Global Business: Introducing Shake Shack In Slovakia

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Introducing Shake Shack

In Slovakia

Phases 1 and 2

By: Anna Bednarczyk, Peter Cabezas, Brooke Cicale, Sam Geiler,

Tara Inman, and James Valva

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Table of Contents

Phase 1: PLANNING THE GLOBAL BUSINESS ENTERPRISE…………………………………………………………3

Module 1: IDENTIFYING GLOBAL BUSINESS OPPORTUNITIES ………………………………………….3

Module 2: ANALYZING INTERNATIONAL COMPETITORS………………………………………………….10

Module 3: ASSESSING THE ECONOMIC-GEOGRAPHIC ENVIRONMENT………………………………13

Module 4: ASSESSING THE SOCIAL-CULTURAL ENVIRONMENT……………………………………….18

Module 5: ASSESSING THE POLITICAL-LEGAL ENVIRONMENT…….………………………………….23

Phase 2: ORGANIZING FOR INTERNATIONAL BUSINESS ACTIVITIES …………………………………………….28

Module 6: SELECTING A GLOBAL COMPANY STRUCTURE…….………………………………………..28

Module 7: FINANCING SOURCES FOR GLOBAL BUSINESS OPERATIONS …………………………….33

Module 8: CREATING A GLOBAL MANAGEMENT INFORMATION SYSTEM………………………….38

Module 9: IDENTIFYING HUMAN RESOURCES FOR GLOBAL BUSINESS ACTIVITIES ………………..40

Module 10: MANAGING INTERNATIONAL FINANCIAL AND BUSINESS RISKS ……………………..44

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Phase 1: PLANNING THE GLOBAL BUSINESS ENTERPRISE

Module 1: IDENTIFYING GLOBAL BUSINESS OPPORTUNITIES

Slovakia, a high-income advanced economy with one of the fastest growth rates in

European Union and the OECD, has roots that can be traced back as far as the 9th century state

of Great Moravia. The Slovakians became part of the Hungarian Kingdom, where they remained

for the next 1,000 years. Following the formation of the dual Austro-Hungarian monarchy in

1867, language and education policies favoring the use of Hungarian language were formed.

This resulted in a strengthening of Slovak nationalism and a cultivation of cultural ties with the

closely related Czechs, who were under Austrian rule. After the dissolution of the Austro-

Hungarian Empire at the close of World War I, the Slovaks joined the Czechs to form

Czechoslovakia. During the interwar period, Slovak nationalist leaders pushed for autonomy

within Czechoslovakia, and in 1939 Slovakia became an independent state allied with Nazi

Germany. Following World War II, Czechoslovakia was reconstituted and came under

communist rule within Soviet-dominated Eastern Europe. In 1968, an invasion by Warsaw Pact

troops ended the efforts of the country’s leaders to liberalize communist rule and create

“socialism with a human face,” ushering in a period of repression known as “normalization.” The

peaceful “Velvet Revolution” swept the Communist Party from power at the end of 1989 and

inaugurated a return to democratic rule and a market economy. On January 1, 1993, the country

underwent a nonviolent “velvet divorce” into its two national components, Slovakia and the

Czech Republic. Slovakia joined both NATO and the EU in the spring of 2004 and the Eurozone

on January 1, 2009.

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Slovakia rests in Central Europe and is only about twice the size of New Hampshire.

Slovakia, a landlocked state, does not have immediate access to ports for easy trade. Slovakia

also faces cool summers with hot humid winters, and has rugged mountains in the northern and

southern regions. These lands hold valuable natural resources such as lignite, small amounts of

iron ore, copper and manganese ore, salt, and arable land (40.1% used for agriculture.) Currently,

they face issues due to pollution; metallurgical plants present human health risks and acid rains.

Economically, Slovakia has made significant reforms since its separation from the Czech

Republic in 1993. With a population of 5.4 million, Slovakia has a small, open economy with

exports at about 92% of GDP, serving as the main driver of GDP growth. Slovakia joined the

European Union (EU) in 2004 and the Eurozone in 2009. The country’s banking sector is sound.

Slovakia has led the region garnering FDI, because of its relatively low-cost, highly-skilled labor

force, reasonable tax rates, and favorable geographic location in the heart of Central Europe.

However, recent increases in corporate taxes, as well as changes to the Labor Code, slow dispute

resolution, and ongoing corruption threaten the attractiveness of the Slovak market. Moreover,

the energy sector is characterized by high costs, unpredictable regulatory oversight, and growing

government interference.

