Globalization of Starbucks - Case Study Example

Globalization of Starbucks Your name Your institution Course Name Instructor          December 24, 2008  Introduction Globalization has become more institutionalized by large corporations who have set up headquarters and designed central units in one country, while operating processing centers in another country, and marketing the end-products in the third country. My study of international global company Starbucks Corporation is an example of a global firm that has managed to permeate most urban centers in America, Europe, Asia and Middle East. Starbucks is a global conglomerate that typifies the trans-nationals companies expanding rapidly internationally by employing unorthodox trade practices, labor relations, and environmental degradation while exporting the American cultural and consumer imperialism internationally. Starbucks more than other typical U.S. conglomerates like MacDonald’s or Hilton hotels, is an international American brand that has attracted hostile reactions from the anti-globalization lobby groups mainly due to the perceived negative American policies of aggressive marketing and trade policies (Simmons, 2005). History Starbucks Corporation the international coffeehouse chain is a Seattle based global phenomenon with over 16,226 coffeehouses worldwide, of which 11,434 are domesticated in the United States. Apart from its trademark packaged hot and cold coffee drinks, Starbucks also markets snacks, mugs, and coffee beans. Another branch of the international firm, Starbucks Entertainment and Hear Music brand markets music, movies and books (Starbucks, 2007). The firm was originally founded by three Seattle men, Jerry Baldwin, Zev Siegel and Gordon Bowker who inspired by a Dutch immigrant Alfred Peet into trading in coffee beans in a European model in 1971. However the person who really expanded the firm was the entrepreneur, Howard Schultz who entered the firm in 1982 as head of marketing. A visit to Milan, Italy by Schultz where he was mesmerized by the concept of coffeehouses where people converged while taking coffees inspired him to formulate a similar concept in America. When the other founders of Starbucks demurred in starting the concept, Schultz initiated his own successful coffee house II Giornale which was a runaway success.  In 1985, he bought out the other members of Starbucks and thereby launched the chain stores Starbucks Corporation. Starbucks has distinguished its brand from the other coffeehouses by moulding it are on the Italian style with some adjustment to suit American flavor. The American settings had revolving chairs, jazz rather than opera but with Italian flavored brand names like, ‘frappuccino’ or ‘tazo tea’ designed to internationalize or make the name exotic. According to Kuhl, ‘Starbucks customers, whether in Zurich or Beirut, are drinking an American version of an Italian evolution of a beverage invented by Arabs brewed from a bean discovered by Africans’ (Kuhl, 2003).   Starbucks Expansion Schultz was able to launch the company on an ambitious expansion program starting with coffeehouses in Vancouver, British Columbia and Chicago by 1987 establishing a total of seventeen coffeehouses by the end of the year (Dicum, 1999). In 1988 Starbucks expanded to33 while still using the mail order catalogue service inherited from Peet reaching all the U.S. fifty states. By 1989, Starbucks had opened branches in Portland, Oregon and were in a total of 55 locations. Building a new roasting plant in 1990, they added a further 30 stores. The company also launched an Initial Public Offering (IPO), in the NASDAQ as SBUX in 1992. The company also invested heavily on its employees through extended training programmes including the history of coffee, preparation etc. International Expansion The first Starbucks foreign branch was opened in Tokyo in 1996 and Britain in 1998 after the acquirement of sixty chains of stores from another Seattle UK based company. The expansion then gained momentum after the Starbucks went international with the company having more coffeehouses in Britain than in New York.  The formulation of international expansion was initiated in 1992 – 1993 when the firm developed a three year geographical growth strategy with greater potential. The market strategy was usually based on location in large cities as the expansion point. This then led to expansion to smaller regions within the locality. The company had experienced zonal vice president in charge of these regions as the company generated greater revenues which were regenerated back to the firm for more and more expansion in the international arena. In the 1990s the company was initiating a chain store everyday all over the globe up to the early 2000. As the expansion programme within the U.S. market intensified, the market for coffee stores got saturated with time. This heralded the company’s aggressive international ventures where it opened stores in Canada, Singapore, the Philippines, Kuwait, China, and Lebanon. This saw the growth of the company by more than 6500 percent since 1992, with a third of the stores located in United States. These stores are able to market the Starbuck features like Tazo teas, pastries, coffee brewers, espresso machines and other food items. To take advantage of the market, these products are put up for sale at the coffeehouses, using the mail order service, and online facilities in their website. With the proximity of their stores being close to each other, the company was not able to expand further in North America and hence the only logical conclusion was to search for destinations abroad. In Europe, coffee is very popular with Austrians averaging fourteen pounds in consumption and the Swiss at 15.5 pounds while Americans consume an average of ten pounds. However, this is not reflected in the number of Starbucks stores there as the clientele attracted to Starbucks coffee is unique (Kuhl, 2003). The company also started to diversify to other food products e.g. the Grande fat free caramel macchiato drinks, apples, ice-cream, to donuts. Another new variation was in music which could be marketed within their stores using DVDs hence expanding their market mix. These products although having ready markets in United States, were even more appreciated internationally. The company through its expansion in Asia and Middle East hoped to exploit an already coffee drinking culture by introducing its unique brand of products packaged for the urban hip society. This was especially appreciated in China which although more a tea drinking culture, was an economically emerging giant that had an increasing affluent middle class society that took to the Starbucks coffeehouses as a status symbol of being classier. Locations in hippier parts of the cities for the Chinese Starbucks were more successful. Starbucks in partnership with President Coffee was therefore planning to increase its stake in the Chinese market from 5 percent to 50 percent.  