Strategic Entrepreneurship in Taiwan’s 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: flyu@hksyu.edu

&

Ming-Wen Hu Professor

Graduate Institute and Department of Industrial Economics, Tamkang University,

Tamsui, Taipei 25137, Taiwan Email: humw@mail.tku.edu.tw

&

Visiting scholar

Department of Economics and Finance Hong Kong Shue Yan University

North Point, Hong Kong

1

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 Café in which the shop

currently competes face-to-face with the world known Starbucks café 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 Taiwan’s 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 Taiwan’s economics dynamics. The organization of the paper is as follows.

Sections 2 and 3 introduce Taiwan’s 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 Taiwan’s economic ‘miracle’ (Economist

1998). Taiwan’s 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 father’s 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 parent’s 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 Taiwan’s 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 Taiwan’s 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 people’s 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, Taiwan’s

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 won’t have good time forever. I won’t follow

the book, write out a plan and carry out my plan step by step. No, I won’t 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 Baumol’s

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. Baumol’s

arguments can explain Taiwan’s economic dynamics. For example, regarding

manufacturing connectors, electronic items originally produced in Japan need to be

plugged in the circuit board one by one. Taiwan’s 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 Leibenstein’s 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 Heng’s 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

Café shop in Taiwan.

The 85oC Coffee8 company was established in Taichung City by Mr. Wu

Cheng Hsueh in 2003. The first 85oC Café 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 company’s 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 Café 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 Café finally helps Wu to win the ultimate trophy. In

what’s followed, we shall examine the entrepreneurial process conducted by Wu in

associated with his ventures chronologically.

6.1 The beauty salon: Wu’s 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 Wu’s 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. Wu’s 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 Wu’s 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 Ko’s bubble tea shop went international, Wu was invited to take charge of

marketing Easy Way in Taiwan.

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One of Wu’s 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 innovator’10, 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 Wu’s 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, Wu’s 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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Wu’s control. Alternatively, dough could be produced in house. Vertical integration

meant capital investment in technology and R&D.

6.5 The 85oC café: 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 Wu’s 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 café 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 Café’ 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 Café was established. The shop served quality cakes and

breads. To compete with Starbucks café, 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 Café successfully gained the

consumers’ hearts and Wu revolutionized the food and catering industries in Taiwan.

As the café was widely accepted, Wu applied his previous franchising

experience to 85oC. The franchisee chain was a huge success. The Café under

franchising expanded rapidly throughout Taiwan. In seventeen months, there were

eighty chain café 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 café in Taiwan to reach the same figure. Today,

85oC Café 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 Cafe’s 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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company has also gained success in Australia, the US, and mainland China. In

September 2006, one of Wu’s friends operated the first 85oC franchise shop in

Sydney, Australia. This marked the time when 85oC Café 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 Café 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 Café 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 Café 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. China’s 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 Café 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 Café was described as Taiwanese Starbucks.

15 The name of the listing company is Gourmet Master.

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four times of the company’s 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 Wu’s 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 Wu’s mind, workers were the most valuable asset of the

company. Wu was generous to his employees. He let the team share the company’s

profit. He allowed his staff holding up to 50% of the company total shares16.

In terms of logistics, Wu also copied his Taiwan’s model to mainland China.

He set up the company’s 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 Wu’s

view, these competitors have expanded too slow, and behaved too conservative.

Therefore, Wu’s 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).

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 Café that rules the café 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 Taiwan’s economic dynamics. The paper identifies four personal

characteristics of Taiwanese entrepreneurs and four major entrepreneurial strategies

adopted in Taiwan’s 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 café currently

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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