Question

Write a essay by reading this case study article and answer the following 4 questions in the body paragraph.

Forty 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 21,536 stores, 43 percent of which are in 63 countries outside the United States. China (1,716 stores), Canada (1,330 stores), Japan (1,079 stores), and the United Kingdom (808 stores) are large markets internationally for Starbucks. Starbucks set out on its current course in the 1980s when the company’s director of marketing, Howard Schultz, came back from a 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 espressostyle 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 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 market opportunities. The first target market was 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. 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. In 2001, the company introduced a stock option plan for all Japanese employees, making it the first company in Japan to do so. Skeptics doubted that Starbucks would be able to replicate its North American success overseas, but by June 2015, Starbucks had some 1,079 stores and a profitable business in Japan. After Japan, the company embarked on an aggressive foreign investment program. In 1998, it purchased Seattle Coffee, a British coffee chain with 60 retail stores, for $84 million. An American couple originally from Seattle had started Seattle Coffee with the intention of establishing a Starbucks-like chain in Britain. In the late 1990s, Starbucks opened stores in Taiwan, Singapore, Thailand, New Zealand, South Korea, Malaysia, and—most significantly— China. 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. As in Japan, Starbucks insisted on an intensive employee-training program and strict specifications regarding the format and layout of the store. By 2002, Starbucks was pursuing an aggressive expansion in mainland Europe. As its first entry point, Starbucks chose Switzerland. Drawing on its experience in Asia, the company entered into a joint venture with a Swiss company, Bon Appetit Group, Switzerland’s largest food service company. Bon Appetit was to hold a majority stake in the venture, and Starbucks would license its format to the Swiss company using a similar agreement to those it had used successfully in Asia. This was followed by a joint venture in other countries. The United Kingdom leads the charge in Europe with 808 Starbucks stores. By 2014, Starbucks emphasized the rapid growth of its operations in China, where it had 1,716 stores and planned to roll out another 500 in three years. The success of Starbucks in China has been attributed to a smart partnering strategy. China is not one homogeneous market; the culture of northern China is very different from that of the east, and consumer spending power inland is not on par with that of the big coastal cities. To deal with this complexity, Starbucks entered into three different joint ventures: in the north with Beijong Mei Da coffee, in the east with Taiwan-based UniPresident, and in the south with Hong Kong-based Maxim’s Caterers. Each partner brought different strengths and local expertise that helped the company gain insights into the tastes and preferences of local Chinese customers, and to adapt accordingly. Starbucks now believes that China will become its second-largest market after the United States by 2020.

1. Starbucks prefers a combination approach to foreign market entry: the use of joint ventures and licensing. Do you agree with this approach? Why or why not?

2. Many would argue that Starbucks coffee is expensive, and yet customers get value for their money. How do you think Starbucks has been able to transfer this business model and value proposition to international markets?

3. Why did Starbucks not just go with a licensing approach internationally? Is the the preference for joint ventures in strategic target markets coupled with licensing unique?

4. To stay competitive world wide, what do you think Starbucks has to focus on in the next decade from a market entry standpoint and from a value proposition to customers?

Answer 1

Ans 1: Yes I agree with the approach of a combination of joint venture and licensing to enter foreign markets. The reasons are as follows:

• Joint venture ensures equal equity partnership and ownership of both Starbucks and its partners. They both have equal controlling rights.
• Licensing added on to ensure compliance with star buck norms of the store set up as per their standards, staff training and the dress code is maintained. The licensee is allowed to use the logo and name subject to conditions laid down by the licensor without losing control on management rights laid down by the joint venture agreement.

Ans 2: Yes true Starbucks is expensive yet it gets “value” for money as they provide following to the customer:

• The entire customer experience from entering to greeting to serving and the goodbye on leaving makes customer feel ultra special.
• It’s not just coffee place but a place to network, read the newspaper, browse the web with free wi-fi served with coffee and a great meet up place.
• Now the added status of hanging out at Starbucks on weekends or airport lounges is an added plus because of the high-end image of the place and brand.

They have been able to transfer this business model and value proposition to international markets by:

• Carefully selecting the international partners
• Extensive training of team at all the Starbucks and reposting some team members from the United States to ensure standardization.
• Giving the same appearance and positioning all stores in an upmarket and easily accessible area.
• Maintaining the same standard of Coffee and food items which are customized as per the local tastes.

Ans 3: Starbucks did not go in for licensing approach as the advantages of the joint venture is that it makes the two parties partners and avoid competition among the parties at a later date. Joint ventures besides giving joint ownership also remove all local cultural differences. This also makes them a single legal entity in that country too.

The concept of following a two-pronged strategy of joint ventures and licensing is followed by many companies worldwide, though it takes time to create a legal entity and get into these agreements it ensures safety and equal profit-making the opportunity to both companies.

Ans 4: Starbucks should focus on the following to remain competitive worldwide:

1. Introducing newer outlets and making them more available.
2. Come up with a strategy to add up on products from the local cuisine to target family visits
3. Make it more teenage friendly by giving freebies and some good offers
4. Many new entrants are eyeing their segment so they need to increase footfalls by increasing visibility and product range.