The Globalization of Starbucks

Thirty years ago, Starbucks was a single store in Seattles Pike Place
Market selling premium-roasted cofee. Today it is a global roaster and
retailer of cofee with some !,"## stores, $# percent of which are in %#
countries outside of the &nited States. Starbucks set out on its current
course in the '(#s when the companys director of marketing, )oward
Schult*, came back from a trip to +taly enchanted with the +talian
cofeehouse e,perience. Schult*, who later became -./, persuaded the
companys owners to e,periment with the cofeehouse format0and the
Starbucks e,perience was born. The strategy was to sell the companys
own premium roasted cofee and freshly brewed espresso-style cofee
be1erages, along with a 1ariety of pastries, cofee accessories, teas, and
other products, in a tastefully designed cofeehouse setting. The company
focused on selling 2a third place e,perience,3 rather than 4ust the cofee.
The formula led to spectacular success in the &nited States, where
Starbucks went from obscurity to one of the best-known brands in the
country in a decade. Thanks to Starbucks, cofee stores became places for
rela,ation, chatting with friends, reading the newspaper, holding business
meetings, or 5more recently6 browsing the web.
+n ''%, with "## stores across the &nited States, Starbucks began
e,ploring foreign opportunities. The 7rst target market was 8apan. The
company established a 4oint 1enture with a local retailer, Sa*aby +nc. .ach
company held a %# percent stake in the 1enture, Starbucks -ofee of
8apan. Starbucks initially in1ested 9# million in this 1enture, its 7rst
foreign direct in1estment. The Starbucks format was then licensed to the
1enture, which was charged with taking o1er responsibility for growing
Starbucks presence in 8apan.
To make sure the 8apanese operations replicated the 2Starbucks
e,perience3 in :orth ;merica, Starbucks transferred some employees to
the 8apanese operation. The licensing agreement re<uired all 8apanese
store managers and employees to attend training classes similar to those
gi1en to &.S. employees. The agreement also re<uired that stores adhere
to the design parameters established in the &nited States. +n =##, the
company introduced a stock option plan for all 8apanese employees,
making it the 7rst company in 8apan to do so. Skeptics doubted that
Starbucks would be able to replicate its :orth ;merican success o1erseas,
but by the end of =##' Starbucks had some (%# stores and a pro7table
business in 8apan.
;fter 8apan, the company embarked on an aggressi1e foreign
in1estment program. +n ''(, it purchased Seattle -ofee, a >ritish cofee
chain with !# retail stores, for 9($ million. ;n ;merican couple, originally
from Seattle, had started Seattle -ofee with the intention of establishing a
Starbucks-like chain in >ritain. +n the late ''#s, Starbucks opened stores
in Taiwan, -hina, Singapore, Thailand, :ew ?ealand, South @orea, and
Malaysia. +n ;sia, Starbucks most common strategy was to license its
format to a local operator in return for initial licensing fees and royalties on
store re1enues. ;s in 8apan, Starbucks insisted on an intensi1e employee
training program and strict speci7cations regarding the format and layout
of the store.
>y =##=, Starbucks was pursuing an aggressi1e e,pansion in
mainland .urope. ;s its 7rst entry point, Starbucks chose Swit*erland.
Arawing on its e,perience in ;sia, the company entered into a 4oint
1enture with a Swiss company, >on ;ppetit Broup, Swit*erlands largest
food ser1ice company. >on ;ppetit was to hold a ma4ority stake in the
1enture, and Starbucks would license its format to the Swiss company
using a similar agreement to those it had used successfully in ;sia. This
was followed by a 4oint 1enture in other countries.
;s it has grown its global footprint, Starbucks has also embraced
ethical sourcing policies and en1ironmental responsibility. :ow one of the
worlds largest buyers of cofee, in =### Starbucks started to purchase
Cair Trade -erti7ed cofee. The goal was to empower small-scale farmers
organi*ed in cooperati1es to in1est in their farms and communities, to
protect the en1ironment, and to de1elop the business skills necessary to
compete in the global marketplace. +n short, Starbucks was trying to use
its inDuence to not only change the way people consumed cofee around
the world, but also to change the way cofee was produced in a manner
that bene7ted the farmers and the en1ironment. >y =##, some "%
percent of the cofee Starbucks purchased was Cair Trade -erti7ed, and the
company has a goal of increasing that to ## percent by =#%.
Case Discussion Questions
. Ehere did the original idea for the Starbucks format come fromF Ehat
lesson for international business can be drawn from thisF
=. Ehat dro1e Starbucks to start e,panding internationallyF )ow is the
company creating 1alue for its shareholders by pursuing an international
e,pansion strategyF
G. Ehy do you think Starbucks decided to enter the 8apanese market 1ia a
4oint 1enture with a 8apanese companyF Ehat lesson can you draw from
thisF
$. +s Starbucks a force for globali*ationF .,plain your answer.
%. Ehen it comes to purchasing cofee beans, Starbucks adheres to a 2fair
trade3 program. Ehat do you think is the diference between fair trade
and free tradeF )ow might a fair trade policy bene7t
StarbucksF