Starbucks mini case

Driving Innovation and Growth at Starbucks:

From Howard Schultz to Kevin Johnson

1. Identify three basic benefits firms gain by successfully implementing an international

strategy.

Firms derive three basic benefits by successfully using international strategies:

1. increased market size,
2. economies of scale and learning
3. advantages of location.

Increased market size is achieved by expansion beyond the firm's home country. The
international expansion increases the number of potential customers a firm may serve.
Starbucks is a firm that has increased its market size through international expansion
(Opening Case). Other firms such as Coca-Cola and PepsiCo have moved into
international markets primarily because of limited growth opportunities in their domestic
markets. Economies of scale and learning are a second benefit. Leveraging a technology
beyond the home country allows for more units to be sold and initial investments
recovered more quickly. Rivals Airbus and Boeing have multiple manufacturing facilities
and outsource some activities in order to gain scale advantages. Lastly, the advantages of
location can be realized through internationalization. These advantages include access to
low-cost labor, critical resources, or customers.
 2. Explore the determinants of national advantage as the basis for international
business-level strategies.

Factors of production
The inputs necessary to compete in any industry
1. Labor
2. Land
3. Natural resources
4. Capital
5. Infrastructure
Basic factors
● Natural and labor resources
Advanced factors
● Digital communication systems and an educated workforce
Demand conditions:
● characterized by the nature and size of buyers’ needs in the home market for the
industry’s goods or services
● Size of the market segment can lead to scale-efficient facilities
● Efficiency can lead to the domination of the industry in other countries
● Specialized demand may create opportunities beyond national boundaries
Related and supporting industries:
● supporting services, facilities, suppliers, etc.
● Support in design
● Support in distribution
● Related industries as suppliers and buyers

Firm strategy, structure, and rivalry:

● The pattern of strategy, structure, and rivalry among firms
● Common technical training
● Methodological product and process improvement
● Cooperative and competitive systems

Firm strategy, structure, and rivalry examples:

● Germany - the excellent technical training system fosters a strong emphasis on
continuous product and process improvements
● Japan - unusual cooperative and competitive systems facilitate the cross-functional
management of complex assembly operations
● Italy - the national pride of the country’s designers spawns strong industries in shoes,
sports cars, fashion apparel, and furniture
● U.S. - Competition among computer manufacturers and software producers accelerates
development in these industries
 3. Describe the three international corporate-level strategies.

The three international corporate-level strategies are:

1. Global strategy: A global strategy is a type of international strategy where a firm or an
organization’s head office determines and assigns all the strategies for the smaller business units
which are located in different places or country. As it aims to boost sales of goods or services
abroad. The Global strategy is a strategy that the company takes in order to compete in the
international market and expand in those markets as well. This strategy specifically refers to the
plans an organization has developed to target growth beyond its borders. Here, when a company
chooses to use this strategy its main objective is to achieve economies of scale with the
assumption that customers all over their reach have similar needs. Here a great example would
be Cocacola, as coke has made its star product as a standardized product which they have been
selling in all markets. Also, they have a great operation line which has made Coca-cola
successful worldwide. What we can understand from this is that when a firm uses a global
strategy it sacrifices responsiveness to local requirements within each of its markets in favor of
emphasizing efficiency. The global strategy advantage is that it can create more standardized
products globally across the markets as well as it can create economies of scale. It also has the
advantage that it can launch innovative campaigns and products across the markets as well Large
multinationals particularly use this strategy. The disadvantage is that it cannot be differentiated
or cannot be localized.

2. Multi domestic strategy: A multidomestic strategy is also an international strategy that

uses a democratic approach in building its strategies. It does this by decentralizing its strategic
and operating decisions according to there business units. This approach is quite the opposite of
that of the global strategy as mentioned above. It believes in hand tailoring each strategy to its
local markets. A great example of a multidomestic company is Nestlé. Nestlé uses a unique
marketing and sales approach for each of the markets in which it operates. Furthermore, it adapts
its products to local tastes by offering different products in different markets. Hence, what we
understand A firm using a multidomestic strategy sacrifices efficiency in favor of emphasizing
responsiveness to local requirements within each of its markets. The multidomestic strategy tries
to capture market share in each country in which it operates.

3. Transnational strategy: A transnational strategy is also an international strategy that the

firm seeks to achieve both global as well as local responsiveness. This strategy is a strategy that
adopts both concepts from multidomestic and global strategies, which implies that it is very
flexible. But as to its flexibility, it can also become quite conflicting because as goals keep
changing the strategy might require frequent adjustments. But if implemented correctly it helps a
company achieve its highest potential. For example, In France, for example, wine can be
purchased at McDonald's. This approach makes sense for McDonald's because wine is a central
element of French diets. This is a great example showing how transnational strategy helps a
company modify its strategy according to its environment. Hence, we can understand that a
transnational strategy seeks a middle ground between multidomestic strategy and global strategy.
And as such, it tries to balance the desire for efficiency with the need to adjust to local
preferences within various countries.
In the case provided to us; the company Starbucks uses a transnational strategy that the firm
seeks in order to achieve both global efficiency and local responsiveness

Discussion -

Strategic Issues and Suggested Discussion Questions

1. Watch the video clip - Why Starbucks Failed in Australia. Do you think Starbucks should try a
new strategy? If so, why? If not, why not?
Right from day one, Starbucks did not see itself as a ‘coffee’ business, but a ‘service’ and
involvement business. The primary store to open outside of the USA was Tokyo in 1996. The
company has been exceptionally fruitful in Japan and it proceeds to be a high performing
advertise. In China, its greatest development market as of now, the baked goods and drinks are
smaller to suit nearby tastes and a green tea Frappuccino has been introduced. So also, the item
things have been balanced to cater to local tastes in Saudi Arabia and Japan. There's growth in
the huge cities of Beijing, Shanghai and Guangzhou where middle-income experts are
burgeoning.

