Starbucks International Operations

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CASE ANALYSIS

STARBUCK’S INTERNATIONAL OPERATIONS

Course Name: Business Policy Seminar
Course Number: MGMT - 690
Submitted By: Emaan
Date: 14th November 2010

INTRODUCTION:

Starbucks is one the most successful companies in the United States, which is evident by the fact that it is among the FORTUNE 500 Companies. However, over the last few years its profitability has declined owing to decline in Starbucks international sales and increased operational costs. The Chairman of Starbucks is a man who made this company what it is today so there seems to be a one-person decision making in the international expansion of the company.

Each country in which a company operates represents a unique environment with a different set of economic, technological, political, and sociocultural variables for the company to face. What seems to be the problem with Starbucks is that its international expansion policy was too aggressive and did not really take into account the differences between countries. Around the world, Starbucks is not sensitive to the feelings and demands of the local people who are the actual customers. The company’s belief that what works in America will also work in other countries of the world, is not correct just because people want to experience the American lifestyle.

ISSUE WITH STARBUCKS

The Problem with Starbucks is that its top management went too aggressively on international expansion without considering the local demands with the belief that around the world they can sell the same “Starbucks’ Experience” at a high price.

In other words Starbucks did very well in its own country, but could not manage international expansion properly. Starbuck’s top management, specially the Chairman, is adamant on aggressive expansion without taking in view, different regional needs and values. He is expanding Starbucks around the world without making its outlets and products country- or region-specific. The top management is of the belief that what works for the United States will also work in the same way around the world. It is not that they do not acknowledge regional differences. It is due to the fact that they believe everyone around the world wants to follow the American lifestyle. To some extent this may be true, but what they are forgetting is that people might find it nice and different for some time but will eventually go back to their traditional favorites afterwards.

In addition, Starbucks was too aggressive in its international expansion that the management forgot about the local outlets which were making more money than the international ones. In local markets the costs were low and it was easier to train the staff so the company had more control over their operations. Whereas in the international markets the company had less control, the costs were high and training the staff was not possible.

Shortly, the Top management of the company is making a mistake when they are not considering Michael Porter’s Five forces model. The most relevant areas for Starbuck’s issue are:

Bargaining Power of Buyers

The Buyers are most important stakeholders for any company. These are the people who will spend their hard earned money to pay for the goods you produce. So when entering any market it is important to take care of buyer’s needs. The "Starbucks experience" that Schultz constantly refers to is really all he has to offer. But "experience" (store ambience, personalized service, etc.) is a tough sell. Specially when there are other competitors in the market who sater to local buyer’s needs and also the buyers feel that it is a company they can relate to.

Similarly, if the Chairman of a company will speak in public against the religious or political views of a group of people, they will definitely retaliate. Even though, the company may clarify that it is the belief of the owner who is separate from the company, no one will take this...
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