Internationational Expansion Strategy for Starbucks and Motivations for the Expansion - Essay Example

?Starbucks Table of Contents Starbucks Table of Contents 2 Introduction 3 Strengths and Strategies which have emerged as the Core Competencies of the Company 3 Motivation behind the Company’s International Expansion Drive 6 Strategies used for its International Expansion 7 License and Consolidation Agreements 7 Intensify the number of stores in an area 8 Marketing Strategies 9 Strategies Leading to Success 10 The Leader of Starbucks: the Effectiveness 10 Conclusion 11 Reference 12 Bibliography 14 Introduction The story started back in the year 1971, when English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker opened a store called ‘Starbucks Coffee, Tea and Spice’ in Seattle (Ambai University, 2004). From there, that small coffee shop has come up a long way to emerge as a Corporation. Starbucks Corporation has been one of the successful coffee chains in the last few decades. The company has achieved its position through aggressive expansion strategies to survive the competition. Through the expansion, the company has focused to create a strong network across the US, while expanding further to the new locations worldwide. This report would look into the strategic management of the company with a profound insight into its core competencies and international expansion strategies. The effectiveness of its leader has been discussed to show the contribution in the company’s success by implementing appropriate strategies. Strengths and Strategies which have emerged as the Core Competencies of the Company Starbucks has a number of strengths which has emerged as the core competencies of the company. Starbucks has a corporate culture which has encouraged the innovation and creativity within the organisation. The organisation does not have any formal organisation chart with a proper hierarchy structure. Starbucks has several departments, functional departments including marketing, finance, operations, supply chain and human resources. Apart from that, the company also has cross functional teams which encourages accumulated effort to achieve a common goal. The decision making process in this organisation is bottom up process where the employees are authorised to take the decisions without even referring back to the upper management. This has encouraged innovation and creativity at the employee level. The employees are treated as family members and as partners. The company relies on the employees to offer a differentiated experience to its customers. With this organisational structure, the company has excelled in introducing new products and ideas. The employees had stock options on the company shares. Moreover, employee training is another significant arena which can be seen as the core competence of the organisation. The marketing strategy is one of the significant strengths of the company. The organisation positions itself as a consumers’ place, which encourages the customers to visit the place again and again. The company customises its stores depending on the specific locations, the stores are in. Another significant strength of Starbucks is that it positions itself as environment friendly. In the wake of environment awareness among the customers this positioning has helped the company to reach at its environment friendly customers. The company has a well known practice to make enough effort to comply with the environment. Starbucks try to be ethical in all its dealings. This has enables the company to gain from a good image among its customers. The large size of the company can also been seen as core competence of the company over its competitors. The sheer size of the company has allowed them to set the prices and has also helped the company to prevent the growth of other competing organisations. The world, specifically the people in the United States look at the Starbucks and its associates as the producer of high end coffees. Moreover, the consumers look at the company as the biggest and the best in the business, it is in. This can also been seen as the core competency of the company as it has an edge over the company’s less known competitors. The company is expected to be benefitted from the consumers’ experience with the high quality wide range of products. The company has expanded its business in several locations across the globe. The presence of the company at enormous number of locations has allowed it to reach at various domestic markets and at the same time assisted it to fetch the benefits of global expansion. This has allowed them to introduce new products across various demographic areas to have enough exposure to the clientele preventing the new entrants to fetch the market shares. Moreover, fetching benefits of the present establishments like Barnes and Noble as well as opening up more number of smaller cafes has allowed the company to indulge into expansion without incurring comparatively low cost. This has also enabled the company to expand its marketing potential to various demographics. The company has been successful to place itself as a company offering high quality exclusive products. It has changed the public opinion of the coffee products from simply a commodity to more of a luxury good. This has enabled the company to raise the price of its