Globalization and Innovation project

Starbucks

Student : Cojocari Dina
Teacher : Mircea Draghici

but sales of specialty coffee increased. China. . up from $1.000 pounds (910. By September 1992.5m. By 1986 the company had 6 stores in Seattle and had only just begun to sell espresso coffee. Starbucks had grown to 140 outlets and had a revenue of $73. Canada. forming 10% of the market in 1989. Illinois. Starbucks is present in 61 countries including India. During the 1980s total sales of coffee in the USA were falling. Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver.3m in 1987. compared to 3% in 1983. Starbucks is the largest coffee house company in the world. Philippines. Thailand and India. Washington. In the same year. the original owners sold the Starbucks chain to Schultz who rebranded some of his own Il Giornale coffee outlets as Starbucks' and quickly began to expand.Starbucks Corporation is a global coffee company and coffee house chain based in Seattle. United Kingdom.000 kg) of coffee a year. The 12% portion of the company sold raised the company around $25m which would help it double the number of stores over the next two years. Its market value was $271m. Taiwan. Zev Siegl and Gordon Bowker. At the time of its initial public offering on the stock market in June 1992. British Columbia. Japan. 1971 by three partners Jerry Baldwin. As of December 2012.000. the share price had risen 70% to over 100 times the earnings per share of the previous year. Starbucks opened its first store in Seattle’s Pike market place on March 30. and Chicago. with more than 17600 stores in 61 countries including United States. South Korea. By 1989 there were 46 stores across the Northwest and Midwest in 1989 and Starbucks was roasting over 2. In 1987. Mexico.

but generally speaking.' It determines how employees think. attitudes and priorities of its members.Starbucks. The segments will vary based on the different products Starbucks offers. . corporate culture is the personality of an organization or simply how things are done around there. the policy at Starbucks towards employees is laid-back and supportive. This is referred to as “The Starbucks Experience”.Target Segment Starbucks has a very diverse target market. social and behavioral norms of an organization based on the beliefs. However. Starbucks strives to provide customers with a special and theatrical experience in a comfortable and inviting environment when buying their coffee beverage. Starbucks Coffee Company grew from a small. act and feel. They are encouraged to think of themselves as partners in the business. they can be classified as follows: • Coffee drinkers opting premium quality coffee • Age 18-60 • People living in large cities • University students and faculties • Professionals. managers and executives • Relatively high income group • People for whom customer service is more important Starbucks offers its customers a third world other than office and home At a very basic level. Schultz believes that happy employees are the key to competitiveness and growth. Starbucks Culture While Starbucks enforces almost fanatical standards about coffee quality and service. in a broader sense it refers to 'the moral. regional business into the undisputed leader in the specialty coffee industry by buying only the best quality coffee and providing an unmatched store experience.

‘know how’ could be deliberately changed or interpreted in a variety of ways differently to how it was meant to be applied. If ‘know how’ were to be changed or interpreted differently. their Partners (employees). Starbucks did not have a product to export so to speak. their Stores. The star bucks ‘know how’ could possibly be licensed however licensing might mean. their Neighborhood and their Shareholders. To expand Starbucks and continue the successful growth experienced in the home . it might mean Starbucks strong trade mark values in which Starbuck was built on could be at risk essentially devaluing to business. their Customers. one cup and one neighborhood at a time” Below listed are the principles of how Starbucks live with its mission every day. Tight control over the foreign operations would be required to maintain the processes for which Starbucks was known. including the licensing of products and processes. this is why Starbucks decided to take advantage of horizontal foreign direct investment (FDI) and hence getting involved personally with entrepreneurs in overseas markets interested in business similar to Starbucks. cakes and providing an environment for people to meet. Starbucks is a very successful company who made their fortunes by levering off their ‘know how’ and horizontally foreign direct investing in overseas markets within their industry. They provide due consideration to their Coffee.Mission Statement: “To inspire and nurture the human spirit – one person. however they did have expertise in the service industry which was selling coffee. Starbucks realized that their ‘know how’ could not be easily transported or even packaged to sell to overseas markets.