Operating as a smaller country, Slovakia only has a population of 5,445,027 people. The

religion amongst this population is divided into 5 major categories: 62% of citizens are Roman

Catholics, 8.2% Protestants, 3.8% Greek Catholics, 12.5% Other, and 13.4% do not practice a

religion. Furthermore, the unemployment rates for people between 15-24 years of age are 35%

male and 32.5% female.

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Slovakia has a parliamentary democracy and is divided into 8 regions. Slovakia became

independent in 1993, so is still a relatively young country with much promise for growth and

future development.

Shake Shack will soon be introduced in slovakia. Shake Shack has a net worth of 2.81

billion dollars after eleven years of establishment and has experienced a great deal of success.

This is roughly in the same net worth range of Wendy’s 2.85 billion, which is quite popular and

has been around for 46 years, showing promise of growth for Shake Shack in the future. This is

impressive not only because Shake Shack hasn’t been around nearly as long, but because it also

does not have as many store locations, only 71. This advantage differentiates Shake Shack from

other fast food chains. Shake Shack seems more intriguing for customers because the locations

are so rare, unlike McDonald’s or Wendy’s locations which are more easily accessible. Shake

Shack is more than just a restaurant, it is an experience. Having less store locations does not just

show value to Shake Shack, but also attracts many investors. When we open our location in

Slovakia, we will not have a hard time finding investors for our start up because Shake Shack has

already shown its credibility and profitability in the last ten years.

Shake Shack offers a wide range of products to consumers, including the typical hot

dogs, hamburgers, fries and milkshakes. The menu extends to food that may fit a particular target

market, depending on the surrounding demographic. For example, it offers a halal sandwich in

the Middle East and a gluten free option in America. It also offers a mushroom burger in all of its

locations to appeal to vegetarians. This menu philosophy compares similarly to the Shake

Shack’s direct competitors, such as McDonald’s and Burger King, who also offer regionally

specialized menus. Shake Shack’s wait time extends a few minutes past such competitors

because the restaurant cooks its higher quality food to order.

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Slovakia’s offers an appealing proposition to investors looking for decent returns

compared to the surrounding countries. The Slovakian market is small but has matured over time

and has an abundance of spare capacity and considerable slack in its economy. Recently there

has been an increase in merger and acquisition activity which demonstrates an increase in new

opportunities. Slovakia still has some shortcomings. Over the years there have been tax reforms

which includes higher payroll levies for sole traders, the abolition of the flat tax system, and

higher property taxes and the reversal of the previously tax free status of dividends. Slovakia also

has the highest rate of corporate taxation in Central and Eastern Europe at a high 22%. These

raises in corporate and income tax has been put in place to boost tax collection to repel the rising

public debt levels. This will ultimately result in higher tax burdens for new and upcoming

businesses. Slovakia has taken away certain tax-deductible costs and new depreciation limits on

certain business assets. These factors will affect entrepreneurs and companies with a low tax

base. On the other hand Slovakia is more compliant with European Union than neighboring

countries so its improved contract enforcement can ease starting up businesses.

As of Tuesday September 22, 2015, the European Union decided to relocate 120,000

refugees within members of the Union. This action came as a shock to some of the newer

members of the EU who disagreed with the decision. They saw this push for approval as a threat

on their very own sovereignty. Slovakia, one of the smaller and newer countries in the EU did

not vote in favor of this decision. Instead, the larger member countries, such as Germany, have

overruled the smaller ones.

While compassion for the refugees drove the decision from the EU, the influx of labor

forces will directly affect the economies of all the member countries. Migrant workers work for

smaller wages. This cheap labor could help Slovakia boom and grow its economy. The country’s

major exports include crude oil, natural gas, machinery, and transportation equipment. The

production and excavation of these products involves a large amount of manpower. Therefore, if

Slovakia has more laborers, it should be able to supply them with jobs, given greater expansion.

The country though risks the possibility of expanding too slowly which would leave these people

unemployed.

Additionally, Slovakia is one of the largest manufacturers of Volkswagen vehicles.

However, it has recently met its capacity for this kind of production. With such an influx of labor

in the country, the refugees may be used to increase capacity for production and then fill the

newly available manufacturing positions.

Small and medium enterprises that are governed by the Investment Stimulus Act and the

National Act for SME’s, drive Slovakia’s economy. The article discussed, “According to

estimates published by the European Commission, they provide around 67% of gross value