Starbucks International Expansion

Starbucks worldwide blowupInternational Business ManagementI. debutIn General, when worldwide companies consider going into unlike merchandise places, they adapt rough strategies of meekness modes such as licensing, franchising, peg dissemble and MA. For example, Pierre Cardin extend their unlike stock by means of a pure licensing and Mcdonalds was able to deform the largest fast-food retailer on earth by taking advantage of its preposterous franchising strategy. Hence, the wise mix of entry modes screw be regarded as a core factor for multinational figureprises to advance into new satellite markets.As you know, Starbucks Corporation (hereafter, Starbucks) is the largest cocoa bean retailer in the world. It has succeeded in globally by carrying out wise collaborative strategies. at that placefore, in this study, Starbucks international performance would be cove release at first and it would be followed by further discussions market issues aboutIndian entry and strategic comparison with the competitors The burnt umber dome and tea alternate and Hollys umber.II. Starbucks International ExpansionSince Starbucks established its subsidiaries, Starbucks umber berry international in 1995i, it has apply to flexible entry strategies licensing and joint run a risk and whole ownership. While it is operating(a) its US stores directly, Starbucks is largely running its cafs outside US through joint venture and licensing with topical anesthetic retailers. In fiscal year of 2009, it has receptive 3,439 licensed cafs on earth representing 62 percents of entire stores. The primary(prenominal) target of international business is Asia and Starbucks has operated 2,062 cafs.ii(Refer to Table.1)Besides, Starbucks is managing almost overseas stores directly by acquiring local anesthetic java retailers. In UK, Canada and some Asian market such as Thailand and Singapore, Starbucks owns 2,068 wholly-owned cafs which account for 38 percents of entir e overseas stores.iiiA. Why Starbucks prefers direct investment to franchising and licensing?When Starbucks spread out its business outbound, coffee tree civilisation has not existed in various countries including Asian nations. Therefore, it was imperative for Starbucks to spread coffee culture and Starbucks has implemented a marketing strategy called Cult-duct1. Hence, Starbucks thought that it was more appropriate for Starbucks to devote use upn advantage of direct investments joint venture and wholly-owned companies rather than licensing and franchising so as not only to offer conspicuous products coffee and cookies but excessively to deliver a fine coffee culture represented by urban and elegant image. Through this strategy, Starbucks effectively has managed to check its core competencies such as the high flavor coffee, the every quarter employee training concerning customer service and store management know-how. B. Motivation of vocalize VentureAs mentioned above, the main target of Starbucks international is Asia and Starbucks has adapted joint venture as a main method for Asian market, although it has entered with licensing in several Asian regions including affection East and Philippines. (Refer to table. 2) Above all, Starbucks could minimize chance of Asian operation by running businesses through joint venture with local retailers. At the beginning, since Starbucks did not hold both experience and expertise for Asian market, it is required for Starbucks to share local companies know-how and wide domestic ne dickensrks to stably perform its Asian operation.Moreover, Starbucks has properly overcome the cultural gap with Asian nations and carried out the splendid market research. To demonstrate, local companies were involved in local staffing and analysis of regional customers taste and preference whereas Starbucks took responsibilities for employee training, coffee roasting and step reign over.Besides, Starbucks could release localized products. For example, it is selling Korean handed-down beverages such as Sik-hye and Sujungghwa in Insa-dong caf and offering sorts of Chinese traditional teas like Oriental spectator afternoon tea and Fancy Black tea in Taiwan.C. Motivation of look at OperationStarbucks is also doing its international business with companionable club-owned operation. .In UK, Canada and Australia, Starbucks did not have to worry about the huge gap of culture when it entered into these markets because they all live to English language culture and there is no remarkable variation of organization culture. Whereas, Starbucks has finally acquired the entire equity of local manufacturers, coffee Partners in Thailand and Bonstar in Singapore respectively, change surface if it initially entered those markets with the form of joint venture.iv These countries licitly allowed the outside(prenominal) capital to hold 100% equity of a company and Starbucks could not trust the marketing capabilities o f these local retailers. D. A Key outgrowth Drive Indian EntryIn 2006, Starbucks decided to initiate its business in India and made a joint venture slim down with the Indian local retailer, RPG Enterprisesv. However, its offer was rejected by Indian government referable to issues related to technique transition and strict regulation on foreign retail companiesvi. To