Starbucks

Running Head: STARBUCKS FOREIGN DIRECT INVESTMENT
Starbucks Foreign Direct Investment
[Name of the Author]
[Name of the Institution]

Starbucks Foreign Direct Investment 2
Table of Content
EXECUTIVE SUMMARY
INTRODUCTION
BACKGROUND OF THE STUDY
FOCUS QUESTIONS
QUESTION 1
FOREIGN MARKET ANALYSIS
REASONS BEHIND STARBUCKS FOREIGN MARKET EXPANSION
FOREIGN MARKET EXPANSION STRATEGY OUTSIDE OF USA
QUESTION 2
DIFFERENT MARKET ENTRY STRATEGIES EMPLOYED BY STARBUCKS
ENTRY OF STARBUCKS IN JAPAN
ENTRY OF STARBUCKS IN THAILAND
ENTRY OF STARBUCKS IN BRITAIN
QUESTION 3
STAFFING APPROACH UTILISED BY STARBUCKS IN JAPAN
CONCLUSION
REFERENCES
BIBLIOGRAPHY
PEER REVIEWED ARTICLES
APPENDICES
SYSTEMATIC REVIEW
Starbucks Foreign Direct Investment
Executive Summary
We have focused our research on Starbucks. We have chosen this company because
we found that Starbucks takes different entry modes to internationalize.
The choice of entry mode is due to a set of factors that will determine a companys
international strategy. We consider that it is an interesting case to investigate and
determine these possible factors that influence the companys entry mode strategy.
Furthermore, we were interesting in exploring if the choice of Starbucks entry mode
can be determined by factors enumerated by entry mode theories.
Starbucks used three different entry mode strategies to internationalize: joint venture,
licensing and wholly-owned subsidiaries (Starbucks.com 2008). We have chosen three
countries; each one represents one of three Starbucks international strategies.
We decided to study three countries because of two reasons. First, we sought to
obtain representative results. We considered that one unique country was not enough
to reach reliable conclusions. Second, we knew it is really difficult to obtain
information regarding Starbucks internationalization. If we explored more countries
than a country we would obtain data from more sources and have the ability to
contrast the reliability of our data.
We chose United Kingdom, New Zealand and Spain, because these three countries
represented the three Starbucks entry modes. In United Kingdom, we investigated
that Starbucks only chose entry mode of wholly-owned subsidiary in this country from
the early beginning. In the rest of cases where at present Starbucks is a wholly-owned
subsidiary the company entered with a different strategy to wholly-owned subsidiary.

In case analyses, our aim is to explore which factors affect choice of each entry mode.
In order to obtain results we are going to separately examine each country. Our research on
factors represented in our conceptual framework. We considered that our
investigation has to follow a structure. Therefore we decided to use these depicted
factors in our conceptual framework as guidance or structure within our research.
However, we were not going to rule out including other relevant factors on Starbuckss
choice of entry mode.
At the end of our case analysis, we will obtain factors that influenced Starbucks choice
of entry mode. In addition, we will determine if the factors developed in our
conceptual framework were represented in our finding. Finally, we will conclude with
the causes of Starbucks choice of entry mode.
Introduction
In 1971, Jerry Baldwin, Zev Siegl and Gordon Bowker founded Starbucks at the Pike Place
Market in Seattle, Washington D.C. Their mission was to sell high quality coffee beans to the
public. In 1982, Howard Schultz joins Starbucks as director of retail operations and
marketing, and he would proceed to become one of the most influential individuals to work
for Starbucks.
In 1987 Starbucks began to expand internationally. They opened their first store in
Vancouver, Canada. After this they began to expand in Asia and the Pacific where stores
opened in Japan, Malaysia, Thailand, China and New Zealand just to name a few, and by the
entry to the new millennium they had more than 3,500 stores worldwide.
Background of the Study
From there, the expansion reached Europe and within the next 10 years Starbucks had a store
in 19 different European countries. However Starbucks hasnt yet seized the Danish coffee
market. They sell their coffee through 7Eleven, DSB and Ftex but havent opened any stores
yet. This assignment investigates the reason for this entry mode on the Danish market and the
strategies that Starbucks follows when entering new markets.
When a firm seeks to enter a foreign market, the company must choose the most
appropriate entry mode for that specific market. The decision of entry mode strategy
is the most critical decision in international expansion. The choice of international
strategy has long-term implication for MNCs. That means, entry mode strategies are
often massive, irreversible, and can influence the performance of the firm in the long
run. MNCs can choose between six international entry mode strategies: exporting,
licensing, a turnkey project, franchising, joint ventures and wholly-owned subsidiaries.
There are many factors which affect a companys decision of entry modes. Therefore,
managers need to analyze them and determine the most suitable international
strategy. Influential factors in entry mode decision can be different in each case. In
addition the degree of influence of each factor can vary between countries. As a
consequence, some MNCs use different entry modes to adapt to specific situations in
their internationalization process.
Focus Question
The questions in focus of this research is about

