CHAPTER 1: INTRODUCTION AND RESEARCH PROBLEM

1.1.TOPIC
When a firm seeks to enter a foreign market, the company must choose the most
appropriate entry mode for that specific market. The decision of entry mode strategy
is the most critical decision in international expansion. The choice of international
strategy has long-term implication for MNCs. That means, entry mode strategies are
often massive, irreversible, and can influence the performance of the firm in the long
run. MNCs can choose beteen six international entry mode strategies! exporting,
licensing, a turnkey pro"ect, franchising, "oint ventures and holly-oned subsidiaries.
There are many factors hich affect a company#s decision of entry modes. Therefore,
managers need to analy$e them and determine the most suitable international
strategy. %nfluential factors in entry mode decision can be different in each case. %n
addition the degree of influence of each factor can vary beteen countries. &s a
conse'uence, some MNCs use different entry modes to adapt to specific situations in
their internationali$ation process.
1.2. RESEARCH PROBLEM
1.2.1. Research Questi!s
(ur purpose is to find an anser to the folloing research 'uestions hile exploring a
particular MNC, )tarbucks!

* What factors affected )tarbucks# entry mode decisions+
* Which entry mode strategies did )tarbucks use in foreign markets and hy+
1.2.2. A""rach research "r#$e%
&s e previously commented, our master thesis is focused on choice of entry modes.
(ur aim is to explore those factors that influence the choice of different entry modes
ithin the same MNC. ,urthermore, e ill explore hy )tarbucks uses different
entry modes in its internationali$ation process.
1.&. OUR MOTI'ATION
We find it interesting to investigate the reasons for hy )tarbucks uses different entry
mode strategies in its expansion abroad. We think our investigation has enabled us to
better understand the key to )tarbucks# strategy of internationali$ation.
There are many theories about entry modes such as Chen and Mu"taba -.//01, 2oot
-34451, 6och -.//31, 7rassigton and 8ettitt -.///1 and Transaction Cost 9ntry Mode
-TC91, hich have developed different factors that influence entry modes decisions.
Through our investigation, e ould like to have a more clear understanding of ho
these theories ork in practice.
1.(. TAR)ET )ROUP
(ne purpose in riting our thesis is to target )tarbucks# managers, students and
researchers ho are interested in this company and its entry modes strategies.
2egarding )tarbucks# managers, e hope our thesis enables them to obtain more
information about their company. (ur results might shed light on ne ays to analy$e
their entry modes in different subsidiaries and their process of internationali$ation.
The second target group of our thesis is students. (ur research could be useful to
students:particularly those learning international business. They ill find our thesis to
be a practical example of a company#s internationali$ation process.
;ast but not least is researchers. (ur findings could help other researchers in their
investigation, or even to suggest ne in'uires.
1.*. LIMITATIONS
%n an investigation, their authors often found limitations in their ork. %n our particular
case, e found to important limitations. ,irst limitation as time< e had liked to
analy$e six cases in our thesis to get reliable findings. =oever, as e had a short
period of time e only selected three case studies to anser our research 'uestions.
)econd limitation as found in our methodology part. We had difficulties to get
primary data e only got an intervie in one of three cases. &s conse'uence, e had
to use secondary data and contrast it to avoid using unreliable information.
CHAPTER 2:
RESEARCH METHODThere are to main methods hich resolve a research problem!
'uantitative and
'ualitative methods. The choice of method depends on the researcher and the
research problem.
>ualitative method is a sub"ective approach hich includes examining and reflecting
on perceptions in order to gain an understanding of social and human activities
-=ussey ? @ =ussey 2 34401.
>uantitative method is an ob"ective approach hich includes collecting and analy$ing
numerical data and applying statistical tests -=ussey ? @ =ussey 2 34401.
%n our master thesis, e have collected data through a 'ualitative method. &s
previously, mentioned the research method has to fit ith the research problem. We
regarded that a 'ualitative method as the most suitable to understand entry mode
decisions. We sought the flexibility of 'ualitative instruments to obtain findings more
than the rigidity of 'uantitative methods. We have focused our investigation on
several established aspects and factors. =oever, e have ruled out the possibility to
include other crucial factors that explain our phenomenon in our research. The
'ualitative method has alloed us not only to find the data e look for, but also to
locate complementary information that as relevant for our study.
2.1. RESEARCH INSTRUMENTS
There are several instruments that can be used to carry out our 'ualitative method.
We have chosen to develop our investigation through intervies -particularly e-mail
intervies1 and documentary research. 7oth methods are suitable to obtain the data
for our investigation. %ntervies have provided us information directly from the
company, and documentary research has provided information indirectly.
%ntervies! We considered that it as important to obtain information directly from
)tarbucks# managers for our research. %ntervies are the most reliable research
instrument in order to obtain information for our case study. ,urthermore, they
provide us ne and unknon information that ould be impossible to get through
other sources such as books or annual reports.
We have intervieed the Marketing Airector of )tarbucks in )pain, ;uis 8eBa. We had
preferred to intervie him face to face, but e ere unable to do so because of his
schedule and our physical distance from )pain. Therefore e obtained an e-mail
intervie -)ee &ppendix %1. ,urthermore, e tried to intervie some managers of
)tarbucks in the Cnited 6ingdom, in Ne Dealand, and in )tarbucks international
subsidiary. Cnfortunately the Cnited 6ingdom office refused our re'uest. They
informed us that they received a huge demand of en'uires and ere unable to
respond to individual re'uests. We also got in touch ith the managers of )tarbucks in
Ne Dealand. They told us they could not provide the information e needed. 7ecause
)tarbucks used the licensing mode of entry in Ne Dealand, managers ho operate
under )tarbucks# licensing agreement lack information about the internationali$ation
process of )tarbucks in Ne Dealand. They said that information as only available
from )tarbucks# international subsidiary. The Ne Dealand managers did provide us
the email address of the )tarbucks international subsidiary contact, hoever hen e
sent our e-mail intervie -see &ppendix %%1 e did not receive a reply.
9-mail intervie! There are several limitations to an e-mail intervie. ,irst of all, the
intervieer cannot kno ith total certainty ho ill reply to the intervies. &n e-
mail intervie might carefully crafted by public relations advisers or by someone ho
is posing as the person to hom e have sent the e-mail. %n addition, an e-mail
intervie denies the chance to ask spontaneous 'uestions or to immediately follo up
on an anser. &nsers tend to be shorter than a face-to-face intervie. ,inally, the
intervieer cannot see the visible reactions of the intervieee.
&n e-mail intervie does have some advantages. 8hysical distances beteen
intervieer and intervieee are eliminated. &dditionally, the intervieee has flexible
time to anser an e -mail intervie -2os-Martin .//E1.
%ntervie literature distinguishes to types of intervie! pre-code intervies and open
intervies.
8re-code intervies are developed using a specific structure. The intervieer hardly
deviates from his prepared script and follos a logical se'uence -=ussey ? @ =ussey 2
34401.
(pen intervies are flexible. The intervieer deviates from his prepared script and
asks 'uestions hich are not directly related to the intervie topic -=ussey ? @ =ussey
2 34401.
&s our intervies ere by e-mail, e chose to use pre-code intervies. We have asked
precise 'uestions in order to determine the exact information that e seek as
provided by the intervieee. =oever, e have also added some open 'uestions in
order to provide an overvie of our topic or another perspective -)ee &ppendix % and
%%1.Aocumentary research consists of using text and documents that come from "ournals,
reports, videos and other research sources -7ryman @ 7ell .//F1. Aocumentary
research also has some advantages and limitations in research. The main advantage is
that there are many sources hich e can use to obtain information. The
documentary research can also provide different perspectives from a number of
different people. =oever, this research instrument has some limitations such as the
data might be unreliable. &lso relevant information for a specific company is often
difficult to find.
We have chosen this data collection method because e considered that documentary
sources could provide us relevant information for our research. This form of research
offers a variety of means to obtain information such as "ournals, document files,
reports, books and so on. )tarbucks is a successful company hich has been the target
of a huge amount of studies. There are many documentary sources concerning
)tarbucks and its strategies and policy. %n addition, documentary research enables us
to complement the scarce information available ith our on intervies.
%nformation sources on the %nternet! &t the present there are a multitude of resources
available on the %nternet for many types of investigations. &mong the numerous
available sources for research are catalogues of important libraries, databases, e-
"ournals and company homepages. %n addition, e can consult and read completed
versions of textual materials in virtual libraries and e-"ournals.
=oever, to use the %nternet as an information source can be a double-edged sord.
We have to be careful hen choosing documents. We have to regard hich
documents are useful and hich are not. ,urthermore, the reliability and rigor of
%nternet sources should alays be considered.
2.2. RESEARCH DESI)N
2esearch design is defined as the link beteen the collected empirical data, its
research 'uestions, and the conclusions generated by a study -Gin 34H41. There are
five main research designs!
,irst is 9xperimental design, hich consists of choosing some independent variables to
determine if those influence a determined variable. %t also implies that experimental
groups and control groups are needed to make a further comparison before and after
the manipulation -7ryman @ 7ell .//F1. )econd is Cross-sectional design, hich refers
to collecting 'uantitative or 'uantifiable data -through 'uestionnaires, intervies,
surveys, etc1 ithin several cases at a specific point in time, establishing patterns of
associations beteen to or more variables. ;ater on, comparisons are made to
surveys formed in other points in time -7ryman @ 7ell .//F1. Third is ;ongitudinal
design, hich looks for specific alterations in contexts, organi$ations or industries. &
sample is surveyed several times during different occasions in order to find the effects
of the independent variables ithin the time period -7ryman @ 7ell .//F1. ,ourth is
Case analysis design, hich describes a single case as a specific location, an
organi$ation, a person or an event. %t uses different sources of data because a uni'ue
source of evidence is not enough to achieve validity -Iillham .///1. ;astly is
Comparative design, hich analy$es to or more cases hich are contrasted using
more or less the same methodology. When 'ualitative methodology is applied, the
chosen focus is multi-case.
(ur aim is to study influential factors affecting the decision of entry mode. %n order to
analy$e those factors e need to make a comparison beteen different examples.
Therefore, e consider that using a single case study is not suitable for our research.
Csing a multi-case study e ill achieve a reliable finding in our thesis. Therefore, e
have selected a set of locations that correspond ith countries in hich an MNC,
)tarbucks, has internationali$ed. %n addition to comparative design,
e have used cross-sectional design to determine our conclusions.
We need to compare case studies and contrast if our three cases have similarities and
differences.
There are some criticisms to the use of multi-case. %t is argued that researchers are less
concentrated on the specific context of every case study and more focused on the
contrast beteen different cases. &s a conse'uence, researchers ill develop more
comparative analyses instead of deepening a particular analysis, therefore losing the
essence of research -Ayer @ Wilkins 34431. We have tried to avoid the above effect in
our thesis by dividing our empirical analysis into to separate phases! the first phase
as to analy$e in depth each case and second, after e had already reported the
individual characteristics of each case, e started to compare our three cases.
The folloing picture depicts the research approach that e are going to follo in our
literature. %n the second phase, case studies are chosen based on the factors selected
in the first phase. &fter taking that into account, research and data collection methods
are selected for our chosen case studies. Then the data for every study is collected,
and an individual report ill be ritten for each country. %n the third phase, a contrast
process ill be applied. When the contrast process is finished, e ill describe the
results. ,inally, e ill finish our thesis ith the conclusions that can be determined
from our research.
2.&. SELECTION O+ MNC
We have focused our research on )tarbucks. We have chosen this company because
e found that )tarbucks takes different entry modes to internationali$e.
The choice of entry mode is due to a set of factors that ill determine a company#s
international strategy. We consider that it is an interesting case to investigate and
determine these possible factors that influence the company#s entry mode strategy.
,urthermore, e ere interesting in exploring if the choice of )tarbucks# entry mode
can be determined by factors enumerated by entry mode theories.
)tarbucks used three different entry mode strategies to internationali$e! "oint venture,
licensing and holly-oned subsidiaries -)tarbucks.com .//H1. We have chosen three
countries< each one represents one of three )tarbucks# international strategies.
We decided to study three countries because of to reasons. ,irst, e sought to
obtain representative results. We considered that one uni'ue country as not enough
to reach reliable conclusions. )econd, e kne it is really difficult to obtain
information regarding )tarbucks# internationali$ation. %f e explored more countries
than a country e ould obtain data from more sources and have the ability to
contrast the reliability of our data.