strategically placed after the business is developed and operating consistently well with foreseeable growth for the business and other Starbucks businesses in the country. Starbucks would further secure their interests and intellectual knowledge by selectively doing business with but a few businesses when first entering a new country and strategically incorporating options into their business contracts which provided Starbucks with timely choices to convert licensing arrangements to joint venture. At this point of the business venture Starbucks would convert to their licensing arrange to joint venture. This was proven to be a safe intelligent choice.land Starbucks decided to enter overseas markets via horizontal FDI and minimise as much financial risk as possible using licensing (with an option to joint venture) as the tool to control and distribute their ‘know how’. Starbucks would acquire the business. Later in the cycle of the overseas business development. I believe the triggers to convert to joint venture were designed around Starbucks requirement to quickly increase control over a business should the business not perform or might perform better with tighter control over the format. . at this point risks were minimized to an optimal level and finance could be gathered from financial institutions with much less constraint. city and business to see the new business is going to succeed. hence financial risks suddenly became minimal and could be further reduced and profits accelerated if tighter controls of the format were in place. if the business proves to be a safe and very profitable or could be more profitable if there were further control over the format. Another reason might be if Starbucks developed enough experience and knowledge about the country.

Market imperfections theory (internalization) best explains Starbucks approach. Having said this knowing Starbucks needed the most control why didn’t they go straight for the wholly owned subsidiary? The reason was Starbucks wanted to hedge their bets and minimize as much risk as possible entering a foreign land so if things turned crazy they could exit and cut their losses which would be minimal. and the customers experience it’s different to what was expected. This is why control over the news stores was and is so important to the success of Starbucks overseas operations. customers travelling abroad are looking for familiarity and local customers are looking for affordable quality and pleasant experiences.Historically Starbucks expanded internationally initially by licensing but usually became disenchanted as the control was just not available through licensing and tight control was required for the businesses to be successful. There are many advantages to joint ventures which include shared resources. access to markets and limited control over business operations. work habits and ways of doing business. access to intellectual property. the ramifications are that the customer may not return. taste preferences. If a customer enters an overseas store expecting the coffee and service to be of particular standard and familiarity. . Starbucks wants to maintain product quality and brand identity (the Starbucks experience) across a wide range of cultures. Starbucks became successful because of its winning service strategy which only works well when all stores are operating in the same format. Even though there is limited control over business operation with joint venture there is more control than that of a licensing arrangement and less control than a wholly owned subsidiary.

Market Penetration: This strategy has been used to increase the market share of products that are currently offered. with more prospects to restructure and get half of its revenue from outside US. Through decades of growth in the United States. It has been able to change a regular cup of coffee to an experience beyond the coffee itself.S. . In addition to be a popular brand among customers. It has used the acquisition of Seattle’s Best.000 stores in the US and fewer than 7000 in other countries. For now it garners at least 20% from international markets. with nearly 11. Torrefazione Italia and Coffee People to accomplish this. All of these actions can be categorized into the following broad categories. Starbucks is planning for its future expansion on other countries. Starbucks announced a 31% increase in its net earnings and a 23% increase in sales for the first quarter of 2003. Horizontal Integration: Starbucks has used this strategy to control its competition and reach new customers. Key Strategies Starbucks has been extremely successful to date.STARBUCKS GLOBALIZATION AND INNOVATION The Seattle based company is on a global tear. The quality product spoke for itself and the fact that Starbucks spent less than 1% of its sales on advertising and marketing strengthened this view. In order to do this. economy was wobbling under recession and many retail majors were reporting losses and applying for bankruptcy. after building itself into the world’s largest coffee-shop chain. and do this well. Starbucks has pursued many different strategic actions. Starbucks was also considered the best place to work due to its employee friendly policies. Starbuck’s Success Though the U.

