Starbucks Franchise in China - Case Study Example

Starbucks franchise in China Contents Contents 2 Introduction 3 Background 3 Discussion 4 Globalization: Convergence v divergence 4 Managing corporate cultural and cultural diversity 5 Human Resource Management (Staff Service) 7 Problems related to product quality 8 Global economic importance of Starbucks 8 International strategy (price) 9 Consumer behaviour in Starbucks (facility) 10 Significant developments of Starbucks 10 Conclusion 11 Recommendation 12 References 14 Introduction This case study deals with the company Starbucks and its business in China. Starbucks Corporation is an American multinational company. The company is into the business of coffeehouse chain. The main product of the company is various types of coffee. The company has its business operation in 64 countries of the world. Starbucks has around 21536 stores all around the world. Some of the major business centres of this company are US, Japan, China, UK, Canada etc. Other than coffee the company deals with tea, pastries, snacks etc. Starbucks also offers beer and wines to its customers in evening at its different locations. The company is increasing its product range day by day according to the need of its customers and its store location. Many products of Starbucks are seasonal. Therefore the product range of the company varies a lot at different places in different times. To increase its product range the company has also include ice cream in its product. Starbucks sell coffee and ice cream in various grocery stores. It helps the company to increase more revenue. For expanding its business in China the company had to give a huge effort in establishing effective marketing and growth strategies. Starbucks had faced many strong challenges in establishing its business in this country. But the market of China also has several advantages which facilitated the company to grow its business and increase its customer base. There are many factors in China which influenced the company and its various activities. In this case study different issues of the Starbucks in China market are discussed and analysed in details. Background Starbucks has started its business in1971. The company opened its first store in Seattle. The mission statement of this company is to nurture and inspire human spirit through its high quality of product. To enrich the experience of coffee the company introduced various range of coffee and other products. The company has expanded its business in China which helped the company to get many benefits. In China the company has established its first store in 1999 in Beijing. By its strong marketing activities Starbucks is able to able to influence Chinese people and attract more customers. In china the company does not advertise much about its product and services. The company has gained huge popularity in this country. It has become as one of the famous international hospitality company of the world. The major target customer Starbucks in China is its rich people or the white collar person. Starbucks has faced some major problems in China. The price of its coffee is very high compared to the price of coffee in Chinese market. The pricing strategy of Starbucks is based on the things like competition, variable and fixed cost, positioning strategies, company objectives, target customers, spending capacity of customers etc. Starbucks is also facing problems with its product quality in China. The franchises of Starbucks in China are more concerned with suppliers’ price, their service and delivery, saving of capital etc. They are not concerned about maintaining product quality or controlling the quality of its raw materials. The franchise selects per time workers as their staffs for which it can’t provide full training to them. As a result the service quality is not so good in China. Moreover the coffee shops of Starbucks in china do not have sufficient space where people can sit and chat for a long time. For all of these problems the company faces difficulties in operating its business in China. Discussion Globalization: Convergence v divergence The process of globalization involves in integrating and interchanging ideas, products, views etc across the world. Through the process of globalization the companies expand their business activities indifferent countries by developing business operations at international level. The hospitality company Starbucks has also improved its business operations through the process of globalization. Globalization has influenced this hospitality industry in various aspects. Starbucks is an American company. With the influence of globalization the company has expanded its business operations in various countries of the world (Shuang, Volcic and Gallois, 2011). The global distribution system of this company has provided the facility of establishing its stores in different parts of the world. Starbucks is able to create a huge market in China by establishing 1570 stores and it is expected that the company will develop many more stores in this country. Globalization process is of two types. One is convergence and another one is divergence. Convergence globalization means national boundary is eroded for improving technical, political and business arenas of a country. As a result of this cultural boundaries are diminished and a global culture is formed. Divergence theory of globalization means that cultural diversity will prevail or will be established by rejecting the idea of commonality. Most of the hospitality organizations follow convergence globalization for expanding their business operations. This globalization process helps them to adjust their business activities and operations in different business environment (Trompenaars and Hampden, 2012). But the hospitality companies like Starbucks follows divergence theory of globalization. Though it has done many changes in its business structure in China, but it is following its American culture. By its American culture the company is influencing the people of Chine to get use to with American culture. By its different products and services the Starbucks is spreading American culture in China (Bryman, 2004). Managing corporate cultural and cultural diversity Corporate culture is very important for all multinational company. Every business has a unique culture. Large hospitality companies follow strong organization culture. They implement different strategies for maintaining good cultures which will help the companies to enhance its business operations and activities. Multinational Hospitality Company like Starbucks has different types of employees who belong from different cultures. To manage these employees effectively the company implements different types of training and development programs. With the help of these programs the company is able to interact with its employees more and it is able to understand the need and requirement of its employees for making them satisfied (Jianfei, 2014). In the training and development program Starbucks is able to make its employees understand about its mission and vision. The goals