investment than market value on the firm, which is exemplified through Tobins q. Hypothesis Assessment Summary Hypothesis Independent Variables B t Sig. Comments Firms cash flow having a significant impact on its capital investment will be linked with high Q values. (FCF Theory) Cash Flow ÃÆ'— Q H0: ÃŽÂ ²3 ÃŽÂ ²3,H = .135 5.295 .000 Rejected ÃŽÂ ² 3,M = .072 .991 .324 ÃŽÂ ² 3,L = .140 5.482 .000 Firms being liquidity constrained due to least payout will have significant investment-cash flow sensitivity, and will be linked with high Q values in the market. (PO Theory) Cash Flow ÃÆ'— Q HA: ÃŽÂ ²3 >0 ÃŽÂ ² 3,H = .135 5.295 .000 Accepted ÃŽÂ ² 3,M = .072 .991 .324 ÃŽÂ ² 3,L = .140 5.482 .000 Dependent Variable: Investment (I/K) Table : Summarizes the results and explains that the hypothesis accepted is directly in correspondence with the aggregate hypothesis. As illustrated (Table 8) capital spending of low payout firms is positively and strongly influenced by the interaction term, consistent with the PO hypothesis, the parameter estimate for the high payout firms are also positive but marginally significant. Conclusion, Discussions, Implications And Future Research Conclusion The results illustrated above demonstrates that the positive relationship between the degree of the Investment-Cash flow relationship and Q represented latter in the aggregate data (Table 3) is concentrated in low or no dividend paying firms. This finding is in further support with the PO hypothesis. Discussions The objective was to study and test the causes of universal relationship between Cash Flow and Investment Spending. Hence, two hypotheses were included in the research to study the source of this relationship: the free cash flow hypothesis (FCF) hypothesis, which works on the assumption that managers prefer investing its free cash flow excessively into investment projects that are not profitable, and the pecking order hypothesis (PO) purports that managers are prone to investment comparatively less than the opportunity provided due asymmetric information-induced liquidity constraint. As advocated in favor of Pecking Order Theory by (Fazzari, Hubbard, Peterson, Blinder, Poterba, 1988) and many others, for groups which consists of small firms with low-dividend payout to fund capital spending, exhibits heavy reliance on cash flow and cash changes. The relationship can be more significantly studied when the impact of larger q value is associated with this group. Evaluating the impact of corporate governance on investment-cash flow relation requires a critical judgment as to how do the firms cash flow and the existing market value influence the investment decision. Financially constraint firms may have a larger impact on liquidity associated matters and managers might take discretion in choosing the right sources to tap. Agency cost may be involved in making such a decision where managers may consider paying dividend as a higher opportunity cost as it reduces the firms free cash flow to exploit new profitable investment projects. Implications and Recommendations In the current market situation where external pressures existing can also be taken into proxy. When managers making a capital investment decision they need to take in view other non-financial aspects that also influences the decisions to a certain extent. Furthermore, financial intermediaries having a certain level of involvement and sharing information sensitive to the market can also be a major factor that might be giving a varying result against Investment. Investing in profitable-investment projects can bring in greater resources to the firm in future and it entails a huge decision burden upon the shoulders of the managers. Shareholders expecting to earn a greater return through investing in them can also be undermined when manager decided to have a low payout policy. Funds generated internally is a possibility where there is a healthy cash flow, but it is also preferable if this free cash is invested into marketable security for allocating the resources into a profitable venture for a time being to make it a positive impression. Future Research In future studies there may be more aspects of cash flow-investment relationship which can be studied for assessing the degree impact it has on this relationship, i.e. sales, debt performance, capital structure, firm size, etc. The research study may also be improved if the observation of firms are increased that will in turn reflect a more clear picture about the relationship in the current scenario.