We chose Cnited 6ingdom, Ne Dealand and )pain, because these three countries
represented the three )tarbucks# entry modes. %n Cnited 6ingdom, e investigated
that )tarbucks only chose entry mode of holly-oned subsidiary in this country from
the early beginning. %n the rest of cases here at present )tarbucks is a holly-oned
subsidiary the company entered ith a different strategy to holly-oned subsidiary.
We selected Ne Dealand case, because )tarbucks used licensing and there as
available secondary data to carry out our research. ;ast in )pain case, )tarbucks
decided to choose "oint venture. We selected this case because e kne that to obtain
data from )pain it ould be easy as 7eatri$ )antamaria, one of authors this thesis, is
)panish. With the analyses of three different countries, e thought it ould carried
out an interesting investigation and could dra a comprehensive contrast in order to
make the conclusion for ansering our research 'uestions.
%n case analyses, our aim is to explore hich factors affect choice of each entry mode.
%n order to obtain results e are going to separately examine each country. (ur
research on factors represented in our conceptual frameork. We considered that our
investigation has to follo a structure. Therefore e decided to use these depicted
factors in our conceptual frameork as guidance or structure ithin our research.
=oever, e ere not going to rule out including other relevant factors on )tarbucks#s
choice of entry mode.
&t the end of our case analysis, e ill obtain factors that influenced )tarbucks# choice
of entry mode. %n addition, e ill determine if the factors developed in our
conceptual frameork ere represented in our finding. ,inally, e ill conclude ith
the causes of )tarbucks# choice of entry mode.
CHAPTER &: LITERATURE RE'IE,
%n this chapter e revie literature hich relates to our research 'uestions. %nside of
our literature revie, there are to differentiated parts related to above to main
parts of our conceptual frameork! literature about factors that affect the entry mode
decision, and entry mode strategy theory. ;iterature of entry mode factors describes
factors may influence on entry mode decision. &nother hand, entry mode theory
shos a set of entry mode strategies that a company can carried out to go into a
foreign country.
&.1. DE+INITION O+ ENTR- MODE
&ccording to 2oot -34451, an international market entry mode is to create the
possibility by arranging company#s products, technology, human skills, management or
other resources to enter into a foreign country. =e regards that entry modes help
companies to determine goals, resources and policy in order to channel their
international activities toard a sustainable international expansion.
&.2. ENTR- MODE +ACTORS
)everal studies have attempted to identify a set of factors that influence entry mode
decisions. %n our thesis e dra our attention to the folloing theories!
&.2.1.Che!. L.- a!. Mu/ta#a B.
Chen and Mu"taba -.//01 develop their study about entry mode factors based on TC9
-Transaction cost model1 and non-TC9 perspectives. TC9 argues that the cost of
implementing a particular entry mode is a relevant factor in a company#s entry mode
decision. The mode of foreign entry is based on efficiency criteria in order to
economi$e on transaction costs -Giu @ Makino .//.1. Non- Transaction Cost 9conomics
Model consists of a set of approaches such as 9cletic approach, 7argain poer theory
and 2esource-based theory. %n 9cletic Theory, Aunning -344H1 developed three groups
of factors that influence the entry mode choice! transaction-specific advantages,
internationali$ation-specific advantages and onership-specific advantages. 7argaining
poer theory posits the relative bargaining poer of the firm and the host
governments are influential factors on international strategy -Aeng .//F @ Taylor et al
.///1. The resource-based approach considers that resource availability and utili$ation
both play a part in the choice among modes of entry.
Chen and Mu"taba#s study is concentrated on MNCs in the C). They divided the entry
mode factors into three groups of factors! firm-specific factors, country-specific factors
and market-specific factors -)ee ,igure 31. The description of the three factors is as
follos!
,irm- )pecific ,actors are related to the TC9 model. %t refers to firm-specific assets and
skills that comprise onership advantages. Chen and Mu"taba -.//01 distinguish three
types of firm-specific factors! asset specificity, international experience and firm si$e.
&sset specificity refers to products and technologies that tend to create dissemination
risks because of the threat of opportunism. The authors posit that great asset
specificity tends to favor a higher-control entry mode. %nternational experience
according to the TC9 approach is local market knoledge accumulated to avoid
ha$ards in international market transactions. Chen and Mu"taba consider that great
international experience favors a higher-control entry mode. ,inally, firm si$e refers to
the idea that larger firms have a greater capability than smaller ones to expend
resources and absorb risks.
Country-specific factors are a set of factors that include country-specific economic,
political, legal, institutional and cultural factors. Chen and Mu"taba divided country-
specific factors into to variables! country risk and government restriction. Country
risk is possible risk of change in the mode of operation oing to that unpredictable
changes in the environment might render the original mode inefficient -9rramilli @
2ao, 344F1. Chen and Mu"taba posit that high country risk tends toards loer
involvement entry modes. Iovernment restrictions are las and regulations that
impact on the operation of a foreign firm -%bid1. This theory supports that increased
government restrictions leads to lo involvement entry modes.
Market-specific factors! )everal studies posit that factors specific to the market ill
influence the choice of entry mode. Chen and Mu"taba -.//01 point out as
representative variables! market potential, demand uncertainty and competitive
intensity. Market potential refers to the groth and si$e potential of the foreign
market. When there is a great market potential MNCs preferr high-control entry mode.
Aemand uncertainty refers to the future demand of products and services in a foreign
market that are difficult to predict. Chen and Mu"taba argue that hen demand of
uncertainty in a foreign market is high, firms tend to use a higher-control entry mode.
Competitive intensity refers to the degree to hich a firm#s entry into a foreign market
is pursued by its competitors. The authors sho in their study that firms use a high
control entry mode hen the competitive intensity is high.
&.2.2.Ther0 1 Rt 2133(4
2oot -34451 develops a model of factors that affect entry mode decision. =e
distinguishes beteen internal and external factors. =e states that the choice of entry
mode for a product or target country is the result of several -often conflicting1 forces.
-)ee ,igure .1. =e divides influential factors affecting entry mode decision into to
groups! external and internal factors.
E5TERNAL +ACTORS
2oot -34451 determines four influential external factors affecting entry mode choice!
target country market factors, target country production factors, target country
environment factors and home country factors.
Target Country Market ,actors! 2oot -34451 argues that the si$e of target country
market influences entry mode choice. %n small markets companies use entry modes
ith lo breakeven sale volumes such as indirect distributor exporting, licensing and
contracts. %n a market ith high potential sales the company uses entry modes ith
high breakeven sales volume. 2oot mentioned competitive structure of the market is
an important aspect in considering the target country factors. When competitive
structure tends toards monopoly, entry modes are high resource commitments to
compete against competitors. (therise, if the competitive structure of the market
tends toards perfect competition, entry modes are often lo resource commitments
such as exporting.
Target Country 8roduction ,actors! the 'uality, 'uantity and cost of resources in the
foreign country, as ell as the 'uality and cost of economic infrastructure influence the
choice of entry mode. When the costs of production are lo in the target country,
local production is favored. (n the other hand, if production costs are high in the
foreign country, the company tends to export -%bid1.
Target Country 9nvironment ,actors such as political, economic and socio-cultural
dimensions of the foreign country can influence the choice of entry mode. %n
particular, government policies and regulations can be decisive in choosing the entry
mode. &nother important factor ithin country environment factors is geographical
distance. When there is a great distance beteen the home and foreign country, it is
possible that transportation costs are high, thereby discouraging export entry modes
and favoring another entry mode such as a holly-oned subsidiary. The economy of
the target country can also influence the decision of entry mode. ,or instance, in
centrally planned socialist economies, e'uity entry modes are not possible, and
therefore companies only rely on non-e'uity entry modes such as exporting, licensing
or other contractual modes. (ther important factors are the si$e of economy -gross
national product1, absolute level of performance -gross national product per capita1,
and relative importance of its economic sectors -percentage of gross national product
devoted to the particular sector1. ,inally, another relevant factor is cultural distance<
the firms often prefer to enter those foreign countries that are culturally closest to the
home country -%bid1.
=ome Country ,actors! These are the set of factors that have influence on entry mode
choice such as home country market, production and environmental factors. %f the
home country has a big market, it enables a company to gro to a large si$e in the
home market before going abroad. The competitive structure also influences the
choice of entry mode. 2elative production costs of the home country versus the foreign
country influence entry mode decisions. %f there is a high production cost in the home
country, the company ill chose foreign market entry modes such as licensing,
contract manufacture and investment. &nother home country factor is the policy of
the home government toard exporting and foreign investment by domestic firms.
,inally, geographic distance is an influencing factor in that a large distance ill favor
local presence in a foreign country -%bid1.
INTERNAL +ACTORS
2oot expounds to internal factors hich affect the choice of entry mode! product
factors and resource commitment factors.
8roduct factors! hen products are highly differentiated over those offered by their
competitors< there is a degree of pricing discretion. &s a conse'uence these products
can absorb high unit transportation cost and high import duties and still remain
competitive in a foreign market. (therise, if products are eakly differentiated, they
have to compete on a price basis. Therefore, high product differentiation favors export
entry hereas a lo differentiation tends to use entry modes as contract manufacture
or e'uity investment. When the company#s product is a service, the firm cannot export
it. %n order to provide services in foreign countries, the firm must train local companies
as in franchising or deliver its service directly under contract ith the foreign
customers via technical agreements and construction contracts. ,irms ith products
using intensive technology often opt to license. %n order to internationali$e the
product, a considerable adaptation is often necessary. The company establishes th
foreign market through branchJ subsidiary exporting or by going into local production
-%bid1.
2esource commitment factors! if a company ons a huge amount of resources
-management, capital, technology, production skills, and management skills1, the
company ill have numerous entry mode options. =oever, companies ith limited
resources are constrained to use entry modes ith small resource commitment -%bid1.
&.2.&.Ther0 #0 Brassi6t! a!. Pettitt 227774
7rassigton and 8ettitt -.///1 state to internal factors have influence on entry mode!
payback and speed. They define payback as the time that a company needs to create
revenue from investment in a foreign country. They refer to speed as the time the
company desires to dedicate in order to penetrate a target market.
&.2.(. Ther0 #0 8ch 227714
6och -.//31 posits that influential factors on market entry model selection -M9Ms1 can
be divided into three groups! external, internal and mixture of external and internal
factors. %n our literature revie e only mentioned external and internal factors.
E5TERNAL +ACTORS
6och -.//31 states there are six external factors influencing choice of entry mode!
industry feasibilityJviability of M9M, characteristics of the overseas country business
environment, market groth rate, image support re'uirements, global management
efficiency re'uirements, popularity of individual M9Ms in the overseas market, and
market barriers.
The first factor is %ndustry feasibilityJviability of M9M. 6och argues some entry modes
such as holly-oned subsidiary or "oint venture may be excluded by la in some
countries oing to that the particular industry might be considered strategic by the
state. This factor also refers to kno-ho dissemination risk, labor regulation, cost of
labor, level of skill and taxes. ,urthermore, 6och states that there are characteristics of
the overseas country hich are easy to obtain these days, but information about
industry and company-specific information is often difficult to find. %nside the last
category e finds aspects such as similarity, volatility of general business regulationsJ
practices, business infrastructure, levels of industrial development, forms, scope and
intensity of competition, customer protection legislation and customer sophistication.
6noledge of this information ill influence the choice of international strategy.
6och also regards that market groth rate can be influential in entry mode decision.
When the market has a fast groth rate, the company seeks to exploit this opportunity
by using entry modes of fast expansion. (therise, hen groth of demand is
predicted to occur over a long time, the company tends to establish entry modes such
as "oint venture and holly-oned subsidiary. &nother external factor is image support
re'uirements. %n order to build and sustain their image, some companies may license
their inventions to increase their role as global providers of the latest technology,
thereby enabling the company to influence global industrial standards.
