case study of starbucks

Globalization of Starbucks

The globalization of Starbucks Thirty years ago, Starbucks was a single store in Seattle’s Pike Place Market selling premium-roasted coffee. Today it is a global roaster and retailer of coffee with some 16,700 stores, 40percent of which are in 50 countries outside the United States. Starbucks set out on its currentcourse in the 1980s when the company’s director of marketing, Howard Schultz, came back froma trip to Italy enchanted with the Italian coffeehouse experience. Schultz, who later became CEO, persuaded the company’s owners to experiment with the coffeehouse format—and the Starbucks experience was born. The strategy was to sell the company’s own premium-roasted coffee and freshly brewed espresso-style coffee beverages, along with a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting. From the outset, the company focused on selling a “third place between work and home” experience, rather than just the coffee. The formula led to spectacular success in the United States, where Starbucks went from obscurity to one of the best-known brands in the country in a decade. Thanks to Starbucks, coffee stores became places for relaxation, chatting with friends, reading the newspaper, holding business meetings, or (more recently) browsing the Web. In   1995,   with   700   stores   across   the   United   States,   Starbucks   began   exploring   foreign opportunities.  Approximately 18 years ago, in the mid-1990s, Starbucks opened up their first location outside North America: Japan.  The company established a joint venture with a local retailer, Sazaby Inc. Each company held a 50 percent stake in the venture, Starbucks Coffee of Japan. Starbucks initially invested $10 million in this venture, its first foreign direct investment. The Starbucks format was then licensed to the venture, which was charged with taking over responsibility for growing Starbucks’ presence in Japan. Today, Starbucks Japan has become the largest coffee chain in Japan with a market share of48.0%. Their aggressive expansion plan projects a goal of 10% annual growth in their locations not to mention, revenue has grown by 14.7% in the past five years. It seems that more than a few Japanese consumers are choosing Starbucks over the other coffee shops, like Detour, Saintmarc, or Tully’s Coffee .It’s clear that Starbucks Japan is a great success story; and the secret may lie in the balance Starbucks has found between maintaining the trendiness of being an American brand and adapting to the Japanese market. Firstly they have managed to identify certain cultural shifts; the country was slowly moving away from certain traditions of collectivism towards individualism. For global brands such as Starbucks, this change in values has translated into many persons who can both afford and wish to be seen consuming an upscale coffee-based drink in its own distinctive packaging and cup, Starbucks being merely one Western luxury or status brand to which people can aspire. For at least as long as the novelty or cachet of such a famous American brand is in effect, many young people are willing to break with any traditions of visiting teahouses or Japan’s  previously existing coffeehouses, the latter of which Starbucks differed from greatly by being clean, smoke-free, family-friendly, and well lit. Secondly, although certain cultural changes were noticed but those were not enough to support such foreign venture and while many businesses fail to understand the extent to which Japanese culture cherishes tradition, Starbucks has taken the extra step to become familiar with Japanese culture. An example is the importance of top quality customer service in Japan. Starbucks has also removed their signature service of asking for a customer’s name when writing down their order as a result of the Japanese highly valuing their privacy. To address the Japanese love of tradition and national festivals, Starbucks has developed limited-time seasonal drinks such as the Sakura (cherry blossom) Frappuccino. They have also implemented “concept stores” that are specifically designed to complement the atmosphere of certain neighborhoods, and whose product offerings have been changed to reflect Japanese tradition more thoroughly. On the other hand, to make sure the Japanese operations replicated the “Starbucks experience” in North America, Starbucks transferred some employees to the Japanese operation. The licensing agreement required all Japanese store managers and employees to attend training classes similar to those given to U.S. employees. The agreement also required that stores adhere to the design parameters established in the United States. Thus it could be said that Starbucks has successfully managed to combine their exciting American flair with the underlying values of the Japanese to create an unbeatable experience. After Japan, the company embarked on an aggressive foreign investment program. In Asia, Starbucks’ most common strategy was to license its format to a local operator in return for initial licensing fees and royalties on store revenues. In 1998, it purchased Seattle Coffee, a British coffee chain with60 retail stores, for $84 million. In the late 1990s, Starbucks opened stores in Taiwan, China, Singapore, Thailand, New Zealand, South Korea, and Malaysia. Hence it could be said that although originally they were concentrating on the franchising method of expansion and licensing of its products, Starbucks later pursued other options such as joint ventures, wholly owned subsidiaries, and acquisitions to retain tighter control over operations. As it has grown its global footprint, Starbucks has also embraced ethical sourcing policies and environmental responsibility. Now one of the world’s largest buyers of coffee, in 2000 Starbucks started to purchase Fair Trade Certified coffee. The goal was to empower small-scale farmers organized in cooperatives to invest in their farms and communities, to protect the environment, and to develop the business skills necessary to compete in the global marketplace. In short, Starbucks was trying to use its influence to not only change the way people consumed coffee around the world, but also to change the way coffee was produced in a manner that benefited the farmers and the environment. By 2010, some 75 percent of the coffee Starbucks purchased was Fair Trade Certified, and the company has a goal of increasing that to 100 percent by 2015.

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1.       What drove Starbucks to start expanding internationally? What lesson for InternationalBusiness can be drawn from this?

2.       How culture played a dominant role in Starbucks foreign operation staring from choosing location to entry mode to changed market offering, explain

3.       Why do you think Starbucks entered the Japanese market via a joint venture? What lessons can you draw from this?

4.       Which theory of  FDI best explains the  international expansion strategy  adopted  by Starbucks? 

5.       When it comes to purchasing coffee beans Starbucks adheres to a fair trade program.What do you think is the difference between free trade and fair trade? How might a fair trade policy benefit Starbucks