Starbucks begun its international expansion on the premise that the young professionals in Asian markets were willing to adopt to the western lifestyle as the trend have shown the increasing awareness of western consumerism. The company established the Starbucks International, which oversee all of the international expansion of the company. They entered Japan by tying up with a local company in a joint venture. They also entered other Asian countries through various strategies such as wholly owned subsidiaries and licensing agreements in the Middle East. Starbucks entry strategies were limited to the political and economic restrictions of the country they are going to enter. International markets are full of risks and how one enters the market will eventually influence the future of the company, for instance, Starbucks through a joint venture with the Japan local store was able to utilize the knowledge of its local partner in how to effectively sell their products. Each strategy has its won disadvantages and advantages, Starbucks should have examined more the future growth of the stores in the context of the entry strategy they adopted, for example, the licensing and franchising did not give much operational control after the initial set-up of the stores. Moreover, it would have been more advantageous if Starbucks considered that their stores would be identified as an American influence like that of McDonalds and should have been more culturally sensitive in terms of their product offerings.
2. A company faces a diverse set of risk in international markets.
A. What were the risks faced by Starbucks?
Coffee shops are relatively new for Asian and Middle Eastern countries. These countries enjoyed their coffee plain and usually used instant coffee than brewing it. Brewed coffee is an acquired taste and the creams and flavors are more foreign to the locals than other US brand products like clothes, cosmetics or even chocolates and chips. The risk that Starbucks had to contend with is how to develop the locals’ appreciation of their coffee beverage. Another risk is that of the volatile political situation in the countries that they expanded to, as a strong American brand, Starbucks was threatened with the difficulty of operating in a country that was against American imperialism, moreover, the company did not responded to the local demands of interests groups which actually had stronger influence locally than Starbucks. Lastly, Starbucks had to deal with the loss of qualified staff and good locations.
B. Did they understand and manage the risks?
No, they were not able to manage the risks; they even had to close most of their stores in the Middle East, as it was not feasible to operate it anymore. In the rest of the countries they expanded into, they were losing because local coffee shops begun to imitate Starbucks offerings and with local coffee drinkers who are more familiar to the local coffee blends transferred to the local shops because the price was lower than that of Starbucks. Starbucks also adopted their strategy in the US to flood the area with stores, but in foreign countries it did not made any difference.
C. Explain how Starbucks can reduce risks in its international business.
Starbucks initial entry to the market was based on the marketing of the “Starbucks experience”, the ambiance, the intimate seating, the expensive interiors and the shorter waiting time etc. This worked in the states but in the Asian market that values quality of the product they pay for and not intangible aspects of the product like the experience. Thus, Starbucks should adopt a different strategy to make their products more relevant to the consciousness of the local market. The company should also explore the possibility of using coffee beans grown locally in the region so that it would become more culturally aligned to the country’s taste.
“Starbucks’ International Operations” in International Management: Managing Across Borders and Cultures by Helen Deresky, 5th edition, Pearson: Prentice Hall, 2006. pp. 323-329.