The world economy has experienced a significant shift over the past thirty years. The world where businesses were restricted by geographic borders, distance, language, time zones, cultural and government differences has been replaced by globalization (Hill 3). Barriers to foreign investment and trade are declining due to development in telecommunication and transport technology. A lot of similarity in material culture has been witnessed worldwide, allowing different economies to merge into a sophisticated global economic system (Hill 4). This paper seeks to highlight the global expansion of Starbucks. The paper will focus on the foreign market, scale, timing, strategy, and mode of entry.
Starbucks is a successful international chain of coffeehouses based in Seattle, the United States, and arguably the world’s largest coffeehouse company (UW Business School 1). The company operates 16,635 stores in fifty countries in the world. In the United States, the company operates 11,068 stores distributed all over the country to take care of its wide market. Starbucks’ tradeline includes beverages such as coffee, tea, juices, soda, and pastries. The company is also involved in the marketing of books, music, and films through its entertainment division. The company has its largest overseas markets in Japan with over 480 outlets, the United Kingdom with over 370 outlets, China and Taiwan with over 120 outlets (Hill 3).
Starbucks started as a single store business selling roasted coffee to local customers. Currently, the company is a global market leader operating in over fifty countries outside the United States. Starbucks’ interest in global expansion was initiated by its marketing manager Howard Schultz after his Italy business trip. Schultz was inspired by what he described as “a unique Italian coffeehouse experience.” Schultz persuaded Starbucks’ owners to adopt the coffeehouse format, and that was where “the Starbucks experience” was initiated (UW Business School 1).
Starbucks’ strategy entails selling a premium-roasted and freshly brewed espresso coffee accompanied with different pastries in a coffeehouse environment. The coffeehouse setting enjoyed impressive success in the US, and Starbucks was propelled to a popular brand. Coffeehouses have now become comfortable places for relaxing, chatting, holding meetings, reading newspapers and magazines, and a new contemporary trend of browsing the Internet (Hill 3).
First Steps of Starbucks International Expansion
The first foreign market that Starbucks explored was Japan, and this led to a joint venture between Starbucks and Sazaby Inc, a local retailer. The mode of entry was a joint venture where each company held a fifty percent stake. The Starbucks experience was adopted in Japan, and this necessitated the transfer of some employees to Japan. The terms of the venture also required Japanese employees and store managers to attend training to match US employees. Stores were designed while observing all the parameters established in the US. Before the end of the year 2009, Starbucks had successfully expanded to 850 stores in Japan (UW Business School 7).
Starbucks embarked on an aggressive global expansion after succeeding in Japan, which led to investments in China, Taiwan, Thailand, Malaysia, South Korea, Singapore, and New Zealand. The common mode of entry that Starbucks used in Asia was licensing its format to local operators. Starbucks also emphasized intensive training and the same specifications regarding the layout of the store.
Starbucks entered Europe in 2002 with its first investment in Switzerland. The company chose a joint venture with Bon Appetit Group as the mode of entry. Bon Appetit Group, a Swiss market leader in the foodservice, was to hold the majority of shares in the joint venture. Starbucks licensed the Swiss company in the same format that had succeeded in Asia (UW Business School 8).
Starbucks International Expansion Strategy
Starbucks’ global expansion has extended to make the company one of the world’s largest coffee buyers. The company’s mission statement is ‘to span boundaries and establishes Starbucks as the leading supplier of the finest coffee while delivering high standards” (Auch-Roy 9). Starbucks’ objective is to empower small-scale farmers to compete globally. The company has used its influence to change how coffee is consumed and change how coffee is produced in a more beneficial and environmentally friendly manner (UW Business School 8).
The strategy used by Starbucks to enter foreign markets ensures that its global expansion does not dilute its culture. The company’s culture and the common goal of leading the company like a small business are maintained. The distinctive Starbucks experience is maintained by providing a great working environment to all employees while handling them with dignity. The company embraces diversity as an essential component of foreign investments. The company maintains a high standard in the acquisition, roasting, and delivery of coffee, expanding the market by satisfying the customers at all costs. The company ensures that it sustains its corporate social responsibility by contributing positively to communities and the environment (Hill 22).
In all the countries where Starbucks has invested, other companies are in the market, making competition very steep. To stay ahead of the competition, Starbucks uses location, proper timing, and product mix. The challenges that the company encounters when entering the market are the major start-up costs of equipment and properties. Major costs of operation are costs of sales and costs of labor (UW Business School 3).
Starbucks Global Growth Strategy Analysis
The political influence of specific markets depends on the relationship between the country and the United States. Starbucks has also encountered both economic and social challenges in global expansion. Economic challenges are constant demand for coffee and change in disposable income that changes consumers’ purchasing power. Major social challenges are consumer preferences changes where consumers shift from coffee to other beverages (Hill 45).
The competitive strategy of Starbucks is achieved through focused differentiation and servicing niche buyers. The company has unique capabilities and adequate resources to serve the needs of target buyers. The company has a global marketing mix strategy that requires it to maintain its retailing formula throughout the world. The company considers its target market and offers its products in a modified manner to suit the local preferences. The company has adopted differentiated strategies of advertising rather than local strategies. This strategy plays a significant role in the success of the company (UW Business School 6).
The corporate strategy of the company has also contributed to the vast success enjoyed by Starbucks in its global expansion. The company has penetrated the market by offering high-quality products in a relaxed and attractive social atmosphere. The company has maintained its rapid store expansion strategy dubbed “Starbucks everywhere” for both domestic and international markets. Its corporate strategy is also highlighted by employee recognition, training, and awards for partners (Auch-Roy 9).
Starbucks’ interest in foreign markets is based on the fact that only 20% of the world’s coffee is consumed in North America. The home market in the US is also saturated, and Starbucks has reached its brand maturity. The company has to seek global expansion to establish its products to other dedicated coffee consumers around the world (Auch-Roy 11). To maintain its dominant position in the market, Starbucks has used methods such as buying out leases from competitors, clustering outlets in small geographical areas to saturate the market, and operating at a loss intentionally to penetrate the market (UW Business School 9).
Challenges of Starbucks International Expansion
Starbucks has faced and tackled challenges differently in different markets. In Japan, the company exploited the Japanese admiration of American products. The company conquered the challenge of taking coffee in disposable paper cups. In France, the company had to deal with a lack of acceptance of American coffeehouse culture and the issue of disposable cups. In China, the company had to deal with the fact that the Chinese prefer tea to coffee. Therefore, the company empowered the emerging middle class by offering them a new lifestyle and keeping its products as affordable luxuries. In the Italian market, the company had to deal with imitators whose objectives were to reduce its market share.
Starbucks’ success in global expansion has also been due to the company’s policy on cultural diversity. The company offers unique products while involving the community and celebrating new cultures (Hill 52). The company owes much of its success to its international partners, who make the company a universally recognized brand (Auch-Roy 7). The company has a strong inclination to good leadership, strategic fitness, and shared values. The company extends Starbucks’ experience to its employees and partners through training. The company has used strategic partnership and economic development opportunities to invest in the global market. The bottom line is that Starbucks has enjoyed enormous success in global expansion to become a market leader in its line of specialization.
Auch-Roy, Hervé R. The Starbucks Corporation: Past, Present and Future. 2009. Web.
Hill, Charles W. Global Business Today. New York: McGraw-Hill/Irwin, 2010. Print.
UW Business School. Starbucks Corporation: Competing in a Global Market. 2003. Web.