Case Analysis- Week 4

MRKT 5000 Online Course

Name: Chan Rajaram

Starbucks Faces Global Opportunities and Barriers

Case Summary:

This case talks about how Starbucks has become an important part of America’s coffee
culture heritage. The company’s idea actually originated outside the United States. While
on a business trip in Milan, Italy, in 1983, Starbucks founder and CEO Howard Schultz
noticed the popularity of coffee shops as a community gathering place. He realized that,
for Italians, coffee was not so much a beverage as it was a social experience. Schultz
decided to replicate this coffee culture in the United States, turning Starbucks into the
third place that consumers would frequent after home and work. Starbucks opened up its
first international store in Vancouver, British Columbia, in 1987. Today, the company is
a multinational powerhouse with more than 15,000 stores in 50 countries. Globalization
has offered many advantages to Starbucks. As the coffee industry has become
increasingly saturated in the United States, international expansion has allowed Starbucks
to take advantage of the untapped opportunities in several other countries. Even though
Starbucks has varied its marketing strategies to suit the consumers in each of the country
it targets to expand, the coffee giant has faced numerous barriers such as sociocultural,
economic, and political to name a few. For example, while Starbucks modeled it after
Italian-style coffee shops, major differences between the two coffee cultures has hindered
Starbucks’ acceptance.

Key Marketing Issues

 Globalization – Development of marketing strategies that treat the entire world

(or its major regions) as a single entity. For many firms, globalization of
marketing is a goal. Starbucks has strived to ensure consistency of quality is
delivered while customizing to adapt to local tastes in U.K, China and India in
order to meet the consumers’ expectations. Brand name, product characteristics,
packaging, and labeling are among the easiest marketing mix variables to
standardize; media allocation, retail outlets, and price may be more difficult. In
the end, the degree of similarity among the various environmental and market
conditions determines the feasibility and degree of globalization.

 Barriers to Foreign Expansion – Starbucks faces several barriers to foreign

expansion in its marketing strategies. In the U.K, it faces sociocultural barriers
and it had to renovate its stores to create a unique look so that each store fit into
the local neighborhood environment. In China, Starbucks faced economic
barriers as the operating costs are higher in China which has caused the price of
Starbucks in drinks in China to be 50 – 75% higher than in the U.S. In India, there
were political barriers but Starbucks opted to create a 50-50 joint venture with

Case Assignment
10/9/2020
1
 Indian firm Tata Global beverages that has allowed it to have an easier transition
into the Indian market.

 International Marketing – International marketing is the development and

performance of marketing activities across national boundaries. Starbucks has
done this across the hemisphere in countries like India and China. For example, it
has varied its products to offer more Chinese-inspired food products and coffee-
free beverages in China as consumers drink an average of three cups of coffee
annually.

 Joint Venture – A joint venture is a partnership between a domestic firm and a

foreign firm or government. Starbucks opted to create a 50-50 joint venture due
to the political mandate in the country for foreign multinationals. Starbucks’ joint
venture proved to be a success in India with an easier access to its markets.

 Regional Trade Alliances, Markets, and Agreements – Firms are beginning to

view the world as one huge marketplace, various regional trade alliances and
specific markets affect companies engaging in international marketing; some
create opportunities, others impose constraints. There are nearly 200 trade
agreements globally, up from a handful in the 1960s.
 Multinational Enterprise – The term multinational enterprise refers to firms
which have operations or subsidiaries in many countries. Starbucks as a wholly-
owned foreign subsidiary has allowed its stores in overseas locations to operate
independently of the parent company so its management has greater freedom to
adjust to the local environment. One of the greatest advantages of a multinational
enterprise is the cross-cultural approach. Starbucks has worked hard in India,
China, Europe and other parts of South America and Asia to develop a local
identity and adapt, if needed, to the buyer’s culture.

Personal Case Analysis

 In my opinion, the environment is a major consideration in analyzing international

marketing. If a marketing strategy is to be effective across national boundaries, the
complexities of all environments must be understood. The cultural, social, ethical,
economic, political/ legal, and technological environments of many foreign countries
differ considerably from those in the United States. Starbucks has faced many of these
environmental factors in its expansion and has done considerably well to be the global
brand known for coffee. Starbucks’ flexibility and adaptability has ensured that it enters
into partnerships and joint ventures where needed and modify its store and outlook as a
global brand to meet market demands. According to Carol Matlack (2008), there is a
major difference between the way Starbucks stores are owned and operated within
the United States versus without. Inside the U.S., close to two-thirds of their
stores are owned by Starbucks while outside of the U.S. about two-thirds of their
stores are partnerships. This makes sense for the Starbucks Corporation because
they are able to align themselves with partners who may already have working
knowledge of what it takes to run a business in other locations outside of the
Case Assignment
10/9/2020
2
 United States. Although there are economic and competitive advantages to
globalizing strategies, some aspects of the marketing mix (media allocation, retail
outlets, and price) are difficult to globalize and Starbucks in working through
many of these issues and aspects when it comes to globalization/expansion.