products which would be seen as the value for its high quality products. This has enabled the company to book high profit margin on its products. The company’s tangible and intangible resources have emerged as strong competencies of Starbucks to win over the customers. Human resource has been one of the significant resources of the company. The employee training program is meant to equip the employees with appropriate skill sets and training. It has been noticed that the Starbucks bean stock option plan has been an influential factor to contribute to the low rate of employee turnover. They have access to the high quality coffee beans. They have the sole ownership of Narino Supremo Beans which are considered to be one of the highest quality beans across the globe. Undoubtedly, access to these resources has enabled the company to ride high in the industry. “Starbucks’ mission to make its stores a ‘third place’ for people to go besides work and home comes by offering services like free internet and comfortable chairs. This goal gives Starbucks the ambiance to go along with its product” (Higbee, Liaw, Ting, Tjho & Ton, n.d., p.7).Starting from its inception, in this long run Starbucks has been successful by using its core competencies at its fullest and at the same time nurtured them to be the leader in the market. Motivation behind the Company’s International Expansion Drive Globalisation is no more a less known word in the academia. An increasing number of businesses are driving beyond their hometowns to survive the competition, increase the revenue and expand the market area. The Seattle based coffee chain also stepped far beyond its market origins expanding regionally, nationally and then internationally. It is quite obvious that different people would have different perceptions regarding the fast expansion of the company. “What some see as growth, others see as corporate colonialism. What some see as an American company, others see as an evangelist of all things American. What some see as international expansion of Starbucks, others see as the outright hijacking of foreign cultures” (Jung, 2003). In the year 1995, with around 700 stores across the United States, the company started to adjust its business strategies to explore the foreign opportunities. It would be wrong to say that the decision was made without proper planning and strategies. A considerable number of analysts believe that the coffee bar market in the US might have been reaching the saturation. Certain consolidations also take place as bigger players acquire some of the small coffee bar competitors. Another significant factor has been that the Starbuck’s store base was also approaching towards maturity, which in turn, led to the slowdown in the growth rate in the unit volume and the firm’s profitability. Even the coffee cost has also increased to further intensify the competition to make the market crowded. High coffee costs have also cut into the profit margins of the company. There are certain other factors also which have motivated the company to expand further. The company not only gets economies of scale by large production, but also helps the company to prevent the rise of its global competitors which have the possibility to build up enough capital to make a shift to the American market. Realising these factors Starbucks has shifted its attention to the foreign markets for continual growth. Strategies used for its International Expansion License and Consolidation Agreements Starbucks has adopted various strategies while expanding its business into several other regions across the globe. Among these strategies the company has considered license and consolidation processes to expand its business further. In the year 1996, the company has invested $1.5 million to establish a subsidiary called Starbucks Coffee International, Inc. This subsidiary is meant to put its concentration on the Asia Pacific region. In Asia, the company has adopted a common strategy was to provide license its own format to any local operator. In return of that the company would get initial licensing fees and royalties on the revenues of the local stores. Adding to it, the company has also sold coffee and other related products to its local licensees, who would then resold the same to its customers. In the process, the organisation had also realised that offering pure license agreements would not provide the company with the control required ensuring that its licensees would closely follow the company’s success formula. In Japan, the company had involved into a joint venture with Sazaby Inc, the local retailer. In this joint venture, both of these companies held 50- 50 percent stake. The joint venture was named as Starbucks Coffee of Japan. In Thailand, initially the company signed a licensing agreement with a local company in there. The agreement requires the partner to open more than 20 Starbucks coffee stores in that region within the five years time frame. However, it was tough for the partners to raise the required financing this expansion. Later on, in the year 2000, Starbucks acquired the local Coffee Partners to effectively support its expansion plan in there. This was done to gain better control and implementation of the appropriate strategies in that region. Starbucks has been using different strategies in different