Exercise Prescription :: Exercise Physiology

  Ã‚  Ã‚  Ã‚  Ã‚  Date of Birth: 09/01/77   Ã‚  Ã‚  Ã‚  Ã‚  Sex: Female   Ã‚  Ã‚  Ã‚  Ã‚  Height: 61†   Ã‚  Ã‚  Ã‚  Ã‚  Weight: 113 lbs   Ã‚  Ã‚  Ã‚  Ã‚  Resting Heart Rate: 58 bpm  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Health problems or injuries: Previous lower back injuries  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Medications that may influence heart rate: None  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Risk of cardiovascular or orthopedic injury: None  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Individual preferences for exercise: Jogging, swimming, hiking, mountain biking, resistance ball, free weights, yoga  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Individual dislikes for exercise:   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Stationary bike, treadmill, some weight machines  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Individual program objectives and goals: 1)  Ã‚  Ã‚  Ã‚  Ã‚  Maintain health 2)  Ã‚  Ã‚  Ã‚  Ã‚  Increase core strength 3)  Ã‚  Ã‚  Ã‚  Ã‚  Increase lean body mass 4)  Ã‚  Ã‚  Ã‚  Ã‚  Decrease body fat percentage 5)  Ã‚  Ã‚  Ã‚  Ã‚  5 months to train for triathlon: Need to increase speed and endurance in running, biking, and swimming  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Opportunities Live close-by gym with pool, weights, and aerobics classes Live close by running and biking trail Gym available at both jobs  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Barriers Varied work schedule Sometimes need partner or personal trainer for motivation  ·Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Expected Results â€Å"After 5 months of training I expect to be moderately stronger and more efficient in all areas of activity as well as see a reduction in body fat and an increase in lean body mass.† Cardiovascular/Respiratory Training Schedule Warm-up: Before Running: Do 5 minutes of light walking. Before Bicycling: Do 1 set of 10-15 of stationary lunges without weights and do leg stretches (including quadriceps, hamstrings, calves and glutes). Before Swimming: Do full-body stretching with 5 minutes freestyle swimming. Cool Down: After Running: Do 5 minutes of light walking and stretch all leg muscles. After Bicycling: Do 5 minutes of light cycling and stretch all leg muscles. After Swimming: Do 5 minutes of easy freestyle swimming and do full-body stretches for flexibility. Running Exercise #  Ã‚  Ã‚  Ã‚  Ã‚  Time  Ã‚  Ã‚  Ã‚  Ã‚  Sets  Ã‚  Ã‚  Ã‚  Ã‚  Type R1  Ã‚  Ã‚  Ã‚  Ã‚  10 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Light run R2  Ã‚  Ã‚  Ã‚  Ã‚  20 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Intervals – alternating 1 min. light run w/ 1 min. moderate run R3  Ã‚  Ã‚  Ã‚  Ã‚  30 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Moderate Run Bicycling Exercise #  Ã‚  Ã‚  Ã‚  Ã‚  Time  Ã‚  Ã‚  Ã‚  Ã‚  Sets  Ã‚  Ã‚  Ã‚  Ã‚  Type B1  Ã‚  Ã‚  Ã‚  Ã‚  10 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Light cycling B2  Ã‚  Ã‚  Ã‚  Ã‚  20 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Intervals – alternating 1 min. light cycling w/ 1 min. moderate cycling B3  Ã‚  Ã‚  Ã‚  Ã‚  30 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Moderate cycling Swimming Exercise #  Ã‚  Ã‚  Ã‚  Ã‚  Time  Ã‚  Ã‚  Ã‚  Ã‚  Sets  Ã‚  Ã‚  Ã‚  Ã‚  Type S1  Ã‚  Ã‚  Ã‚  Ã‚  10 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Breast stroke, butterfly, back stroke, freestyle S2  Ã‚  Ã‚  Ã‚  Ã‚  20 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Breast stroke, butterfly, back stroke, freestyle S3  Ã‚  Ã‚  Ã‚  Ã‚  30 minutes  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  Breast stroke, butterfly, back stroke, freestyle L1: 30-45 minutes of any exercise above at intervals (1 min. light/1 min. moderate). If swimming, do 1 lap light/1 lap moderate intervals. Week #  Ã‚  Ã‚  Ã‚  Ã‚  Mon.  Ã‚  Ã‚  Ã‚  Ã‚  Tues.  Ã‚  Ã‚  Ã‚  Ã‚  Wed.  Ã‚  Ã‚  Ã‚  Ã‚  Thurs.  Ã‚  Ã‚  Ã‚  Ã‚  Fri.  Ã‚  Ã‚  Ã‚  Ã‚  Sat.  Ã‚  Ã‚  Ã‚  Ã‚  Sun. 1  Ã‚  Ã‚  Ã‚  Ã‚  *R1, B1, S1, R2  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  *R3, S2  Ã‚  Ã‚  Ã‚  Ã‚  ---  Ã‚  Ã‚  Ã‚  Ã‚  *B2, S3  Ã‚  Ã‚  Ã‚  Ã‚  *L1, B3  Ã‚  Ã‚  Ã‚  Ã‚  --- *Note: Each exercise does not have to be done simultaneously. Because of varied work schedule and other activities, spread exercises according to amount of free time. Core Strength Training Warm-up: Do 5 a minute walk or do 5 minutes of the movements of the following exercises without the weight and so light full-body stretches.

