PART 1 Globalization
hirty years ago Starbucks was a single store in Seattle’s Pike Place Market selling premium roasted coffee. Today it is a global roaster and retailer of coffee with more than 7,600 retail stores, some 2,000 of which are to be found in 34 countries outside the United States. Starbucks Corporation set out on its current course in the 1980s when the company’s director of marketing, Howard
Schultz, came back from a trip to Italy enchanted with the Italian coffeehouse experience. Schultz, who later became CEO, persuaded the company’s owners to experiment with the coffeehouse format—and the Starbucks experience was born. The basic strategy was to sell the company’s own premium roasted coffee, along with freshly brewed espresso-style coffee beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting. The company also stressed providing superior customer service. Reasoning that motivated employees provide the best customer service, Starbucks executives devoted much attention to employee hiring and training programs and progressive compensation policies that gave even part-time employees stock option grants and medical benefits. The formula met with spectacular success in the United States, where Starbucks went from obscurity to one of the best known brands in the country in a decade. In 1995, with almost 700 stores across the United States, Starbucks began exploring foreign opportunities. The company established a joint venture with a Japanese retailer, Sazaby Inc. Each company held a 50 percent stake in the venture, Starbucks Coffee of Japan. Starbucks initially invested $10 million in this venture, its first foreign direct investment. The Star-
Photo by NASA.
O P E N I N G C A S E
bucks format was then licensed to the venture, which was charged with responsibility for growing Starbucks’ presence in Japan. To make sure the Japanese operations replicated the North American “Starbucks experience,” Starbucks transferred some employees to the Japanese operation. All Japanese store managers and employees were required to attend training classes similar to those given to U.S. employees. Stores also had to adhere to some basic design parameters established in the United States. In 2001, the company introduced a stock option plan for all Japanese employees, making it the first company in Japan to do so. Skeptics doubted that Starbucks would be able to replicate its North American success overseas, but by early 2004 Starbucks had more than 500 stores in Japan, and the Japanese unit was predicted to make a healthy profit for the year. After getting its feet wet in Japan, the company embarked on an aggressive foreign investment program. In 1998, it purchased Seattle Coffee, a British coffee chain with 60 retail stores, for $84 million. An American couple, originally from Seattle, had started Seattle Coffee with the intention of establishing a Starbucks-like chain in Britain. Also in the late 1990s, Starbucks opened stores throughout Asia including Taiwan, China, Singapore, Thailand, South Korea, and Malaysia. By the end of 2002, with more than 1,200 stores in 27 countries outside of North America, Starbucks initiated aggressive expansion plans in continental Europe. The company’s target was to open some 650 stores in six European countries, including the coffee cultures of France and Italy, by 2005. As in Japan, much of Starbucks’ international expansion has been undertaken with local joint-venture partners, to which the company licenses the Starbucks’ format (the United
Kingdom is an exception). The partners bring local expertise about the product mix, locations, marketing strategy, and store layout. In general, Starbucks transfers only small numbers of Americans to international markets, preferring foreign operations to be run by local managers who...