6och also points out global management efficiency re'uirements as another external
entry mode factor. =e posits that hen involvement of internationali$ation of a
company is high, company#s resources start being limited. %t is necessary to redefine
the company#s global strategy. )ome companies choose a diversified, multinational
mode of operation in that case. The popularity of individual M9Ms in the overseas
market factor refers to the particular nature of individual country markets. Country
markets may have certain entry modes ith more popularity than others. Ne
entrants in this kind of market are influenced by the experience and degree of success
of the former entrants, as ell as the product market situation. ,inally, 6och states
that market barriers such as tariff barriers, governmental regulations, distribution
access, natural barriers, exit barriers and level of country development can have
influence on entry mode choice.
INTERNAL +ACTORS
6och -.//31 states that entry modes are influenced by seven internal factors! company
si$eJ resources, management locus of control, experience in using M9Ms,
management risk attitudes, market share target, calculation methods applied, and
profit target.
6och argues that the freedom of selection of entry mode and their relevant preference
depends on the company si$e and its resources. &nother internal factor is management
locus of control. This refers to manager perceptions, intuition and management style.
6och also states that experience in using M9Ms is an internal factor affecting the entry
mode decision. %t refers to the management culture hich ill influence the behavior
of decision makers. ,or instance, managers ill refuse to use unsuccessful and untried
modes if there are negative personal conse'uences for proponents. The author thinks
effectiveness and efficiency depend on the amount of experience gathered by
individuals, and on prevalence of idea sharing ithin the company.
Management risk attitudes are another internal factor. 6och states that the degree of
international business risk that the company takes in its entry mode decision depends
on! the company#s financial situation, its strategic options, and competitiveness of
environment. Market share target also influences the entry mode decision. 6och
argues that there are criteria such as sales or market share maximi$ation that ill be
important in making this decision. &nother influential internal factor affecting the
entry mode decision is the calculation methods applied. 6och points out that there are
available calculation methods of risk or benefit to evaluate the market entry selection.
The last internal factor hich influences choice of entry mode is profit target. The
choice of entry mode ill depend on the level and dynamic of profit that the company
desires to attain -%bid1.
&.&. ENTR- MODE LITERATURE
When a firm is going to explore a foreign market, the choice of the best mode of entry
ill arise in the firm#s expansion strategy. There are six essentially different entry
modes, generally named as exporting, turnkey pro"ects, licensing, franchising, "oint
venture ith a host country firm, and setting up a holly-oned subsidiary in the host
country -=ill .//01. &ll of them have their advantages for the firm to explore as ell as
disadvantages hich must be considered by the firm#s top management. %n other
ords, the managers should make the choice carefully because it directly affects
hether the firm ill succeed or not in its foreign expansion. 2egarding the choice of
entry for a service company, licensing, franchising, "oint-venture ith a host country
firm or setting up a holly-oned subsidiary are more suitable for these types of firms.
What#s more, the entry mode theory belo is from =ill ho rote the book about
foreign market entry entitled %nternational 7usinessKCompeting in the Ilobal
Marketplace. -=ill .//01
;icensing
;icensing involves a licensee and licensor tied together by a certain agreement hich
stands to benefit both sides. The licensor ill sell its kno-ho right to the licensee,
usually for a period of time. The kno-ho refers to intangible properties such as
patens, inventions, formulas, processes, designs, copyrights and trademarks. The
licensee needs to pay the royalty fee in order to have the agreement ith the licensor.
;icensing is a primary stage for a firm hich plans to enter a foreign market. Aue to the
uncertainty of the foreign market, the political or economic situation, this instability
ill arouse the firm to consider developing a licensee agreement. This agreement can
help the firm to make their expansion in a more steady ay. %n this manner the
licensor firm, can collect a royalty fee from the licensee< this is especially a big benefit
for a licensor ho has limited capital to establish full operations in a foreign country.
Thus the firm can decrease its expansion costs via licensing. Moreover, the country
barriers make it difficult for the firm to participate in a foreign market, hich makes
licensing a more suitable entry mode to explore a ne market. ;ast but not least, hen
the firm doesn#t expect entry into a ne market ith its intangible property by
themselves, having the foreign licensor may help the firm to improve its chance of a
successful patent application.
(ne draback hich is similar to exporting is that licensing gives the firm less central
and tight control. ,or the firm it is difficult to control their licensee through the
agreement, except by establishing its on subsidiary. The licensee could be a ma"or
disadvantage for the licensor because of the difficulty in coordination. Technical kno-
ho is a competitive advantage for the firm< hereas by selling the kno-ho the firm
undertakes a huge risk of losing this asset to competitors. 7ecause the licensor ill
receive the main technology and make full use of it, the licensor loses control by selling
it to licensee.
,ranchising
,ranchising is a similar entry mode to licensing. 7y the payment of a royalty fee, the
franchisee ill obtain the ma"or business kno-ho via an agreement ith the
franchiser. The kno-ho also includes such intangible properties as patents,
trademarks and so on. The difference from the licensing mode of entry is that the
franchisee must obey certain rules given by franchiser. ,ranchising is most commonly
used in service industries, such as McAonald#s to cite an example. =oever the
licensing entry mode is fre'uently used by manufacturing firms.
The primary advantage of franchising is that the firm doesn#t have to bear the
development costs and risks associated ith entering a ne foreign ne market, "ust
like in the entry mode of licensing. 7y the lo costs and risks, the firm could explore
the market in an efficient ay. Thus the strategy of using franchising is similar to the
entry mode of licensing.
The disadvantage is clear because the agreement re'uires that the franchisee ill
abide by strict rules. The franchisee is often hard to control, especially in the service
industry hereby the franchisor ill re'uire the franchisee to adhere to the same
standards of 'uality. %f the franchisee does not strictly obey the rules of the franchisor,
it could lead to a orldide collapse of the international firm.
?oint Lentures
& "oint venture is a typical entry mode used orld-ide. ;iterally, it means to or
more individual and independent firms "oin together in an alliance in order to achieve
better position in the market. (ften the "oint ventures are a M/JM/ venture. %t is a
method that both sides hold relatively the same percentage of shares in the venture.
The "oint venture#s operation is separate from both companies, and often the same
role is shared by both managerial teams. %t could be possible that one firm invests
more in order to gain the larger percentage of shares and hold tighter control of the
"oint venture#s operations. ;ikeise, a loer investment percentage ill usually lead to
less control.
& "oint venture has a lot of advantages. ,irstly, both of the firms share the costs as ell
as the benefits. 7oth sides share the risk as ell. 7y investing into and "oining a local
firm, the international firm could successfully explore the foreign market ith their
assisting "ointed firm. The international firm could thereby gain market knoledge
from the local firm. 9specially considering the political and economic issues in the
international market today, it is an overhelmingly popular ay to enter foreign
markets. The local firm might have a ay to influence the local government, hich ill
smooth the market entry for its "oint partner.
The disadvantage is obvious in that the firm might have ma"or conflicts ith its
partner. 2egarding the shareholding of the firms, it is often difficult to maintain a
balanced relationship. (nce one firm#s expansion strategy is in conflict ith the other
party, it ill by all means bargain about the relative share onership in order to have
more control of the firm. Thus the partner ith stronger bargaining poer ill
continue to lead an unsteady "oint venture. &s for the firm#s international expansion,
giving up control of technology could be very risky for the firm.
Wholly-oned subsidiaries
The entry mode of holly-oned subsidiaries means the firm ons 3// percent of the
overseas entity. There are to ma"or ays to establish foreign holly-oned
subsidiaries. ,irst is a greenfield venture. That means the firm ill enter the ne
international market by establishing a completely ne operation and legal entity. The
second method is ac'uisition< hereby the firm ac'uires another firm in that
international market in order to directly enter. The other firm could be an established
and ell-built firm in that particular industry. Thus the firm could gain a lot of
advantages and promote its on products by using the ac'uisition strategy.
There are a number of advantages to establishing holly-oned subsidiaries.
(bviously, one of the advantages is that the firm could have tight control, because the
firm has 3// percentage of onership. Then it is easy to understand that the firm
could make its on strategic plan and control the subsidiaries in its on ay.
9specially, compared ith other entry modes, the firm does not need to bear the risk
to lose its competitive advantages and kno-ho by selling these to another party.
Therefore, the firm has more poer of control and less risk. ,urthermore, as for
multinational firms, many of them are eager to explore foreign markets in order to go
up the experience curve and understand the local economy. ;ast but not least, the firm
could have 3// percent of profits in its holly-oned subsidiaries.
The disadvantages of holly-oned subsidiaries are clear too. &s long as the firm
chooses holly-oned subsidiaries, the cost is definitely high. 7ecause of full
onership, the firm cannot get any assistance from other party. While bearing the full
cost of the investment in the foreign country, the firm still needs to bear the entire
risk. The risk lies in the uncertain foreign market, the unfamiliar political and economic
environment or the culture gap. To do business in a ne culture, especially by
choosing the entry mode of holly-oned subsidiaries by ac'uisition, could raise a lot
of problems. The variety and diversity of the foreign business practice or country
culture could be a significant issue for the firm to deal ith.
NdividerO
CHAPTER (:
CONCEPTUAL +RAME,OR8To understand the development of our master thesis
conclusion and to collect data for
our research, it is valuable to depict a conceptual frameork. We have modeled our
conceptual frameork in to different parts! factors hich affect decision of entry
modes and different strategies of entry modes. The purpose of this conceptual
frameork is to sho the influence of different factors on the choice of entry modes.
When managers have to choose an entry mode to enter into a foreign country, there
are many factors hich they take into account before making decisions. We have
selected a set of factors for our conceptual frameork. The factors proposed belong to
Chen and Mu"taba -.//01, 2oot -34451, 6och -.//31 and 7rassigton and 8ettitt -.///1
entry mode factors literature. (ur criterion of selection as based on validity for our
particular cases.
9ntry mode literature has collected many of the influential factors on entry mode
decision. )ome authors have divided these factors in to groups! for example, external
and internal factors as 2oot -34451. 6och -.//31 includes a third group hich consists
of mixed categories of external and internal factors. (ther authors such as Chen and
Mu"taba -.//01 divide factors of entry mode decision in three groups from a different
perspective relating to specificity! firm-specific factors, country-specific factors and
market-specific factors. %n our conceptual frameork e have decided to follo the
perspective of 2oot. We have divided influential factors of entry modes into to
groups! external factors and internal factors. %n external factor group e have
included all factors affect entry mode decision indirectly.
MNCs cannot control influence of external factors in choice of entry mode. %nternal
factor group is a set of
characteristics and strategies of firm hich influence on entry mode strategy. The firm
has opportunity of modifying and controlling internal factors, but only in the long term.
%t is re'uired to make a huge effort to modify those factors over time.
9PT92N&; ,&CT(2)
They are a set of factors make up environment surrounds MNCs such as political,
economic and social factors. These factors affect its entry mode choice indirectly and
MNCs do not have control under them %n this group e have decided to include four
factors from the authors mentioned in the literature revie. The chosen factors to
represent the external factor group are as follos!
Culture distance refers to the possible differences existing beteen individuals from
different countries in certain behaviors and their ays of thinking. Cultural difference
ill influence the validity of ork practice transfer and methods from one country to
another ->uer, Claver @ 2ienda .//01. %n addition, 2oot -34451 states that the firms
often prefer to enter those foreign countries that are closest to their home country.
We have chosen this factor because cultural differences among the three countries in
our cases -)pain, Ne Dealand and Cnited 6ingdom1 might affect the choice of
international strategy. )tarbucks is &merican company ith a different culture as
compared to 9uropean or Ne Dealand culture.
Market barriers! 6och -.//31 states that market barriers such as tariff barriers,
governmental regulations, distribution access, natural barriers, and level of country
development can influence a company#s entry mode choice. Many MNCs find legal or
natural obstacles to internationali$ation. We regard market barriers might have played
an important role in )tarbucks# entry mode decision.
Market potential refers to groth and si$e potential of the foreign market -Chen and
Mu"taba .//01. When )tarbucks expanded to the three countries e study, the
concept of its coffee stores as successfully adapted. ;ikely among all three countries
a high market potential as identified prior to )tarbucks# entry. %n addition, market
potential could have been relevant on the chosen entry mode in each country.
Competition intensity is the degree to hich a firm#s entry into a foreign market is
simultaneously pursued by its competitors -Chen and Mu"taba .//01. The number of
competitors in a market can influence the choice of entry mode.
%NT92N&; ,&CT(2)
%nternal factors are those characteristics, variables and strategies of MNC that affect its
activities. %n contrast to external factors, MNCs can control influence of internal
factors. Within the group of internal factors e have included the folloing six factors!