The reason to select the question mentioned above for the review is to understand the
Extended literature reviews however play in important part in the analysis of different aspects
of Starbucks foreign direct investment. It must not be neglected that an extended literature
review and case studies helps the individual in understanding different practices of
Starbucks .
International business is that kind of trade that helps the world`s economy to increase its
existing position. In this way, supply, demand and prices are influenced by the global
issues. For instance, a differentation in political sutiation in Asia may raise manufacturing
cost and cost of labour of an American company which is a region in Asia. As a result of
this, an increase may be seen product`s or service`s price that the consemer have to
purchase from a local store. When a decrease is seen in cost of labour, on the other
hand then you can have to pay relatively less price on the product. (Hussey, 2008)
It is also another advantage of going internationally that it gives an opportunity to

developed countries to use their resources effectively like technology, capital and labour.
Since a large number of the countries already have natural resources and different
inputs such as labor, technology, land and capital, they are likely to produce many
products more efficiently and sell them for cheaper values than other countries. A
country may have a product from another country, if it is difficult or expensive to produce
it in its national boundaries. In same way a country may have a product from another
country, for the reason of that product can be produced in its own country but with worse
conditions such as lower quality or higher cost. Global trading also helps different
countries to take a part in global economy by encouraging them to become foreign direct
investors. These individuals invest their money in the foreign companies and other
assets. And also, the countries may become competitive global participants.
Question 1
Using suitable business tools carry out a foreign market analysis and assess the reasons why
Starbucks chose to embark on a foreign market expansion strategy outside of the USA.
Foreign Market Analysis

Before entering international marketing, if we reflect on our perception what marketing

means itself, we will face a few important definitions. According to Chartered Institute of
Marketing, marketing is a "Management process which is responsible for identifying,
predicting and providing customer requirements profitably". (Lowe and Doole, 2001)
Marketing involves;
providing customer needs and wants,
finding out best ways and methods to provide these needs and wants,
orienting the firm towards the process of focusing on that satisfaction,
meeting organizational objectives.
In this way, it becomes important for the company or organization to prepare itself to
achieve competitive advantage in the market. The company then needs to work on
taking this advantage in the market. The company then needs to work on taking
advantage by manipulating controllable functions of marketing, within the uncontrollable
marketing environment which is directly affected by SLEPT factors, i.e. Political,
Economic, Socio-Cultural, Technological and Legal. (Lowe and Doole, 2001)
When domestic and international marketing are compared, it is argued that"what

differences there are between these two markets ". Actually, the key elements are still
same. The concept is not likely to change to any market degree when a company moves
from a domestic market to an international market. However, two main differences can
be defined. First, of them, there are different approaching levels depending on
international scope, and second, the company will be likely to face complexities and
difficulties as the result of international marketing environment factors as it mentioned
above. (Lowe and Doole, 2001)
When a service company decides to enter into foreign markets, it needs to keep a balance
between the requirements of the local people and the tourists who visit the country for
travelling purpose. When the customers who travel abroad visit the Starbucks outlet, they
look for same coffee experience that they cherish at the Starbucks coffee shops in their
homelands. As Starbucks had a fear that by a pure license agreement will deprive it the right
of keeping a strict control on foreign market operations, it had to reconsider its expansion
strategy.
Reasons Behind Starbucks Foreign Market Expansion
INTERNATIONALIZATION OF STARBUCKS
In this section we show some general aspects of Starbucks international strategy. Our aim
is to use this data in order to understand our three cases and to know the reason why
Starbucks uses different entry modes in its internationalization process.
Starbucks adapts its international strategy in order to satisfy the needs and requirements of
every market, seeking to respect its cultures and traditions. At present, the company uses
three different strategies: joint venture, licenses and whollyowned subsidiaries (see Figure
4).
Count Partn Agreem Starbucks

