The Starbucks Coffeehouse Company and the Combination of Various Complementary Assets - Essay Example

Introduction About thirty years ago, Starbucks coffee house was just a single store that was located in Seattle’s Pike Place Market (Pride and Ferrell, 2010). The small coffee house mainly specialized in the sale of roasted coffee. Today, the small coffee house has been seen to grow and quickly become an acclaimed global leader in the roasting and sale of coffee. The Starbucks coffee house corporation was seen to adapt its current business format during the 1980s when the Howard Shultz who was then the company’s director of marketing but later went on to become its C.E.O, president and chairman, happened to come back from a trip where he visited Italy and having been greatly enchanted with the experience he had when he visited various Italian coffee houses, managed to persuade the company owners to attempt to try and experiment with the coffeehouse format. The experiment which incorporated the traditional Starbucks Coffeehouse shop format with the Italian concept of turning a coffee house into a place where people can have a sustained conversation in addition to their experiencing a sense of community was hugely successful and this consequently led to the birth of the Starbucks experience (Hill and Jones, 2012). Although Schultz left Starbucks for a while after to set up his own coffeehouses, he later returned to the company in 1987 and managed to purchase the entire company, largely with the help of some local investors (Bussing-Burks, 2009). Today, Starbucks massive growth strategy has seen the company establish over 18,000 Coffeehouse stores spread out across 62 countries globally. Starbucks has also emerged a prime retailer and roaster of specialty coffee all over the world (Starbucks, 2013). Q1. Starbucks was seen to initially expand internationally by using the strategy of licensing its format to various foreign operators. After a while, Starbucks was seen to have become disenchanted with utilizing this strategy. What led to the disenchantment of the company with this strategy? In the year 1995, having established about 700 stores in the United States alone, Starbucks coffee house actively began exploring existing foreign opportunities. Despite having initially resisted using a franchising strategy during its expansion into North America, where most of its stores are actually company owned, Starbucks opted to enter into the Japanese market by implementing a strategy that would see the company license its format in the country (Aswathappa, 2010). Starbuck coffeehouse was seen to be increasingly worried that the pure license agreement that it was using would ultimately lead to its loss of the necessary control that was vital in ensuring that all its various licensees would strive to follow the time tested formula that had been successfully implemented in the United States market with very positive results. It was perceived that Starbucks feared that if these foreign licensees did not keenly follow the laid out Starbucks formula, the company’s first venture into these foreign markets would eventually be less successful as compared to how the company hoped the ventures would be. The Starbucks Coffee house company was also concerned that their Japanese Licensees would not be able to expand as rapidly as Starbucks wanted. Quick expansion is one of the company’s strategies, the expansion allows new customers to quickly build up customer habits while Starbucks’ Coffeehouse Company is still trendy (Enz, 2010). As such, Starbuck’s Coffeehouse Company was apprehensive of licensing as licensing would cause the coffeehouse company to have limited control of the company’s expansion rate (Drexler, 2007). The term “Starbucks success formula” is a casual reference to the company’s basic success strategy of always ensuring that the various Starbucks shops only sell the company’s very own premium roasted coffee beans. These coffee beans should be sold alongside various freshly brewed espresso-style beverages, teas, coffee accessories and pastries. The various Starbucks coffee houses should ensure that they always do this from a tastefully designed coffee house setting irrespective of the location of the coffee house. The coffee house personnel should ensure that they constantly maintain the utmost superior customer service available. This strategy was designed to apply to all the Starbucks shop outlets and engaging in providing pure license agreements to its licensees would potentially lead to problems as these licensees would not necessarily follow this Starbucks formula (Bussing-Burks, 2009). In an attempt to try and ensure that the company constantly maintains control of its Japanese expansion, the Starbucks company established a joint venture with Sazaby Inc. which was one of the Japan’s local retailers. In this venture, both the two companies held equal 50% stakes. In this Starbucks Coffee of Japan venture, Starbucks Coffeehouse Company was seen to make an initial investment of about $10 million. This investment was Starbuck’s very first