a firm operating internationally is exposed to different types of risk. It has also sought to expand the methods of grocery stores and formed alliances with SYSCO. by educating the American consumer and essentially transformed a commodity into a specialty item that people are willing to pay for. or strategic risks. a secondary brand that for years was an afterthought. which Starbucks often opens with business partners who share the cost and risk. Starbuck’s New Growth Strategy More Revenue with Lower costs The new focus is on: • Expanding the number of foreign stores. Let us see what issues Starbucks faced in some countries and how it got rid of those issues. • Introducing new Starbucks products like via instant coffee in grocery and convenience stores all over the world.Starbucks has focused heavily on developing the quality everyday experience and differentiation of the experience as a third place to enjoy its products. PepsiCo. financial. These can be listed as environmental.. The company has developed this market from scratch and continues to as it expands into international markets. organizational. Issues faced and tackled in different countries: Typically.S. and Kraft Foods to distribute products to grocery stores and other food retailers. Market Development: Starbucks developed the specialty coffee market in U. . • Reinvigorating Seattle's Best Coffee.

China: The company is aggressively expanding in China where Chinese traditionally prefer tea. India amidst "pomp and tempered ambition”. Indian Entry Starbucks Strategy towards Indian Market: Starbucks has finally reached the "Jewel in the Crown. Starbucks also had to address the demand on the culture of serving food with coffee.S. Some 30% of it customers drink take-out coffee in those throwaway cups. Key to success in China is coffee houses that empower China’s emerging middle class to publicly display their new lifestyles and status while keeping Starbucks beverages as affordable luxuries. England: This is the second biggest overseas market for Starbucks. coffee house chain with standardized disposable cups." The coffee giant. Tackling imitators aiming at reducing market share of Starbucks was a big problem. Critics warned that the Japanese would never buy takeout coffee or accept the interior non-smoking policy. France: Starbucks had to deal with an initial lack of acceptance from France’s historic café culture. Local pricing and popularity of local brands was a big competition. opened its first store in Mumbai. Younger coffee drinkers in France joined American tourists in Paris to embrace such favorites as Starbucks Caramel Coffee. with older consumers frowning on a big U. in a partnership with Tata Global Beverages.Japan: The Japanese are noted for admiring and adopting American products and trends such as blue jeans and Coca-Cola. Italy: Since. Starbucks proved them wrong. Italy is having many coffee bars. .

featuring items such as Elaichi Mawa croissants – made with cardamom and milk solids – and tandoori paneer rolls. So in order to accommodate the differing tastes of the Indian population. It has been consumed for thousands of years. And although coffee consumption in India has doubled." according to the Associated Press. away from the prying eyes and cramped quarters of home. Instead. The coffeehouse culture is just as much a factor in Starbucks' rapid growth as the product it sells. must promote its brand in a country that prefers an alternative beverage. but not the same type (nor quality) that one can get in a traditional Indian setting. But people don't just come to Starbucks for a coffee. as the AP notes. according to the International Coffee Organization. "India is full of young people looking for an unintimidating place to hang out. tea is king in India. a growing demand for coffee does not ensure success for Starbucks. dynamic store we've opened in our history.But why did it take so much time for one of the world's largest food chains to reach the world's second largest country and Asia's third largest economy? There's one big problem — most people in India aren't drinking coffee (only about 80g per capita. The tea industry itself is also one of the strongest drivers of its economy — it accounts for 31 percent of the global production and generates income for millions of people in the country.11 kg in the US or 3.000-square-foot." Shultz said. compared to 4. the new menu has over 42 items. . a company known for selling coffee. according to Bloomberg." The new store is a "4. Starbucks does offer tea in its store. bright curtains and other Indian cornucopia. two-level extravaganza filled with metal trunks. beautiful. and is still a staple of the Indian palette. which "reflect local as well as Western tastes. And. So Starbucks." "It's the most elegant.04 kg in the UK).