and objectives of the company are described in great details to its employees. The organizational members come to know about the company, its history and its culture (Pelmacker, Geuens and Van de, 2001). According to that they adapt and adjust themselves with the corporate culture of Starbucks for getting different advantages and benefits from the company. Starbucks do job enrichment where the employees working in different teams come together and perform together for achieving same goals and objectives. By this process the employees establish a strong communication with each other which helps them to reduce cultural barriers and problems. Corporate culture of Starbucks encourages the employees and positive sides of their culture (Huang, Chang, Yeh and Liao, 2014). The company’s culture manipulates its employees to become more effective in performing various business operations. The corporate culture of Starbucks is designed in such a way which helps the company to manage various business environments. The organizational culture of Starbucks is very supportive. The company helps its employees to overcome different problems. The company follows same organizational culture in different countries. In this way the hospitality company Starbucks is able to manage its corporate culture effectively (Harzing and Ruysseveldt, 2004). Human Resource Management (Staff Service) The hospitality company Starbucks has many stores in China. Therefore it has many employees in China which operates business activities of this company. Starbucks had implemented different strategies to manage human resources of the company in its various store locations. Starbucks provide high quality of training to its employees for improving their skills and potentialities. Starbucks sends its employees from one country to another country. For this process the employees often face many difficulties to get adjust in different working environment (Latif, Gulzar, Bukhari and Sameen, 2014). As a result they get de-motivated which results in their bad performance. Many American employees of Starbuck have shifted to China for handling the business process. The business environment and culture of China is very different from that of America. As a result they faced many problems. To manage this problem the company provided sufficient information and support to its employees to adjust themselves with China’s business environment. The company conducts many frequent meetings which help its expatriate employees to discuss their problems and issues with Starbucks and according to that the company tries to provide solutions (Gandolfo, 2014). Another major problem franchises Starbuck of China is facing is they are hiring per time employees to save its different cost related to employees. Therefore the training which Starbucks provides to its employees does not become so much effective on its employees of China. In spite of huge effort the company is not able to improve its employee efficiency. As a result the performance of Starbucks franchise in China is not good. The franchise is able to save money by this process but it is not able to improve its employee’s efficiency and their commitments (Jackson, 2000). Problems related to product quality Starbucks in China is also facing problem with its product quality. The company is famous for its high quality of products. One of the reasons for Starbucks charging high price for its products is its quality. The customers of this company are willing to pay more for getting high quality of products. But the franchisees of Starbucks in China are not considering this factor. They are focusing more on saving capital money, service, delivery time, suppliers’ prices etc. They are purchasing low cost products from suppliers. Therefore the quality of Starbucks raw material is becoming bad day by day in China. As a result the company is losing its goodwill in China market (Aiello and Pauwels, 2014). The supply chain management model of Starbucks depends on quality, history of the company, its technical capabilities, product deliver and service. Bad product quality of Starbucks is hampering the entire business model of the company. By selecting bad suppliers Starbucks products is losing its quality. The customer base of this company is in China is decreasing for this. Raw material suppliers play a vital role in improving the product quality of company (Aiello and Dickinson, 2014). Global economic importance of Starbucks The hospitality industry contributes a significant and important part towards the growth and development of the economy of China. The growth and development of the travel and tourism industry directly affects and influences the GDP of China And the improvement in the hospitality industry will attract more foreign visitors from abroad countries which will result in the economic development of China. Due to the increase in the international hospitality industry in China many hospitality industries are attempting to start there franchisee business in China. The global importance of the international hospitality industry can be explained in context of the Starbucks. Starbucks have faced a lot off challenges and problems in starting its franchise in China. And with the entrance of Starbucks in China the growth of the coffee sales in China have increased to more than 9% and with the establishment of franchise in China it is being considered as the second largest market for coffee in the world. The transitional strategy that was implemented by Starbucks has lead to the achievement of success for Starbucks and it will be able to realize more profit in the future course of time therefore the growth and development of Starbucks in China has lead to the economic development of China (Thompson, Strickland and Gamble, 2007). International strategy (price) The international strategic marketing technique that is adopted by China has lead Starbucks in accessing to the large markets. Starbucks is being considered as the market leader in the coffee industry but Starbucks is not willing to sacrifice its moral values. Understanding the international strategic market of China by Starbucks will lead towards the expansion and the growth of the economy of China. Starbucks have also focused on securing its supplies of coffee from China in order to control the cost of the coffee. The issue or the constraint related to price has been faced by china while starting its franchise in china. In order to control the cost for its operation in China Starbucks have focused on reducing its fixed and the variable cost in order to face since the price of the coffee is escalating, the competition with the other coffee industry such as the Costa coffee and in order to expand its business in China it have adopted various promotional strategies and have targeted those group of customers that are willing to pay the price for the coffee that is offered to the customers. Therefore Starbucks have reduced the price of coffee in the China market. Although Starbucks is required to increase the price of the coffee due to the increase in the demand for Starbucks but in the Chinese market Starbucks have focused on the increase in price after the expansion of its business and overcoming the other related constraints (Starbucks , 2015).  