foreign direct investment. The Starbucks formula was then subsequently licensed to this venture which was charged with the responsibility of taking overall the responsibilities geared towards of ensuring that Starbucks Coffee of Japan, grew its presence in the country (Spector, 2005). Q2. What was the strategic role that was played by Starbuck’s Coffeehouse Company’s Human Resource Management during the company’s process of Internationalization? Which staffing approach did this Human Resources Department Employ in Japan and why did they employ this strategy? Starbucks Coffeehouse Company Human Resources department is recognized as devoting a lot of attention towards the company’s employee hiring and subsequent training programs (Daft and Lane, 2008). The company’s human resources department is identified as providing various progressive compensation policies that are structured to provide various medical benefits and stock option grants to all the company’s employees including those hired on a part-time basis (Pride and Ferrell, 2006). When the Starbuck’s Coffeehouse Company initially embarked on implementing its Internationalization program, the company’s human resources management was concerned about the successful replication of the “Starbucks experience” which had been widely successful in North America in its new Japanese operations. In an attempt to overcome this challenge, the company’s human resources management resorted to transferring some of the company’s employees to its new Japanese operations (Bussing-Burks, 2009). The company’s initial licensing agreement was drawn having a clause that made it mandatory for all the newly employed Japanese Store managers and their various employees, to attend a series of training classes that were structured to be similar to those attended by their United States counterparts. Another requirement as per the agreement was for the Japanese stores to ensure that they adhere to the established design parameters that the company had already established in the United States. When the Starbucks Coffee of Japan company introduced various stock options for all its employees in the year 2001, it became the first company in the country to do this. This move served to further motivate the company’s employees as the Starbucks Coffeehouse Company reasoned that highly motivated employees would naturally provide the very best customer service to the coffeehouse’s customers (Hill and Jones, 2012). Although there were some skeptics who initially doubted if Starbucks Coffeehouse would be able to successfully replicate the successful strategy it had implemented in North America in its overseas ventures, the company managed establish over 700 coffeehouse stores all over Japan and effectively silence all its critics. The Starbucks Coffee of Japan still plans on opening more Coffeehouse stores all over the country at a brisk pace. In the company’s expansion into Asia, the company’s most frequently used strategy was to license its format to one of the local operators. The local operators would then pay the Coffeehouse company some initial licensing fees as well as various royalties on all the revenues that the store made. Similarly to the strategy used in Japan, The Starbucks Coffeehouse company human resource management would insist on implementing an intensive employee training program as well as ensuring that the local operators adhered to the strict specifications that regulate all the coffeehouse’s store format and layout (Dunne and Lusch, 2008). Starbucks was soon to become quickly disenchanted with some of the licensing agreements that it had entered into, this resulted in the coffeehouse company opting to covert to using a format that allowed it to have several wholly owned subsidiaries as well as a number of joint-venture arrangements. Q3. The reason why Starbucks elected to expand its international operations primarily through the use of several joint ventures, to whom the company licenses its format, as opposed to the use of its earlier pure licensing strategy. The term “Joint Venture” can broadly be used to describe any form of economic co-operation between two business entities, irrespective of the inherent characteristics of the two corporations (Wolf, 2000). When two companies enter into a joint venture agreement, they generally agree on polling together their various assets with the main intention of pursuing diverse business activities on an agreed upon the basis of joint participation. The partners in the joint participation agreement agree on how to manage and conduct the joint venture’s business activities including the modalities as to how they will be sharing in the losses and profits of the business enterprise (Campbell, et al, 2009). A pure licensing strategy can at times be advantageous since the licensing company is able to cheaply provide its services in a myriad of different locations at the least cost. For Starbucks Coffeehouse Company, Some of these locations might include locations such as colleges, hotels, airport shops, university campuses, local departmental stores and grocery