Starbucks’ International Operations Case Study

Topics: Starbucks, Coffee, Risk Pages: 5 (1650 words) Published: July 15, 2012
1.Analyze entry strategies adopted by Starbucks.

Starbucks adopted three different entry strategies: licencing, joint ventures and wholly owned subsidiaries. Looking at the list of the countries in which the company is present and modes of entry to each of them, we can notice that a company hardly ever decides to open their own subsidiary. It is understandable, as this mode of entry is connected with highest risk and costs. Starbucks was able to use this strategy in Canada because of some similarities to the American market. Taking into account small geographical distance between the countries, similar history and culture as well as customers’ values and lifestyles, and the same language, Starbucks could have decided that the risk is relatively low or that they can manage it easier, as they understand the environment better. The benefit was that the company retained full control over the business. One of the first regions where Starbucks decided to expand its business was Asia Pacific rim. To enter this market the company used two strategies: joint venture and licensing. These strategies are not as risky as direct investment, because less capital is required and risk is shared between business partners, so they were more suitable for countries with large cultural distance from the USA and very different consumer behaviour. Customers are also more likely to perceive a company as ‘an insider’ and accept the new brand (Starbucks wasn’t very well known in some of the countries). However, the success of expanding into foreign markets, in this case, depends on ability to find the right local partners. Starbucks chose them very carefully and later profited from their experience, knowledge of the market and already established distribution framework. Thanks to suggestions made by local partners, Starbucks was able to succesfully incorporate local differences into a global strategy. Joint ventures allowed the company to grow without spending too much money and taking too much risk. Licensing required even less investment on the Starbucks part and was definitely the quickest mode of entry. Starbucks used it entering all of the Middle East countries (except Israel). One of the reasons justyfying this strategy is little knowledge about business opportunities for Starbucks or possible market response to a new product in these countries. Licenses were sold for the limited period of time so if the demand was insufficient, it was easier to withdraw from the market. In case the expansion was successful, the market was already penetrated and the company could open new stores or create joint ventures. Joint ventures let the company to have bigger control over business than licensing. The companies they decided to cooperated with had experience with selling food or coffee and the money to support the expansion. It seems to be more safe than granting a license to an individual that may not have any knowledge of the business. However, neither of these strategies gave Starbucks full control of their activities, costs and revenues and it was certainly harder to follow the company’s global strategy.

2.Do you think Starbucks did not analyze and manage the risks involved in the different markets it entered?

We can’t say definitely whether Starbucks analyzed risk properly before it entered foreign market. Sometimes it is very difficult to assess possibility of occuring situation potentially creating risk. It was, for example, very hard to predict changes in a political situation in the world and how it would affect the whole image of the US and all American companies. This is sth that is extremely difficult for companies to protect from, to manage and it takes long time to build a good reputation again. One thing that we can notice is that Starbucks decided to enter international markets very quickly after creating Starbucks Coffee International. It it possible that they didn’t spend enought time on market research and...
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