”Ground Zero: A Starbucks-Free Italy”
Starbucks is an iconic firm when it comes to cafes and coffee shops, so much so that when a person is asked about coffee more often than not the top of the mind recall would be Starbucks. Some say, they like the taste, for some it’s the Starbucks experience that matters and the youth has an instant connect with the brand name. Now as per the case, currently Starbucks has around 11,000 outlets across the USA clearly signaling that the home market for this vibrant coffee shop is more or less saturated and hence there was a need for expansion. Howard Schultz was quick to realize this and on the brink of the century he started with his expansion plans across the globe. Even though Starbucks wasn’t the first firm to realize that and didn’t really have the first movers advantage, Schultz showcased his marketing pedigree and came up with an innovative, distinct yet simple business strategy for Starbucks expansion. As mentioned in the case as well, Starbucks pioneered in finding profitable locations for its cafes and masterfully executing a streamlined production process, this has proved to be a winner for Starbucks in more or less all expansion ventures. Italy is one market which has remained untouched by Starbucks, even though Schultz credits Italy and its coffee culture for the very inception of the Starbucks experience. So how does a company like Starbucks which is more or less synonymous to coffee enter an explored market which is also known as the home coffee culture and cappuccinos? Modes of Entry for Starbucks into the Italian Market:
i) Franchising to an Italian firm
Starbucks can think of franchising its intangible property rights to an Italian firm where in Starbucks would require the Italian firm to abide by a strict set of guidelines for operations on behalf of Starbucks. Starbucks would monitor and train the Italian firm to conduct business the way Starbucks does it and in return would take certain part of sales revenue or profit share and royalty. Advantage: The advantage of such a tie up would be that Starbucks would end up avoiding the startup costs and risks of opening up in a new foreign market. Disadvantage: Where Starbucks might lose out here is due to the geographic distance from the head office which might hamper the ability of Starbucks to keep a check on the quality and this might impact the brand health of Starbucks in the long run since global F&B companies like Starbucks and McDonalds take pride in maintaining a uniform quality across the globe. Score: Least Attractive
ii) A Joint Venture with an Italian firm
The other option which Starbucks can explore is venturing into the Italian market by establishing a Joint Venture with a local Italian firm wherein they form a subsidiary of Starbucks in Italy with joint ownership in the company.
Advantage: There are several advantages of such collaboration for Starbucks. It can gain a lot from the local partner’s knowledge of the Italian market, the competition, culture, business systems, consumer behavior, etc. and in turn reduce the risk of failure or improve the chances of capturing the market faster. Further, Starbucks can also reap benefits of cost and risk sharing by opening up in a JV since all costs and risks would be shared with its local business partner. Places like Italy which have prevalent nationalist sentiments make it even more essential for a foreign company to have a JV with a local firm.
Disadvantage: There are a few risks of such a joint venture which Starbucks should take into considerations. It has to decide upon the fact whether it wants to share its technologies and secrets with its partners. Also, Starbucks may have to look for a very reliable partner, a company which is known for its business ethics in order to avoid risk of conflicts and since it may not end up having a very tight control over its subsidiary and end up realizing location economies.
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