Starbucks International Operations
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Starbucks International Operations
Starbucks started to decide on expansion by about the mid 1990s, when the market became saturated. Market saturation is when a company or firm has covered an area so thoroughly with its presence, that it can no longer experience growth. Because of the market saturation, there were declining sales throughout stores. The companys original marketing strategy was to blanket a region with new stores. The idea behind this was to reduce a customers wait in lines, while also reducing the companys distribution costs. Revenues from stores were actually beginning to decline because stores were in such close proximity to one another. Although Starbucks was still ahead of their competitors, they were unable to stir up new business due to the overwhelming number of U.S. locations.
The organization knew that in order to maintain growth and still be able to boost revenues, they would need to expand over seas. In 1995, Starbucks formed Starbucks Coffee International in order to monitor the companys international expansion operations (Starbucks International Operations 4). Starbucks began its expansion through a joint venture in Japan with Sazabys Inc., a leading Japanese teashop and interior-goods retailer.
Starbucks expansion strategy was split three ways; joint ventures, licensing agreements, and company-owned subsidiaries. The method that companies choose depends on many factors including the type of product or service, or the conditions for market infiltration (Daft 209). In many countries, a joint venture was the only way to enter the market, which is why most of their over seas stores are run by joint ventures.
Joint ventures allow companies to own a stake and still play a role in the management of the foreign operation. These require more direct investment and training, management assistance and technology transfer (209). Joint ventures can be equity or non-equity partnerships. Equity joint ventures are contractual agreements with equal partners, and non-equity ventures are where the host country has a greater stake in the company (Starbucks International Operations 9). One positive of having a joint venture is access to a local partners knowledge, which can be invaluable to success. The company is also sharing development costs and risks with the partner. But, with joint ventures there is still a lack of control over technology, strategies, and location (9).
A licensing agreement is where a company, the licenser, grants the rights to intangible property like patents or copyrights to another company, the licensee. This agreement is for a specified period of time, and the licenser receives a fee from the licensee (9). Licensing agreements are good because there are low development costs and risks. However, with these lower costs and risks comes even less control. There is very little control over strategic operations, technology, or location (9). In addition, higher revenues are harder to come by due to the small licensing fees.
Company-owned subsidiaries give the company 100% ownership of the stock of the subsidiary (9). In foreign countries a company-owned subsidiary can be set up in two ways. A company can set up new operations in the foreign country, or it can attain a firm and promote its products through that firm (9). A major pro in deciding to engage in a company-owned subsidiary is the greatest realization of profits. This method will allow the company to make the most money from foreign operations. In addition, there is greater control over technology, strategies, and locations. But, with greater control and greater profit realization comes a greater risk. There are very high costs and risks involved in company-owned subsidiaries.
With the entering strategies decided upon, Starbucks would study market conditions prior to actually entering any market. After studying a market, it would then decide on a local partner. This local partner would be able to provide Starbucks with information on consumer preferences and drinking habits, invaluable information to correctly marketing their product (Planet Starbucks 6). Starbucks would then open up stores in trendier areas of a country, most likely geared toward a youthful image. In addition to these strategies Starbucks decided not to compromise on its basic principles of offering quality coffee of similar origins, and offering a non-smoking environment across the globe (Starbucks International Operations 5).
With their strategies in place, Starbucks decided to enter the Asia Pacific rim markets first. These markets include countries like Japan, Philippines, Indonesia, Taiwan, Malaysia New Zealand, and Australia (4). There was growing consumerism in the Asia Pacific markets with the younger generations interested in Western lifestyles and culture (4). In 1998, Starbucks opened its first store in England, and soon expanded to Switzerland, Germany, and Greece (Planet Starbucks 7). Soon, Starbucks would be operating close to 3,000 coffeehouses throughout 37 countries (8).
However, despite Starbucks seemingly quick success, there were barriers to quicker and more successful expansion. There was a strong coffee drinking culture in Europe that could offer opportunities as well as threats for the coffee giant. Because of the apparent market for coffee, it seemed like Europe would welcome new coffeehouses into the mix. There were also rising tensions in certain political environments that did not want any American presence new regions. In addition, Starbucks was finding it hard to boost revenues through joint ventures and licensing agreements, while losing money in certain markets that were going through recession.
Starbucks would soon find that it faced tough competition from well-established coffeehouses throughout countries like France and Italy (Starbucks International Operations 5). These coffeehouses were thought to serve some of the best coffee in the world, and many times at a lower price than Starbucks coffee (5). It was also a general belief that older generations would stick to these older coffee houses and Starbucks would have to stick to marketing themselves toward the younger generation. Through this Starbucks knew to market their ambience and No Smoking