Joint Venture and Starbucks

Topics: Joint venture, China, Coffee Pages: 5 (1747 words) Published: April 29, 2008
After becoming the leading coffeehouse in America, Schultz took Starbucks into international markets. Starbucks had three objectives: to prevent competitors from getting a head start, to build upon the growing desire for Western brands, and to take advantage of higher coffee consumption rates in different countries (7). In opening coffeehouses abroad, Starbucks established joint ventures, selecting local business partners to help recruit talented individuals, set up supplier relationships, and understand market conditions. Attributes of each partner include shared values and corporate culture, strong retail experience, dedicated human resources, commitment to customer service, creativity, local knowledge, brand building skills, and strong financial resources (8). The chosen partner is granted the right to develop and operate coffeehouses throughout a defined region. Asia was targeted first. By choosing a region in which there was not a strong base of coffee drinkers, Starbucks had a first-mover advantage and the opportunity to create a new perception of coffee, as it had in the United States. Schultz explained, “The maturity of the coffee market in Europe was very strong and was not going to change much over the years. The Asian market was in its developmental stage and we had an opportunity to position Starbucks as a leader in a new industry, and in a sense, educate a market about the quality of coffee, the experience, and the idea of Starbucks becoming the third place between home and work in those countries (9).” Starbucks chose President Group as its local partner to expand into the vast Chinese region, splitting it into four markets: Taiwan, Shanghai, Beijing, and Southern China. The people of Taiwan enjoyed their first cup of Starbucks coffee on the island in 1998. Two years later, the people of mainland China shared in this experience with the opening in Shanghai (10). Well-known to multinational corporations (MNCs) is the ‘One Face to China’ principle in which foreign companies reconcile their company goals with the goals of their host country. Since Deng Xiaoping’s Open Door Policy began in the early 1980s, China has experienced a foreign growth average increase of 15% annually. In 2002, China surpassed the United States to become the largest recipient of foreign direct investments in the world, attracting $53.2 billion in investments. Commensurate with China’s goal of incorporating capitalism into its economy and garnering massive investments in its resources is Starbucks’ desire to expand into the Chinese market. Starbucks’ goal of establishing a firm presence as the premier coffee business in China has the company pouring millions into Chinese companies, resources, real-estate, and taxes. There are three phases involved when a foreign company begins to execute its long- or short-term presence in international markets. The first phase begins with Entry, during which MNCs determine the right business model to use and establish a presence in the foreign country. The second phase is Country Development, and MNCs develop their market by expanding to several localities, and build brand awareness with customers based on knowledge and research conducted during the Entry period. The final phase, Global Integration, seeks to align the foreign companies with the management and goals of the parent company. By expanding into China in these three phases, Starbucks has successfully presented ‘One Face to China.’ Phase One – Entry

In 1994, to first establish its presence in China during Entry, Starbucks’ then- executive Lawrence Maltz distributed free cups of Starbucks coffee to Beijing hotel guests. Seeing there was significant interest from both foreigners familiar with the Starbucks brand and Chinese eager to participate in this element of Western culture, Starbucks began to research the Chinese environment. Finding it amenable to the coffee business, Starbucks pursued the China market. Building the brand in the host...
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