Tuesday , November 19 2019
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In Chinese, the Emphasis is on the Second Syllable

Summary:
To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever. To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time. That’s the Starbucks corporate mission statement. LOL. Starbucks’ stores in Hong Kong were recently burned and vandalized amid the escalating protests and riots across the city. The protesters justified the attacks by claiming that Maxim’s Group, which owns Starbucks’ licenses in Hong Kong and Macao, supports Beijing and opposes the protests.The attacks started after Annie Wu, the daughter of Maxim’s founder, spoke out against the protests during the UN Human

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In Chinese, the Emphasis is on the Second Syllable

To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

That’s the Starbucks corporate mission statement. LOL.


Starbucks’ stores in Hong Kong were recently burned and vandalized amid the escalating protests and riots across the city. The protesters justified the attacks by claiming that Maxim’s Group, which owns Starbucks’ licenses in Hong Kong and Macao, supports Beijing and opposes the protests.

The attacks started after Annie Wu, the daughter of Maxim’s founder, spoke out against the protests during the UN Human Rights Council meeting in mid-September. Speaking to CGTN (the overseas arm of China’s state-backed CCTV), Wu called the protests “riots” and expressed hope that the Hong Kong police force would “maintain law and order.”


The point of this article is that Starbucks is “between a rock and a hard place” when it comes to Hong Kong, as the franchisee who owns the HK stores – Maxim’s Group – is kissing Xi’s ring, which has resulted in some store damage from protesters, plus something of a Starbucks boycott in the city.

This is a bad take.

The truth is that there’s no rock and no hard place in the store damage or the HK semi-boycott.

The lost sales on 174 HK-based Starbucks are the cheapest insurance policy the company could possibly buy against an NBA-like disruption on its 3,748 other Chinese stores.

Even better, because the Starbucks stores are franchised to Maxim’s Group, who is more than happy to do the dirty work here, Starbucks itself can remain pleasantly anodyne.

Starbucks itself can wallow publicly in its mission statement of “inspiring and nurturing the human spirit” … everywhere except Hong Kong, that is.

Don’t get me wrong … it’s a very clever strategy. Very coyote-ish.

But ultimately, I think this strategy will prove to be too clever by half.

Why?

Because when you’re dealing with a government that says this …

We believe that any remarks that challenge national sovereignty and social stability are not within the scope of freedom of speech.

… then ultimately you’re going to be forced to make a choice.

Do you want to preserve your authenticity and your brand, or do you want to preserve your earnings guidance and share price?

Choose one. You can’t have both.

THIS is the rock and the hard place that Starbucks and the NBA and Activision and Disney and GM and every other US corporation with consumer-facing products in China now find themselves between.

No one will believe me when I say this, but it’s the truth:

This is bigger than tariffs.


About Ben Hunt
Ben Hunt
He is the chief investment strategist at Salient, a $14 billion asset manager based in Houston and San Francisco, and the author of Epsilon Theory, a newsletter and website that examines markets through the lenses of game theory and history. Over 100,000 professional investors and allocators read Epsilon Theory for its fresh perspective into market dynamics.

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