Defining Entry Mode in Starbucks - Term Paper Example

College Defining Entry Mode An international market entry mode refers to creating the possibility by arranging a company’s products, human skills, technology, management or other resources so as to enter a foreign market/country (Root, 1994). There are several means by which star bucks can use to enter into Malta;- Licensing This is a significant stage for a firm that plans entry into a foreign country. Because of the uncertainties attributed to foreign markets such as economic or political situation, some new entrants to these markets may see the need to develop a licensee agreement .This will enable the said entrant to make their entry much more gradual and cautious to avoid excess exposure. This will allow the licensor firm to collect a royalty fee from the licensee. This can be of great benefit to a licensor that has limited capital to enable it engage in full operations in the foreign nation. A major disadvantage though is the fact that this mode gives the firm much less tight and central control over the foreign operations. Franchising This entry mode is almost similar to licensing. The franchisee obtains the main business know-how through an agreement with the franchiser by paying a royalty fee. This know-how also includes patents and trademarks. The main difference when compared to licensing is that franchisee operates under certain rules dictated by the franchiser. This is mainly so as to maintain its reputation and standards. This is very common in the service industry. The main advantage with this is that the firm can efficiently explore this new market with minimal development costs and risks. The disadvantage is that the franchisee will have to abide by strict rules set by the franchiser. This is not always possible and the franchisor may have its reputation tarnished if the franchisee does not maintain the high standards. Joint Ventures This is a very common entry mode that is used all over the globe. It can be explained by having two or more firms forming an alliance that will put them in a better position to penetrate the new international market. These are often based on a 50/50 type of agreement. This operation is always separate from both companies. There are situations whereby one of the firms invests more than the other leading to more shares in the Joint venture hence handing it a controlling stake. The advantages of this method of foreign market entry are;- The costs and benefits are shared between the two firms. An international firm partnering with a local established firm gives it better access to the local market. This gives the international better market knowledge. The disadvantages on the other hand are;- There may be disagreements between the joint venture firms. It is very hard to hold a balanced relationship due to the shareholding. The two firms may have different expansion strategies in the market. It is very easy for industrial espionage to occur. Wholly-Owned Subsidiaries This mode in simple terms means that the company owns all the shares in the overseas firm/entity. There are two main means of establishing such kinds of subsidiaries: Greenfield venture and acquisition. In terms of Greenfield venture, the firm establishes a completely new and legal entity in the new market. Acquisition means that the foreign firm like star bucks buys another firm in the targeted nation that previously operated independently in that market. The acquisition strategy is less risky since a considerable amount of the firm’s clientele can be inherited giving the firm an edge. The main advantages of this mode are;- The firm fully owns the subsidiary hence can enforce its standards and strategies in the new market. The firm gets to keep 100% profits in its new overseas operation. The main disadvantages are;- There are high initial costs due to full ownership The full ownership also translates to full assumption of risk. Star bucks should enter the Maltese market by using the wholly owned subsidiary mode. This is the best option since this is a premium coffee brand with specific standards to maintain. This mode will mean that the parent company back in Seattle can maintain full control over the Maltese chain due to the fact that they have 100% ownership. This is very important since Malta is a tourists’ haven meaning that its clientele will be mostly people in transit /global trotters. These can be effective global marketing tools if they experience top notch service at the star bucks in Malta and move on to other parts of the world. Adapted Product and Promotion Strategy The new Starbucks chain in Malta can include on its menu the traditional Maltese coffee or as it is locally known, “Kafe Msajjar”. This is a blend of spiced coffee that is very popular in the tourist island. It can be made from a blend of Robusta and Arabica coffee beans that are mixed with roasted chicory, ground aniseed and ground cloves. This can be an easy venture for star bucks since they have decades of experience working with coffee and importing espresso and other brands would be very counterproductive to sales. This is because even the tourists will be on the lookout for native dishes which will be part of the tourism experience. Malta is also big on Pastries which the locals and visiting tourists love to sample whenever there is a chance. The most common is ‘pastizz’ which is a native Maltese savory pastry. They can be cooked into cheesecakes/ pastizzi tal-irkotta or pea cakes/pastizzi tal-pizelli. These can be very appropriate accompaniments to coffees and can be branded appropriately and sold in the Starbucks chain in Malta. The Maltese are also big on dessert and pudding which should be on the menu to appeal to the locals. The Product servings should be in small but reasonable portions which is the norm in traditional Maltese restaurants. The Maltese condiments include the Tomato & Garlic Salsa which is served in 400gm and 750gm portions and Mammoth Green Stuffed Olives that are served in 400gm portions. The most convenient store size in Valletta, Malta can be about 1,800 square feet due to the fact that there is limited space in the capital since the small country is an island. This can be appropriate since two such stores in the capital will be enough to serve the locals as well as the hordes of tourists that flock the island throughout the year. The general pace of the Island is pretty slow since they are not early risers but stay up late since it’s a major vacation destination. The stores can operate from 7 am to 10pm in the evening. This is possible since there is virtually nonexistent violent crime in the tourist island. Promotion Mix Recommendation The company being U.S based company will have to take into consideration the difference in culture that will be experienced by some of the expatriate staff from the U.S. These employees can minimize the effect and ensure they thrive in the new environment by following the following basic steps;- Keep an open mind: Not to automatically conclude anything that seems different to mean it is wrong. Make an effort to learn the local language: This will increase the employee’s ability to effectively communicate with the customers thus reducing misunderstandings. Getting to the local social environment: This is vital since the way people socialize is quite different and being ignorant may lead you to offend the locals unwittingly. These three basic steps can go a long way in cementing proper customer relations and can be the difference between retaining and losing the customers in a foreign nation. Starbucks is a premium coffee brand. This has to be taken into consideration whist positioning the brand in the new market in Malta. Malta has a big affluent population relative to its size. This is further expanded by the huge tourist presence in the Island who have basically come to the island to spend their hard earned money which they chose not to spend in their home countries. This means that the company does not have to change its marketing strategy across the globe. The company can target its affluent customers through premium pricing. This is much easier for the company since the brand is generally associated with luxury, comfort and affluence. Malta has no real established local coffee subsidiaries which will make it even easier for the company to penetrate the coffee market. The local population also drinks a lot of coffee on average. The market is very ripe for a premium coffee brand. The most effective way to advertise its presence in the tourist island is to partner with the Island’s tourists board. They are always advertising the country o international news media. The company can sponsor this advertisement which will ensure the brand is mentioned whenever the country advertises itself in the tourist sources. Locally, the company can use the local news channels, Radio Stations and also inner city transport buses by having their message painted on the sides of the buses. The subsidiary’s slogan can be “The Latest Tourist Destination in Malta!” Work Cited Pham-Gia, Khanh. Marketing Strategy of starbucks Coffee. München: GRIN Verlag GmbH, 2009. Internet resource. Read More