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Globalization and Innovation project

Starbucks

Student : Cojocari Dina


Teacher : Mircea Draghici

Starbucks Corporation is a global coffee company and coffee house


chain based in
Seattle, Washington. Starbucks is the largest coffee house company in
the world, with
more than 17600 stores in 61 countries including United States, Canada,
Japan,
United Kingdom, China, South Korea, Mexico, Taiwan, Philippines,
Thailand and
India.
Starbucks opened its first store in Seattles Pike market place on March
30, 1971 by
three partners Jerry Baldwin, Zev Siegl and Gordon Bowker. During the
1980s total
sales of coffee in the USA were falling, but sales of specialty coffee
increased,
forming 10% of the market in 1989, compared to 3% in 1983. By 1986
the company
had 6 stores in Seattle and had only just begun to sell espresso coffee.
In 1987, the original owners sold the Starbucks chain to Schultz who
rebranded some
of his own Il Giornale coffee outlets as Starbucks' and quickly began to
expand. In the
same year, Starbucks opened its first locations outside Seattle at
Waterfront Station in
Vancouver, British Columbia, and Chicago, Illinois. By 1989 there were 46
stores
across the Northwest and Midwest in 1989 and Starbucks was roasting
over 2,000,000
pounds (910,000 kg) of coffee a year. At the time of its initial public
offering on the
stock market in June 1992, Starbucks had grown to 140 outlets and had a
revenue of
$73.5m, up from $1.3m in 1987. Its market value was $271m. The 12%
portion of the
company sold raised the company around $25m which would help it
double the
number of stores over the next two years. By September 1992, the share
price had
risen 70% to over 100 times the earnings per share of the previous year.
As of
December 2012, Starbucks is present in 61 countries including India.

Starbucks- Target Segment


Starbucks has a very diverse target market. The segments will vary
based on the
different products Starbucks offers, but generally speaking, they can be
classified as
follows:
Coffee drinkers opting premium quality coffee
Age 18-60
People living in large cities
University students and faculties
Professionals, managers and executives
Relatively high income group
People for whom customer service is more important
Starbucks offers its customers a third world other than office and home

At a very basic level, corporate culture is the personality of an


organization or simply
how things are done around there. However, in a broader sense it refers
to 'the moral,
social and behavioral norms of an organization based on the beliefs,
attitudes and
priorities of its members.' It determines how employees think, act and
feel.
Starbucks Culture
While Starbucks enforces almost fanatical standards about coffee quality
and service,
the policy at Starbucks towards employees is laid-back and supportive.
They are
encouraged to think of themselves as partners in the business. Schultz
believes that
happy employees are the key to competitiveness and growth.
Starbucks Coffee Company grew from a small, regional business into the
undisputed
leader in the specialty coffee industry by buying only the best quality
coffee and
providing an unmatched store experience. Starbucks strives to provide
customers with
a special and theatrical experience in a comfortable and inviting
environment when
buying their coffee beverage. This is referred to as The Starbucks
Experience.

Mission Statement:
To inspire and nurture the human spirit one person, one cup and one
neighborhood
at a time
Below listed are the principles of how Starbucks live with its mission
every day.
They provide due consideration to their Coffee, their Partners
(employees), their
Customers, their Stores, their Neighborhood and their Shareholders.
Starbucks is a very successful company who made their fortunes by
levering off their
know how and horizontally foreign direct investing in overseas markets
within their
industry.
Starbucks did not have a product to export so to speak, however they did
have
expertise in the service industry which was selling coffee, cakes and
providing an
environment for people to meet.
Starbucks realized that their know how could not be easily transported
or even
packaged to sell to overseas markets, this is why Starbucks decided to
take advantage
of horizontal foreign direct investment (FDI) and hence getting involved
personally
with entrepreneurs in overseas markets interested in business similar to
Starbucks.
The star bucks know how could possibly be licensed however licensing
might mean,
know how could be deliberately changed or interpreted in a variety of
ways
differently to how it was meant to be applied. If know how were to be
changed or
interpreted differently, it might mean Starbucks strong trade mark values
in which
Starbuck was built on could be at risk essentially devaluing to business.
Tight control
over the foreign operations would be required to maintain the processes
for which
Starbucks was known, including the licensing of products and processes.
To expand Starbucks and continue the successful growth experienced in
the home

