Starbucks in China Case Study

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Case- Starbucks in China
Group 11
21-10-2012

Q1) Do you think Starbucks is a global company? Why or why not?

Starbucks is one of the largest coffee shop chains in the world. In 2005 it was the leading coffeehouse retailer in the world with operations in 34 countries outside the US, counting 10.241 coffeehouses. Starbucks began its international expansion with Japan in 1995. We think Starbucks is a global company. Throughout the answer we will use Starbucks’ value chain activities to explain why Starbucks can be considered a global company. Global companies source their raw materials and outsource manufacturing of their products to many countries to take advantage of lower costs or high quality production, and/or lower costs of transportation. Starbucks’ coffee beans are taken from Central America, Africa and Indonesia where there are high quality coffee beans’ suppliers; subsequently they are roasted at company facilities in the USA and in the Netherlands. The facility in the Netherlands is used for distributing the products to the European Market, due to its strategic location with respect to transportation. Global companies establish worldwide networks of stores and offices to be near to their customers in foreign markets or locate marketing subsidiaries in order to target their customers effectively. When Schultz purchased Starbucks, the company began its aggressive internationalization strategy in foreign markets mostly with joint ventures and licensing, there were also some directly operated coffee shops. Starbucks demanded local market knowledge from local partners in order to more efficiently market their products in the targeted country. The sales offering of Starbucks resembles that what someone can expect from a global company. For example, menu offering was standardized although bakeries, sandwiches, and pastries were usually locally adapted. Therefore, Starbucks’ core business – selling coffee products – is standardized. In this way, Starbucks can take advantage of economies of scale. Future local management staff is trained for three months at Starbucks’ headquarters. Moreover, inspection teams were sent to control subsidiaries every 2 months. Starbucks does not give much autonomy to their local managers in order to represent the same operations, same marketing and selling system in foreign market. As an example of its global marketing strategy, all Starbucks employees write customer names on the plastic cup in every shop all over the world when purchases are being done. We have to note though that Starbucks has in fact to a certain extent adapted its product offering to the Chinese market, something they have not done before. This most definitely gives Starbucks China a more local focus. This will however not take away from the global nature of the company worldwide.

Q2: What are the elements of the marketing environment that affect the Starbucks business in China?

Customers: as we can see it exhibits 6 and 7, the percentage of the population that could be Starbuck’s target is very small: 20% (5% Yuppies –receptive to new ideas and foreign products, and 15% of Little Rich–new middle class, people who would probably use foreign products to show they can afford it). Although this percentage tendency is to grow, at the moment it (this segment) is still not representative of the country, (without coma) and it is also more present in coastal areas. oCoffee consumption: In China the consumer drinks only 0.01467 Kg of coffee compared to 4.02 Kg in the US [Annual per capita consumption]. In addition, we have to take into account that there are some regions like Yunnan where coffee is regularly consumed, so in the parts of China where it is not that common, the average consumption per capita would actually be even lower.

Competitors: it is a fact that Chinese usually try to copy any business that is successful; it is a survival instinct. If they think that a business model will succeed and make...
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