Australia
ry -
er Majority-
ent Ownership
90%
Austria Bon apptit Group Joint venture
owner 19,5
China Mei Da Coffee Co License -
%
China
(Beijing) Shangai President Joint venture 5%
(Shanghai)
Germany Coffee
KarstadtCo.
Quelle AG. Joint venture 19,5
Greece Marinopoulos Joint venture 18%
%
Hong Kong Maxims Caterers
Brothers S.A. Joint venture 5%
Indonesia PT Mitra Adiperkasa
Limited License -
Israel Delek Development Joint venture 19,5
Japan Sazaby Inc. Joint venture 40%
%
Malaysia Berjaya Coffee Co. License
public -
Mexico S.C. de Mxico, S.A. Joint venture 18%
Middle East M.H. Alshaya Co.
de C.V. License -
New Restaurant
W.L.L. Brands License -
Philippines
Zealand Rustan
Ltd. Coffee Corp. License -
Puerto Rico MacNaughton Group Joint venture 5%
Singapore Bonvests Holdings License -
South Korea Shinsegae
Ltd. Joint venture 50%
Spain Department Store
Group Vips & Joint venture 18%
Switzerland Europastry,
Bon apptit S.A.
Group Joint venture 19,5
Taiwan President Coffee Co. Joint venture 5%
%
Thailand - Majority- 97%
United - Wholly-owned
owned 100
France
Kingdom Group VIPS Joint venture 50%
%
Before entering a new country Starbucks conducts rigorous quantitative market studies.
The company also develops extensive focus group interviews to get a pulse of the
marketplace and potential.
Starbucks has demonstrated that even a large company needs help to achieve its goals. In
order to succeed, a company needs to realize that it often cannot alone fill the gap in
serving the needs of its target market. Starbucks has mostly always needed the help of
another entrepreneur or another company with whom to work and share financial risks.
Starbucks partners have helped the coffee company to enter new markets and obtain the
products and services available in that market quickly. Strategic partnerships have
enhanced Starbucks competitiveness in the marketplace. They have also helped the
company to keep pace with the rapid changes of technological innovation. Starbucks was
able to achieve its objectives, break into new markets, and enhance its bottom line by
entering into strategic alliances with the right companies (Isidro 2004).
Starbucks has certain criteria for consideration of International Partners. They seek to
ensure their local partners will share its value and commitment to bringing the Starbucks
Experience to customers worldwide (Starbucks International Development, 2007). Those
selection criteria may include the following: a partner who shares its values and corporate
culture; a partner with a strategic fit to Starbucks business; a seasoned operator of small-
box, multi-uni retail stores; a local business leader; someone with a strong track record
developing new ventures; someone with experience managing licensed & premium brands
and concepts; and a partner with food & beverage experience. Further selection criteria
include sufficient financial and human resources, and involvement and commitment with
top management. A final point is the partners real estate knowledge and access to leverage
their structure.
Starbucks has developed the following procedure of global expansion: The company
selects local partners who are local business leader. Then, Starbucks together with its
partner try to adapt its business traditions to the local market. For instance, Starbucks
coffee stores in Spain have outside terraces, and in Japan coffee shops have more seats than
others countries and provide a smaller serving (Forbes.com 2003).
Starbucks involvement in the internationalization process varies only in degree (e.g.

licensing, joint venture and wholly-owned subsidiary) since the company is constantly in
touch with operators to keep abreast of the marketplace.
In a joint-venture, Starbucks equity position varies across a wide range. Lately, the
company tends to minimize its holding and requires a local partner (as in the Spain case) to
hold most of the capital cost (Isidro 2004). Starbucks holds less than 50% of the shares in
their joint ventures. Schultz commented that Starbucks is constantly attracting potential
partners (Forbes.com 2003).
IMPORTANCE OF CHOOSING AN
EFFECTIVE INTERNATIONAL
MARKETING STRATEGY
In today`s competitive international world, one of the most significant tasks for many
companies which are preparing itself to enter a foreign market is to make the right
decision about how the company should enter a foreign market. One reason for this is
that this decision is likely to influence every part of its business for a long perid of time in
the future. However, there are advantages and disadvantages of every single foreign
market entry modes. For the aim of selecting the most appropriate and effective foreign
market entry strategy, it is essential to take into account some point including; (Chee and
Harris, 1993);
the company objectives and expectations relating to the size and value of predicted
business,
the size and financial resources of the company
its existing foreign market involvement
the skill, abilities and attitudes of the firms management for international business
the intensity of the competition in target market,
the affect of existing and expecting tariff and non-tariff barriers