Consumer behaviour in Starbucks (facility) The consumer behaviour and responses of the consumer in the international hospitality industry especially in case of Starbucks have focused on understanding the consumer behaviour by fulfilling the needs and the requirement of the consumers and in order to satisfy the customers Starbucks have focused on providing its customers the facility of selecting the type of coffee they want to buy (Dicarlo, 2004). Starbucks is offering the facility to their customers in selecting the coffee either of low price or of high price according to their ability. The consumers generally prefer the coffee Of Starbucks due to its taste and the quality which is considered as the superior as compared to its competitors by the customers. The Chinese customer prefers the ambience of the coffee shop because they generally like to sit in the coffee shop and chat and spent time with their peer as well as with their friends. But the main problem with Starbucks is that they have lack of sitting space because the area is congested and therefore it is creating a hindrance and constraint towards attracting more Chinese customers. Therefore in order to expand its business and satisfy the requirements of the customers in China Starbucks is required to expand its area facilitating the customers to spend time with their peer groups (Company Timeline, 2015). Significant developments of Starbucks Starbucks have carried out its research in every country for its development and expansion and it found China as a suitable and most preferred destination for expanding its business operation. Although Starbucks have faced several obstacles and constraints in carrying out its franchise business in china but it have found out various ways and means in solving the issues or the problems (Burritt, 2007). Starbucks have identified the need and the requirement for the local responsiveness and differentiation in China. Starbucks was confident in facing and overcoming the issues that it faced in starting its franchise business in China. Starbucks have the ability of the multinational flexibility in order to overcome and manage the risk that it might face in expanding its operation. Starbucks have been able to generate profit from the business and the operation in China. Starbucks has expanded its business in China. It has adopted the proper transnational strategy for achieving its success in the market of China and it has realized the importance and significance of expanding its business in the market of China for targeting the wide mass of the customers (Baertlein, 2011). Conclusion This case study is based on the famous hospitality company Starbucks. The American multinational company has established its business in many countries of the world. This case study focuses on Starbucks business in the market of China. In this country the company has established its business creating many franchises. There are large numbers of franchise stores of Starbucks in different parts of China. The main product of this company is coffee but along with that the company also sell other food products and drinks in its different stores according to the taste and preference of its customers. This hospitality company has put huge effort in globalising its business. The firm has expanded its business operations in many countries for increasing its revenue and developing the business in an international level. But Starbucks strongly follows its American culture in its different stores. Though the company has globalised but it follows American style in different business process. The case study highlights that Starbucks follow divergent theory of Globalization. Starbucks has its stores in China for a long time. The market of this country has provided many growth opportunities to the company. But the franchises of Starbucks are also facing some important problems in performing its business activities effectively. This influences the business performance of the company in Chinese market. The company has done many changes in its business activities in China but still it maintain American business culture in China Market. Starbucks has hired many staffs from China in their store and also have shifted many staffs from other countries in the stores of China. To reduce cultural diversity and to increase employee efficiency the company provides various training to its employees. But still Starbucks is facing problems with its employees in China. Franchises of Starbucks in China are concentrating more on their profit and saving capital. As a result they are not focusing on its employees, product quality, price and facilities to its customers. The franchisees are not making business plans according to the culture, desire of Chinese people. So they are not able to satisfy the customers. This report explains that 9% revenue of China’s Hospitality industry has increased after Starbucks has developed their business in this country. Therefore it can be concluded that the country can increase its revenue more in hospitality industry in the franchise of Starbucks solve these problems and improve their business process. Recommendation Starbucks is required to focus on improving the facility that is provided to the customers, since the customers of china prefer to spent some good time with their peer group in the coffee shop Starbucks is required to widen its sitting space allowing all the customers to sit properly and have coffee according to their wish and spent time with their colleagues or friends which will facilitate Starbucks in increasing its revenue and expand its franchise business in China. Starbucks is also required to focus on its pricing strategy that is it must provide options to the customers whether they will prefer the coffee with high price or the coffee with low price. Starbucks has to abide by the social norms and the cultural differences that exist in expanding its franchise business in China. As the franchises of Starbucks are facing major problem with their per time employees, so they should develop and implement a plan for hiring full time employees. This will help Starbucks stores in several ways. By having full time employees the company will be able to train and develop the employees effectively which will help to increase footfall in the stores of Starbucks in the market of China. The company should make its guideline stronger which its franchise owners need to follow. In the present scenario the franchisees are focusing more on their profit rather on maintaining product quality of Starbucks. The company needs to take effective decisions to stop this thing. It is damaging the reputation of Starbucks in international market. The company should make a rule where it can choose and cancel raw material suppliers for manufacturing its products. Starbucks also needs to develop strong rules for its franchise owners for maintaining its product quality. 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