stores. The strategy of licensing its business format to several foreign operators as opposed to entering into pure licensing agreements has quickly evolved into becoming one of Starbucks’ most important business expansion strategies. The strategy allows Starbucks to be able to ensure that it constantly maintains control over its various licensees and guide them in following the time tested Starbuck’s success formula. The strategy of offering licenses to various business ventures was seen to be unfavorable to Starbucks as entering into a licensing agreement essentially meant that both Starbucks and the licensee were actually joint business owners and the responsibility of attempting to facilitate the growth of the business where it had been established was equally their responsibility (Bussing-Burks, 2009). A good case in point being that when Starbucks’ Coffeehouse Company initially decided to attempt entering the Japanese market by issuing licenses to its new foreign operators, it soon found itself in the unfavorable position of not being able to effectively control this new business venture. The licensing agreements were seen to leave Starbucks with absolutely no authority allowing it to be able to control the new business, (Madura, 2010) hence Starbucks could not ensure that the business was diligently following the Starbuck’s agreed upon success formula. This situation was only seen to improve when Starbucks added a joint venture agreement to the original licensing agreement. The joint venture agreement allowed both the two companies to be able to equally participate in the new business as joint owners, each having the responsibility and commitment to try and work together so as to obtain the very best possible results. As a result of its joint ventures business expansion strategy, it naturally follows that Starbucks reaps massive advantages from the strategy mainly due to the fact that the strategy offers Starbucks Coffeehouse Company the option of not necessarily having to directly affront a new business in its efforts geared towards expanding into other countries. Starbucks has been effectively operating in a variety of different foreign nations by implementing the strategy which allows it to cost share its expenses and capitalize on any benefits that its foreign joint venture partner might happen to offer. The strategy also comfortably allows the company to be able to provide several efficient foreign working seminars that are helpful in the provision of essential training (Fellner, 2008). These training sessions are usually given by Starbuck’s own American employees who are experts in various different fields. This strategy was seen to have successfully been employed when Starbucks opened its venture into Japan. Initially, Starbucks decided to transfer some of its American employees working in the United States to Japan. These American were required to train the new Japanese foreign workers by teaching them on how the company normally opts to deal with its customers as well as guiding them on how to effectively follow the “Starbucks essence” while working at the Starbuck Coffeehouse of Japan Company. There are several important advantages that were seen to accrue to Starbucks as a result of its opting to use a strategy of engaging in local joint ventures where by the company licenses its format, some of these advantages included: Although the Starbucks Coffeehouse Company can be perceived as being a relatively rich business enterprise, it never the less requires to ensure that it tries to always save on its expenses, thus, by the establishment of joint ventures operations, the Coffeehouse company is able to share some of the associated risks and fixed costs involved in the development of its services in these new foreign markets. By the use of a strategy that provide for the acquisition of some of the already established firms, the strategy is seen to also serve the company by helping it in also reducing some of potential risks that happen to be commonly associated with a company attempting to learn how to effectively do business in a foreign and new culture (Gillespie and Hennessey, 2011). The use of joint venture operations in the expansion of the company into new countries also caused the Starbuck’s Coffeehouse Company to greatly benefit from the company’s local partner’s expert knowledge of the host country’s various cultures, political systems, competitive conditions and language (Gillespie and Hennessey, 2011). The entry into the joint venture alliances with local companies by the Starbucks Coffeehouse company allows the alliance to effectively benefit from the combination of various complementary assets and skills which neither of the two companies would have been able to easily develop on its very own. Starbucks is found to essentially provide the joint venture operation with the necessary “Success formula” Which is seen to comprise of the crucial management know how as well as the proven expertise, in return, the other joint venture owner is key in the provision of the specific experience required for the conduction of