the nature of product considered for international entering the areas of competitive
advantage, such as trademark or patent protection
the timing of entry in relation to t he market and intensity of competitive situation
Foreign Market Expansion Strategy Outside of USA
According to Terpstra and Sarathy (1994), alternative methods of foreign market entry
can be summarized basically as shown below;
Production in HomeMarket
Foreign Production Sources
-Contract Manifacture
-Licencing
-Assembly
-Joint Venture
-100 Percent Ownership and / or
Indirect Exporting
-Trading Company
-Export Management Company
-Piggyback, etc.
Direct Exporting
-Foreign Distributor
-Agent
-Overseas Marketing Subsidiary
In order to expand on international level, Starbucks decided to enter Japan by adopting the
licensing mode of Foreign Direct Investment (FDI). The corporation licensed its special
formula to a joint venture that was formed with a local company Sazaby Inc.. Starbucks did
not have an exporting product but an expertise in service industry that was selling coffee,
cakes and pastries along with providing an excellent coffee experience to the customers. The
management team realised that it cannot export the packages to the overseas markets but get
involved with the entrepreneurs who are looking forward to offer similar enchanting coffee
experience to the customers in foreign markets.
Moreover, developing a Starbucks format in other countries required sharing of its expertise
and know-how in the field of coffee service. At the start of international expansion strategy, it
utilised licensing option by soon became disenchanted because there was less control on the
foreign stores. The success of a business is highly dependent on the level of uniformity that is
found in all the stores of a firm on global level (Dunning & Lundan, 2008) especially when
expanding in overseas markets.
The customers are looking for similar product and service offerings along with quality so that
they can get the same experience across the world in the brand stores. Hence, Starbucks was
facing difficulty in keeping stringent control on its foreign businesses because of the
licensing agreements. Other reason for shifting to joint ventures was that Starbucks wanted to
expand at a fast pace in new markets and most of the licensees lack the abilities of
implementing a winning strategy required by the corporation.
The main drivers of Starbucks successful global expansion strategy are the consistency in its
offerings at all the outlets and uniformity in the service quality. When a customer visits the
Starbucks outlet with certain perception in mind and there is lack of conformity to the
expected level, then there is high probability that the customer might not come back again.
Starbucks has to ensure that the customers are provided similar level of standards and
familiarity so that they prefer to visit the coffee shop on repetitive manner. Hence, it is
imperative for the companies to keep a control on the stores that are opened in foreign
countries (Allison, 2010).
The main aim of the corporation was to create the replicated look, ambience, feel and
experience of Starbucks in its international outlets and it was not possible with licensing
format. In order to ensure uniformity and continuity in between the Japanese locations and
American stores, Starbucks decided to transfer its employees from America to Japan so that
the employees can be trained in accordance to the companys required set of standards.
As a result, the company shifted majority of its agreements from licensing arrangements to
wholly owned subsidiaries and joint ventures. The primary purpose of the shift in business
arrangements was to gain control on the operations so that the customers were provided a
marvellous and excellent coffee experience at all the outlets across the world. Therefore,
Starbucks had to revamp its business operations to maintain its competitiveness and strong
market presence in the coffee industry.
What are entry modes?
An entry mode is the self-made opportunity for a company to expand to a new market with
their products, services, technologies or whatever they might be offering.The kind of entry
mode a company decides to choose arise from their set of goals for the new market and the
strategy which they have decided to expand by.
There are six different entry modes, franchising, joint venture, licensing, indirect exporting,
direct exporting and wholly-owned direct investment. All six are quite different and offers
both advantages and disadvantages for the company. Therefore it is rather important that the
right type of entry mode is chosen.
For companies like Starbucks either joint venture, licensing, franchising and wholly-owned
direct investments would be the ideal choice of entry mode, and these have already been used
by many different companies in many different countries.
When an MNC seeks to enter a foreign country, it must choose the most
appropriate entry mode for that specific market, such as exporting,
licensing, a turnkey project, franchising, joint ventures or wholly-owned
subsidiaries. There are many factors which affect the choice of entry
modes. Influential factors contributing to the entry mode decision can have
different degrees of impact for each particular country. As a consequence,
an MNC has to use different entry modes in order to adapt to the specific
situations it faces in its international expansion strategy.
An entry mode is the self-made opportunity for a company to expand to a new market with
their products, services, technologies or whatever they might be offering.The kind of entry
mode a company decides to choose arise from their set of goals for the new market and the
strategy which they have decided to expand by.
There are six different entry modes, franchising, joint venture, licensing, indirect exporting,
direct exporting and wholly-owned direct investment. All six are quite different and offers
both advantages and disadvantages for the company. Therefore it is rather important that the
right type of entry mode is chosen.
For companies like Starbucks either joint venture, licensing, franchising and wholly-owned
direct investments would be the ideal choice of entry mode, and these have already been used
by many different companies in many different countries.
Political forces
Local Budget, Taxation, Duty, Goods Declaration, Food Hygiene Regulatory Authoritys
Looking at the political forces that would affect Starbucks if they decided to enter the
International market, it is clear that taxes will provide the biggest influence.1. This is very
relevant for Starbucks to take in to account, since they offer tea, coffee and cakes. There are
not a lot of substitutes to tea and coffee, which makes the demand for them inelastic.
Economic forces
Global recession, Labor and other costs, financial loans, supply and demand gap, The world
is on the threshold to a global recession and this will affect everybody in one way or another.
Higher income taxes, interest rates.
Environmental forces such as eco-friendly products and services which helps in stabilized
environment
Social forces such as cultural impact of drinks and beverages, likes and unlikes to coffee and
other products. The difference in social behavior and social lives. The difference in rich and
poor class of society.
Technological forces includes advanced machinery for coffee making and other facilities such
as advanced infrastructure and ERP systems.
Internal conditions
Strengths: Weaknesses:
A strong brand all over the world Cannibalisingi
They sell coffee and it's substitutes High prices
1
Howard Schultz No use of franchising
R&D department
Educate their employees
Production
External conditions
Opportunities: Threats:
Yuppies/Dinks /Woopies ii Baresso and other competitors
Business people cash/rich-time/poor