Characteristics of the overseas country business environment are defined as
knoledge of the host country! language, habits, culture, foreign market behavior and
functioning of the market. %t is also information about the overall industry specific to
the company such as volatility of general business regulationsJ practices, business
infrastructure, levels of industrial development, forms, scope and intensity of
competition, customer protection legislation and customer sophistication -6och,
.//31. We consider that )tarbucks# degree of country-specific knoledge could be
important in the decision of )tarbucks international strategy.
2esource commitmentJ firm si$e refers to the idea that the entry mode option
depends on the amount of available resources. The freedom of selection of the entry
mode and the preference for a specific entry mode depend on the company si$e and
industry-specific resource demand -6och, .//31. We think that )tarbucks# firm si$e
could have influenced the selection of entry mode in each country. %ts large si$e and
huge amount of available resources might expand number of possible entry modes.
)peed consists of the time a company ants to dedicate to go into a foreign market
-7rassigton and 8ettitt, .///1. We selected this speed factor because e thought it
could be a determining factor in )tarbucks# entry mode selection. )tarbucks might
have chosen some of its entry modes seeking to expand 'uickly and to avoid losing
market opportunities.
Ilobal management efficiency re'uirements refers to the degree of involvement
management in the internationali$ation of a company. When a company has a high
degree of international involvement, the company#s resources start to become limited.
%t therefore becomes necessary to redefine the company#s global strategy -6och,
.//31. We have selected this factor because hen )tarbucks expanded to our three
target countries the degree of involvement as high. We think that might have been
an important factor influencing its entry mode decisions.
Management risk attitudes refers to the degree of international business risk that
company takes in entering a foreign market, hich ill depend on! the company#s
financial situation, its strategic options, and competitiveness of the environment
-6och, .//31. We are sure that )tarbucks# risk attitude as influential in its choice of
entry modes.
)ome above factors may affect influence other selected factors, increasing or reducing
their influence.
&fter managers analy$e the factors that influence the target foreign market, they ill
select the most appropriate entry mode. %f the company is in the service industry, such
as )tarbucks, it can only select its entry mode strategies among the folloing types!
"oint-venture, holly-oned subsidiary, licensing and franchising. We only have
depicted in our conceptual frameork the "oint venture, holly-oned subsidiary, and
licensing strategies because these are three international strategies that )tarbucks
carries out in its internationali$ation process.
CHAPTER *: EMPIRICAL IN+ORMATION
%n this chapter, information about )tarbucks ill be presented hile focusing on
factors listed in our conceptual frameork. (ur aim is to present the information e
ill use in order to analy$e our three cases.
*.1. BAC8)ROUND
)tarbucks# history began in )eattle in 3403, hen three students named ?erry 7aldin,
Dev )iegel, and Iordon 7oker decided to be partners and opened a little shop in 8ike
8lace Market to sell high-'uality coffee beans and e'uipment. They ere influenced by
a trip to &frica here they tried a huge variety of coffee flavors as ell as a coffee
retailer called &lfred 8eet. -Maga$ineusa.com .//51
%n 34H3, =oard )chult$, Lice 8resident and Ieneral Manager of C.). (perations for
=ammarplast, noticed )tarbucks# success and decided to analy$e the company in more
depth. =e as struck by the business philosophy of serving good coffee ith dark-
roasted flavour profiles. =e anted to transmit that coffee passion by orking for the
)tarbucks enterprise to expand outside )eattle, thereby exposing people all over
&merica to )tarbucks coffee. =oever, the founders ere against hiring him because
geographic expansion as too risky and because they did not share )chult$#s vision for
)tarbucks. ,inally, they reconsidered )chult$#s idea and decided to hire him as head of
Marketing.
&fter that, )chult$ as trained about )tarbucks# coffee culture and then as sent to
%taly to attend an international houseares sho. %n %taly, he visited a variety of coffee
bars and noticed that )tarbucks needed to serve fresh-breed coffee, espresso, and
cappuccino in its stores in addition to beans and coffee e'uipment. 7esides, he
considered that )tarbucks stores ould be a place to meet friends as they ould at
home. 2e-creating the %talian coffee-bar culture in the Cnited )tates could be
)tarbucks# differentiating factor. -Wilson. 2 .//M1
7aldin and 7oker ere not interested in serving coffee. They regarded that to
expand their business ould deviate from their core business. They ere hoever
attracted by the idea to ac'uire 8eet#s Coffee and Tea, hich took place in 34H5.
,inally they decided to give )chult$ the opportunity to test an espresso bar. -Iresham
.//M1
=oard )chult$ as convinced that his idea as a big inner. =e eventually left
)tarbucks to start his on business, called %l Iiornale in 34HM. %n 34H0, )chult$ raised
enough capital ith local investors and purchased )tarbucks. =e first combined
)tarbucks and %l Iiornale operations, and then re-branded both businesses under the
)tarbucks name. =e anted )tarbucks to become the most respected brand name in
coffee and to be admired for its corporate social responsibility, its values and its
guiding principles. -)tarbucks C)2 2eport .//01
%n 34HM, )tarbucks started its expansion into different cities in the C)& and Canada,
opening in Chicago and Lancouver, 7.C. ,inally, )tarbucks decided to internationali$e
its business outside of North &merica in 344M. The company entered into ?apan by
creating a "oint venture ith )&D&7G %nc.
%n 344H, the company ent into Ne Dealand by granting its license to 2estaurant
7rands Ne Dealand ;td. ,urthermore, in that year )tarbucks bought sixty-five )eattle
)tores to enter the Cnited 6ingdom market.
%n .//3, )tarbucks created a "oint venture ith L%8) Iroup, a ell-knon )panish
restaurant chain. The folloing year, )tarbucks opened its first store in )pain.
Today )tarbucks is the largest coffee shop company in the orld. %t is speciali$ed in
high 'uality of coffee hich derives one hundred percent from the arabic coffee
variety.
)tarbucks is characteri$ed by its Qthird place conceptR. & coffee company seeks its
customers to consider its stores as a place beteen home and ork. Moreover, its
success oes to its introducing a ne ay to drink coffee and its coffee culture.
&t present )tarbucks has more than 3M,0// stores in 5F countries. %t is becoming one
of the most respected brands in the orld. -)tarbucks .//H1
*.2. INTERNATIONALI9ATION O+ STARBUC8S
%n this section e sho some general aspects of )tarbucks# international strategy. (ur
aim is to use this data in order to understand our three cases and to kno the reason
hy )tarbucks uses different entry modes in its internationali$ation process.
)tarbucks adapts its international strategy in order to satisfy the needs and
re'uirements of every market, seeking to respect its cultures and traditions. &t
present, the company uses three different strategies! "oint venture, licenses and
hollySoned subsidiaries -see ,igure 51.
+i6ure (: )tarbucks# international strategy
Surce: Merrill ;ynch and )tarbucks =omepage
7efore entering a ne country )tarbucks conducts rigorous 'uantitative market
studies. The company also develops extensive focus group intervies to get a pulse of
the marketplace and potential.
)tarbucks has demonstrated that even a large company needs help to achieve its goals.
%n order to succeed, a company needs to reali$e that it often cannot alone fill the gap
in serving the needs of its target market. )tarbucks has mostly alays needed the help
of another entrepreneur or another company ith hom to ork and share financial
risks.
)tarbucks# partners have helped the coffee company to enter ne markets and obtain
the products and services available in that market 'uickly. )trategic partnerships have
enhanced )tarbucks# competitiveness in the marketplace. They have also helped the
company to keep pace ith the rapid changes of technological innovation. )tarbucks
as able to achieve its ob"ectives, break into ne markets, and enhance its bottom
line by entering into strategic alliances ith the right companies -%sidro .//51.
)tarbucks has certain criteria for consideration of T%nternational 8artners#. They seek to
ensure their local partners ill share its value and commitment to bringing the
)tarbucks 9xperience to customers orldide -)tarbucks %nternational Aevelopment,
.//01. Those selection criteria may include the folloing! a partner ho shares its
values and corporate culture< a partner ith a strategic fit to )tarbucks# business< a
seasoned operator of small- box, multi-uni retail stores< a local business leader<
someone ith a strong track record developing ne ventures< someone ith
experience managing licensed @ premium brands and concepts< and a partner ith
food @ beverage experience. ,urther selection criteria include sufficient financial and
human resources, and involvement and commitment ith top management. & final
point is the partner#s real estate knoledge and access to leverage their structure.
)tarbucks has developed the folloing procedure of global expansion! The company
selects local partners ho are local business leader. Then, )tarbucks together ith its
partner try to adapt its business traditions to the local market. ,or instance, )tarbucks
coffee stores in )pain have outside terraces, and in ?apan coffee shops have more
seats than others countries and provide a smaller serving -,orbes.com .//F1.
)tarbucks# involvement in the internationali$ation process varies only in degree -e.g.
licensing, "oint venture and holly-oned subsidiary1 since the company is constantly
in touch ith operators to keep abreast of the marketplace.
%n a "oint-venture, )tarbucks# e'uity position varies across a ide range. ;ately, the
company tends to minimi$e its holding and re'uires a local partner -as in the )pain
case1 to hold most of the capital cost -%sidro .//51. )tarbucks holds less than M/U of
the shares in their "oint ventures. )chult$ commented that )tarbucks is constantly
attracting potential partners -,orbes.com .//F1.
*.&. EMPIRICAL IN+ORMATION +ROM THE MAR8ETS
IN'ESTI)ATED
%n this section e present the information found in annual reports, )tarbucks#
homepage, intervies and other sources for our three cases. %n the folloing section,
e ill analy$e data based on our literature revie. ,inally, e compare the three
cases in order to attain reliable conclusions for our research.
*.&.1. Case 1: U!ite. 8i!6.%:
)tarbucks Coffee Company ;td -C61 is a holly-oned subsidiary of )tarbucks
Corporation of the C), hich is the orld#s largest retailer and roaster of specialist
coffee. %t is the market leader of branded coffee shops in the C6. -Caterersearch .//E1
%n May 344H, )tarbucks entered into the C6 by the ac'uisition of sixty-five )eattle
Coffee Company stores -)tarbucks C6 =ome 8age1. %t ac'uired the )eattle Coffee
Company in exchange for about 3.H million shares of common )tarbucks stock, or
about VM/.H million -=olmes 344H1. )tarbucks re-branded the purchased )eattle Coffee
stores in the year folloing their purchase. The )tarbucks Coffee Company also let
)eattle Coffee managers )cott and &lly )venson continue to manage the original C6
operations -77C nes 344H1.
)eattle Coffee Company as founded in 344M. %t included the )eattle#s 7est Coffee and
Torrefa$ione %talia Coffee brands -Coffeegeek .//F1. The company as managed by
to &mericans, )cott and &lly )venson. )eattle Coffee Company opened its first coffee
bar in Covent Iarden in 344E. &s of 344H it had sixty-five retail stores selling &merican-
style coffee hich has a similar coffee culture as )tarbucks. -7itic .//F1
The Cnited 6ingdom as the first 9uropean country hich )tarbucks entered. The C6
as to be a springboard from hich to internationali$e its business in 9urope.
&c'uisition as therefore an efficient and fast ay for )tarbucks to enter into a ne
foreign market.
9ntering the C6 as a milestone for )tarbucks# international expansion. The
internationali$ation plan in )tarbucks# long-term strategy consisted of opening M//
retail stores in 9urope by the end of .//F. QWe are a ay from taking the step from
the C.6. to 9urope,R said )chult$, Chairman and Chief 9xecutive (fficer of )tarbucks
-=olmes 344H1. What#s more, )chult$ said 9urope as a Qma"or strategic opportunity
to achieve our goal of creating and building an enduring global brandR -=olmes 344H1.
The lo competition intensity in earlier times drove )tarbucks to expand in a
strategically smart ay, hich as to create and build a sustainable brand.
