Starbucks developed continuously and rapidly after Howard Schultz bought it. It was entered in “Fortune 500 companies” in March 2003. Because of the saturation of the market, Starbucks can not only relied on the American market, but also had to venture abroad and paid close attention to the growth of subsidiaries. During the expansion, Starbucks stuck to its basic principles and innovated constantly to cater to the taste of the native. Although Starbucks was operated successfully, it also experienced losses in many countries and faced many challenges and risk.
It is essential for MNCs to choose the right mode of entry in any markets and make structural changes to motivate strategic changes, even mature MNCs, which can transfer some risk. Starbucks decided to use three strategies to enter into the international markets-licensing, wholly owned subsidiaries and joint ventures. Every strategy has its advantages and disadvantages, so managers of Starbucks need to consider carefully before entering other countries. Starbucks makes the different ways to enter in the markets according to the different situations of countries. For instance, Canada is close to America so the cultures and the habit of drinking coffee are close too.
Starbucks chooses wholly owned subsidiary type to enter Canadian market. Some Asian countries such as Japan and Hong Kong, China, Starbucks selects joint ventures to get in these countries because their taste of coffee is different from American’s. Moreover, the strategic adjustment of Starbucks was to cover over an area in new stores. That can not only assist to disperse consumers and reduce their waiting time, but also decrease the costs and increase revenues.
It also innovated some new products and cooperated with local companies. Culture, government, environment and the condition of Starbucks, all these can affect the choice of strategy. In short, before choosing strategy, managers of Starbucks ought to analyze the SWOT of Starbucks, the key environmental factors and how will this strategy influence the development of the company.
Starbucks went international because it wanted to seek new international markets and opportunities of growth. Starbucks did many good management and analysis of risk before entering into different markets. It further researched the prospect of the products in other countries’ markets. Then it tried to sell in the local fashionable shops and was operated by expert managers from Seattle. Starbucks persisted in keeping their No Smoking principle and broad floor area, which attracted many Japanese women.
That is a successful alliance that through using its own resources and cooperating with Sazaby, it understood the Japanese habits of drinking coffee drinks and introduced new products. Starbucks realized that young people in Asian countries were interested in the western way of life so it seized that mentality and attracted them successfully. Starbucks adjusted constantly to adapt the cultures of the host countries.
For example, it offered meat buns and curry puffs to Asian countries because Asians like eating some food when drinking coffee. It is popular that the best coffee around the world is in Europe. However, Starbucks executives thought that coffees in Europe now is not as great as in the late 1990s so stores were opened quickly and bravely in Europe.
The romantic atmosphere, No Smoking environment and self-help service mode of operation were the main reasons that attracted the young. Also, Starbucks provided an independent region for Middle East ladies because of its distinct culture. From the above examples, it seems that Starbucks considered completely. It did internal analysis to use its key success factors to help the company make full use of the opportunities abroad. It also analyzed the culture and environmental risk of the local markets.
Starbucks faced many challenges and risk in the international operation. Firstly, the unstable political environment of the Middle East is one of the problems for Starbucks. The close relationship between America and Israel made Arab students boycott American services and goods. This is the political risk to Starbucks. Secondly, Starbucks faced crisis from non-governmental organizations. They asked Starbucks to afford the authentication of coffee beans to insure the production of coffee beans was proceeded under a certain social and financial condition. This is the environmental risk.
Thirdly, Starbucks has country risk that the economic recession in some countries made the sales and revenues dropped sharply. Fourthly, Starbucks faced drastic industrial competition, high costs of developing business and resistance from customers who objected to globalization, especially in Europe. This is the strategic risk. Fifthly, complex joint ventures and application license agreement, lack of well-trained employees and appropriate store address, all of these made Starbucks hard to gain more profit and control the costs of international operation. This is the operational risk. Starbucks try to reduce the risk in many methods.
First and foremost, Starbucks decided to offer new products to control the costs of international operation. Then, it announced to slow down the pace of expansion and close the defective stores. Also, Starbucks should reconsider the entry strategy and keep a watchful eye on price. The most important is to be careful to the international environment because there are many factors can affect the Starbucks’ decision-making. Starbucks recombined its structure and changed its strategy with its internationalization.