Case Study Analysis

Students are to answer the following question:

You will prepare a Case Study Research Review on: “Starbucks Global Strategy”

You need to address the following:

1. Executive summary and background

2. What are the risks that a company faces when going for international expansion? Identify and explain the risks.

3. Identify & critically analyse the strategies used by Starbucks for its international expansion in most countries?

4. What were the key challenges faced by Starbucks in Australia? What mistakes did Starbucks made in Australia? What are the types of risk that Starbucks faced in Australia?

5. Provide ways that Starbucks used to mitigate the risk and enhance Starbucks chances of success in Australia.

6. Conclusion, References and writing skills.

Your answer(s) MUST include the following:

1. Executive Summary

2. Case Background

3. Case Study Research Review

4. Problem Identification

5. Recommendations & Discussion

6. Conclusion

7. References: You must include a minimum of 12 references

8. Appendix: you must include tables/figures where required based on your research

To be completed after reading the case study below. You will also need to do further research and find additional resources to complete your Case Study Research Review.

Starbucks GLOBAL STRATEGY

American coffee company and coffee house chain. Starbucks was founded in Seattle, Washington in 1971. Today it operates 23,768 locations worldwide, including 13,107 (+170) in the United States, 2,204 (+86) in China, 1,418 (-12) in Canada, 1,160 (+2) in Japan and 872 in South Korea (bumping United Kingdom from 5th place) (Differences reflect growth since Jan 8, 2016). Starbucks is considered the main representative of "second wave coffee", initially distinguishing itself from other coffee-serving venues in the US by taste, quality, and customer experience, while popularizing darkly roasted coffee. Since the 2000s, third wave coffee makers have targeted quality-minded coffee drinkers with hand-made coffee based on lighter roasts, while Starbucks nowadays used automated espresso machines for efficiency and safety reasons.

Starbucks locations serve hot and cold drinks, whole-bean coffee, micro-ground instant coffee known as VIA, espresso, caffe latte, full- and loose-leaf teas including: Teavana tea products, Evolution Fresh juices, Frappuccino beverages, pastries, and snacks; some offerings (including their Pumpkin Spice Latte) are seasonal or specific to the locality of the store. Many stores sell pre-packaged food items, hot and cold sandwiches, and drinkware including mugs and tumblers; select "Starbucks Evenings" locations offer beer, wine, and appetizers. Starbucks-brand coffee, ice cream, and bottled cold coffee drinks are also sold at grocery stores.

Starbucks first became profitable in Seattle in the early 1980s, and despite an initial economic downturn with its expansion into the Midwest and British Columbia in the late 1980s, the company experienced revitalized prosperity with its entry into California in the early 1990s. The first Starbucks location outside North America opened in Tokyo in 1996; overseas properties now constitute almost one-third of its stores. The company had opened an average of two new locations daily between 1987 and 2007.

Starbucks Coffee International, Inc. purchases, roasts and sells whole bean coffees, brewed coffees, Italian-style espresso beverages, and cold blended beverages. The company markets its products through more than 15,000 stores in North America, Europe, the Middle East, and Asia and the Pacific Rim among other regions. The company was founded and is based in Seattle, Washington. As of 2008 Starbucks operates in 44 countries. Starbucks Coffee International operates as a subsidiary of Starbucks Coffee Company. Starbucks diversified its business. Starbucks now offers compact discs, books, and other lifestyle products. In addition, they have created several strategic alliances with food manufacturers both domestic and abroad

Company History

In 1971 the first Starbucks store was opened in Seattle’s Pica Place Market by Jerry Baldwin, an English teacher, Zev Siegel, a history teacher and the writer Gordon Bowker. In 1982 Howard Schultz joined the company as a director of retail operations and marketing. He saw potential in Starbucks and started to build up a coffee house culture in Seattle. In 1984 Starbucks enlarged its product mix, adding coffee specialties like different kinds of Cafe Lattes and espresso beverages. In 1985 Howard Schultz left the company and set up his own Coffee Bar. Shortly after, Starbucks began losing money on its expansion efforts. Howard Schultz purchased the struggling company in 1984. He then combined Starbucks with the firm’s name to Starbucks Corporation. New and experienced managers were hired and successfully turned around the business. By 1991 Starbucks was doing well enough to offer stock options to all of their employees.