%n the C6 )tarbucks has gron step by step until becoming recogni$ed as one of the
QTop 3/ C6 7est 8laces to WorkR in .//0 -)tarbucks =omepage .//H1. %n 3444,
)tarbucks formed an alliance ith )ainsbury#s. )tarbucks also ac'uired ;ondon coffee
shops from Madisons Coffee for V3.5 million in .//3. %n .//., )tarbucks formed a
partnership ith 7orders bookshops and bought 3F coffee bars from Coffee 2epublic
for V. million. 7y early .//M, )tarbucks had F/ concessions in supermarkets
-Caterersearch .//E1. %n .//E, )tarbucks C6 as listed as one of QC6 Top M/ 7est
8laces to WorkR -ranked F5th1, aarded by the Ireat 8laces to Work %nstitute, in
partnership ith the ,inancial Times.
=oard 7ehar, 8resident of )tarbucks Coffee %nternational said QWe do not believe e
are an &merican company, but an international brand. We hope to benefit from the
pub culture in the C6 to make )tarbucks a natural meeting place for peopleR -77C
Nes 344H1. The above remark intends to reduce the importance of cultural distance
beteen )tarbucks# coffee concept and Cnited 6ingdom#s coffee concept. 7eteen the
to countries, there as a huge gap. 7ritish people had a different ay of thinking
than &mericans. %n the Cnited 6ingdom, there as also certain opposition to &merican
products and concepts. )tarbucks sought to reduce that distance by ac'uiring an
existing 7ritish coffee chain, )eattle Coffee stores. %n addition, )tarbucks aited a year
to re-brand the ac'uired )eattle Coffee stores ith the )tarbucks brand. %n this ay,
)tarbucks first made the 7ritish familiar ith the )tarbucks Coffee concept prior to
rebranding.
%n .//0, )tarbucks gained a ma"or success in the C6 ith more than M// stores having
been opened. %t remained the most recogni$ed chain coffee store, ith .0U of the
respondents rating it their favorite -ith Costa at 3M U1 -Manson .//01. &s of the
present moment, )tarbucks has more than E// branches in the C6 and %reland.
&ccording to the retail analyst 9uromonitor, the company has a 3E.0 per cent market
share, one per cent ahead of Costa Coffee -=ickman .//H1. Costa Coffee is founded in
3403 by %talian brothers Lilas Costa ith a holesale operation supplying roasted
coffee. 7esides, it is based in Cnited 6ingdom.
*.&.2. Case 2: Ne: 9ea$a!.
%n (ctober 344H, )tarbucks opened the first )tarbucks retail store in Ne Dealand at
8arnell 2oad, &uckland, hich as operated and oned by 2estaurant 7rands Ne
Dealand ;td. 2estaurant 7rands Ne Dealand ;td, hich as listed on the Ne Dealand
)tock 9xchange in ?une 3440, as an authori$ed licensee of )tarbucks. 7esides that, it
as the franchisee for the 6,C and 8i$$a =ut brands in Ne Dealand ith an annual
turnover of NDW.3E.H million in 3440 -7usiness Wire 344H1.
2estaurant 7rands Ne Dealand ;td. shared ith )tarbucks the enthusiasm of bringing
the )tarbucks experience to Ne Dealand. Therefore, 2estaurant 7rands Ne Dealand
;td. tried to operate )tarbucks stores hile keeping the essence of )tarbucks# coffee
culture. %n this manner, Ne Dealand )tarbucks stores offered much the same as in
other international )tarbucks stores! coffee beverages, more than F/ varieties of
arabic coffee beans, and local pastries and desserts.
2estaurant 7rands Ne Dealand ;td. as delighted to help )tarbucks enter Ne
Dealand. ?im Collier, C9( of 2estaurant 7rands, commented! QWe are excited about
bringing the uni'ue specialty coffee experience of )tarbucks to Ne Dealanders ith
our first )tarbucks retail location. We hope to open up to 3/ retail locations by the end
of next year. (ur commitment to people, 'uality coffee, exciting products and
excellent customer service ill provide Ne Dealanders ith a uni'ue cafe
experience.R -7usiness Wire 344H1
)tarbucks regarded that its partnership ith 2estaurant 7rands Ne Dealand ;td.
ould provide it certain opportunities. This as especially because the competition
intensity of the 344/s in the coffee retail industry as lo, as a result of the early
stage and un-mature coffee industry in Ne Dealand. =oard 7ehar, president of
)tarbucks Coffee %nternational said Q(ur successful partnership ith 2estaurant 7rands
provides us ith a strategic opportunity to further enhance the recognition of
)tarbucks as the orld#s leading purveyor of specialty coffee in the &sia 8acific regionR
-7usiness Wire 344H1. )tarbucks could also gain recognition of its good brand image by
forming the licensing agreement ith the ell-knon 2estaurant 7rands Ne Dealand
;td. and entering into the ne and un-mature Ne Dealand coffee market.
&fter years of having the licensing agreement ith 2estaurant 7rands Ne Dealand
;td., the information about )tarbucks# achievement can be found in .//E#s annual
report. QTotal sales for the year gre 35.5U on a comparative eekly basis to a high of
W.0.4 million for the year. )ame store sales for the year gre by ..EU and store
earnings improved E.FUR -)almon .//E1. )tarbucks as also very successful in the
folloing year as ell. )tarbucks is no recogni$ed in Ne Dealand as the foremost
international coffee brand. Q)tarbucks Coffee Ne Dealand has also been recogni$ed
internationally for our local marketing activityR -)almon .//E1.
%n .//3, )tarbucks and 2estaurant 7rands Ne Dealand ;td. reached an agreement to
open M/ outlets. %n .//E, )tarbucks obtained the above negotiated number of coffee
stores. )tarbucks in Ne Dealand has been a shining star here there ere no signs of
its light dimming since its beginnings -)almon .//E1. &t the present, )tarbucks is
continuously groing ith steady store development. )tarbucks plans to Qdouble
shootR the original plan, ith its current plan calling for 3// stores throughout Ne
Dealand -Mark .//E1. )tarbucks Ne Dealand Ieneral Manager )teve Montgomery
said QWe could possibly double that and hold our on.R
*.&.&. Case &: S"ai!
%n .//3, )tarbucks signed a "oint venture agreement ith L%8), a leading 9uropean
food service and retail operator, as ell as 9l MolX Lell, a retail operator of cafes and
pastry shops in the 7arcelona area. Tres 9strellas Cnidas ).;. as a "oint venture,
formed by )tarbucks and its to partners to manage the day-to-day )tarbucks
operations in )pain -)tarbucks .//.1. %n the "oint-venture structure, L%8) controlled
H.U and )tarbucks the other 3HU. Noadays, the "oint venture onership by
)tarbucks is up to M/U -8ress report .//01.
Iroup L%8) as the )panish market leader in full service dining. %t had over F/ years#
experience in retail business. The group operated several chains including L%8)# on
concepts -retail and restaurant1, as ell as Iinos, and ;aeBe. %t also integrated
international brands such as T.I.% ,ridays#, 7ice and %tsu. The Iroup operated many
other established restaurants as Teatri$ and 9l 7odegYn. &t the end of .//3, L%8)
operated about 3M/ outlets -)tarbucks .//.1.
Iroup L%8) created the "oint venture ith )tarbucks because it regarded that
becoming )tarbucks# partner ould contribute to its groth strategy -allbusiness.com
.//31. %n .///, Iroup L%8) had put an ambitious groth pro"ect into action to double
its si$e in three years.
)tarbucks, in turn, chose Iroup L%8) because they needed a local partner to help the
company to establish themselves in the community -elmundo.es .//.1. Zlvaro
)alfranca, )tarbucks# Chief 9xecutive in )pain, mentioned in an intervie QL%8) group
plays a local role, because they understand the country and they operate in the stores<
and )tarbucks sets its heart, soul and philosophy behind )tarbucks# conceptR.
-elpais.com .//01
,urthermore, both companies shared vision and values facilitate the smooth flo of
their venture. =oard )chult$, )tarbucks Coffee Company chairman mentioned QL%8)
Iroup is an ideal partner for )tarbucks, as its strategic and business vision fit in ith
oursR -elpais.com .//01. &fter seven years, its "oint venture continues orking< they
have even expanded their business in ,rance and 8ortugal.
9l Moli Lell as a top retail operator of bread and pastry shops in the 7arcelona area.
%t as founded in 3HEF. %t had expertise and skills in handcrafted bakery products. %n
.//3, the company oned over 30/ cafes. 9l Moli Lell as the retail component of the
9uropastry group. The 9uropastry group oned one of the most important 9uropean
businesses in pastries -allbusiness.com .//31.
)imilar to Iroup L%8), 9l MolX Lell as delighted ith being )tarbucks partner. Aavid
IarcXa-Iasull, C9( of 9l MolX Lell, commented QWe are excited about introducing
)tarbucks into the )panish marketR. )tarbucks sought to strive for the highest 'uality
products and service in the market. -allbusiness.com .//31
%n our intervie, ;uis 8eBa mentioned more reasons hy )tarbucks decided to ally
ith L%8) group and 9l MolX Lell. ,irst, its partners had experience and reputation in
the hotel sector. 7esides, both regarded customer service as an important part of their
business. &nother factor is that they integrated human resources in their businesses.
)tarbucks also took into account L%8)# and 9l MolX Lell#s creative ability, local
knoledge and capability to create branding. ,inally, both partners had strong
financial resources and 'uality in their products and services.
)pain as the first ;atin market hich the company entered into and an important
landmark for )tarbucks. Moreover, )tarbucks# development in )pain as part of
)tarbucks# ambitious 9uropean groth strategy. ,or instance, in .//3, )tarbucks not
only entered in )pain, but also in )it$erland and &ustria -cincodias.com .//.1.
Zlvaro )alfranca in an intervie characteri$ed )pain as a mature and attractive market
hen they established coffee stores there -elpais.com .//01. When )tarbucks ent
into )pain, coffee market had already developed.There ere a huge 'uantity of
traditional coffee stores and big and knon coffee chains such as 6roxan, ?amaica
Coffee and Caf[@ T[ Ir CompaBXa del TrYpico.
%n 9urope, )tarbucks as having a tremendous reception from customers and fast and
successful groth. =oard )chult$ stated, Q(ur entry into )pain comes at very exciting
time for )tarbucksR and QWhile these are still early days in our groth, our success
orldide firmly validates our ongoing belief of the enormous potential for expansion
in 9uropeR-)tarbucks .//.1. %n reference ith )panish market, 8eter Maslen,
president, )tarbucks Coffee %nternational mentioned QWe believe that )tarbucks
9xperience ill be in )pain as it is in the rest of our international market in 9uropeR.
7esides, he added Q e are confident that )panish coffee drinkers ill enthusiaticallly
embrace )tarbucks uni'ue coffee house experienceR -%bid1.
%n .//., )tarbucks opened its first store in the center of Madrid. Tres 9strellas Cnidas
).;. planned to open over 3/ to 3M stores over the folloings 3H to .5 months.
-)tarbucks .//.1. %n addition, &lvaro CaBete, managing director of Tres 9strellas Cnidas
).;., stated that the "oint venture hoped to have 3// stores in five years
-Cincodias.com .//.1.
&t present the company has more than seventy stores distributed amongst large
)panish cities! Madrid, 7arcelona, Lalencia and )evilla -8ress 2eport, )pain .//01. &ll
)tarbucks stores are company-oned by the venture, ruling out the use of franchising
oing to a desire to guarantee control over the purchase, treatment and distribution
of coffee -Cincodias.com .//.1.
The reception of )tarbucks in )pain as better than had been hoped. Zlvaro )alafranca
admitted to feeling surprised about the positive reception of )tarbucks# brand. =e
commented! QWe did not kno if e get people to fall in love faster than e thought,
or if e have been received better e thoughtR. -elpais.com .//01
When )tarbucks as established in )pain, the coffee company already had a strong
brand. &s a conse'uence, )tarbucks could play a fundamental role in the negotiation
beteen its partners. ,or instance, )tarbucks did not use any co-branding strategy
ith the L%8) Iroup. %ts brand concept and clear position as Qpurveyor of experiencesR
ere enough to consolidate its brand locally in a short time -Ialli @ Carbone .//01.
%n spite of having a good reception in )pain, )tarbucks# coffee culture as different
from )panish coffee culture. ;uis 8eBa in our intervie mentioned! Q)pain consumes a
lot of coffee, but it does not have coffee cultureR. =e regarded that )panish people do
not have a lot of knoledge about coffee. )panish people did not kno to distinguish
beteen different varieties of coffee. Therefore, )tarbucks established programs in
)pain to help people to learn about coffee culture, hich included tasting of different
kinds of coffee.