Kotler Ch. 1 Jetblue Company Case 14th Edition

1. The need being met by JetBlue is mainly transportation. In today’s world consumers need to be able to travel long-distances quickly and JetBlue’s practices ensure customer comfort/satisfaction along the journey. The wants of JetBlue’s customers are to safely and quickly travel on an airplane. They also want to be comfortable and treated well. JetBlue accomplishes this by providing leather seats and entertainment with great customer service. The demands of this airline’s customers are pretty low. They are already flying on a â€Å"discount airline,† yet they have great amenities such as more legroom.There are not really any wants that money needs to back in this scenario. JetBlue has done a good job at ensuring everything from email is available at no extra charge. 2. Consumers exchange money and time for a flight with JetBlue. They also give up the ability to fly with another airline. In exchange, however they get the â€Å"happy jetting† experience. This includes amenities such as plush seats and snacks combined with excellent customer service. From the terminal, to the plane, JetBlue employees are courteous and nice.This overall experience is highly valued by JetBlue and is supported by all the smaller facets of their market offering. 5. JetBlue should certainly be able to continue building customer relationships successfully. While Southwest is a competitor, JetBlue does have the competitive edge in cost. Also, their fun culture combined with loyal customers who spread the word certainly helps continue this success. It’s not easy to offer such great amenities while also having low fares, but JetBlue also places a lot of value on their intangible wonderful customer service.

Coffee and Starbucks Essay

Starbucks began in 1971 when three academics—English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker—opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle. The three partners shared a love of fine coffees and exotic teas and believed they could build a clientele in Seattle much like that which had already emerged in the San Francisco Bay area. Each invested $1,350 and borrowed another $5,000 from a bank to open the Pikes Place store. Baldwin, Siegel, and Bowker chose the name Starbucks in honor of Starbuck, the coffee-loving first mate in Herman Melville’s Moby Dick(so company legend has it), and because they thought the name evoked the romance of the high seas and the seafaring tradition of the early coffee traders. The new company’s logo, designed by an artist friend, was a two-tailed mermaid encircled by the store’s name. The inspiration for the Starbucks enterprise was a Dutch immigrant, Alfred Peet, who had begun importing fine arabica coffees into the United States during the 1950s. Peet viewed coffee as a fine winemaker views grapes, appraising it in terms of country of origin, estates, and harvests. Peet had opened a small store, Peet’s Coffee and Tea, in Berkeley, California, in 1966 and had cultivated a loyal clientele. Peet’s store specialized in importing fine coffees and teas, dark-roasting its own beans the European way to bring out their full flavor, and teaching customers how to grind the beans and make freshly brewed coffee at home. Baldwin, Siegel, and Bowker were well acquainted with Peet’s expertise, having visited his store on numerous occasions and spent many hours listening to Peet expound on quality coffees and the importance of proper bean-roasting techniques. All three were devoted fans of Peet and his dark-roasted coffees, going so far as to order their personal coffee supplies by mail from Peet’s. The Pikes Place store featured modest, hand-built nautical fixtures. One wall was devoted to whole-bean coffees; another had shelves of coffee products. The store did not offer fresh-brewed coffee by the cup, but samples were sometimes available for tasting. Initially, Siegel was the only paid employee. He wore a grocer’s apron, scooped out beans for customers, extolled the virtues of fine, dark-roasted coffees, and functioned as the partnership’s retail expert. The other two partners kept their day jobs but came by at lunch or after work to help out. During the start-up period, Baldwin kept the books and developed a growing knowledge of coffee; Bowker served as the â€Å"magic, mystery, and romance man. â€Å"1 The store was an immediate success, with sales exceeding expectations, partly because of a favorable article in the Seattle Times. In the early months, each of the founders traveled to Berkeley to learn more about coffee roasting from their mentor, Alfred Peet, who urged them to keep deepening their knowledge of coffees and teas. For most of the first year, Starbucks ordered its coffee beans from Peet’s, but then the partners purchased a used roaster from Holland and set up roasting operations in a nearby ramshackle building. Baldwin and Bowker experimented with Alfred Peet’s roasting procedures and came up with their own blends and flavors. A second Starbucks store was opened in 1972. By the early 1980s, the company had four Starbucks stores in the Seattle area and could boast of having been profitable every year since opening its doors. But the roles and responsibilities of the cofounders underwent change. Zev Siegel experienced burnout and left the company to pursue other interests. Jerry Baldwin took over day-to-day management of the company and functioned as chief executive officer; Gordon Bowker remained involved as an owner but devoted most of his time to his advertising and design firm, a weekly newspaper he had founded, and a microbrewery he was launching (the Redhook Ale Brewery). Howard Schultz Enters the Picture In 1981, Howard Schultz, vice president and