Why Has Starbucks Succeeded in Entering the Chinese Market - Case Study Example

Why has Starbucks succeeded in entering the Chinese market? By Student’s Name Code +course name Professor’s name University name City, State Date INTRODUCTION This research takes a detailed look at the Starbucks Corporation in China. The specific reason for the selection of the Starbucks Corporation for this study is the fact that the company has been able to successfully enter the Chinese market despite the spiral effect of the recession in Europe and the United States which took a toll on emerging economies. In addition, Starbucks activity represents some aspects of New Trade Theory including, trade liberalization and globalized markets. Starbucks Corporation used its knowledge about foreign markets and also partnered with local firms in order to achieve success in China. Therefore, Starbucks Corporation represents an example of the Stages Models of Internationalization. This research relied heavily on review of existing literature on how companies enter a foreign market and maintain a competitive advantage through effective strategies. The sources for the data gathered have been categorized into three distinct groups based on the nature of the source. LIBRARY CATALOGUES 1. Haig, M. 2011, Brand success: how the world's top 100 brands thrive and survive, London, Kogan Page. Haig (2011), in his studies, argues that in today’s business world, building brand equity and enhancing customer loyalty have been deemed as the most sustainable means towards long-term profitability and competitiveness. According to Haig, Starbucks Corporation has entered into joint venture with three domestic companies. The aim of these partnerships is to facilitate marketing of branded products. The licensing of branded products has helped Starbucks to increase its specialty revenues. 2. Butler, M. 2011, the art of being chosen: secrets of success from the giants of retails, Massachusetts, Global Management Enterprises, LLC. Butler, in his studies argued that successful business organizations in today’s world have embarked on such concepts as researching on consumer preferences and behavior, dividing consumers into distinct segments and improvement of products in search of a competitive advantage. These companies ensure that they surpass their expectations with the quality of their products. 3. Andrew, R. 2012, Human resource management: gaining a competitive advantage, New York, McGraw-Hill Irwin. According to Andrew, an organization has different departments that combine their efforts to meet the goals and obligations of the firm. One of the most important parts is the human resource department that is the main distribution center of manpower in an organization. Andrew argues that in today’s business world, organizations have overwhelmingly institutionalized the culture of effective staffing in order to gain a competitive edge. Failing organizations, on the other hand, are not bothered by the high priority their competitors give to recruitment and training programmes. 4. Doctoroff, T. 2012, What Chinese want: culture, communism, and China's modern consumer, New York, Palgrave Macmillan. According to Doctoroff, there are various factors that affect the decision and mode of entry to a given market, including; political and legal forces, economic forces, technological forces and social cultural forces. Organizations should, therefore, scan the internal and external environment carefully before entering a foreign market. ELECTRONIC DATABASES 1. Kotha, S & Glassman, D. 2003, Starbucks Corporation: Competing in a Global Market, Washington, the University of Washington Business School, pp. 1-26. Koth & Glassman explains how a company can become a market leader by adopting the right marketing strategy. Koth & Glassman emphasized that a company can achieve its strategic goals by delivering value for money. According to them, a company also should provide unique products at a lower cost in order to capture wallets and hearts of consumers. 2. Higbee, Z, et. Al.2008, The Future of Starbucks: An Analysis by Team Machiatto < www.mcafee.cc/Classes/BEM106/Papers/2008/Starbucks.pdf> Higbee, et.al argued that companies should strive to build a strong, customer-oriented culture, in order for them to survive in a highly competitive business environment. In the modern business panorama, organizations have become adept at enhancing customer relationship. With this regard, companies across the globe have researched on consumer preferences and behavior, divided consumers into distinct segments and improved their products in search of a competitive advantage. Failing companies, on the other hand, do not bother to look at customer scenario. 3. Bach, J & Peabody, N.L.2009, Strategies for IP Protection in China: International IP Issues and Strategies, New York, First printing Bach & Peabody (2009, P. 4-16) argued that, in today’s world, the Chinese economy has been among the highest developing countries in the world. This has been facilitated by the growing levels of foreign direct investments which have led to introduction of Intellectual Property (IP) laws that are consistent with the international standards. Intellectual property rights serves to give exclusive rights of the new invention to the owner. Thus, any infringement of such rights can be challenged in a court of law (Bach & Peabody, 2009, P. 4-16). 