Starbucks in Australia

The coffee industry in Australia is worth $3 billion a year, with $1 billion of that comprising of
takeaway cups. The retail market is extreme with strongly competition and returns of fair 4% p.a.
net profit. In 2008, Starbucks reported it was closing 61 out of its 87 Australian stores (73%)
remaining with less than 2 percent market share of the forte coffee market – an unwinnable
formula for an economy of scale and out of step with the ‘clustering’ immersion strategy utilized
in the rest of the world. Starbucks declared the reason for the closures was consumers’ tightening
of belts due to the global financial crisis and fears of a recession.

So where did Starbucks go wrong?

It’s advertising to Australians was the same as the US offerings. Not at all like McDonald’s and
Krispy Kreme, who both opened one or two stores in a slowly, slowly approach to invigorate
request and create a sense of scarcity, Starbucks immersed the Australian market with 87 stores
and was soon seen as a ‘mass brand’ not the elite brand position it was after. The Starbucks team
moreover fizzled to get it the psychological and socio-cultural perspectives of the country it was
entering. Australia isn't one homogenous market; it comprises over 235 different ethnicities and
contains a glad tradition of backing the underdog — on this occasion, the small shop around the
corner. Numerous consumers were found to effectively dislike the ‘super-size tall sugar/high-fat
mindset of America which Starbucks was found to epitomize. Even more regrettable, Starbucks
coffee was generally considered ‘watered down’ and the second rate to what was already
accessible at a much lower cost. Ethically produced coffee and personal relationships were also
important for the Australian market.

Not adapting: When Starbucks opened its first Australian shop in Sydney, from there, it extended
quick into other parts of the nation. By 2008 Starbucks had 87 stores over the Australian
continent. One of the problems with Starbucks is that they thought that their business show might
just roll out to a different environment and that there was no require for them to adjust.

Too big too fast: They attempted to develop the domain as well quick by quickly opening up
multiple areas rather than slowly integrating them into the Australian market. This didn’t grant
the Australian consumer an opportunity to truly create a craving for the Starbucks brand. So for
the Australian consumer, Starbucks got to be something that's too effectively accessible for them
and hence there wasn’t this point of contrast or a feeling of need.

Products Were Not Customized for the Local Audience

Starbucks’ beginning mistake was to accept that all Australian coffee lovers were planning to
like them. And the second mistake was to expect that Australians would just like the same sugary
drinks that their American customers were used to. Once more, it reverse backfires was that the
menu was too sweet for Aussies, not to mention costly. So they held on to their normal cafes and
baristas. As well numerous other alternatives for Australians When Starbucks take off the
Australian market, or at least an expansive number of shops were closed down, the Australian
consumers didn’t care. It’s incomplete because Australians are spoiled for choice when it comes
to coffee. Australia’s coffee market is one of the biggest in the world. The industry hit more than
$6 billion in add-up to income in 2018. They’ve been immersed in nuances of café culture since
the mid-1900s when Italian and Greek workers started traveling to the nation. Hence, when
Starbucks came in with their American style coffee culture, where coffee is basically a product
or a commodity. Starbucks had a basic menu and advertised more sugary drinks which most
Australians didn’t like. Also, Starbucks charged more than the local cafes. So, Australians
instead opted to pay less for coffee they preferred from a local barista they trusted.

The Great Recession

Starbucks closed down two-thirds of its stores in Australia in 2008. In case you review, this was
moreover the time when the world was encountering the Great Recession. Even in spite of the
fact that Australia is thousands of miles away from the United States, both nations were affected
by this recession. And even though Starbucks had sufficient financial assets to maintain itself,
the acquiring power of the customers was possibly affected and the final thing they needed to
spend cash on was a new brand of coffee.

Further, Starbuck’s failure in Australia illustrates why you would like to get it to understand your
market before entering. What works in one place may not work in the other place. Whereas a few
overall strategies or services will stay the same, a global strategy must always take a backseat to
nearby needs and be balanced accordingly. The solid investigation, especially, observational and
ethnographic (such as that performed by IKEA and Tesco before they open stores in modern
foreign markets) is amazingly imperative. A few months of examining and investing time with
coffee-drinking Australians may have saved years and millions of dollars to Starbucks within the
long run.

What could have been done better?

The new strategy they could use as following, Starbucks should have started with a total of 20
outlets, and as it were in major cities, such as Sydney, Melbourne, Brisbane, and Perth — at
slightest for a few years. The primary step ought to have been to build a loyal fan base. The
company ought to have created a framework, such as loyalty cards, to entirely monitor repeat
purchases and ought to have rewarded normal customers for bringing in a companion. Starbucks
ought to have organized a few focus bunch interviews in Australia prior to its launch. This would
have given the company an opportunity to get it what Australians truly need when they visit a
cafe. It’s simply that the company should have adjusted its products to the Australian market.
Also, In New Zealand and even Kiwis (as they call New Zealanders) aren’t a huge fan of
Starbucks — at least the ones that I have met. Prices should have been balanced, keeping the
recession in mind. I know the profit margins would have been compromised due to this, but
that’s what happens amid a recession. Rather than rapidly entering a foreign region on its own,
Starbucks should have approached experienced Australian investors to establish a number of
outlets to test things out. In Conclusion, when it comes to marketing, you can’t basically depend
on your gut instinct. It’s reasonable to expect that Starbucks must have done a few investigate
before aggressively extending into Australia with its sugary menu, but the company fizzled to get
it the foremost vital aspect of a business and the customers.