general manager of U. S. operations for Hammarplast—a Swedish maker of stylish kitchen equipment and housewares—noticed that Starbucks was placing larger orders than Macy’s was for a certain type of drip coffeemaker. Curious to learn what was going on, he decided to pay the company a visit. The morning after his arrival in Seattle, Schultz was escorted to the Pikes Place store by Linda Grossman, the retail merchandising manager for Starbucks. A solo violinist was playing Mozart at the door, with his violin case open for donations. Schultz immediately was taken by the powerful and pleasing aroma of the coffees, the wall displaying coffee beans, and the rows of red, yellow, and black Hammarplast coffeemakers on the shelves. As he talked with the clerk behind the counter, the clerk scooped out some Sumatran coffee beans, ground them, put the grounds in a cone filter, poured hot water over the cone, and shortly handed Schultz a porcelain mug filled with the freshly brewed coffee. After three sips, Schultz was hooked. He began asking the clerk and Grossman questions about the company, about coffees from different parts of the world, and about the different ways of roasting coffee. Next, Schultz met with Jerry Baldwin and Gordon Bowker, whose offices overlooked the company’s coffee-roasting operation. The atmosphere was informal. Baldwin, dressed in a sweater and tie, showed Schultz some new beans that had just come in from Java and suggested they try a sample. Baldwin did the brewing himself, using a glass pot called a French press. Bowker, a slender, bearded man with dark hair and intense brown eyes, appeared at the door and the three men sat down to talk about Starbucks. Schultz was struck by their knowledge of coffee, their commitment to providing high-quality products, and their passion for educating customers about the merits of dark-roasted coffees. Baldwin told Schultz, â€Å"We don’t manage the business to maximize anything other than the quality of the coffee. â€Å"2 Starbucks purchased only the finest arabica coffees and put them through a meticulous dark-roasting process to bring out their full flavors. Baldwin explained that the cheap robusta coffees used in supermarket blends burn when subjected to dark roasting. He also noted that the makers of supermarket blends prefer lighter roasts because they allow higher yields (the longer a coffee is roasted, the more weight it loses). Schultz was struck by the business philosophy of the two partners. It was clear from their discussions that Starbucks stood not just for good coffee, but rather for the dark-roasted flavor profiles that the founders were passionate about. Top-quality, fresh-roasted, whole-bean coffee was the company’s differentiating feature and a bedrock value. It was also clear to Schultz that Starbucks was strongly committed to educating its customers to appreciate the qualities of fine coffees, rather than just kowtowing to mass-market appeal. The company depended mainly on word-of-mouth to get more people into its stores, then relied on the caliber of its product to give patrons a sense of discovery and excitement. It built customer loyalty cup by cup as buyers of its products developed their palates. On his trip back to New York the next day, Howard Schultz could not stop thinking about Starbucks and what it would be like to be a part of the Starbucks enterprise. Schultz recalled, â€Å"There was something magic about it, a passion and authenticity I had never experienced in business. â€Å"3 Living in the Seattle area also had a strong appeal. By the time Schultz landed at Kennedy Airport, he knew he wanted to go to work for Starbucks. Though there was nothing in his background (see Exhibit 2) that prepared him for the experience, Schultz asked Baldwin at the first opportunity whether there was any way he could fit into Starbucks. The two quickly established an easy, comfortable rapport, but it still took a year of numerous meetings and a lot of convincing to get Baldwin, Bowker, and their silent partner from San Francisco to agree to hire Howard Schultz. Schultz pursued a job at Starbucks far more vigorously than Starbucks pursued him. There was some nervousness at Starbucks about bringing in an outsider, especially a high-powered New Yorker, who had not grown up with the values of the company. Nonetheless, Schultz continued to press his ideas about the tremendous potential of expanding the Starbucks enterprise outside Seattle and exposing people all over America to Starbucks coffee—arguing there had to be more than just a few thousand coffee lovers in Seattle who would like the company’s products. Schultz believed that Starbucks had such great promise that he offered to take a salary cut in exchange for a small equity stake in the business. But the owners worried that by offering Schultz a job as head of marketing they would be committing themselves to a new direction for Starbucks. At a spring 1982 meeting with the three owners in San Francisco, Schultz once again presented his vision for opening Starbucks stores across the United States and Canada. He flew back to New York thinking a job offer was in the bag. But the next day Baldwin called Schultz and indicated that the owners had decided against hiring him because geographic expansion was too risky and because they did not share Schultz’s vision for Starbucks. Schultz was despondent; still, he believed so deeply in Starbucks’ potential that he decided to make a last-ditch appeal. He called Baldwin back the next day and made an impassioned, though reasoned, case for why the decision was a mistake. Baldwin agreed to reconsider. The next morning Baldwin called Schultz and told him the job of heading marketing and overseeing the retail