Case Questions
1- Describe Starbucks’ global strategy. Is it engaging in more of a
globalization or customization approach?

The case suggests, as a part of its expansion process, Starbucks opened

branches in 50 other countries. Because of this approach, Starbucks was able
to exploit opportunities that existed in international markets. However, over
the years it has started focusing on the use of customization approach. The
objective behind this approach was to expand to meet the tastes and
preferences of local customers which was necessary to expand the customer
base in international markets. A perfect example of this approach is the
Chinese market. Starbucks started providing coffee-free beverages and
Chinese inspired food products keeping in view the habits and preferences of
customers in China. Starbucks is engaging in a customization approach and
adapts some parts of its marketing mix for international markets.

2- What appear to be some of the most significant barriers Starbucks is facing

when expanding into foreign countries?

Some of the significant barriers that Starbucks faces while expanding in

foreign countries range from economic, political to sociocultural barriers.
While expanding operations to international markets offer a lot of
opportunities, a huge amount of risk is also involved in the form of barriers
already present in the targeted country. Most significant barriers that
Starbucks faced when entering in international markets besides cultural
barriers included economic and socio-economic barriers. For example, it faced
cultural barriers in China as there was backlash from Chinese citizens.
Additionally, it also faced economic barriers as its drinks were not affordable
to the large population of lower-income consumers. Furthermore, the
operating costs were also significantly higher for Starbucks compared to its
U.S operations. In India, it faced political barriers which forced Starbucks to
enter into a 50-50 joint venture to operate its business. It also faced stiff
competition because of low prices (economic barrier) offered by Indian
companies. In Italy, where Starbucks is still not present, it may face strong
resistance because of cultural issues that exist in the already established coffee
culture of the nation.

3- What are some of the most significant obstacles to expansion in Italy, and
how can Starbucks overcome them?

Case Assignment
10/9/2020
3
 Although Starbucks was inspired by coffee shops in Italy, the company’s
American concept clashes with the coffee culture in Italy. The drinks,
customs, and tastes of Italian consumers may not mesh with those of the
American chain. For example, people in Italy don't consume cappuccino
during breakfast or after heavy meals, whereas, in America, that’s not the
case. This cultural difference could very well affect the sales of Starbucks
especially during breakfast and/or after lunch hours. To overcome such
cultural issues, the company will have to develop appropriate marketing and
sales strategies like it did in few other nations. For example, it can
demonstrate the advantages of drinking coffee after meals in its promotional
campaigns. Another strategy could be to offer special discounts during low
sales volume period. The company can also offer other beverages (the strategy
that it used in China) to overcome cultural differences.

Conclusion

This case shows why even successful American companies such as Starbucks need to
customize their products as they expand into international markets. As the coffee industry
becomes increasingly saturated in the United States, international expansion allows
Starbucks to take advantage of untapped opportunities in other countries. However, going
global hasn’t always been easy; the company has struggled to adapt to cultural,
economic, and political forces in the United Kingdom, China, and India, and there are no
Starbucks locations in Italy (whose coffee culture inspired Starbucks’ creation).

Works Cited

Cassner, Mallory. "Untitled Prezi." Prezi.com. 1 Oct. 2013. Web. 12 Sept. 2015.
https://prezi.com/zocrzq1gi30e/untitled-prezi/

Khan, Shahzad. "Starbucks International Marketing Strategy." Starbucks International

Marketing Strategy. 29 Apr. 2010. Web. 12 Sept. 2015.
http://www.slideshare.net/sk_prince/starbucks-international-marketing-strategy-3900413

Matlack, Carol. "Will Global Growth Help Starbucks?" Bloomberg.com. Bloomberg, 2

July 2008. Web. 12 Sept. 2015. http://www.bloomberg.com/bw/stories/2008-07-02/will-
global-growth-help-starbucks-businessweek-business-news-stock-market-and-financial-
advice

"Strategies for Reaching Global Markets - Starbucks." Strategies for Reaching Global
Markets - Starbucks. Web. 12 Sept. 2015.
https://sites.google.com/a/email.vccs.edu/starbucksportfolio/home/strategies-for-
reaching-global-markets

"The Brand Starbucks." The Brand Starbucks. Web. 12 Sept. 2015.

http://www.ukessays.co.uk/essays/strategic-management/the-brand-starbucks.php

Case Assignment
10/9/2020
4