4. The SME Centre. n.d, Ways to Enter the Chinese Market, Beijing, The EU SME Centre According to the article, it is ideal for a firm to carry out market analysis before investing in a foreign economy. The senior leadership team at Starbucks has avoided franchising Starbucks Corporation. This move has been beneficial for the following reasons: the management has avoided conflicts between the franchisee and the franchisor i.e. litigation costs. Also, this decision is important as it has enhanced ownership and control of Starbucks Corporation. As a result, Starbucks Corporation has been exercising full control of its coffee stores throughout China. INTERNET SOURCES 1. Peterson, H. 2014, 5 Ways Starbucks Is Different In China, Wiki Article, Viewed 8 August 2014, Hayley Peterson explains why Starbucks Corporation has been successful in China. According to the article, Starbucks does things differently, and that explains its success story in China. Among the strategies that the Starbucks Corporation has adopted includes charging premium prices, good employee relations, branding and spacious coffee stores. 2. Law, V. 2014, Starbucks Pushes Major Expansion in China as Coffee Culture Emerges, Wiki Article, Viewed 8 August 2014, An article, Starbucks Pushes Major Expansion in China as Coffee Culture Emerges by Violet Law, which appeared on the NBC News website on August 8, 2014 states that Starbucks engages in customer service and brand image as a point of differentiation. The Starbucks facilities are large in size to accommodate its servicescape strategy. The environment offers differentiation in customer experience, hence is a competitive advantage for a company in the hospitality industry. 3. Wang, H.E. 2012, Five Things Starbucks Did to Get China Right, Wiki Article, Viewed 10 August 2012 < www.forbes.com/sites/.../five-things-starbucks-did-to-get-china-right/> An article, ‘Five Things Starbucks Did to Get China Right’ by Helen Wang, which was published in the Forbes Magazine on August 10, 2012, show that Starbucks was destined for success in China, as a result of its effective marketing strategies. Starbucks does not compromise on prices, and therefore, sells coffee at a higher price than that of competitors. The premium pricing strategy provides the firm with an edge in the Chinese market. Drinking Starbucks coffee in China is viewed as a status symbol, and therefore, many customers (especially the middle class) pay an extra cost in order to achieve the luxury. ASSESSMENT This research adds up to the existing body of knowledge by shedding light on why companies fail or succeed in foreign countries. Many companies have failed to enter and operate in the Chinese coffee market due to their ineffective market entry strategies or business model. Thus, the presence of mixed results and lack of adequate literature on why firms succeed or fail in international markets calls for further research. Therefore, this research seeks to investigate ‘Why has Starbucks succeeded in entering the Chinese market despite the spiral effect of the recession in Europe and the United States which took a toll on emerging economies?’ PLAN To shed more light on the importance of effective strategies and business model on international business, this plan seeks to develop the thesis by drawing references from the sources given above. From the sources and my understanding of my thesis question, I am confident that I have sufficient data to develop the thesis. Table of Contents 1.0 Introduction 9 1.1 A Brief history of Starbucks Corporation 9 1.2 A description of the position of the Company currently 9 3.0 Expounding the thesis statement 10 4.0 Arguments 10 5.0 Conclusion 11 Reference List 12 1.0 Introduction 1.1 A Brief history of Starbucks Corporation Starbucks is an international retailer, roaster and brand of specialty coffee, with more than 12000 company-operated and licensed stores around the world (Simon, 2009, P. 1). Starbucks international licensed retail stores are operated through licensing arrangements and joint ventures with established retailers or restaurants (Pride & Ferrell, 2013, P.311). 1.2 A description of the position of the Company currently Starbucks has adopted unique strategic management principles that have helped it to gain and maintain competitiveness in China amidst various challenges faced in the industry (Colier & Evans, 2009, P.106). Many Chinese do not like coffee as they say it does not have a good taste. However, recent report shows that Starbucks is the market leader in the Chinese coffee market (Beijing Review, 2013, P. 6-8). The company has been in the country for more than thirteen years. In China, Starbucks coffee shops are found almost in every major city including Shanghai, Beijing and Guanzhou (Dayal-Gulati & Lee, 2004, P.76). 3.0 Expounding the thesis statement Many businesses have suffered complexities for doing business in foreign markets. In addition to this worrying trend, most of the theoretical and empirical research in the context of international business has never discussed the issue of Starbucks in China. An assessment of why Starbucks Corporation has succeeded in entering the Chinese market is, therefore, overdue. This research takes into consideration the works of prominent authors in the field of international business, and proves that companies intending to invest in a foreign nation must have the right strategies. 