stores was his. In September 1982, Howard Schultz took on his new responsibilities at Starbucks. Starbucks and Howard Schultz: The 1982–85 Period In his first few months at Starbucks, Schultz spent most of his waking hours in the four Seattle stores—working behind the counters, tasting different kinds of coffee, talking with customers, getting to know store personnel, and educating himself about the retail aspects of the coffee business. By December, Jerry Baldwin decided that Schultz was ready for the final part of his training—roasting coffee. Schultz spent a week at the roaster examining the color of the beans, listening for the telltale second pop of the beans during the roasting process, learning to taste the subtle differences among Baldwin and Bowker’s various roasts, and familiarizing himself with the roasting techniques for different beans. Meanwhile, he made a point of acclimating himself to the informal dress code, blending in with the culture, and gaining credibility and building trust with colleagues. Making the transition from the high-energy, coat-and-tie style of New York to the more casual ambience of the Pacific Northwest required a conscious effort on Schultz’s part. One day during the busy Christmas season that first year, Schultz made real headway in gaining the acceptance and respect of company personnel at the Pikes Place store. The store was packed and Schultz was behind the counter ringing up sales when someone shouted that a customer had just headed out the door with some stuff—two expensive coffeemakers it turned out, one in each hand. Without thinking, Schultz leaped over the counter and chased the thief up the cobblestone street outside the store, yelling â€Å"Drop that stuff! Drop it! † The thief was startled enough to drop both pieces and run away. Schultz picked up the merchandise and returned to the store, holding up the coffeemakers like trophies. Everyone applauded. When Schultz returned to his office later that afternoon, his staff had strung up a banner that read â€Å"Make my day. â€Å"4 Schultz was overflowing with ideas for the company. Early on, he noticed that first-time customers sometimes felt uneasy in the stores because of their lack of knowledge about fine coffees and because store employees sometimes came across as a little arrogant. Schultz worked with store employees on developing customer-friendly sales skills and produced brochures that made it easy for customers to learn about fine coffees. Schultz’s biggest idea for Starbucks’ future came during the spring of 1983 when the company sent him to Milan, Italy, to attend an international housewares show. While walking from his hotel to the convention center, Schultz spotted an espresso bar and went inside to look around. The cashier beside the door nodded and smiled. The barista (counter worker) greeted Howard cheerfully, then gracefully pulled a shot of espresso for one customer and handcrafted a foamy cappuccino for another, all the while conversing merrily with those standing at the counter. Schultz judged the barista’s performance as â€Å"great theater. † Just down the way on a side street, he entered an even more crowded espresso bar, where the barista, whom he surmised to be the owner, was greeting customers by name; people were laughing and talking in an atmosphere that plainly was comfortable and familiar. In the next few blocks, he saw two more espresso bars. When the trade show concluded for the day, Schultz walked the streets of Milan exploring espresso bars. Some were stylish and upscale; others attracted a blue-collar clientele. What struck Schultz was how popular and vibrant the Italian coffee bars were. Most had few chairs, and it was common for Italian opera to be playing in the background. Energy levels were typically high, and the bars seemed to function as an integral community gathering place. Each one had its own unique character, but they all had a barista who performed with flair and exhibited a camaraderie with the customers. Schultz was particularly struck by the fact that there were 1,500 coffee bars in Milan, a city about the size of Philadelphia, and a total of 200,000 in all of Italy. His mind started churning. Schultz’s first few days in Milan produced a revelation: The Starbucks stores in Seattle completely missed the point. Starbucks, he decided, needed to serve fresh-brewed coffee, espresso, and cappuccino in its stores (in addition to beans and coffee equipment). Going to Starbucks should be an experience, a special treat; the stores should be a place to meet friends and visit. Re-creating the Italian coffee-bar culture in the United States could be Starbucks’ differentiating factor. Schultz remained in Milan for a week, exploring coffee bars and learning as much as he could about the Italian passion for coffee drinks. In one bar, he heard a customer order a caffe latte and decided to try one himself—the barista made a shot of espresso, steamed a frothy pitcher of milk, poured the two together in a cup, and put a dollop of foam on the top. Schultz concluded that it was â€Å"the perfect drink,† and thought to himself, â€Å"No one in America knows about this. I’ve got to take it back with me. â€Å"5 Schultz’s Growing Frustration On Schultz’s return from Italy, he shared his revelation and ideas for modifying the format of Starbucks stores with Baldwin and Bowker. But instead of winning their approval, Schultz encountered strong resistance. Baldwin and Bowker argued that Starbucks was a retailer, not a restaurant or bar. They feared that serving drinks would put them in the beverage business and dilute the integrity of Starbucks’ mission as a coffee store. They pointed out that Starbucks was a profitable small, private company and