land Starbucks decided to enter overseas markets via horizontal FDI and
minimise as
much financial risk as possible using licensing (with an option to joint
venture) as the
tool to control and distribute their know how. Starbucks would further
secure their
interests and intellectual knowledge by selectively doing business with
but a few
businesses when first entering a new country and strategically
incorporating options
into their business contracts which provided Starbucks with timely
choices to convert
licensing arrangements to joint venture. I believe the triggers to convert
to joint
venture were designed around Starbucks requirement to quickly increase
control over
a business should the business not perform or might perform better with
tighter
control over the format. Another reason might be if Starbucks developed
enough
experience and knowledge about the country, city and business to see
the new
business is going to succeed, hence financial risks suddenly became
minimal and
could be further reduced and profits accelerated if tighter controls of the
format were
in place.
At this point of the business venture Starbucks would convert to their
licensing
arrange to joint venture. Later in the cycle of the overseas business
development, if
the business proves to be a safe and very profitable or could be more
profitable if
there were further control over the format, Starbucks would acquire the
business. This was proven to be a safe intelligent choice, strategically
placed after the
business is developed and operating consistently well with foreseeable
growth for the
business and other Starbucks businesses in the country, at this point risks
were
minimized to an optimal level and finance could be gathered from
financial
institutions with much less constraint.

Historically Starbucks expanded internationally initially by licensing but


usually
became disenchanted as the control was just not available through
licensing and tight
control was required for the businesses to be successful. Starbucks
became successful
because of its winning service strategy which only works well when all
stores are
operating in the same format. If a customer enters an overseas store
expecting the
coffee and service to be of particular standard and familiarity, and the
customers
experience its different to what was expected, the ramifications are that
the customer
may not return. This is why control over the news stores was and is so
important to
the success of Starbucks overseas operations, customers travelling
abroad are looking
for familiarity and local customers are looking for affordable quality and
pleasant
experiences.
There are many advantages to joint ventures which include shared
resources, access to
intellectual property, access to markets and limited control over business
operations. Even though there is limited control over business operation
with joint
venture there is more control than that of a licensing arrangement and
less control
than a wholly owned subsidiary. Having said this knowing Starbucks
needed the
most control why didnt they go straight for the wholly owned subsidiary?
The
reason was Starbucks wanted to hedge their bets and minimize as much
risk as
possible entering a foreign land so if things turned crazy they could exit
and cut their
losses which would be minimal.
Market imperfections theory (internalization) best explains Starbucks
approach.
Starbucks wants to maintain product quality and brand identity (the
Starbucks
experience) across a wide range of cultures, taste preferences, work
habits and ways
of doing business.

STARBUCKS GLOBALIZATION AND INNOVATION


The Seattle based company is on a global tear, after building itself into
the worlds
largest coffee-shop chain. Through decades of growth in the United
States, Starbucks
is planning for its future expansion on other countries, with nearly 11,000
stores in the
US and fewer than 7000 in other countries. For now it garners at least
20% from
international markets, with more prospects to restructure and get half of
its revenue
from outside US.

Starbucks Success
Though the U.S. economy was wobbling under recession and many retail
majors were
reporting losses and applying for bankruptcy, Starbucks announced a
31% increase in
its net earnings and a 23% increase in sales for the first quarter of 2003.
The quality
product spoke for itself and the fact that Starbucks spent less than 1% of
its sales on
advertising and marketing strengthened this view. In addition to be a
popular brand
among customers, Starbucks was also considered the best place to work
due to its
employee friendly policies.

Key Strategies
Starbucks has been extremely successful to date. It has been able to
change a regular
cup of coffee to an experience beyond the coffee itself. In order to do this,
and do this
well, Starbucks has pursued many different strategic actions. All of these
actions can
be categorized into the following broad categories.
Horizontal Integration: Starbucks has used this strategy to control its
competition
and reach new customers. It has used the acquisition of Seattles Best,
Torrefazione
Italia and Coffee People to accomplish this.
Market Penetration: This strategy has been used to increase the
market share of
products that are currently offered.