The Chinese who are conspicuous consumers will spend more on a cup of coffee as a public consumption, with the price serving as a mark of quality and sophistication. Tom Doctoroff, the North Asia of the advertising firm J. Walter Thompson commented that, “The Starbucks proposition in China is huge. But people don't go there for the coffee. They go there to present themselves as modern Chinese in a public setting,"(Fowler, 2003). Although Starbucks has been a target for the anti-globalization lobby groups, the company has on the contrary tried to project an image of corporate contribution to the underprivileged even as it is criticized for underpaying on its coffee beans. Its expansion abroad provided the company an opportunity to counter the claims by partnering with CARE International to market their coffee back to the coffee producing countries at subsidized rates. They also contributed heavily to conservation efforts with select organizations. The management of the company started the ‘Grounds for your Garden’ concept as an environmental program which donated left over coffee residues for gardening. In 2005 in recognition of their contribution to the farmer’s welfare while using the inexpensively beneficial Coffee and Farmer Equity (C.A.F.E) practices guidelines, Starbucks was awarded the National Recycling Coalition Recycling Works Award (Starbucks, 2007). The company’s international expansion has further added to the revenues of the company while enhancing its market base. The Starbucks brand is now used to market energy drinks that are a new frontier in the beverage market. Through its international network of stores, Starbucks is able to introduce other products in entertainment like music whereby it has partnered with Apple an information technology firm that has branched into the cell phones and entertainment market. The firm’s iTunes, iPhone, and iPods, Touchpod, and MacBook brands were retailed at Starbucks stores even. The coffee drinkers are now able to download the music from these gadgets (Apple, 2007). Starbucks has therefore taken advantage of its international network of chain stores to partner with various brands to further enrich its coffeehouses which are viewed as social centers in the urban areas and not mere coffee stores in the Italian tradition of coffeehouse. The Starbucks stores are a major tourist attractions to the local populations as they are viewed as trendy and ‘hanging out’ joints for the youths. This helps in marketing the American culture while serving the international tourists who congregate at the Starbucks coffeehouses. Criticisms Starbucks has faced various challenges in its international expansion programme, chief among them being opposition by anti-global campaigners who are usually against the exportation of the American culture and the exploitation of poor developing Third World countries (Simmons 2007). Although not largely the typical anti-global campaign transnational corporation, Starbucks is a convenient target for the groups due to its visible stores worldwide. This was exposed in the vandalism of its stores in Seattle during the WTO summit in 1999. In Beijing China, a store located in the former Imperial palace was shut down in 2007 with claims of trampling on Chinese culture (Massing 2002). Starbucks has also faced negative reception in Europe as exemplified in Britain, where there were claims that it was driving small stores out of business with its multinational practices while underpaying the coffee farmers in the Third World producing countries. This has been replicated in most parts of Europe as anti-Americanism reached its peak during the ‘Bush years’ and the invasion of Iraq (Kuhl, 2003). In Mexico a coffee producing country, Starbucks was accused of exploiting the poor Indian farmers who were paid a fraction of the retail price. Although Starbuck sold their coffee at $3.60 dollars, it was ten times the amount surcharged the peasant farmers. This heavy negative criticism has even made the company lose market or consumers in its domestic stronghold U.S. markets as they are picketed by protestors when opening new stores e.g. in Massachusetts 1998 (Massing, 2002). Starbucks has however relentlessly continued its expansion arguing that the fear expressed is due to the local peoples desire to control their culture and retain parochial control and not a reflection of their hatred of the Starbucks coffee as the brand remain popular with the majority of the connoisseurs (Massing, 2002). Starbucks has also been accused of employing ant-competitive tactics against other firms. This include buy-outs of rival firms leases, deliberately undercutting, crowding several locations within a small domain like a hypermarket to saturate the market for other firms and then relocating once they have driven competitors away. In Britain, the firm was accused of operating at a loss in order to drive out the smaller stores and hence acquire prime locations. The firm like many transnational corporations has been accused of exploiting workers through unfair working conditions and low wages. This is the typical practice among these firms which have to contend with criticism in the foreign markets for unfair labor practices and in the American domestic markets, of using immigrants’ workers who are paid ‘slave’ wages while working long hours. The company has been accused of being against the Unionization of its workforce as various lawsuits against the company have seen awards to workers. The company bottled water company branch Ethos which has a label reading "helping children get clean water" has been accused of misleading consumers