CHAPTER ;:
CASE ANAL-SES
%n this part e ill analy$e the empirical data shoed in the previous section to get an
anser to our research 'uestions. %n order to analy$e the empirical data thoroughly,
the folloing analysis as based on the literature revie.
;.1. DATA ANAL-SES
;.1.1. Case 1: U!ite. 8i!6.%:
3. What factors affected )tarbucks# entry mode decisions+
%NT92N&; ,&CT(2)
Characteristic of the overseas country business environment
7efore )tarbucks entered into the C6, it analy$ed the foreign market. The top
management expected the C6 to be the springboard for entry into 9urope -8ettigre
34441. 6och -.//31 states that there are characteristics of overseas countries hich are
easy to obtain these days. While understanding the %talian coffee market and ,rench
coffee market, )tarbucks sa the more significant opportunity in the 7ritish coffee
market. The language as easy to understand and the management ould be easy to
organi$e. 7esides, compared ith %talian orldide coffee culture, 7ritish coffee
culture as much easier to merge into.
=oever, Qvolatility of general business regulationsJ practices, business infrastructure,
levels of industrial development, forms, scope and intensity of competition, customer
protection legislation and customer sophisticationR are of difficulty to define in an
earlier stage -6och .//31. Thus, to gain knoledge about the Cnited 6ingdom market,
)tarbucks decided to allo )eattle Coffee Company managers to continue operating
for )tarbucks. They already had enough market knoledge to run )tarbucks stores in
the C.6.
,irm si$e
)tarbucks is a relatively large firm. Cntil the end of 3440, )tarbucks had around 3,5//
stores. &s it mentioned in Chen and Mu"taba#s theory, larger firms could have a greater
capability than smaller ones to expend resources and absorb risks. Therefore,
)tarbucks had greater capability than others for expending resources and absorbing
risk, hich meant they could afford to buy sixty-five stores ith a cost of VM/.H million.
2esource commitment
2oot -34451 argues that company ho ons a huge amount of resources has
numerous entry mode options. )tarbucks had management skills, experience and a
huge amount of resources. Thus it had more options regarding their choice of entry. %n
choosing the particular entry mode the firm considered that it had the available capital
to purchase )eattle Coffee.
)peed
%n an internationali$ation process, speed is related to the stated time a company
desires to dedicate before establishing itself in a host country. -7rassigton and 8ettitt
.///1. The speed of )tarbucks# international expansion as getting more and more
aggressive in 344/s. %n order to explore the ne market, )tarbucks needed to find a
ay to enter into the C6. With the ac'uisition of )eattle Coffee, )tarbucks achieved
expansion of its business in a short time.
Ilobal management efficiency re'uirements
Aegree of internationali$ation influences the 'uantity of available resources in a
company -6och .//31. )tarbucks had the strategy to enter into the C6 as the first step
in expanding into the 9uropean continent. &s 6och defined, as the firm#s degree of
internationali$ation becomes higher, the resources become more limited. )tarbucks
as a relatively large company in 3440, ith 35// stores. %nstead of limiting its
resource commitment and redefining their global strategy, )tarbucks instead chose the
resource-intensive route of a holly-oned subsidiary. Therefore, this as not a
significant factor affecting )tarbucks# mode of entry choice in the C6.
Management risk attitudes
The management risk attitudes of )tarbucks ere clear due to the uncertainty of the
7ritish market. 6och -.//31 determined degree of risk depends on! company#s financial
situation, its strategic options, and competitiveness of the environment. When
)tarbucks entered into Cnited 6ingdom, )tarbucks had carried out a policy of
minimi$ing risk.
9PT92N&; ,&CT(2)
Culture distance
Culture distance refers to the possible differences existing in relation to the ay in
hich individuals from different countries observe certain behaviors and ays of
thinking. They ill influence the ability of companies to transfer ork practices and
methods from one country to another ->uer, Claver @ 2ienda .//01. When )tarbucks,
as the &merican coffee giant, entered the C6 market, it idely acknoledged the basic
culture distance beteen &merican and 7ritish culture. Thus, )tarbucks tried to look
for a local company to adapt to the 7ritish coffee culture.
=oard 7ehar, 8resident of )tarbucks Coffee %nternational, told 77C Nes (nline that
taking account of local conditions as very important -77C nes 344H1. )tarbucks
made a distinctive decision to ac'uire )eattle Coffee Company unlike its more
common strategy of a "oint venture. %t as a good ay to enter into a ne market and
solve the problem of cultural distance. ,urthermore, )tarbucks aited a year to re-
brand these stores ith the )tarbucks name. %n this ay, )tarbucks made the 7ritish
first become familiar ith )tarbucks Coffee. %n addition, )eattle Coffee Company as
operated in an &merican coffee style by to &mericans. %t as a good advantage for
the )tarbucks# operation in C6 to already have a similar style of coffee.
Market barriers
Market has obstacles such as tariff barriers, governmental regulations, distribution
access, natural barriers, existed barrier and level of country development -6och .//31.
Market barriers are not a distinctive factor in considering the 7ritish case.
Market potential
Chen and Mu"taba#s theory of market potential refers to groth and si$e potential of
foreign market. The market potential affects the strategy of )tarbucks# 9uropean
expansion. =oard )chult$, chairman of )tarbucks Coffee Company, recogni$ed that
the market potential of the Cnited 6ingdom as an important factor in
internationali$ation in the folloing statement! QWhile these are still early days in our
groth, our success orldide firmly validates our ongoing belief of the enormous
potential for expansion in 9uropeR. -)tarbucks 344H1
Competitive intensity
Competitive intensity is measured by the number of competitors in the host country.
The degree of the market density of the competitors affects MNCs# strategy of entry
mode. Competitive pressures drive MNCs to perform shared-control modes,
franchising, licensing, or others hen the market could be assumed to be operating
under perfect competition. -Chen and Mu"taba .//01
7ased on the above analysis, )tarbucks as a case of a company using direct
investment in order to enter the market in the C6. %n 344H, the 7ritish coffee market
as not mature, and competitive pressure as high. Through the ac'uisition of the
established coffee chain, )eattle Coffee Company, )tarbucks could gain a lot of
advantages. )tarbucks eliminated a potential competitor and reduced competitive
intensity in the Cnited 6ingdom. )tarbucks also used its capital and influence to obtain
prime locations and to gain competitiveness. 9ven some of them ere operated at a
financial loss. QCritics claimed this as an unfair attempt to drive out small,
independent competitors, ho could not afford to pay inflated prices for premium real
estate.R -Wikipedia .//H1
.. Which entry mode strategies did )tarbucks use in foreign markets and hy+
)tarbucks used a holly-oned subsidiary as the entry mode in the C6. & holly-
oned subsidiary means the firm ons 3// percent of the stock. 9stablishment of a
holly-oned subsidiary in a foreign market can be done in to ays. The firm either
can set up a ne operation in a foreign country or can ac'uire an established firm in
that host nation. Thus, the case in the C6 uses the second of the to methods.
%n the case of )tarbucks in the C6, it is easy to find out that the internal factors and
external factors are relatively important for the choice of entry mode. ,irst of all,
)tarbucks as influenced by scarce knoledge of the 7ritish business market
characteristics. There as culture distance beteen to countries hich as generally
defined in the external factors. Moreover, there ere uncertainties in the ne market.
,or )tarbucks, it needed to choose an entry mode hich could eliminate these
disadvantages. To ac'uire the )eattle Coffee Company, hich as an existing coffee
company in the C6, as definitely a big benefit for )tarbucks to gain knoledge in the
ne market. What#s more, the comparatively large si$e of )tarbucks, hich could
afford to commit more resources and especially a large amount of capital, as a
critical factor leading to )tarbucks# decision to ac'uire )eattle Coffee. )tarbucks, in
pursuing its high-speed and aggressive expansion strategy, chose this entry mode of
building a holly-oned subsidiary due to the global management efficiency
re'uirement and management risk attitudes. )tarbucks# top management as eager to
enter into the C6 as the springboard to explore the rest of the 9uropean market.
7ecause of high risk, )tarbucks chose a familiar &merican-style operated coffee
company existing in the C6. ;ast but not least, the market potential and the
competitive intensity affected )tarbucks# choice of entry. With the promise of serving
its first 9uropean country in a yet-to-mature market and ith the added benefit of
eliminating a potential competitor, )tarbucks decided to ac'uire )eattle Coffee
Company, form a holly-oned subsidiary, and enter the C6 market.
;.1.2.Case 2: Ne: 9ea$a!.
3. What factors affected )tarbucks# entry mode decisions+
%NT92N&; ,&CT(2)
Characteristics of the overseas country business environment
)tarbucks had an aggressive overseas expansion in the late 344/s. The groth in the
8acific 2im continued since its ne opening in several countries in 344H, including such
countries as Taian, Thailand, Ne Dealand and Malaysia. The global giant had the
aggressive strategy to explore further 8acific 2im locations.
&t an earlier stage in 344H, )tarbucks as planning to enter Ne Dealand. The first
store opening in Ne Dealand as one of its expansion strategies. =oever, the ne
characteristics of the overseas country business environment as unfamiliar to
)tarbucks in Ne Dealand. %t as not the same as those other 8acific 2im countries
)tarbucks entered such as ?apan and )ingapore in 344E, and the 8hilippines in 3440
-)tarbucks Timeline .//H1 . )tarbucks as lacking the information of the ne area,
hich had its on intensive knoledge and culture. )pecifically it as facing the
Qproblems of business regulations, business infrastructure, and levels of industrial
development, forms, scope and intensity of competition, customer protection
legislation and customer sophisticationR. -6och .//31
Thus it as difficult to operate in Ne Dealand because of the lack of country-specific
knoledge. Therefore, )tarbucks "oined a licensing agreement ith 2estaurant 7rands
Ne Dealand ;td., hich as a ell-knon hotel business company. %t as obvious
that 2estaurant 7rands Ne Dealand ;td. as a suitable licensee for )tarbucks to gain
market knoledge and obtain benefits through this licensing agreement.
,irm si$e
Cntil the end of 3440, the year before )tarbucks entered into Ne Dealand, )tarbucks
already had a successful business in the coffee market throughout &merica and
Canada. ,urthermore, )tarbucks had expanded its branches in the &sia 8acific 2im. %n
344E, )tarbucks opened its stores in ?apan and )ingapore and in the 8hilippines in
3440 -)tarbucks Timeline .//H1. )tarbucks as reaching a high number of total stores,
hich as 3,53. at fiscal year end 3440 -)tarbucks Timeline .//H1.
Therefore, at that time, )tarbucks as a comparatively large-si$ed firm ith around
3,5// stores. &s per the theory described by 6och, )tarbucks could have greater
capability than any other small coffee shops to make full use of its management
knoledge and recognition to reach an agreement ith 2estaurant 7rands Ne
Dealand ;td. =oever, )tarbucks did not use its capability to expend resources and
absorb risks in Ne Dealand.
2esource commitment
2esource commitment is a factor related to firms# si$e. 7oth of them, the firm si$e and
resource commitment, "oined together, influence the choice of the Ne Dealand entry
mode. &s mentioned before, )tarbucks in 344H as a comparatively large company
ith more than 35// stores. &nd it already had the experience of expanding abroad.
)tarbucks opened in ?apan and )ingapore in 344E and in the 8hilippines in 3440. %t as
already a successful case at an early stage. =oever, the resource commitment of the
company for the Ne Dealand market seemed not that much. )tarbucks had capital,
and management, but lacked the huge amount of resources to invest in Ne Dealand#s
internationali$ation. )tarbucks had already ac'uired more than sixty coffee stores to
enter into the Cnited 6ingdom and also its far-reaching internationali$ation plan had
limited the number of available resources. (ing to uncertainty of the foreign market,
)tarbucks could not fully bear the hole costs to establish operation in a ne market.
Therefore, )tarbucks# licensing agreement ith a local partner as a strategic ay to
obtain resources and to share financial risk to enter into Ne Dealand. The most
important thing as that )tarbucks could gain the royalty fee through this licensing
agreement, hich could compensate for the limitation of its capital for international
expansion.
)peed
&ccording to 7rassigton and 8ettitt -.///1, the speed factor in the internationali$ation
process is the time a company desires to dedicate in order to reach a foreign market.
