Internationalisation of Starbucks

Topics: Strategic management, Vertical integration, Horizontal integration Pages: 3 (1035 words) Published: November 11, 2007
No less than 25 years ago, Harold Schultz joined a small American chain of coffee shops in Seattle as the director of retail and operations (Starbucks). Since then, Schultz's vision has transformed Starbucks into a transnational giant on a scale similar to the international growth experienced by McDonalds. By the end of 2006 the firm had a total 12,400 stores across 37 different countries (Starbucks 2006). In this essay I will explore the academic literature on international business and apply it to the case of Starbucks. I will conclude with a summary of the motivating economic factors that led to the expansion of Starbucks into foreign markets. The application of the academic literature to the Starbucks case does invariably lead to a degree of bias towards some theories over others for reasons that are specific to the Starbucks case. Hill (1997) emphasises three motivations for global expansion; greater returns from core competencies, location specific advantages and experience curve economies. In the Starbucks case, only the first of these three is a valid motivation for multinational expansion. Experience and location economies are primarily concerned with cost economies derived from minimising manufacturing costs, vertical internalisation and overcoming transactional market imperfections. In the Starbucks case however I am primarily concerned with the utilisation of Starbucks' intangible core competencies and the horizontal expansion of multiple retail outlets into foreign markets where structural market imperfections exist. To some extent, Starbucks is already vertically integrated across national borders with significant bargaining power downstream in the value chain over farms, coffee mills and coffee exporters in countries such as Guatemala, Costa-Rica and Indonesia (Carolis research). Vertical integration was the second objective in Starbucks 7-part strategy outlined in its IPO prospectus in 1991. Although the firm does not directly control these input...
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