there was no reason to rock the boat. But a more pressing reason for their resistance emerged shortly—Baldwin and Bowker were excited by an opportunity to purchase Peet’s Coffee and Tea. The acquisition took place in 1984; to fund it, Starbucks had to take on considerable debt, leaving little in the way of financial flexibility to support Schultz’s ideas for entering the beverage part of the coffee business or expanding the number of Starbucks stores. For most of 1984, Starbucks managers were dividing their time between their operations in Seattle and the Peet’s enterprise in San Francisco. Schultz found himself in San Francisco every other week supervising the marketing and operations of the five Peet’s stores. Starbucks employees began to feel neglected and, in one quarter, did not receive their usual bonus due to tight financial conditions. Employee discontent escalated to the point where a union election was called, and the union won by three votes. Baldwin was shocked at the results, concluding that employees no longer trusted him. In the months that followed, he began to spend more of his energy on the Peet’s operation in San Francisco. It took Howard Schultz nearly a year to convince Jerry Baldwin to let him test an espresso bar. After Baldwin relented, Starbucks’ sixth store, which opened in April 1984, became the first one designed to sell beverages and the first one in downtown Seattle. Schultz asked for a 1,500-square-foot space to set up a full-scale Italian-style espresso bar, but Jerry agreed to allocating only 300 square feet in a corner of the new store. There was no pre-opening marketing blitz and no sign announcing Now Serving Espresso—the lack of fanfare was part of a deliberate experiment to see what would happen. By closing time on the first day, some 400 customers had been served, well above the 250-customer average of Starbucks’ best-performing stores. Within two months the store was serving 800 customers per day. The two baristas could not keep up with orders during the early morning hours, resulting in lines outside the door onto the sidewalk. Most of the business was at the espresso counter; sales at the regular retail counter were only adequate. Schultz was elated by the test results; his visits to the store indicated that it was becoming a gathering place and that customers were pleased with the beverages being served. Schultz expected that Baldwin’s doubts about entering the beverage side of the business would be dispelled and that he would gain approval to take Starbucks to a new level. Every day he went into Baldwin’s office to show him the sales figures and customer counts at the new downtown store. But Baldwin was not comfortable with the success of the new store; he believed that espresso drinks were a distraction from the core business of selling fine arabica coffees at retail and rebelled at the thought that people would see Starbucks as a place to get a quick cup of coffee to go. He adamantly told Schultz, â€Å"We’re coffee roasters. I don’t want to be in the restaurant business . . . Besides, we’re too deeply in debt to consider pursuing this idea. â€Å"6 While he didn’t deny that the experiment was succeeding, he didn’t want to go forward with introducing beverages in other Starbucks stores. Schultz’s efforts to persuade Baldwin to change his mind continued to meet strong resistance, although to avoid a total impasse Baldwin finally did agree to let Schultz put espresso machines in the back of two other Starbucks stores. Over the next several months, Schultz—at the age of 33—made up his mind to leave Starbucks and start his own company. His plan was to open espresso bars in high-traffic downtown locations that would emulate the friendly, energetic atmosphere he had encountered in Italian espresso bars. Schultz had become friends with a corporate lawyer, Scott Greenberg, who helped companies raise venture capital and go public. Greenberg told Schultz he believed investors would be interested in providing venture capital for the kind of company Schultz had in mind. Baldwin and Bowker, knowing how frustrated Schultz had become, supported his efforts to go out on his own and agreed to let him stay in his current job and office until definitive plans were in place. Schultz left Starbucks in late 1985. Schultz’s Il Giornale Venture Ironically, as Schultz was finalizing the documents for his new company, Jerry Baldwin announced he would invest $150,000 of Starbucks’ money in Schultz’s coffee-bar enterprise, thus becoming Schultz’s first investor. Baldwin accepted Schultz’s invitation to be a director of the new company, and Gordon Bowker agreed to be a part-time consultant for six months. Bowker urged Schultz to make sure that everything about the new stores—the name, the presentation, the care taken in preparing the coffee—was calculated to lead customers to expect something better than competitors offered. Bowker proposed that the new company be named Il Giornale (pronounced ill jor-nahl-ee ) Coffee Company, a suggestion that Schultz accepted. In December 1985, Bowker and Schultz made a trip to Italy during which they visited some 500 espresso bars in Milan and Verona, observing local habits, taking notes about decor and menus, snapping photographs, and videotaping baristas in action. Greenberg and Schultz then drew up plans to raise an initial $400,000 in seed capital and another $1. 25 million in equity—enough to launch at least eight espresso bars and prove the concept would work in Seattle and elsewhere. The seed capital was raised by the end of January 1986, primarily from Starbucks and two other investors who believed in Schultz and his ideas, but it took Schultz until the end of the year to raise the remaining $1. 