Starbucks has focused heavily on developing the quality everyday


experience and
differentiation of the experience as a third place to enjoy its products. It
has also
sought to expand the methods of grocery stores and formed alliances
with SYSCO,
PepsiCo., and Kraft Foods to distribute products to grocery stores and
other food
retailers.
Market Development: Starbucks developed the specialty coffee market
in U.S. by
educating the American consumer and essentially transformed a
commodity into a
specialty item that people are willing to pay for. The company has
developed this
market from scratch and continues to as it expands into international
markets.

Starbucks New Growth Strategy

More Revenue with Lower

costs

The new focus is on:


Expanding the number of foreign stores, which Starbucks often opens
with business
partners who share the cost and risk.
Introducing new Starbucks products like via instant coffee in grocery
and
convenience stores all over the world.
Reinvigorating Seattle's Best Coffee, a secondary brand that for years
was an
afterthought.

Issues faced and tackled in different countries:


Typically, a firm operating internationally is exposed to different types of
risk.
These can be listed as environmental, financial, organizational, or
strategic risks. Let
us see what issues Starbucks faced in some countries and how it got rid
of those issues.

Japan:
The Japanese are noted for admiring and adopting American products and
trends such
as blue jeans and Coca-Cola. Critics warned that the Japanese would
never buy takeout
coffee or accept the interior non-smoking policy. Starbucks proved them
wrong.
Some 30% of it customers drink take-out coffee in those throwaway cups.
France:
Starbucks had to deal with an initial lack of acceptance from Frances
historic caf
culture, with older consumers frowning on a big U.S. coffee house chain
with
standardized disposable cups. Younger coffee drinkers in France joined
American
tourists in Paris to embrace such favorites as Starbucks Caramel Coffee.
China:
The company is aggressively expanding in China where Chinese
traditionally prefer
tea. Key to success in China is coffee houses that empower Chinas
emerging middle
class to publicly display their new lifestyles and status while keeping
Starbucks
beverages as affordable luxuries.
England:
This is the second biggest overseas market for Starbucks. Tackling
imitators aiming at
reducing market share of Starbucks was a big problem.
Italy:
Since, Italy is having many coffee bars, Local pricing and popularity of
local brands
was a big competition. Starbucks also had to address the demand on the
culture of
serving food with coffee.

Indian Entry
Starbucks Strategy towards Indian Market:
Starbucks has finally reached the "Jewel in the Crown."
The coffee giant, in a partnership with Tata Global Beverages, opened its
first store in
Mumbai, India amidst "pomp and tempered ambition.

But why did it take so much time for one of the world's largest food
chains to reach
the world's second largest country and Asia's third largest economy?
There's one big problem most people in India aren't drinking coffee
(only about
80g per capita, according to the International Coffee Organization,
compared to 4.11
kg in the US or 3.04 kg in the UK).
Instead, tea is king in India. It has been consumed for thousands of
years, and is still
a staple of the Indian palette. The tea industry itself is also one of the
strongest drivers
of its economy it accounts for 31 percent of the global production and
generates
income for millions of people in the country.
So Starbucks, a company known for selling coffee, must promote its
brand in a
country that prefers an alternative beverage. Starbucks does offer tea in
its store, but
not the same type (nor quality) that one can get in a traditional Indian
setting. And
although coffee consumption in India has doubled, according to
Bloomberg, a
growing demand for coffee does not ensure success for Starbucks.
So in order to accommodate the differing tastes of the Indian population,
the new
menu has over 42 items, which "reflect local as well as Western tastes,
featuring
items such as Elaichi Mawa croissants made with cardamom and milk
solids and
tandoori paneer rolls," according to the Associated Press.
But people don't just come to Starbucks for a coffee. The coffeehouse
culture is just as
much a factor in Starbucks' rapid growth as the product it sells. And, as
the AP notes,
"India is full of young people looking for an unintimidating place to hang
out, away
from the prying eyes and cramped quarters of home."
The new store is a "4,000-square-foot, two-level extravaganza filled with
metal trunks,
bright curtains and other Indian cornucopia." "It's the most elegant,
beautiful,
dynamic store we've opened in our history," Shultz said.