GLOBALIZATION AND STARBUCKS COFFEE
1. According to the text, there are three levels that political risk encompasses. And they are firm specific, country specific and global specific risks. Starbucks is considered a thriving global enterprise. Although Starbucks has successfully entered, penetrated, and saturated many global markets, not all attempts have been successful. Starting in 1996, Starbucks has hastily moved into 41 countries fruitfully. However, Starbucks had to pull out of Israel market after opening only 6 stores. According to our research (Richey, Brenda, July 2006), the following will describe Starbucks unsuccessful venture into Israel; the four main contributors to Starbucks failure in Israel: politics, location, pricing, lack of localization; and conclusions for future expansion.
Assessing the political stability of a country is only a first step. The real objective is to anticipate the effect of political changes on activities of a specific firm. Clearly, different foreign firms operating within the same country may have very different degrees of vulnerability to changes in host-country policy or regulations. The firm-specific risks that confront MNEs include business risk, foreign exchange risk and governance risks.
Starbucks attempted to enter the coffee penetrated market of Tel Aviv, instead of focusing on some of the less established areas. Also, they did not do their typical saturation arrival. They placed only six coffee shops into a market that already contained the chains of Arcaffe, Aroma, Ilan’s, and neighborhood shops. From their perspective, one can see how caution might have been a good decision factor, yet they have a proven success rate at how they establish locations. Chief Financial Officer, Michael Casey, says tough competition is the problem.
Political risk studies usually include an analysis of the historical stability of the country in question, evidence of present turmoil or dissatisfaction, indications of economic stability, and trends in cultural and religious activities. Analysis of trends in these metrics leads many to speculate that the future will resemble the past, which is often not the case. Despite this difficulty, the MNE must conduct adequate analysis in preparation for the unknown. Country-specific risks include:
Transfer Risk – limitations on the ability to transfer funds out of the country.
Cultural and Institutional Risk – includes difference in allowable ownership structure, differences in human resource norms regarding labor laws and union contracts, differences in religious heritage, nepotism and corruption in the host country and intellectual property rights.
The business environment in Israel, much like China, would not allow for Starbucks to be complete owners of their stores. They either had to franchise or enter into a joint venture. Since Starbucks is against any form of franchising, they chose to enter in a business venture with Delek Group. This is not a new concept for Starbucks; they typically enter into most international ventures in the same manner. The difference was in the political environment. Numerous countries, including Israel, have large activist populations that do not support globalization. The Muslim and Jewish religions present in Israel promote conservatism. They do not like western society’s consumerism, liberalism, and free trade. To Israelis, Starbucks seems to be symbolic of the problems caused by globalization. These countries believe that Americans are trying to force their culture, beliefs, and morals onto the developing countries they enter. Also, many Israelis and Palestinians resent Americans for getting involved in their civil war. To make matters worse, Howard Schultz involved himself by speaking politically about the situation in Israel. He spoke to an audience at a synagogue in Seattle, “asserting that the Palestinians needed to...
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