25 million. He made presentations to 242 potential investors, 217 of whom said no. Many who heard Schultz’s hour-long presentation saw coffee as a commodity business and thought that Schultz’s espresso-bar concept lacked any basis for sustainable competitive advantage (no patent on dark roast, no advantage in purchasing coffee beans, no way to bar the entry of imitative competitors). Some noted that consumption of coffee had been declining since the mid-1960s, others were skeptical that people would pay $1. 50 or more for a cup of coffee, and still others were turned off by the company’s hard-to-pronounce name. Being rejected by so many potential investors was disheartening (some who listened to Schultz’s presentation ? didn’t even bother to call him back; others refused to take his calls). Nonetheless, Schultz continued to display passion and enthusiasm in making his pitch and never doubted that his plan would work. He ended up raising $1. 65 million from about 30 investors; most of this money came from nine people, five of whom became directors of the new company. One of Howard Schultz’s earliest moves during the start-up process was to hire Dave Olsen, who in 1974 had opened a coffee bar, Cafe Allegro, near the busiest entrance to the University of Washington campus. Olsen was a long-standing Starbucks customer, having discovered the quality of Starbucks’ coffee beans, gotten to know the owners, and worked with them to develop a custom espresso roast for use in his cafe. Olsen’s successful Cafe Allegro had become known for cafe au lait, a concoction equivalent to the Italian caffe latte. When Olsen heard of Schultz’s plans for Il Giornale, he called Schultz and expressed an interest in being part of the new company—he was intrigued by the Italian coffee-bar concept and was looking for a more expansive career opportunity. Olsen not only had coffee expertise but also had spent 10 years in an apron behind the counter at Cafe Allegro. Schultz immediately picked up on the synergy between him and Olsen. His own strengths were in forming and communicating a vision, raising money, finding good store locations, building a brand name, and planning for growth. Olsen understood the nuts and bolts of operating a retail cafe, hiring and training baristas, and making and serving good drinks. Plus, Olsen was fun to work with. Schultz put Olsen in charge of store operations, made him the coffee conscience of the company, and gave him the authority to make sure that Il Giornale served the best coffee and espresso possible. The first Il Giornale store opened in April 1986. It had a mere 700 square feet and was located near the entrance of Seattle’s tallest building. The decor was Italian, the menu contained Italian words, and Italian opera music played in the background. The baristas wore white shirts and bow ties. All service was stand-up—there were no chairs. National and international papers hung from rods on the wall. By closing time on the first day, 300 customers had been served, mostly in the morning hours. Schultz and Olsen worked hard to make sure that all the details were executed perfectly. For the first few weeks, Olsen worked behind the counter during the morning rush. But while the core idea worked well, it soon became apparent that several aspects of Il Giornale’s format weren’t appropriate for Seattle. Some customers objected to the incessant opera music, others wanted a place to sit down, and many didn’t understand the Italian words on the menu. These â€Å"mistakes† were quickly fixed, without compromising the style and elegance of the store. Within six months, Il Giornale was serving more than 1,000 customers a day and regulars had learned how to pronounce the company’s name. Because most customers were in a hurry, it became apparent that speedy service was a competitive advantage. Six months after opening the first store, Il Giornale opened a second store in another downtown building. A third store was opened in Vancouver, British Columbia, in April 1987. Vancouver was chosen to test the transferability of the company’s business concept outside Seattle. To reach his goal of opening 50 stores in five years, Schultz needed to dispel his investors’ doubts about geographic expansion. By mid-1987 sales at the three stores were equal to $1. 5 million annually. Il Giornale Acquires Starbucks In March 1987 Jerry Baldwin and Gordon Bowker decided to sell the whole Starbucks operation in Seattle—the stores, the roasting plant, and the Starbucks name. Bowker wanted to cash out his coffee-business investment to concentrate on his other enterprises; Baldwin, who was tired of commuting between Seattle and San Francisco and wrestling with the troubles created by the two parts of the company, elected to concentrate on the Peet’s operation. As he recalls, â€Å"My wife and I had a 30-second conversation and decided to keep Peet’s. It was the original and it was better. â€Å"7 Schultz knew immediately that he had to buy Starbucks; his board of directors agreed. Schultz and his newly hired finance and accounting manager drew up a set of financial projections for the combined operations and a financing package that included a stock offering to Il Giornale’s original investors and a line of credit with local banks. While a rival plan to acquire Starbucks was put together by another Il Giornale investor, Schultz’s proposal prevailed and within weeks Schultz had raised the $3. 8 million needed to buy Starbucks. The acquisition was completed in August 1987. After the papers were signed, Schultz and Scott Greenberg walked across the street to the first Il Giornale store, ordered themselves espresso drinks, and sat at a table near the window. Greenberg placed the hundred-page business plan that had been used to raise the $3. 