regions with a focus on the target customers. “The US giant opened its first Chinese branch in 1999 and now has 165 outlets” (BBC, 2006). In Tokyo, the company has targeted the students and the office workers as their prospective customers. In these stores, the customers have the opportunity to dine in the store or take away their purchases. Apart from coffee, these stores also offer various types of beverages and snacks to its customers. The company also offers coffee mugs and T-shirts to attract the youths towards their coffee stores. Adding to this, the company is also put effort to define the roles of its employees. The company wants all of its subsidiaries to replicate the experience in America. That is why, the company shifted some of its employees to its Japanese store operation and organised a similar kind of training classes for the Japanese store managers and the employees. Because of these human resource strategies the company has been successful in its operation in there. Intensify the number of stores in an area The company has kept its strategies simple which is blanket a region completely with an increasing number of stores, even its does not matter if those cannibalise each other (BBC, 2008). A new store in any region is expected to snatch 30 % of the sales of the nearest Starbucks store. However, the company takes it in a positive way. “The ‘Starbucks-everywhere’ approach cuts down on delivery and management costs, shortens customer lines at individual stores, and increases foot traffic for all the stores in an area” (ZhenJia, 2006, p. 18). Marketing Strategies The company does not offer promotional discounts on its products. The company has placed itself as an expensive quality brand. “In September, Starbucks hiked prices on some of its drinks to counter surging prices for coffee and other commodities” (Nair, 2011). The company advertises mostly using the print media. The rationale behind this is that the target market of the company tends to be educated people who read more intensively than the average human beings. The company has been successful to generate a considerable amount of revenue and attractive profit margin with virtually no marketing. Compared to other retailers spending 10 % of the revenues on advertisement, Starbucks spends just 1 % of its revenues to advertise itself. However, that is not a barrier for the company to attract the prospective customers. On an average, a consumer visits the Starbucks shop 18 times in one month. The company has no competition in this as no American retailer has this much of frequency of customer visits. Since the corporation has gone public, in one year the company has experienced average 20 % growth in its sales amount. In the recent recession companies like McDonald’s, Peter’s Coffee & Tea and Caribou Coffee have experienced slowdown in both its demand and revenue (Burks, 2009). Even during the recent recession when all the retailers had been experiencing slowdown, the Starbucks store traffic has increased by 6 % to 8 % in a year. These figures surely display the triumph of the strategies of Starbucks. Strategies Leading to Success One key success factor of the expansion strategy adopted by Starbucks is its real estate team with its sophisticated processes allowing the company to identify attractive place to target as a store location. In the year 1991, Starbucks established a group to introduce store development process. Each of these stores used to be different in both the shape and size. However, they would convey appropriate image of the company which has been as influential contributor to strengthen the reputation of the organisation across the regions. The company has reduced the cost through centralised buying by the development of standard contracts and maintaining fixed fees for certain products of Starbucks. The Leader of Starbucks: the Effectiveness “Business leaders today want their employees to be fully engaged in their work rather than simply going through the motions” (Michelli, 2007, p. 20). Often employees do not see how their efforts help the organization to step forward to success and how the employees relate to the overall scenario. Howard Schultz, the CEO of the company, believes that the sustainable competitive advantage of the company is the quality of the workforce. He believes that the employees have stake in the outcome of the labour. With such strategies, Schultz has transformed the company from a local coffee manufacturer into a profitable national retailer with strong ambitions and these all happened within 30 years. Schultz’s vision considers generous and comprehensive employee benefit package which includes stock options, health care, training programs, product discounts for all the employees, health care. These are offered to all the employees, both full time and part time. He believes that the company is in people development business as much as in the coffee business. Howard Schultz has been very much effective to build the company by collecting ideas, expanding his vision and establishing the concept, building the management teams and expanding the business further to different regions across the globe. Conclusion The success of Starbucks was based on a framework of some well planned strategies. The company’s strategy is pretty simple. The company drives to increase