Tendency to be anti-American
Eco-market
McCaf and other possible new entrants
B2B
Oversaturation
Nutrition awareness
2. Which entry mode strategies did Starbucks use in foreign markets and why?
Starbucks used a wholly-owned subsidiary as the entry mode in the UK. A wholly- owned
subsidiary means the firm owns 100 percent of the stock. Establishment of a wholly-owned
subsidiary in a foreign market can be done in two ways. The firm either can set up a new
operation in a foreign country or can acquire an established firm in that host nation. Thus,
the case in the UK uses the second of the two methods.
In the case of Starbucks in the UK, it is easy to find out that the internal factors and external
factors are relatively important for the choice of entry mode. First of all, Starbucks was
influenced by scarce knowledge of the British business market characteristics. There was
culture distance between two countries which was generally defined in the external factors.
Moreover, there were uncertainties in the new market. For Starbucks, it needed to choose an
entry mode which could eliminate these disadvantages. To acquire the Seattle Coffee
Company, which was an existing coffee company in the UK, was definitely a big benefit for
Starbucks to gain knowledge in the new market. Whats more, the comparatively large
size of Starbucks, which could afford to commit more resources and especially a
large amount of capital, was a critical factor leading to Starbucks decision to acquire
Seattle Coffee. Starbucks, in pursuing its high-speed and aggressive expansion strategy,
chose this entry mode of building a wholly-owned subsidiary due to the global management
efficiency requirement and management risk attitudes. Starbucks top management was
eager to enter into the UK as the springboard to explore the rest of the European market.
Because of high risk, Starbucks chose a familiar American-style operated coffee company
existing in the UK. Last but not least, the market potential and the competitive intensity
affected Starbucks choice of entry. With the promise of serving its first European country in
a yet-to-mature market and with the added benefit of eliminating a potential competitor,
Starbucks decided to acquire Seattle Coffee
Company, form a wholly-owned subsidiary, and enter the UK market.
Question 2
Assess the strategic suitability of the different market entry strategies employed by Starbucks
specifically those used in the entry of Starbucks to Japan, Thailand and Britain.
EXHIBIT 3
STARBUCKS INTERNATIONAL EXPANSION
Year of Entry/
Establishment Countries/Regions
1996 Hawaii, Japan, Singapore
1997 Philippines
1998 United Kingdom, Taiwan, Thailand, Malaysia, New Zealand
2000 United Arab Emirates, Shanghai, Hong