4.0 Arguments The following are the main reasons why Starbucks succeeded in entering the Chinese market; a. Argument 1 - Successful business model and strategy Starbuck’s business model and strategy have been successful. This has provided the company with a competitive advantage in the Chinese coffee shop market. Since entering the Chinese coffee shop market thirteen years ago, Starbucks has inspired and motivated many people throughout China. For instance, the company’s business practices have clearly demonstrated responsible corporate behaviour (Gilbert, 2008, p.11). b. Argument 2- Quality products Starbucks Corporation recognized that Chinese customers are willing to pay a given price only to those products that give value to what they pay. Therefore, the company does not compromise on coffee quality (Rainer & Cegielski, 2010, P.180). Starbucks excellent customer satisfaction has provided the company with strength in the Chinese market (Bussing-Burks, 2009, P.31). In its quest to become an innovation-driven business, Starbucks products have undergone a change in look and shape (Pham-Gia, 2009, P.10). c. Argument 3- Employees’ Satisfaction An organization has different departments that combine their efforts to meet the goals and obligations of the firm (Prescott & Rothwell, 2012, P. 5). The human resource department is the key distribution center of manpower in an establishment (Kabts, 2005, P.245). The human resource management is the backbone of quality staffing and management of Starbucks Corporation. To justify this Sim (2002, p. 23) stated that the human resource manager must be equipped with many skills to be able to perform his duties effectively. Employee satisfaction at the Starbucks Corporation in China is about 85 %. As a result of job satisfaction, the company has the lowest rate of employees’ turnover in the industry (Hitt, Ireland & Hoskisson, 2010, P.122). 5.0 Conclusion This research has undertaken a critical evaluation of the strategies adopted by Starbucks Corporation in China. In view of the above analysis, we can deduce that Starbucks was destined to succeed in China right from the start due to its smart entry strategy, effective business model, premium pricing strategy, efficient operations management, employees’ satisfaction and quality products. Analyzed arguments of researchers have proved the fact that Starbucks Corporation has strived to build a strong, customer-oriented culture, and this has enabled it to succeed in a highly competitive Chinese market. Reference List Andrew, R. 2012, Human resource management: gaining a competitive advantage, New York, McGraw-Hill Irwin. Bach, J & Peabody, N.L.2009, Strategies for IP Protection in China: International IP Issues and Strategies, New York, First printing. Beijing Review. 2013, China’s Coffee Craze, Vol. 56, No. 15, 2013 < www.bjreview.com.cn/pdf/2013/15.pdf‎> Bussing-Burks, M. 2009, Starbucks, California, ABC-CLIO. Butler, M. 2011, the art of being chosen: secrets of success from the giants of retails, Massachusetts, Global Management Enterprises, LLC. Colier, D. A & Evans, J. R. 2009, Operations Management, London, Cengage Learning. Dayal-Gulati, A & Lee, A. Y. 2004, Kellogg on China: Strategies for Success, Illinois, Northwestern University Press. Doctoroff, T. 2012, What Chinese want: culture, communism, and China's modern consumer, New York, Palgrave Macmillan. Gilbert, S. 2008, the Story of Starbucks, New York, the Creative Company. Haig, M. 2011, Brand success: how the world's top 100 brands thrive and survive, London, Kogan Page. Higbee, Z, et. al.2008, The Future of Starbucks: An Analysis by Team Machiatto < www.mcafee.cc/Classes/BEM106/Papers/2008/Starbucks.pdf> Hitt, M, Ireland, R & Hoskisson, R. 2010, Strategic Management: Competitiveness & Globalization, Concepts: 9 th edn, London, Cengage Learning. Kabts, R. 2005, Human Resource Management and Economic Success, Munich, Rainer Hampp Verlag. Kotha, S & Glassman, D. 2003, Starbucks Corporation: Competing in a Global Market. The University of Washington Business school, pp. 1-26. Law, V. 2014, Starbucks Pushes Major Expansion in China as Coffee Culture Emerges, Wiki Article, Viewed 8 August 2014, Peterson, H. 2014, 5 Ways Starbucks Is Different in China, Wiki Article, Viewed 8 August 2014, Pham-Gia, K. 2009, Marketing Strategy of 'Starbucks Coffe', Munich, GRIN Verlag. Prescott, R. K & Rothwell, W.J. 2012, Encyclopedia of Human Resource Management, Key Topics and Issues, New York, John Wiley & Sons. Pride, W & Ferrell. 2013, Marketing 2014.17, edn, London, Cengage Learning. Rainer, R. K & Cegielski, C.G. 2010. Introduction to Information Systems: Enabling and Transforming Business, 3 rd edn, New York, John Wiley & Sons. Simon, B. 2009, Everything but the Coffee: Learning about America from Starbucks, California, University of California Press. Sims, R.R.2002, Organizational Success through Effective Human Resources Management, West Port, Greenwood Publishing Group. The SME Centre. n.d, Ways to Enter the Chinese Market, Beijing, The EU SME Centre Wang, H.E. 2012, Five Things Starbucks Did to Get China Right, Wiki Article, Viewed 10 August 2012 < www.forbes.com/sites/.../five-things-starbucks-did-to-get-china-right/> Read More