illustrate, Indian government did not allow direct control of foreign companies in Indian retail industry, blush though foreign companies can possess up to 51% of equity. This is a big prohibition to Starbucks because strong control of business is the main principle of Starbucks overseas operation. In February 2009, Indian government made a decision to boost foreign investment owing to late contraction of FDI and then it has finally permitted outer retailers to own its business in case of holding 51% shares of a joint venture company.vii As a result, Starbucks reconsidered Indian entry and has begun a talk with Jubi liant Group about the alliance.viiiHowever, while Starbucks adheres to joint venture in the entry of India, competitors like Mcdonalds have already launched in India throug franchising and local brands Barista and coffee day have been rapidly growing. In March 2010, the world largest PEF KKR also determined to invest 200 million US dollar in coffee berry Day to compete with Starbucks.ixIII. Comparison with the competitorsA. The Coffee Bean Tea flip-flopSome competitors of Starbucks have get byn the different way in terms of international business. The representative example is The Coffee Bean Tea Leaf (hereafter, The Coffee Bean). The Coffee Bean has adapted franchising strategy for overseas expansion.As of 2008, The Coffee Bean has opened approximately 750 cafs in 22 nations. Specifically, it has 288 cafs under direct control while 444 cafs are being operated by franchiseesx. (Refer to Table. 3)When a company achieves a licensing contract with licensor, it is able to use lic ensors patent, know-how, trade mark and technology. By comparison, franchising enables franchisee to get agree from franchisor concerning operation and management, working principle and marketing. In other words, franchisor could be strongly involved in franchisees operation.1. Motivation of FranchisingThe first reason that The Coffee Bean chose franchising is to expand its business into the outer market quickly. Since it began expanding far later than its competitors, it strived to impinge on faster entry mode than FDI. By doing its international operation with franchising, The Coffee Bean could enter more than 20 countries including India without big trouble. In the meanwhile, Starbucks has struggled to enter India market by governmental and political intervention as we discussed above.Second, as mention above, while Starbucks wanted to ply customers with not only fitting coffee but also coffee culture at its foreign market entry, The Coffee Bean has more foc employ on the c haracter reference of coffee. As its strategy is to serve tasteful coffee to as some(prenominal) customers as it can, it is essential to motivate franchisee to serve more people. Franchising can provide high motivation to franchisees as they just need to pay amend royalty. It means that more customers they serve customers, the more profit they can expect.The make it reason is cost saving. If it had entered the overseas market as FDI, it would have innate(p) more cost such as rent and operating cost. By franchising, extra cost could be avoidable.2. Disadvantage of franchisingOne remarkable paradox which franchisor could face is that it can lose control of operation. As franchisor doesnt have pledge on operating, it might be difficult to keep high quality of service and exerts a bad influence on its brand and image.For example, the coffee bean was uncovered by Korea Food and Drug Administration because it had used unsuitable ingredient. In addition to this, it did not implement a level(p) staff heath inspection program. The incident damaged the companys image and it can be referred to as a typical example of the disadvantage.B. Hollys CoffeeHollys Coffee is a well-known Korean coffee retailer founded in 1998 and it has true into one of the domestic competitors of foreign coffee retailers such as Starbucks and The Coffee Bean Tea Leaf in Korea. Since 1998, Hollys Coffee has steadily increase its stores and the number of them has amounted to more than 200 recently. Not satisfied with the huge success in Korean domestic market, Hollys Coffee decided to go abroad and opened stores in Malaysia and Los Angeles in US in 2007.A a couple of(prenominal) months ago, in December 2009, Hollys Coffee launched the third international store in Peru, one of the coffee bean-producing nations. Hollys Coffee announced it would achieve two goals in Peru operating eight stores and sales up to 7 billion Korean won within a year. In order to realize these goals, Hollys Coffe e entered into the Peru through obtain franchising method that allows individuals or corporations to buy the rights to sub-franchise within some specific countries.xi The company usually adapts master franchising method so as to minimize risk when it enters the country where its brand is seldom familiar to the local community as well as it is difficult to attract investments. In Peru, There are a lot of its own domestic coffee retailers and Hollys Coffee is rarely well-known to local people. Thus, it is very important to make Peruvians aware of its brand and Hollys Coffee might be exposed to the monetary risk linked with heavy marketing expenditure such as brand promotion and advertisement in the course of spreading