as its not a altruistic organization although it has continued donating ten cents for each bottle sold. Even though this has helped raise over four million dollars for hygienic water efforts, 94 percent is still retained by the company hence making the naysayer to point out that it does not qualify as humanitarian effort. The company has moved to counter criticism of its practices with a raft of measures. In 2000, the company started a Fair Trade products concept with six percent of its purchase certified as fair trade by 2006. Starbucks also claims to be one the highest paying coffee purchasers in the world, paying out a standard $2.6 dollars per kilogram for grade one coffee beans as compared to the market average of $0.50 dollars in 2004 (Starbucks 2007). The company has went on to become the largest purchaser of certified fair trade with a ten percent share in the global market with Trans-fair-USA an independent certifier of fair trade practices commenting that, “Starbucks has undeniably made a significant contribution to family farmers through their rapidly growing FTC (Fair Trade Coffee) coffee volume. By offering FTC coffee in thousands of stores, Starbucks has also given the FTC label greater visibility, helping to raise consumer awareness in the process (Starbucks 2007). In the environment front, Starbucks has been various contributions through its "Grounds for your Garden" concept, its recycling practices which earned the company an award in 2005, National Recycling Coalition Works Award. The Coffee and Farmer Equity (C.A.F.E) practices guidelines have led the firm to purchase coffee beans directly from the farmers hence reducing environmental degradation. However, Starbucks was accused of using only ten percent recycled material in efforts to reduce costs but by 2008, the firm was number 15 in the United States Environmental Protection Agency listing for firms that purchase renewable energy (USEPA 2008). Starbucks is one the fastest growing brand names in the world purchasing one percent of the worlds coffee and fifteen percent of the specialty coffee still face s criticism over its moral principles and belligerent marketing strategy. It also alongside with other American corporations like MacDonald and Nike stand accused of trying to homogenize the American culture as opposed to the local culture. The firm’s international brand profile is a focal point in the global tourism concept as tourists converge on the Starbucks coffeehouses in foreign capitals while the domestic people engage the international visitors in the stores. The proliferations of the stores promote tourism as the world or global village concept is brought closer (Giroux 2001). In Britain the firm was forced to withdraw in Primrose Hill in London due to what the firm termed as ‘the level of animosity shown towards Starbucks’ (Simmons, 2005). Starbucks has however evolved a strategy whereby the local culture ad tastes are incorporated in the stores and coffeehouses to reflect the local culture hence reducing the globalization effects or the ‘Starbucks Effect’ on the local community. Starbucks CEO Jim Donald in Q&A with the Chief Executive Magazine commented that, “On a country-by-country basis, the largest hurdle we had to overcome was thinking we had to be different. There are regional differences in every market, but the main reason we are successful in the US is the same as why we are successful internationally.”(Yunker, 2006). Conclusion Globalization has had a major challenges on most corners of the globe with claims of exploitation of poor farmers and emerging companies in the Third Word developing countries, unfair market practices in the developed world and general disregard of environmental concerns, workers exploitation, and the insatiable greed for profits by the large Transnational corporations. As most of the large corporations are American in origin, there has also been a feeling of submerging local cultures to the foreign American consumerism concept and practice that is viewed as harmful to the local cultures. Starbucks as a highly successful developed chain of stores is inevitably given as an example of the large multinational American corporation that is motivated at garnering profits while exploiting local communities and poor coffee farmers in the developing countries. Although it has largely tried to counter the accusations by giving back to the environment and practicing Fair Trade concepts, Starbucks still needs to do more to enhance its reputation by paying more to the coffee farmers and employing better trade practices.    References Beck, U. (2002), Risk Society, (London, Sage.) Beck, U. (2003), What is Globalization? (Cambridge, Polity Press). Beck, U. (2001) 'living your life in a runaway world: individualization, globalization and politics', (New York, New York Press) Chossudovsky, M. (2001), the Globalization of Poverty. Impacts of the IMF and World Bank reforms, (London, Zed Books.) Castells, M. (2000), The Rise of the Networked Society, (Oxford, Blackwell). Castells, M. (2001) 'Information technology and global capitalism', (Oxford, Oxford University Press) Hutton, W. and Giddens, A. (2002), On The Edge. Living with global capitalism, (London, Vintage).  Fowler, G. A. (2003, July 17). Converting the Masses: Starbucks in China. Far Eastern Economic Review , p. 2. Fox, J. (2001), Chomsky and Globalization, (London, Icon Books). Giroux, H. (2001), effects of globalisation, (London, Palgrave Macmillan.) Hutton, W.  and Giddens, A. (2005), On The Edge. Living with global capitalism, (London, Vintage.)  Kuhl, J. (2003). Tempest in a coffeepot: Starbucks invades the world. Reason Foundation , 1-3. Yunker, J. (2006, December 3). Starbucks CEO on Globalization: Don’t Go Changing. CHIEF EXECUTIVE , p. 1. Massing, A. (2002, March 11). Bitter Taste of Success. Financial Times, p. 14 Massing, M. (2001, July 2). From Protest to Program. American Prospect, 12, 12, p. 52 Simmons, J. (November 21, 2005). Behind the brand: The triumphs and tragedies. Retrieved December 2008, from BrandChannel.com: http://www.brandchannel.com/features_profiles/asp?pr_id=259/author Starbucks Corporation. Htto://www.starbucks.com Accessed on December 9, 2008 United States Environmental Protection Agency: http://www.USPTA.com Accessed on December 9, 2008  Read More