Expansion

In 1992 Starbucks once again began expansion efforts. This time Starbucks set up coffee shops in department stores and bookstores and provided coffee to Sheraton Hotels. By the end of 1993 Starbucks had opened a new roasting plant and the number of stores locations neared 275. Starbucks began operating internationally in 1996. Their first international venture was opening a Starbucks in Tokyo. In the same year, Starbucks began operating an online coffee shop called Caffe Starbucks. This venture, in particular, was ahead of its time and not necessarily as successful as other ventures Starbucks was involved in. However, Starbucks kept on expanding in domestic areas like Florida, Michigan, and Wisconsin and further internationally even opening a store in the Philippines in 1997. In the next year, Starbucks opened several stores in Thailand, Taiwan, New Zealand, and Malaysia and in the UK. Starbucks entrance into the United Kingdom was markedly different. There they acquired an existing firm, “Seattle Coffee Company”, and used the existing stores to transition into the market. In the same year, Starbucks expanded its brand name into several different grocery market chains and convenience stores. Domestically, they focused on entering new states like Louisiana, Oregon, Kansas, and Missouri. With business booming, the company continued expansion internationally and domestically. Between 1999 and 2002 Starbucks began operations in over 15 nations. After 2002, Japan had over 300 Starbucks cafes, and there were over 5,886 shops worldwide. As of 2008, there are at least 15,756 Starbucks cafes and licensed stores in operation.

Beyond this, one of the biggest benefits of operating globally with a local presence is the opportunity it provides to develop a deeper understanding of the markets in which your company operates and their potential. It enables you to prioritize and optimize your efforts and budgets effectively. And last but not least, it gives you as many territories to test and learn from. For each campaign or activity, you run, you will gather feedback and suggestions from a range of markets. This is invaluable insight you can leverage by developing a repository of best practice and ideas which will help drive your long-term success.

Some of the methods Starbucks has used to expand and maintain their dominant market position, including buying out competitors' leases, intentionally operating at a loss, and clustering several locations in a small geographical area (i.e., saturating the market), have been labelled anti-competitive by critics. For example, Starbucks fuelled its initial expansion into the UK market with a buyout of Seattle Coffee Company, but then used its capital and influence to obtain prime locations, some of which operated at a financial loss. Critics claimed this was an unfair attempt to drive out small, independent competitors, who could not afford to pay inflated prices for the premium real estate.

Vision Statement

Starbucks Coffee does not readily present its vision statement. However, a careful reading of the company’s website reveals that its vision statement is “to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” This vision statement has the following components relevant to Starbucks:

1. Premier purveyance

2. Finest coffee in the world

3. Uncompromising principles

4. Growth

Problems with International Expansion

Not all challenges faced by companies seeking to expand internationally are so tangible in nature. When negotiating a path through new and unfamiliar markets, cultural considerations can all too often be underestimated or swept under the carpet as an afterthought. In actual fact, managing the cultural implications of international expansion is a non-negotiable ingredient for its success. Companies that get to grips with cross-cultural communication are the best placed to use shared information and experience to enhance their competitive position at home and abroad.

They are also far better equipped to deliver their long-term business objectives. It’s important to appreciate and assimilate the subtle differences in verbal and non-verbal communication across cultures. And language is perhaps the least of the cultural obstacles that international managers can face. If misconstrued, even barely perceptible nuances of gesture, eye contact, tone, and humour have the potential to offend, and can even derail projects if not dealt with swiftly.

Business cultures themselves can also vary widely, with significant deviations among countries on attitudes to challenging authority, resolving conflicts and even working with members of the opposite sex fluctuating significantly between countries. This is where strong, sensitive and flexible leadership from the management team can be invaluable for keeping things on track. With multi-cultural businesses fast becoming the rule, rather than the exception, managers are increasingly recognizing the value of working with the diversity of a cross-border team to create mutual trust, recognizing that the creativity engendered by a multi-cultural team can lead to more rounded decisions and more effective plus productive performance.

Lack of understanding local culture is even more evident in Starbucks entry into Australia. When Starbucks penetrated the Australian coffee market in 2000, the company approached the Endeavor with great ambition. Not only did they build stores in major cities like Sydney and Melbourne, but they also set up stores in less populated communities that occupy the coastal regions of the country. By 2008, they had established 85 stores. All the stores were internally structured and operated the same as they do in the United States. Essentially, they attempted to infiltrate the Australian coffee market by establishing their presence within the market relative to their presence in the US and other international markets.

The Australians were not impressed by the Starbucks coffee culture. Starbucks had been successful all around the world, but some people did not want to buy coffee from the corporate giant. Those who had tried Starbucks were not impressed by the product. Consumers said it did not compare with the numerous local brews available which were largely better. Starbucks International failed to pay attention to the Australian’s passionate coffee preferences and culture.