a successful business in the given country. The joint partner also provides the venture with a national identity. This national identity helps in the facilitation of an easy entry of the business enterprise into the new market as well as serving to help make the potential customers more comfortable with the services being offered mainly because the joint partner is usually already established in this foreign country and is thus able to better identify with the customer demands and feelings that are unique to this country (Bussing-Burks, 2009). Q4. In some of Starbucks Coffeehouse Company’s oversees markets such as Thailand and Britain, the company opted to enter into these markets via the establishment of wholly owned subsidiaries. How different are these two countries from Japan. During Starbuck’s expansion into the United Kingdom and the Thailand markets, Starbucks had some apprehension as regarding the capability of the company managing to achieve its characteristic aggressive growth targets in these two countries. Through out its expansion into all these various countries, It is evidently clear that Starbucks had always been interested in creating several joint venture arrangements whereby both the Starbucks Coffeehouse Company and its partner company would be able equally invest in the joint venture. However, the Starbucks Coffeehouse Company noticed that its joint ventures in Britain and Thailand could not be entirely relied on to effectively deliver the opening of a least 20 different Starbucks Coffeehouse Stores in the two countries within a time period of an average of about five years. The Starbucks Coffeehouse Company thus decided upon the acquisition of the two ventures in these two countries with the main aim of attempting to gain tighter control over the company’s expansion strategy in these two countries (Bussing-Burks, 2009). In Starbucks expansion into the British market, by purchasing the Seattle Coffee company which was based in the United Kingdom, the Starbucks Coffeehouse Company was able to acquire an existing coffee chain whose model was quite similar to that which was being used by Starbucks. The Seattle Coffee Company was originally managed by Ally and Scott Svenson, who were two natives from Seattle, They two had started the Seattle Coffee company in the year 1995 and since then had successfully managed to expand the company and open about 56 different coffee house stores all over the United Kingdom. Because the British Coffeehouse chain was already largely successful in its operations, Starbucks was able to avoid some of the major risks that inevitably came with the introduction of a new concept into an already foreign market(Griffin, 2012). In acquiring the Seattle Coffee company, Starbucks had to exchange approximately 1.8 million of its common shares which were found to be equivalent to about $83 million. This deal helped improve the company’s share price. As part of its rapid expansion strategy, the Starbucks Coffeehouse Company initially planned to use its London and United Kingdom base to further facilitate its expansion into Europe (Barrientos and Dolan, 2006). The company hoped to be able to open about 500 coffee shops all over Europe by the end of the year 2003. This global expansion strategy also involved the opening of about 500 coffee retail stores within Asia and the Pacific Rim within approximately the same timeframe as the European expansion. Similarly to the company’s expansion in Britain, the company’s joint venture in Thailand also experienced severe difficulties in attempting to raise sufficient capital to help finance its growth in the country. During the company’s entry into the Thai market, the Starbucks Coffeehouse Company had initially entered a licensing agreement with a local Thai company that was called Coffee Partners (News Starbucks, 2013). According to the initial licensing agreement between the two partners, Coffee Partners were supposed to be able to raise sufficient capital to be able to open about 20 stores across the country within a time period of about 5 years. However, Coffee Partners had a difficult time raising money from the Thai banks and as such, the Starbucks Coffeehouse Company was forced to step in and buy out Coffee Partners for approximately $12 million. As such, the Starbucks Coffeehouse Company was forced to also acquire this new venture so as to be able to obtain sufficient control over the entire expansion process and boost the company’s growth in the country (Fabnomics, 2012). Bibliography Aswathappa, K., 2010. International business. New Delhi : Tata McGraw Hill Education. Barrientos, S., and Dolan, C., 2006. Ethical Sourcing in the Global Food System. Routledge. Bussing-Burks, M. Starbucks. 2009. Santa Barbara, Calif.: Greenwood Press. Campbell, D. et al. 2009. joint ventures. Alphen aan den Rijn, The Netherlands : Kluwer Law International ; Frederick, MD, USA : Sold and distributed in North, Central and South America by Aspen Publishers. Daft, L., R., and Lane, G., P., 2008. The leadership experience. 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