Kong, Australia, Qatar, Bahrain 2001
Switzerland, Austria
2002 Oman, Germany, Spain, Mexico, Puerto Rico, South China,

Macau, Shenzhen, Greece, Indonesia 2003 Turkey, Peru, Chile,
Cyprus
2004 France
2005 Jordan
JAPAN
On October 25, 1995, Starbucks Coffee International signed a joint-venture

agreement with SAZABY Inc., a Japanese retailer and restauranteur, to develop
Starbucks retail stores in Japan. The joint-venture partnership is called Starbucks
Coffee Japan, Ltd. This alliance has proven to be a strong one because it combines
two major lifestyle companies that provide the Japanese consumer a new and
unique specialty coffee experience. Under this partnership, Starbucks opened its flag-
ship Tokyo store in the upscale Ginza shopping district in 1996, its first retail store
expansion outside of North America and Europe.
Japan is an essential part of Starbucks international expansion plan because the

nation is the third largest coffee- consuming country in the world, behind the United
States and Germany. Japan is also an ideal country because it has the largest
economy in the Pacific Rim.
Demand for coffee blends in Japan has doubled in the past five years, and specialty
blends are the fastest growing segment of the industry. One industry analyst said, The
Japanese have taken to coffee like a baby to milk. Gourmet coffee accounts for 2.5
percent of the 1.2 billion pounds of coffee bought by Japan each year. The average per
capita consumption among gourmet drinkers in 1997 was 1.5 cups a day, up from more
than a half cup in 1990. The company picked Japan for its first big overseas venture not
only because it is the third-largest coffee-consuming country in the world, but also
because the quality of its coffee products provides a major opportunity for Starbucks
specialty drinks. Japanese vending machines, for instance, dispense $1 billion worth of
cold, canned coffee drinks. A similar bottled beverage jointly produced by Starbucks
and Pepsi is in the process.
Starbucks increased the number of its outlets to over 530 by mid-2005, the highest
number of stores in any country outside its home market, and it expects to open more
stores in Japan. The stores offer the same menu as it does in its U.S. stores, although
portions are smaller. The names of items, such as tall and and grande are also the
same as those used in the United States. All of the stores will also feature the companys
trademark decor and logo. In addition, Japanese customers can purchase Starbucks
coffee beans, packaged food, and coffee-making equipment, as well as fresh pastries and
sandwiches.
Starbucks Japanese sales were 25 percent above the origi- nally expected sales figures a
few years back. However, as of Fall 2002, same-store sales growth had fallen. From
1999 to 2004, net profits stood at 6 million in Japan.
On opening day in 1995 the Japanese crowded into Star- bucks, and as many as 200
customers formed lines around the block to get a taste of Starbucks high-quality coffee.
Starbucks hopes to cultivate the same kind of coffee craze in Japan as the one it has
created in North America. However, profits from the Japanese venture will not be visible
for several years. Operat- ing costs in Japan, such as rent and labor, are extremely high,
and Starbucks will also have to pay for coffee shipment from its roasting facility in Kent
to Japan. Retail space in downtown Tokyo is also more than double that of Seattles rent.
Starbucks plans eventually to open a roasting plant in Japan to help keep costs down.
However, this plan is contingent on
the success of the stores in Japan.
Question # 4
In some markets such as Britain and Thailand, Starbucks has chosen to enter through wholly
owned subsidiary. How different are these countries from Japan?
Answer # 4
Starbucks has been experimenting with three main FDI strategies to gain entrance into the
foreign markets i.e. licensing, joint ventures and wholly owned subsidiary. It has employed
different modes of entry in the various markets after carefully analysing their characteristics.
For instance, it entered into licensing agreements in Japan initially and then developed Joint
Ventures so that it could share the risk and cost of the international expansion. Likewise, in
other countries in Asia, it has given licenses to the local firms to operate their store formats
by charging them the licensing fees and royalties for the revenue earned.
In its initial foreign expansion phase, it entered into pure licensing agreement but the option
was not an appropriate move by the company because it lacked control on its outlets in Japan.
Even the customers who visited the outlets were dissatisfied as they were not provided the
similar service level found in the American countries. As a result, Starbucks shifted to Joint
