1. Many of the same environmental factors, such as cultural factors, that operate in the domestic market also exist internationally. Discuss the key cultural factors Starbucks had to consider as it ex-panded into China. Starbucks has found success in the USA because of marketing towards “20-40 year old men and women who are concerned with social welfare” thus creating the coffee house atmosphere-Heather Karr Employee of Starbucks in Madison, WI. The coffee house in the US includes college students studying, young professionals having casual meetings, “Soccer Moms” grabbing a cup of Joe after dropping the kids off at school, etc.
All-in-all Starbucks is selling not coffee but the idea of a “coffee break”, a time during the day that one can sit back, relax, and forget about the daily grind. Starbucks had to consider this as part of their main success and research China’s culture to see this same possibility existed for them there. Luckily they found that it did. Due to China’s communistic government implementing a “One Child Law” the same age demographic surprisingly existed: 20-40 year old men and women who want a place to socialize and take a break from their lives.
The Family Planning Law in China was implemented to control the growing population in China, has many exceptions, and began in 1978 (enforced in 1979). Learning about this law in a history class previously, I never considered it in a marketing aspect. These individuals have grown up as single children and may have a sense of entitlement. They are well educated as the US media is always reporting on their countries’ amazing international grade reports. So, this group of “Little Emperors” are more aware of western culture than generations previous and Starbucks had to of discovered that they could give these people a taste of the western world.
Lastly, Starbucks had to consider China’s tea consumption before expanding. While the US likes their coffee, China prefers tea in their social events. How could Starbucks take their signature product of coffee and still be successful? They had to sell the coffee house experience and that’s exactly what they did. 2. Discuss the key political and legal factors Starbucks had to consider in the Chinese marketplace. What are the risks of entering a country with these factors? What changes have occurred in China’s polit- ical and legal structure to the advantage of foreign companies?
The standout political/legal factor for Starbucks expanding into China is Communism. Starbucks company originated in a democratic capitalistic country where it became successful. Expanding into China requires a lot of research into not just foreign laws but a very strict and controlling government that frowns on western practices. In 1999 when Starbucks began its expansion they did it with joint ventures meaning they licensed the right for Chinese citizens to sell Starbucks coffee and use their logo. Joint ventures and dictatorship are risky ideas and Starbucks could have easily failed.
They made their risk minimal by only receiving royalty fees for the license to use their logo. China became a member of the World Trade Organization in 2001 thus opening the ability for American companies to freely participate in their market. Starbucks took this opportunity buy out is partners and take control over the 60 stores in existence in 2006. From 1999-2006, Starbucks had plenty of time to learn about Chinese culture and educate themselves in Chinese business that allowed them to feel confident about expanding in the future.
3. What demographic factors were important for Starbucks to understand in China? What were the demographics they decided to target? As I stated in my answer to question one, Starbucks had to understand their own target demographic in the successful US market and see if they could replicate that in China. Luckily for them it did. Political factors like the “One Child Law” gave way to a culture shift among previous generations that allowed for the 20-40 year old demographic to thrive.
These citizens are independent, educated, and desire to socialize amongst their peers with no where to feel at home in. Starbucks, by “tweeking” their menu slightly and adding more dining space than other shops in other countries, adapted to these Chuppy” demands and found success. 4. What was the initial global-market strategy Starbucks employed to enter China? Discuss the advantages and disadvantages to this early strategy. How has their strategy changed since then and why? Initially Starbucks implemented a joint venture strategy.
Meaning, they licensed their company for use in China believing that Chinese business individuals could have a better chance at success than they could. They also took that opportunity to learn and educate themselves about Chinese culture and business all the while receiving royalties for the licenses. This was a minimal risk for them as China was not a country that allowed a global market place to exist until its membership in the WTO in 2001. Their membership created an opportunity for Starbucks to take control of its licenses and eventually to expand further into the country.