- CASE STUDY 1 -
1. Analyst felt that MNCs can mitigate some of the risks in international markets by deciding on a suitable mode of entry into these markets. Analyze the entry strategies adopted by Starbucks for its international expansion.
ANSWER: Starbucks noticed that different socio-economic-cultural environments require different entry mode strategy. Combining 2-3 or more of the known internationalizing strategies is useful because the risk is divided and minimized without affecting negatively the results. When the present company or any other decides to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them.
Starbucks chose the most complex forms of entry strategies so that it could have as much control as possible and retrieve all the gains.
Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". Joint ventures are a more extensive form of participation than either exporting or licensing. Joint ventures give the following advantages:
- Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process - Joint financial strength
- May be only means of entry and
- May be the source of supply for a third country. They also have disadvantages:
- Partners do not have full control of management - May be impossible to recover capital if need be - Disagreement on third party markets to serve - Partners may have different views on expected benefits - Cultural clashes and
- How and when to terminate the relationship. Such alliances are favorable when the partners’ size, market power and resources are small compared to the industry leader and when the partners’ strategic goals converge. Starbucks chose a joint venture with Sazaby’s Inc. when entered Japan (the leading competitor). It was successful because Starbucks understand the trend that Japanese young imitate the Americans’ life style and the coffee shops were identical with those from Seattle and didn’t adapt to local customs. Therefore, Starbucks was perceived as an innovation, as something new, not as another espresso bar. Marketing also products with rice and specific local eating habits helped because Japanese didn’t felt like the company was trying to overcome their strong national culture. on the contrary, Starbucks managed to integrate into a very complex society with strong beliefs and to acquire national symbols while preserving its national core characteristics. Furthermore, Starbucks chose wholly owned subsidiary when expanding into Europe because it is a much more difficult market to control due to its strong coffee drinking culture. It is the most extensive form of participation is 100% ownership and involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option. Instead, it is likely when cultural differences are not so important, there is a high sale potential, a low political risk or significant import barriers. As advantages we must notice the greater knowledge of local market, greater control, employees able to understand the specific culture. On the other side, it presents high risk, requires more resources and commitment and sometimes may be difficult to manage. Because Europeans have strong coffee drinking habits, Starbucks decided to target only the young as a modern, fancy...