Venture mode of entry in international market. With the help of this initiative, the success and
expansion rate increased at an accelerating pace and its brand image started to get strong in
the foreign markets.
However, it wanted to have complete control on its international business operations and
decided to create wholly owned subsidiaries. This mode of entry is preferred by large
corporations because it provides them the opportunity of penetrating at a fast pace in the
global market, get instant access to the local markets and small companies are willing to
present their resources to well-known foreign companies (Chang & Rhee, 2011). Starbucks
also realised from its expansion strategy projects that wholly owned subsidiary format allows
them to achieve their targets quickly as oppose to joint ventures or pure licensing agreements.
For instance, in Thailand, it entered by a licensing agreement with a local Thai company
Coffee Partners and it was given a target of opening up twenty more Starbucks outlets
within next five years within the region. However, the company was unable to raise the
desired amount of funds required for expansion purpose and Starbucks took over Coffee
Partners in 2000. By the end of 2007, there were about one hundred and three Starbucks
outlets in Thailand which is a span of seven years.
Similarly, in Britain, Starbucks bought Seattle Coffee in 1998 which was a Britain coffee
shop that was operating with the similar format as followed by the corporation. At the time of
purchase, Seattle Coffee had sixty retail stores which were trying to present the customers
with the Starbucks like coffee experience. By acquiring a well-known company in Britain,
Starbucks was able to effectively deploy its expertise in the industry and offer the customers
the similar product and service ranges. Since the coffee chain was strategically expanded in
various regions in Britain, it was relatively convenient for Starbucks to enter in this region.
Other positive element for Starbucks was that there is similarity of culture in US and Britain
regarding the coffee, it did not have to face any problem for understanding the market or its
culture. The concept of coffee shop was highly appreciated by British people and Starbucks
was able to achieve success in the region quickly. Hence, by making use of wholly owned
subsidiary format, Starbucks was able to keep a strict control on its business operations in
Britain and Thailand. Moreover, Starbucks was able to save huge amount of time and cost by
utilising its own resources efficiently in these markets.
The markets of Britain and Thailand are different from Japan because the former ones bear a
lot of resemblance with the American target market and Starbucks kept a control on its
business operations to provide the customers with the excellent coffee experience. Hence,
Starbucks has ensured that every customer is able to have the similar experience in all of its
operations worldwide so that they can develop positive brand associations and appreciate the
service level of the coffee market leader.
Currently, Starbuck has dominated the coffee market in United Kingdom by overcoming the
market barriers through innovative entry mode of acquisitions. The companys success would
be attributed to its identification with the locals in United Kingdom by employing most of
the locals and improving their work relations with them until it is ranked among the best
employers. Such confidence is very important for ease market penetration. For it to dominate
the United Kingdom market is made possible by its many Coffee stores at the current it has
six hundred (600) Coffee stores distributed over the big cities in United Kingdom making
their products to be widely accessible. The company at the present has 16.7 % of the market
share (Hickman 2008). Its royal Clients to the company do not have to travel far to source for
their goods they are early available even when they travel to other cities. These have helped
the company build up a strong brand in United Kingdom to dominate the market. The
company being leading in the market stands a better chance of diversifying even more and be
able to penetrate to the entire European Union market.
Global Marketing Strategy
Although globalisation has allowed large multinationals to expand across the globe increasing
their popularity and profits, this phenomenon has been widely criticised and Starbucks was
also the victim of anti-consumerism and anti-globalisation movements (Klein, 2009). The
growth experience by the company and its current world dominance has generated many
negative discourses, primarily criticising Starbucks ascendancy at the expense of local coffee
shops.
As a multinational brand that aspires to be a recognised global leader, Starbucks marketing