The speed of )tarbucks# international expansion as getting more and more
aggressive. The firm si$e as getting bigger too. 7efore 344H, there ere
approximately 35// stores. %n 344H, )tarbucks also had an accelerated pace of
internationali$ation. The company not only entered into Ne Dealand, but it
established its stores in three more countries! Taian< Thailand and Malaysia. &s of the
end of that year, )tarbucks totally had more than 3H// stores orldide. The
company#s desire to expand as getting larger and larger.
%n the Ne Dealand case, )tarbucks# strategy as to form a licensing agreement ith
2estaurant 7rands Ne Dealand ;td. They had an initial agreement hich as to open
fifty outlets, a target that as reached in .//E.
Ilobal management efficiency re'uirements
&ccording to 6och -.//31, the company ill start to become limited in its resources,
due to the high speed of its international expansion. )tarbucks# internationali$ation
pace as accelerating since the 344/s. The strategy in Ne Dealand as during this
high speed stage of )tarbucks# internationali$ation. 7efore entering into Ne Dealand,
)tarbucks had ac'uired more than sixty five )eattle Coffee stores and also it has
expanded into many other foreign countries. &s a conse'uence, )tarbucks had a
reduced 'uantity of capital for Ne Dealand internationali$ation. %n spite of being a big
firm ith a huge 'uantity of resources, its ambitious expansion program limited
'uantity of involved resources in its expansion to Ne Dealand.
Management risk attitudes
& company#s financial situation, strategic options and competitiveness are influential
aspects affecting entry mode decision -6och .//31. )tarbucks in Ne Dealand formed
the licensing agreement ith 2estaurant 7rands Ne Dealand ;td. assuming lo risk to
enter. This decision as in accordance ith )tarbucks international policy of limiting
'uantity of invested capital.
9PT92N&; ,&CT(2)
Culture distance
The culture distance beteen Ne Dealand and C)& culture distance as not so high
to affect entry mode decision.
Market barriers
&ccording to the information of the Ne Dealand market, there is not any typical
market barrier such as tariff barriers, governmental regulations, distribution access,
natural barriers, existed barrier and level of country development -6och .//31 that
ould have influenced )tarbucks# entry mode choice in international expansion.
Market potential
Market potential refers to groth and si$e potential of foreign market. Ne Dealand
as a ne promising market for )tarbucks to enter in the early 344/s. That is hy
)tarbucks chose to enter into Ne Dealand in the early stage.
Competitive intensity
Competition intensity is measured by number of competitors in the host country. The
degree of the market density of the competitors affects the firms# strategy of entry
mode -Chen @ Mu"taba .//01. &ccording to the research, the competition intensity in
344/s as comparatively lo. There ere not many coffee shops operating in Ne
Dealand. Therefore, )tarbucks did not need to invest in a high-control entry mode in
order to be competitive in Ne Dealand
.. Which entry mode strategies did )tarbucks use in foreign markets and hy+
)tarbucks uses licensing as the entry mode in Ne Dealand. ;icensing is an
arrangement here a licensor grants the rights to intangible property to another entity
for a specified period, and in return, the licensor receives a royalty fee from the
licensee.
7ased on the above investigation and discussion, the main reason for using a licensing
entry mode can be found on the internal factors and external factors. The internal
factors occupy a higher percentage of the reason for choosing a licensing entry mode,
hereas the external factors are less significant.
,irst of all, the characteristic of Ne Dealand#s business environment as unfamiliar.
)tarbucks as lacking knoledge of this ne market. To form the licensing agreement
ith an experienced firm, 2estaurant 7rands Ne Dealand ;td. as a ay to gain
knoledge from its local partner. 7esides that, the comparatively large si$e of the firm
made it have the capability to commit resources. =oever, )tarbucks needed its
partner to commit more managerial resources and lacked the capital due to the fast
speed of its groth in the 344/s and internationali$ation process planned. Thus the
global management efficiency and the management risk attitude combined together
to incentivi$e )tarbucks to find an efficient and lo-risk entry mode! licensing.
&s for the external factors, there ere fe cultural differences or market barriers and
a large market potential. =oever, because of the lo level of competitive intensity,
)tarbucks as able to choose the lo-control licensing entry mode as opposed to a
high-control entry mode such as a "oint venture.
;.1.&. Case &: S"ai!
3. What factors affected )tarbucks# entry mode decisions+
%n )pain, entry mode decision as influenced by several factors! internal and
external. Within internal factors, the most relevant factors ere characteristic of the
overseas country business environment and speed. The most influential external
factors affecting entry mode ere those such as resource commitment, global
management efficiency and management risk attitude. %n this case analysis, e ill
explain hy the above factors ere influential in )tarbucks# choice to pursue a "oint
venture in )pain.
%NT92N&; ,&CT(2)
Characteristics of the overseas country business environment
There is information to be considered about a specific country such as business
regulations or practices, infrastructure, scope and intensity of competition, customer
protection legislation and customer sophistication -6och .//31. %n addition, there is
host country knoledge to be learned such as habits, culture and foreign market
behavior. Companies sometimes have difficulties to attain part of this information.
When )tarbucks decided to enter into )pain, the coffee company had a long
international experience, but it lacked knoledge about the hotel sector in )pain. The
company sought partners that Qunderstood the country and played a local roleR and
helped the company to form part of the community as Zlvaro )alfranca, )tarbucks
Chief 9xecutive in )pain, mentioned in several intervies -)tarbucks .//.1. Therefore,
the company allied ith L%8) and 9l MolX Lell ho had hotel experience and necessary
knoledge to operate )panish market.
)peed
7rassigton and 8ettitt -.///1 define speed factor as time that a company ants to
dedicate to go into foreign market. )tarbucks desired to enter into )pain in a short
time in order to bring profits from third year of operations. ,urthermore, the company
had designed an ambitious expansion plan consisting of opening over 3/ to 3M stores
over 3H to .5 months -)tarbucks .//.1 and to have 3// stores in five years
-Cincodias.com .//.1.
Ilobal management efficiency re'uirement
Aegree of involvement in internationali$ation process can determine 'uantity of
available resources to enter into a ne country -6och .//31. When international
involvement is high, the company#s resources start being limited. 7efore )tarbucks
established its stores in )pain, the coffee company had already internationali$ed in
tenty countries -see &ppendix %%%! Company time line1. The internationali$ation
process had re'uired a huge amount of investment by )tarbucks and its expansion
plan anticipated even further investment. &s a conse'uence it as impossible for the
company to expend a huge 'uantity of resources in internationali$ing )pain.
2esource commitmentJ firm si$e
Choice of entry mode depends on amount of available resources and company si$e
6och -.//31. %f the company si$e is big, the company ill have a huge amount of
available resources and in turn numerous entry mode options. -2oot 34451 =oever,
companies ith limited resources are constrained to use entry mode ith small
resource commitment. %n .//3, )tarbucks as already an important and large
company. The coffee company had experience, technology, reputation, strong
branding and management and production skills. &s a conse'uence, )tarbucks had
certain poer and advantages in negotiations to choose certain entry modes such as
the "oint venture entry mode. ,or instance, )tarbucks did not use any co-branding
strategy ith L%8) Iroup. %ts brand concept and clear position as Qpurveyor of
experiencesR ere enough to 'uickly consolidate its brand locally -Ialli @ Carbone
.//01. =oever, the number of resources involved as reduced, as )tarbucks only
invested 3HU of the "oint venture#s capital in spite of its large si$e. &lthough )tarbucks
as big MNC, its high level of international involvement limited the number of
available resources to go into )pain.
Management risk attitudes
Aegree of risk in an international business depend on! the company#s financial
situation, its strategic options, and the competitiveness of the environment -6och
.//31. )tarbucks# international strategy tends to minimi$e its holding and re'uire a
local partner to operate in the target market. %n a "oint-venture strategy, the company
usually does not hold more than a M/U stake -,orbes.com .//F1. %n the case of )pain,
)tarbucks only held an 3HU stake of the Tres 9strellas Cnidas, ).;. "oint venture, in
keeping ith its financial policy to hold less than a M/U stake. L%8) Iroup as the
investor of a ma"or part of Tres 9strellas Cnidas# capital .
9PT92N&; ,&CT(2)
The greatest external factors in )pain#s entry mode choice ere! market potential and
competitive intensity.
Market potential
&ccording to Chen and Mu"taba -.//01 market potential is the groth and si$e
potential of a foreign market. )pain as regarded as a potentially important market by
)tarbucks. =oard )chult$, chairman of )tarbucks Coffee Company, stated QWhile
these are still early days in our groth, our success orldide firmly validates our
ongoing belief of the enormous potential for expansion in 9uropeR. )tarbucks as
confident of )panish market ould behave as the rest of 9uropean markets here the
coffee company had already internationali$ed -)tarbucks .//.1. 8eter Maslen,
president of )tarbucks coffee international gave the same opinion in the folloing
statement! QWe are confident that )panish coffee drinkers ill enthusiastically
embrace )tarbucks uni'ue coffee house experienceR -%bid1.
Competitive %ntensity
%t is related to number of competitors and competitive pressure in a host country
-Chen and Mu"taba .//01 When )tarbucks entered into )pain, the company kne that
)pain as a mature market ith many competitors. Zlvaro )alfranca recogni$ed the
importance of competitive intensity to go into )pain in a granted intervie here he
said QWe kne )pain a mature and attractive market hen they entered intoR
-elpais.com .//01. %n )pain, there ere a huge 'uantity of traditional coffee stores and
also big chain of coffee company as 6roxan, ?amaica Coffee and Cofee @ T[ I2
CompaBXa del tropico.
Culture distance
Culture distance refers to the possible differences ith relation to the ay in hich
individuals from different countries observe certain behaviors and ays of thinking. %n
)pain#s case, cultural distance as not a large influential factor in the entry mode
decision because )panish people ere already consuming a huge amount of coffee
before )tarbucks entered into )pain. =oever, they lacked coffee culture. Therefore
)tarbucks has sought to inculcate its coffee culture through coffee learning programs
ever since it entered into )pain.
.. Which entry mode strategies did )tarbucks use in foreign markets and hy+
%n )pain, )tarbucks chose "oint venture as entry mode. ;uis 8eBa in our intervie
pointed out the )tarbucks# international strategy adapts to different markets to satisfy
needs and re'uirements from every market, respecting its cultures and traditions. %n
)pain, )tarbucks decided to use a "oint venture entry mode in order to adapt to
external factors and also internal factors as ell.
The choice of the "oint venture entry mode instead of its other international strategies
-licensing and holly-oned subsidiary1 oes to a set of factors. ,irst of all, )tarbucks
lacked knoledge of the )pain market. Therefore, the coffee company needed to ally
ith a local partner ho provided its knoledge and helped the company to operate
locally. &nother factor as speed< )tarbucks anted to have a fast expansion in )pain.
The coffee company had planned to open 3// stores in only five years and needed an
international strategy that enabled its internationali$ation in a short period of time. &s
)tarbucks anted a fast internationali$ation process, the holly-oned subsidiary
strategy as unsuitable. Ilobal management re'uirement as another crucial factor<
the degree of internationali$ation in )tarbucks Company as high in .//3 ith coffee
stores in tenty countries. The coffee company had invested a huge 'uantity of
financial resources in its international process, and its anticipated internationali$ation
plan as also ambitious. &ll of that limited the number of available resources, reducing
influence firm si$e factor in entry mode choice. %n addition, )tarbucks# management
attitudes ere to minimi$e its holding and re'uire a local partner to operate in the
target market and to share financial risk. &s a conse'uence, the company could only
dedicate a limited number of resources in every country, hich ruled out the holly-
oned subsidiary entry mode.
,inally, the key factors that influenced the company in choosing a "oint venture instead
of licensing ere market potential and competitive intensity. The )panish market had
great potential for )tarbucks. The coffee company needed an entry mode that alloed
it to control its operations in )pain, but licensing gave )tarbucks a lo degree of
control. ;astly, the )panish market as already mature, and ith several significant
competitors )tarbucks needed an entry mode that alloed higher control in order to
face the competitive situation. Therefore, )tarbucks chose "oint venture as entry
mode.
;.2. CONTRAST ANAL-SES
&fter having analy$ed three cases separately the folloing is a comparative analysis to
determine similarities and differences beteen )pain, Cnited 6ingdom and Ne
Dealand cases.
