Globalization-of-Starbucks

1TheGlobalizationofStarbucksThirtyyearsago,StarbuckswasasinglestoreinSeattle’sPikePlaceMarketsellingpremium-roastedcoffee.Todayitisaglobalroasterandretailerofcoffeewithsome17,000stores,40%ofwhicharein50countriesoutsidetheUnitedStates.Starbuckssetoutonitscurrentcourseinthe1980swhenthecompany’sdirectorofmarketing,HowardSchultz,camebackfromatriptoItalyenchantedwiththeItaliancoffeehouseexperience.Schultz,wholaterbecameCEO,persuadedthecompany’sownerstoexperimentwiththecoffeehouseformat–andtheStarbucksexperiencewasborn.Thestrategywastosellthecompany’sownpremium-roastedcoffeeandfreshlybrewedespresso-stylecoffeebeverages,alongwithavarietyofpastries,coffeeaccessories,teas,andotherproducts,inatastefullydesignedcoffeehousesetting.Fromtheoutset,thecompanyfocusedonsellinga“thirdplace”experience,ratherthanjustthecoffee.TheformulaledtospectacularsuccessintheUS,whereStarbuckswentfromobscuritytooneofthebest-knownbrandsinthecountrywithover137,000employeesand$10.7billioninannualrevenues.ThankstoStarbucks,coffeestoresbecameplacesforrelaxation,chattingwithfriends,readingthenewspaper,holdingbusinessmeetings,or(morerecently)browsingtheWeb.In1995,with700storesacrosstheUS,Starbucksbeganexploringforeignopportunities.ThefirsttargetmarketwasJapan.Thecompanyestablishedajointventurewithalocalretailer,SazabyInc.Eachcompanyhelda50%stakeintheventure,StarbucksCoffeeofJapan.Starbucksinitiallyinvested$10millioninthisventure,itsfirstforeigndirectinvestment.TheStarbucksformatwasthenlicensedtotheventure,whichwaschargedwithtakingoverresponsibilityforgrowingStarbucks’presenceinJapan.TomakesuretheJapaneseoperationsreplicatedthe“Starbucksexperience”inNorthAmerica,StarbuckstransferredsomeemployeestotheJapaneseoperation.ThelicensingagreementrequiredallJapanesestoremanagersandemployeestoattendtrainingclassessimilartothosegiventoUSemployees.TheagreementalsorequiredthatstoresadheretothedesignparametersestablishedintheUS.In2001,thecompanyintroducedastockoptionplanforallJapaneseemployees,makingitthefirstcompanyinJapantodoso.SkepticsdoubtedthatStarbuckswouldbeabletoreplicateitsNorthAmericansuccessoverseas,butbytheendof2009Starbucks’hadsome850storesandaprofitablebusinessinJapan.2AfterJapan,thecompanyembarkedonanaggressiveforeigninvestmentprogram.In1998,itpurchasedSeattleCoffee,aBritishcoffeechainwith60retailstores,for$84million.AnAmericancouple,originallyfromSeattle,hadstartedSeattleCoffeewiththeintentionofestablishingaStarbucks-likechaininBritain.Inthelate1990s,StarbucksopenedstoresinTaiwan,China,Singapore,Thailand,NewZealand,SouthKorea,andMalaysia.InAsia,Starbucks’mostcommonstrategywastolicenseitsformattoalocaloperatorinreturnforinitiallicensingfeesandroyaltiesonstorerevenues.AsinJapan,Starbucksinsistedonanintensiveemployee-trainingprogramandstrictspecificationsregardingtheformatandlayoutofthestore.By2002,StarbuckswaspursinganaggressiveexpansioninmainlandEurope.Asitsfirstentrypoint,StarbuckschoseSwitzerland.DrawingontheexperienceinAsia,thecompanyenteredintoajointventurewithaSwisscompany,BonAppetitGroup,Switzerland’slargestfoodservicecompany.BonAppetitwastoholdamajoritystakeintheventure,andStarbuckswouldlicenseitsformattotheSwisscompanyusingasimilaragreementtothoseithadusedsuccessfullyinAsia.Thiswasfollowedbyajointventureinothercountries.Asithasgrownitsglobalfootprint,Starbuckshasalsoembracedethicalsourcingpoliciesandenvironmentalresponsibility.Nowoneoftheworld’slargestbuyersofcoffee,in2000StarbucksstartedtopurchaseFairTradeCertifiedcoffee.Thegoalwastoempowersmall-scalefarmersorganizedincooperativestoinvestintheirfarmsandcommunities,toprotecttheenvironment,andtodevelopthebusinessskillsnecessarytocompeteintheglobalmarketplace.Inshort,Starbuckswastryingtouseitsinfluencetonotonlychangethewaypeopleconsumecoffeearoundtheworld,butalsotochangethewaycoffeewasproducedinamannerthatbenefitedthefarmersandtheenvironment.By2010,some75%ofthecoffeeStarbuckspurchasedwasFairTradeCertified,andthecompanyhasagoalofincreasingthatto100%by2015.CaseDiscussionQuestions1.WheredidtheoriginalideafortheStarbucks’formatcomefrom?Whatlessonforinternationalbusinesscanbedrawnfromthis?2.WhatdroveStarbuckstostartexpandinginternationally?Howisthecompanycreatingvalueforitsshareholdersbypursuingandinternationalexpansionstrategy?33.WhydoyouthinkStarbucksdecidedtoentertheJapanesemarketviaajointventurewithaJapanesecompany?Whatlessoncanyoudrawfromthis?4.IsStarbucksaforceforglobalization?Explainyouranswer.5.Whenitcomestopurchasingcoffeebeans,Starbucksadherestoa“fairtrade”program.Whatdoyouthinkisthedifferencebetweenfairtradeandfreetrade?HowmightafairtradepolicybenefitStarbucks?Source:CharlesW.L.Hill,InternationalBusiness,9E,pages36-37.