8 million between them and lifted his cup in a toast—†We did it,† they said together. 8 The new name of the combined companies was Starbucks Starbucks as a Private Company: 1987–92. The following Monday morning, Schultz returned to the Starbucks offices at the roasting plant, greeted all the familiar faces and accepted their congratulations, then called the staff together for a meeting on the roasting-plant floor. He began: All my life I have wanted to be part of a company and a group of people who share a common vision . . . I’m here today because I love this company. I love what it represents . . . I know you’re concerned . . . I promise you I will not let you down. I promise you I will not leave anyone behind . . . In five years, I want you to look back at this day and say â€Å"I was there when it started. I helped build this company into something great. â€Å"9 Schultz told the group that his vision was for Starbucks to become a national company with values and guiding principles that employees could be proud of. He indicated that he wanted to include people in the decision-making process and that he would be open and honest with them. Schultz said he believed it was essential, not just an intriguing option, for a company to respect its people, to inspire them, and to share the fruits of its success with those who contributed to its long-term value. His aspiration was for Starbucks to become the most respected brand name in coffee and for the company to be admired for its corporate responsibility. In the next few days and weeks, however, Schultz came to see that the unity and morale at Starbucks had deteriorated badly in the 20 months he had been at Il Giornale. Some employees were cynical and felt unappreciated. There was a feeling that prior management had abandoned them and a wariness about what the new regime would bring. Schultz determined that he would have to make it a priority to build a new relationship of mutual respect between employees and management. The new Starbucks had a total of nine stores. The business plan Schultz had presented investors called for the new company to open 125 stores in the next five years—15 the first year, 20 the second, 25 the third, 30 the fourth, and 35 the fifth. Revenues were projected to reach $60 million in 1992. But the company lacked experienced management. Schultz had never led a growth effort of such magnitude and was just learning what the job of CEO was all about, having been the president of a small company for barely two years. Dave Olsen had run a single cafe for 11 years and was just learning to manage a multistore operation. Ron Lawrence, the company’s controller, had worked as a controller for several organizations. Other Starbucks employees had only the experience of managing or being a part of a six-store organization. When Starbucks’ key roaster and coffee buyer resigned, Schultz put Dave Olsen in charge of buying and roasting coffee. Lawrence Maltz, who had 20 years of experience in business and eight years of experience as president of a profitable public beverage company, was hired as executive vice president and charged with heading operations, finance, and human resources. In the next several months, a number of changes were instituted. To symbolize the merging of the two companies and the two cultures, a new logo was created that melded the Starbucks and Il Giornale logos. The Starbucks stores were equipped with espresso machines and remodeled to look more Italian than Old World nautical. The traditional Starbucks brown was replaced by Il Giornale green. The result was a new type of store—a cross between a retail coffee-bean store and an espresso bar/cafe—that became Starbucks’ signature format in the 1990s. By December 1987, employees at Starbucks had begun buying into the changes Schultz was making and trust had begun to build between management and employees. New stores were on the verge of opening in Vancouver and Chicago. One Starbucks store employee, Daryl Moore, who had voted against unionization in 1985, began to question his fellow employees about the need for a union. Over the next few weeks, Moore began a move to decertify the union. He carried a decertification letter around to Starbucks stores and secured the signatures of employees who no longer wished to be represented by the union. After getting a majority of store employees to sign the letter, he presented it to the National Labor Relations Board and the union representing store employees was decertified. Later, in 1992, the union representing Starbucks’ roasting plant and warehouse employees was also decertified. Expansion into Markets Outside the Pacific Northwest Starbucks’ entry into Chicago proved far more troublesome than management anticipated. The first Chicago store opened October 27, 1987, the same day the stock market crashed. Three more stores were opened in Chicago over the next six months, but customer counts were substantially below expectations—Chicagoans didn’t take to dark-roasted coffee as fast as Schultz had anticipated. At the first downtown store, for example, which opened onto the street rather than into the lobby of the building where it was located, customers were hesitant to go out in the wind and cold to get a cup of coffee in the winter months. Store margins were squeezed for a number of reasons: It was expensive to supply fresh coffee to the Chicago stores out of the Seattle warehouse, and both rents and wage rates were higher in Chicago than in Seattle. Gradually, customer counts improved, but Starbucks lost money on its Chicago stores until 1990, when prices were raised to reflect higher rents and labor costs, more experienced store manag.