The comparison of the first research 'uestion, QWhat factors affected )tarbucks#s
entry mode decisions+R
%n every case, there is a set of factors, external and internal, hich influenced entry
mode decisions. We ill explore if crucial factors of entry mode choice ere different
or not.
%nternal factors
Characteristics of the overseas country business environment
%t refers to information about characteristics of overseas country. There are overall
country characteristics hich are easy to obtain, but information about particular
industries and company-specific information is often difficult to find such as general
business regulationsJ practices, business infrastructure, levels of industrial
development, forms, scope and intensity of competition, customer protection
legislation and customer sophistication -6och .//31.
%n the three cases, e only have found similarities about knoledge of host country.
&ll of them ere affected by the Qcharacteristic of the overseas country business
environmentR. Aue to the uncertainty and unfamiliarity of the ne foreign market,
)tarbucks investigated the foreign market at first. Then it managed to gain the
knoledge through different ays of entry from its partnerships or alliances. &s e
mentioned above there are not ma"or differencesKonly the manner hich )tarbucks
took in order to obtain host country knoledge. %n )pain and Ne Dealand, )tarbucks
sought a local partner ho provided information hereas in the Cnited 6ingdom the
company kept )eattle Coffee Company managers.
,irm si$e
,irm si$e refers to capability of expending resources and absorbing risks -Chen and
Mu"taba .//01. %n our three cases, e have found that firm si$e affected the choice of
entry mode. (ing to )tarbucks# si$e, its experience and resources, the coffee
company had possibility to choose any international strategies. The firm si$e as 'uite
big, ith more than 3,5// stores in 344H hen )tarbucks ent into Ne Dealand by
licensing and ac'uired the )eattle Coffee Company in the C6. %n .//3, )tarbucks# firm
si$e as much larger, ith approximately 5,0// stores hen )tarbucks entered into
)pain. =oever, influence of )tarbucks# si$e in entry mode decision of )pain and Ne
Dealand as reduced oing to influence global management re'uirement factor.
2esource commitment
2esources commitment is the number of resources hich a firm invests to enter into a
foreign country. We have found the resource commitment factor to be relevant in the
three cases. Comparatively, there are some differences. The three modes of entry
sho a different degree of resources commitment. %n the C.6. )tarbucks committed a
great 'uantity of resources to ac'uire )eattle Coffee store, V M/.H million. %n )pain, the
"oint venture re'uired an investment of F million euros, hich means )tarbucks
invested \M5/.///, e'ual to 3HU of its total capital -CincodXas.com .//.1. %n Ne
Dealand, )tarbucks committed fe resources at all, hile 2estaurant 7rands Ne
Dealand ;td. committed a huge amount resources, including store set up costs and
royalty fees under the licensing agreement.
)peed
This refers to time a company dedicates in order to reach a target market -7rassigton
and 8ettitt .///1. These three cases are all influenced by the firm#s speed. )tarbucks
sought to enter into all three countries and expanded in a short time. %n the 344/s
)tarbucks accelerated the speed of internationali$ation, and as a conse'uence this
aggressive speed as a decisive factor in the choice of entry mode.
=oever, the strategy of )tarbucks# international subsidiary to accelerate
internationali$ation as different in each case. %n the Cnited 6ingdom, )tarbucks
expanded 'uickly by ac'uiring EM established )eattle Coffee stores. %n the Ne Dealand
case, )tarbucks handed over its expansion to 2estaurant 7rands Ne Dealand ;td.
;astly in )pain, )tarbucks allied ith L%8) Iroup and 9l Moli Lell to help them expand
in a short time.
Ilobal management efficiency re'uirements
When involvement of internationali$ation of a company is high, resources start being
limited -6och .//31. We have found that )tarbucks in )pain and in Ne Dealand ere
affected by limitation of resources oing to )tarbucks# ambitious expansion plan.
%nternationali$ation of )tarbucks as high hen it entered into three countries. The
coffee company anted to internationali$e in a huge of number countries, and
)tarbucks had already internationali$ed in many countries. That limited available
resources to invest in )pain and Ne Dealand. %n these to countries, the influence of
global management efficiency re'uirement reduced influence of firm si$e and degree
of resource commitment in entry mode decision. =oever, )tarbucks# entry mode in
the C6 is not in accordance ith explanation of global management re'uirement by
6och -.//31. )tarbucks chose the more aggressive ay of entry in the C6, by ac'uiring
a similar coffee company ith a high capital commitment. %n spite of the decision to
invest a reduced 'uantity of resources, )tarbucks still invested a great amount in the
Cnited 6ingdom internationali$ation.
Management risk attitudes
Companies determine degree of international business risk that they ill take in their
international businesses taking into account their specific situation -%bid1. )tarbucks
had established a policy of reduced risks. We found that management attitudes of
reduced risk had affected the three cases. The differences beteen the three cases are
in degree of assumed risk. The loest risk as taken in Ne Dealand ith a licensing
entry mode, hereas the highest risk as assumed by )tarbucks in the Cnited
6ingdom. %n )pain, the risk involved is somehat of a middle-ground strategy.
9xternal factors
Culture distance
7eteen different countries is the possibility of differences in behaviors and ays of
thinking. They can influence the validity of transferring ork practices and methods
from one country to another -2oot 34451. %n our research e have found that cultural
distance as not a crucial factor in Ne Dealand and )pain. =oever, the cultural
distance factor as relevant in the Cnited 6ingdom.
Market barriers
Tariff barriers, governmental regulations, distribution access, natural barriers, exit
barrier and level of country development can influence entry mode choice -6och
.//31. =oever, in our three investigated countries, market barrier factors did not
affect entry mode decisions.
Market potential
%nternationali$ation process can be influenced by potential groth of a market -Chen
and Mu"taba .//01. )tarbucks had a great potential market in 9urope that made the
company sought entry modes of fast expansion. %n Ne Dealand, market potential also
as important, but the company had a lo degree of market potential.
Competitive intensity
Competitive intensity in a host country drives companies to select an entry mode
related to specific competitive pressures -Chen and Mu"taba .//01. )tarbucks# entry
mode decision as influenced in the three cases by competitive intensity factors.
Competitive intensity as relatively high in the )pain and Cnited 6ingdom cases.
)tarbucks in )pain chose a "oint venture ith to local partners to attain recognition
and reputation in market. The "oint venture increased )tarbucks# market poer. %n the
C6 case, )tarbucks ac'uired a potential coffee competitor to reduce competitive
intensity. =oever, degree of influence in Ne Dealand as totally different. There
as a lo competitive intensity that provided )tarbucks the chance to license its
coffee stores to 2estaurant 7rands Ne Dealand ;td.
P means the factors affect the choice of entry in each country.
S means the factors do not affect the choice of entry in each country.
The comparison of the research 'uestion, Qhich entry mode strategies did
)tarbucks use in foreign markets and hy+R
)tarbucks chose different international strategies in each of our cases. (ur three
countries represent the three types of )tarbucks# international strategies in its
international development. %n )pain, )tarbucks carried out a "oint venture as its entry
mode. %n Ne Dealand )tarbucks decided to use licensing hereas in the Cnited
6ingdom the coffee company opted for a holly-oned subsidiary.
)tarbucks carried out different entry modes in order to adapt to specific factors, needs
and re'uirement in every country. (ur findings sho that similar factors influence the
three cases. =oever, their degree of influence as different in every particular case.
,or instance, the competitive intensity factor as decisive in to of our cases, )pain
and Ne Dealand, but its influence affected each country in a different ay. %n the
)pain case, competitive intensity as high and led )tarbucks to choose a "oint venture
as its entry mode. %n Ne Dealand, )tarbucks selected licensing, influenced by a lo
competitive intensity together ith other relevant factors such as the global
management re'uirement.
)tarbucks carried out different entry modes because situations in the three cases ere
not the same. %n the )pain case, )tarbucks chose "oint venture as the entry mode
oing to three main reasons. ,irst, the company needed a partner ho provides it
country specific knoledge. 7esides, the coffee company sought to share financial
resources and risk oing to its financial policy and that the company as immersed in
an ambitious international development program. ;astly, the coffee company had to
control its operations directly because the )panish market had high potential ith high
competitive intensity. %n the Cnited 6ingdom case, the company decided to use a
holly-oned subsidiary as the cultural distance there as great, and there as a high
degree of competitive intensity. 7esides, the coffee company as influenced by speed
and characteristics of the overseas country business environment. ,inally, the reasons
for choosing licensing in Ne Dealand ere the folloings! )tarbucks lacked
knoledge about the country and needed a local partner to help the company to
operate. ,urthermore, the decision as influenced by management attitudes of
minimi$ing its international investment. %t is also because of the global management
re'uirement that the company had limited available resources to enter into Ne
Dealand. ;astly, )tarbucks# decision as influenced by a lo competitive intensity.
%n short, )tarbucks carried out different entry modes in )pain, Ne Dealand and the
Cnited 6ingdom because it anted to adapt to the specific circumstances of each
country. %n three countries, the external and internal factors, as ell as their degree of
influence, ere not the same. &s )tarbucks anted to avoid difficulties during its
expansion and as aare of the long-implications of entry mode decision, the
company preferred to seek the most suitable entry mode in each case.
CHAPTER <: CONCLUSION AND RECOMMENDATION
<.1. CONCLUSION
The main purpose of our research as to kno hy an MNC such as )tarbucks used
different entry modes, and hat factors have influenced their entry mode decisions.
To obtain findings! first, based on our literature revie, e developed a set of possible
influential factors affecting the entry mode decision in our conceptual frameork.
Then e collected our empirical data from different sources. ,inally, e analy$ed and
contrasted our three cases in order to determine similarities and differences beteen
them.
%n our first research 'uestion! QWhat factors affected )tarbucks# entry mode decisionsR,
e obtained the folloing findings! ,irst, entry mode decision is influenced by a
number of factors. ,actors hich influenced entry mode decisions can be related to
either internal or to external environment of MNC. %n our case, e have found that
internal factors that have affected )tarbucks# choice of entry modes are! culture
distance, market potential and competition intensity. (n the other hand, relevant
external factors are! characteristic of overseas country business environment, resource
commitment, speed, management risk attitudes, and global management re'uirement.
7oth sets of factors are relevant in entry mode decisions, but the
external factors are often decisive in devising the choice of international strategy.
,urthermore, internal and external factors can influence
companies# internationali$ation strategies to different degrees. ,actors that influence
entry mode
decisions can be different in each case< not alays is an entry mode decision
influenced by the same factors. 9ven, some factors can affect other as it happened in
Ne Dealand and )pain case ith firms si$e, resource commitment and global
management efficiency re'uirement factors. )tarbucks as a big company ith high
experience and resources hen internationali$ed in both countries. =oever, the
company had to limit and rationali$e their resource and to reduce its entry mode
options to fulfill its ambitious internationali$ation plan. ;ast but not least, there are
several factors hich influence choice of international strategy, but one or to factors
are often crucial in the decision. Those factors are often external factors.
The results of our second research 'uestion QWhich entry mode strategies did
)tarbucks use in foreign markets and hy+R! We sho that )tarbucks used three
different international strategies! "oint-venture, holly-oned subsidiary and licensing.
(ur findings have determined that the reason for using three different strategies is
that )tarbucks seeks to adapt to different local needs, re'uirements and influential
factors in every country. %t means that the cause of using different entry modes is
mainly oing to external factors.
%n summary, e can conclude by saying our investigation shos that entry mode
strategy is an important decision in the internationali$ation process of )tarbucks. The
choice of international strategy has long-term implications for the company.
Therefore, managers needed to analy$e every influential factor thoroughly in the
internationali$ation process prior to make entry mode choice.
<.2. RECOMMENDATION
(ur study has shon that internal and external factors influenced the choice of entry
mode for )tarbucks. Moreover, e have determined that external factors are often
the most decisive ones.
&s for the firm, it is significant to analy$e the external factors first-hand. Then to
choose the suitable ay of entry among possible entry modes is to find the most
effective and efficient ay for the company#s international expansion.
&s for )tarbucks, each mode of entry for the three cases as a good choice for the
short-term or early stage entry. &s part of a long-run strategy, it is critical that
)tarbucks chooses stable entry mode strategies in order to stand still in the highly
competitive market situation.