the perception of high quality commodity products, target the consumers looking at the consumers’ lifestyles and blanket the regions completely even if they are going to cannibalise each other. These approaches of the company would reduce the delivery and the management costs, cuts down the consumers’ queues at the individual stores and increase the customer traffic for all the Starbucks stores in an area. Since its inception, the company has been operating pretty successfully with several expansion strategies outside its home territory. Factors like, increased competition, saturating US market, shrinking profit margins and high prices of high quality coffee have been influential to motivate the company to expand further into other regions. However, as the company has explored its opportunities in an intensified way, it is high time that the company must review its strategies to sustain its growth even in the future time. News has revealed that “Coffee giant Starbucks has been fined ?12,000 after one of its branches was found to be infested with mice” (BBC, 2006). So, the company is required to maintain its high quality of its products to retain its leading position across the world. Reference Ambai University. December, 2004. The Starbucks Corporation: Past, Present and Future. [Pdf]. Available at: http://www.calarosbay.com/files/StarbucksCaseStudy.pdf [Accessed on February 16, 2011]. BBC. 2006. China central to Starbucks growth. [Online]. Available at: http://news.bbc.co.uk/2/hi/business/4712012.stm [Accessed on February 16, 2011]. BBC. 2006. Starbucks fined for mice in cafe. [Online]. Available at: http://news.bbc.co.uk/2/hi/uk_news/england/london/6130186.stm [Accessed on February 16, 2011]. BBC. 2008. Why Starbucks' sales have gone cold. [Online]. Available at: http://news.bbc.co.uk/2/hi/business/7219458.stm [Accessed on February 16, 2011]. Burks, M. 2009. Starbucks. ABC-CLIO. Higbee, Z., Liaw, C., Ting, C., Tjho, K. & Ton, M. No Date. The Future of Starbucks. [Pdf]. Available at: http://www.mcafee.cc/Classes/BEM106/Papers/2008/Starbucks.pdf [Accessed on February 16, 2011]. Jung, H. April 20, 2003. Lattes for all: Starbucks plans global expansion. [Online]. Available at: http://www.globalexchange.org/campaigns/fairtrade/coffee/662.html [Accessed on February 16, 2011]. Michelli, A., J. 2007. The Starbucks experience: 5 principles for turning ordinary into extraordinary. McGraw Hill Professional. Nair, V. November, 2011. Starbucks' strong 2011 view brews Wall Street optimism. [Online]. Available at: http://in.reuters.com/article/2010/11/05/idINSGE6A409I20101105 [Accessed on February 16, 2011]. ZhenJia, Z. March, 2006. International Expansion of Starbucks under the Background of Global Tourism Development. [Pdf]. Available at: http://cscanada.net/index.php/css/article/viewFile/269/pdf_114 [Accessed on February 16, 2011]. Bibliography Ahlstorm, D. & Bruton, G. 2009. International Management: Strategy and Culture in the Emerging World. Cengage Learning. Baker, M & Hurt, S. The marketing book, Volume 2003. USA: Elsevier Ltd, 2008. Brooke, M. 1996. International management: a review of strategies and operations. Nelson Thornes. Crane, A. 2000. Marketing, morality and the natural environment. New York: Routledge. Dobson, P., Starkey, K. & Richards, J. 2004 Strategic Management: Issues and Cases, Blackwell (DSR). Drummond, G., Ensor, J. & Ashford, R. 2008. Strategic Marketing: Planning and Control. USA: Elsevier Ltd. Gitman, L. & McDaniel, C. 2008. The Future of Business: The Essentials. USA: Cengage Learning. Gooderham, P. & Nordhaug, O. 2003. International management: cross-boundary challenges. Wiley- Blackwell. Griffin, R. 2007. Fundamentals of Management. Cengage Learning. Henry, A. 2008. Understanding Strategic Management. Oxford University Press. Hill, C. and Jones, G. 2010. Strategic Management Theory: An Integrated Approach. USA: South Western Cengage Learning. Hill, C. & Jones, G. 2008. Strategic Management Theory: An Integrated Approach. USA: Cengage Learning. Ireland, R. D. & Hitt, M. A. 1999. Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership, Academy of Management Executive, 13, 1, 43-57. Johnson, G., Scholes, K. and Whittington, R. 2005. Exploring Corporate Strategy: Text and Cases, 7th Edition, Financial Times, Prentice Hall. Lamb, C., Hair, J. & McDaniel, C. 2008. Marketing. USA: Cengage Learning. Mead, R. 2005. International management: cross-cultural dimensions. Wiley-Blackwell. Mead, R. & Andrews, T. 2009. International Management. John Wiley and Sons. Mintzberg, H., Lampel, J., Quinn, J. B. & Ghoshal, S. 2003. The strategy Process: Concepts, Contexts, Cases (Global Fourth Edition) Prentice-Hall. Pahl, N. 2009. The Idea Behind the Starbucks Experience: The Main Elements of Starbucks' Strategic Diamond. GRIN Verlag. Polonsky, J. M. & Wimsatt, T. M. 1995. Environmental marketing: strategies, practice, theory, and research. NewYork: The Haworth Press. Pride, M. W. & Ferrell, C. O. 2010. Marketing. USA: South-Western Cenage Learning. Puffer, S. 2004. International Management: Insights from Fiction and Practice. M.E. Sharpe. Shong, C. 2008. International Management. Thakur, M. & Srivastava, N. B. 2001. International Management. Tata McGraw Hill. Whittington, R. 2000. What is Strategy - and does it matter? London: Routledge. Thompson learning. Read More