its brand.There are two entry strategies of Hollys Coffee in Peru one is to introduce products that have Korean own characteristic, another is to differentiate with other coffee brands by focusing on side menus like waffle or patisserie. The Point is that it is hard t o make certain whether these strategies are effective enough in Peruvian coffee market or not. Since it is tough to control operation when a company takes franchising, it appears to be difficult to introduce Korean traditional teas and foods properly.IV. ConclusionWe have discussed about several entry modes regarding international business. We have looked into Starbucks choice, The Coffee beans strategy as well as Hollys Coffees one. originally completing our study, we would like to discuss two points of contention.Firstly, should Starbucks stick to FDI for India? As discussed above, it has struggled from red tapes. In the end, they still cannot enter Indian market whereas its competitors have expanded their business in India.Secondly, was it a good idea for Hollys Coffee to take franchising entry mode along with a strategy of providing Korean traditional beverages? Since it is not well known and not familiar with local environment, it is graspable not to take FDI entry mode. How ever, doesnt it seem to go well with two ill-assorted strategies?All entry modes have advantages and disadvantages. Hence, it is absolutely important to apply an entry mode appropriately according to each business format. However, it could be spartan to enter every region with the single entry mode even though it is the same industry. Both the problem that Starbucks faced in India and the endocarp Hollys Coffee is likely to face can explain how risky it is.Therefore, even though a company wants to expand its identical business abroad, it is recommended to take different entry modes in accordance with each nations regulations, culture, politics, economic and social environment.V. Appendix The composition of retailers of Starbucks (2009.9)Entry modeTotalU.S% in USOverseas% in overseasCompany Owned8,8326,76461%2,06838%Licensed Stores(Joint Venture)7,8034,36439%3,43962%Total16,63511,128100%5,507100% The major Overseas Performance of Starbucks (Non- North America)StrategyRegionYear gr oundLocal Partner of storesJoint VentureAsia1996JapanSazaby Inc.8751998Taiwan prexy Chain Store2222000S.KoreaShinsegae Department store2882000ChinaCayman Holdings2832002Mei-xin International2005Coffee Concepts2004MalaysiaBerjaya Group118Europe2002SpainSigla, S.A762002GreeceMarinopoulos Bros.692003SwitzerlandMarinopoulos Bros.472003AustriaMarinopoulos Bros.N/A2003CyprusMarinopoulos Bros.N/A2004FranceSigla, S.A522007RomaniaMarinopoulos Bros.N/A2008 CzechoslovakianAmRestN/A2008PortugalGrupo VIPSN/ADirect OperationAsia2000ThailandCoffee Partners1312002AustraliaLocal Entrepreneur232004SingaporeBonstar642005ChinaQingdao American Starbucks1912006Mei Da CoffeeEurope1996UKSeattle Coffee6662004GermanyKarlstadtQulle144LicensingAsia1997PhilippinesRustan one hundred sixty1998New ZealandRestaurant Brand422002IndonesiaPT Mitra Adiperkasa74Middle East1999KuwaitM.H. Alshaya621999LebanonM.H. AlshayaN/A2000U.A.EM.H. Alshaya912000QatarM.H. AlshayaN/A2000Saudi ArabiaM.H. Alshaya682000BahrainM.H. Alshaya N/A2002OmanM.H. AlshayaN/A2005JordanM.H. AlshayaN/AEurope2003TurkeyM.H. Alshaya1232006UKN/A462007RussiaM.H. AlshayaN/A The Coffee Bean and Tea Leafs International Expansion (2008)Year2002200320042005200620072008Company-Owned177191217241270288278Franchise466887137230347444Total223259304378 five hundred625722VI. Referencen Starbucks timeline-Asia, Starbucks Corporation, 2009.n Starbucks timeline-EMEA, Starbucks Corporation, 2009.n Starbucks timeline-China, Starbucks Corporation, 2009.n yearbook reputation of 2009 (Form 10-K), Starbucks Corporation, 2009n Starbucks India Strategy Looks Promising, Seeking alpha, Oct 2, 2006.n Starbucks Delays Entry of India, Vccircle, Jul 21, 2007n , , Yonhap news, Feb 12, 2009n Starbucks brews a fresh strategy for India entry, The Economic Times, Jan 29, 2010n KKR in $200m Indian Coffee reveal deal, Financial Times, Mar 17, 2010n Company Growth, The Coffee Bean and Tea Leaf (http//coffeebean.com/franchise/company.html)n What is a master franchisin g? (http//www.allbusiness.com/buying-exiting-businesses/franchising-franchises/2975165-1.html)1 Cult-duct A compound is formed from culture and product. It stands for selling a product with the companies culture and social values. Starbucks is a typical example of this. i Starbucks timeline-Asia, Starbucks Corporation, 2009 ii Annual Report of 2009 (Form 10-K) pp.4, Starbucks Corporation, 2009 iii Annual Report of 2009 (Form 10-K) pp.3, Starbucks Corporation, 2009 iv Starbucks timeline-Asia, Starbucks Corporation, 2009 v Starbucks India Strategy Looks Promising, Seeking alpha, Oct 2, 2006. vi Starbucks Delays Entry of India, Vccircle, Jul 21, 2007 vii , , Yonhap news, Feb 12, 2009 viii Starbucks brews a fresh strategy for India entry, The Economic Times, Jan 29, 2010 ix KKR in $200m Indian Coffee shop deal, Financial Times, Mar 17, 2010 x Company Growth, The Coffee Bean and Tea Leaf (http//coffeebean.com/franchise/company.html) xi What is a master franchising? (http//www.allbusin ess.com/buying-exiting-businesses/franchising-franchises/2975165-1.html)