strategy requires a degree of standardisation. To start with, the company hardly advertises in
the traditional sense via TV, radio and print adverts, instead relying on their ubiquitous cafs
to do the talking (Kiley, 2006, p. 56). In addition to this, the company has developed and
perfected their social media marketing strategy, using Facebook, Twitter, Instagram, Pinterest,
and other platforms for competitions and promotional offers for their customers (Moth,
2013). It can be argued that Starbucks success in the social media sphere is also highly
dependent on the anti-Starbucks movement, as this generates increased coverage of the brand
name, allowing the company to counteract the accusations and promote their ethical
behaviour even more (Holden, 2012). The involvement of consumers in product development
and range (i.e.: new drink flavours) as well as the encouragements to share personal
experiences are now an integral part of Starbucks international marketing strategy (Shayon,
2013). The company often prides itself on the fact that it creates a community sense amongst
individuals from distinct countries through the recognisable brand name Starbucks (Batchelor
& Krister, 2012). The company uses social media to encourage its consumers to create a
sense of belonging to a community and rewards its loyal customers through My Starbucks
Reward, using polls to ensure a maximum potential of crowd sourcing (Schoultz, 2013).
Through this, the company demonstrates loyalty on its own part to its customers, focusing on
transforming their consumers in brand ambassadors, rather than investing time and large
budget shares in aggressive marketing tactics aimed at accumulating large shares of new
consumers.
Levitt (1983) sustains that standardisation of a marketing programme needs to have a positive
impact on the performance of the organisation. Being able to maintain a consistency across
the marketing strategy and tactics in operations that span across the globe can have a positive
impact on a companys financial performance, as the budget for developing the marketing
program is significantly lower (Samiee & Roth, 1992). However, the cultural differences
between different geographical markets make it difficult to distinguish the profitability and
impact on performance of standardised marketing plans (Porter, 2011). Studies suggest that,
irrespective of general traits of global marketing for brand recognition purposes,
multinational corporations need to take into account any cultural aspects of the countries
where their subsidiaries are. As such, Starbucks adapts their food and beverage offerings in
their cafs in order to suit their customers taste (Bussing-Burks, 2009). Below (Figure 4) is a
list of products that are exclusively available in specific geographical areas as evidence of
adaptation tactics used by the company.
Starbucks Coffee Thailand is a entirely owned subsidiary of Starbucks Corporation.

Starbucks Coffee Thailand was build with the idea of bringing the Starbucks practice to Thai
customers. Starbucks has expanded throughout the country such as Pattaya, Chiang Mai,
Samui, Phuket and many more aince the opening of their first store on July 17, 1988 at
Central Chidlom. In July 2011, Starbucks has expanded to 141 stores in Thailand.
Starbucks corporate objective is to become the most famous and valued brand of coffee in
the world. In order to achieve this goal, Starbucks has plans to continue expanding its retail
operations rapidly in two ways. The two ways are to increase its market share in existing
markets and to open stores in new markets. Starbucks retail objective is to become a top
retailer and coffee brand in each of its target markets by selling the first quality coffees and
other related products. In addition, Starbucks also builds a high level of customer loyalty by
providing a superior level of customer service.
The reason why Starbucks chose to expand to Thailand is because, currently, Starbucks exists
only in a few foreign countries in Asia such as China, Malaysia, Singapore, Indonesia and
Japan. Starbucks felt that Asia can offered more opportunity than Europe. According to an
executive, "The area is full of rising markets. Consumers disposable income is increasing as
their countries economies grow, and more importantly, people are now adapting Western
lifestyles." While coffee consumption rates in Southeast Asia are predicted to increase around
20 percent to 30 percent a year. Therefore, Starbucks has decided investing $10 million in
developing its Asian operations and another $20 million with its joint venture partners in
Asia.
Starbuckss main mission is to be global company. In order to achieve it needs, the expansion
strategy that Starbucks use are joint ventures, licenses and company owned operation.
Starbucks has chosen to expand globally through local joint venture instead of pure licensing
startegy because Starbucks is excited to let their partners to follows their success.
Entry mode through joint venture has three main advantages. Firstly, Starbucks could gain
local companys cooperation. Secondly, it can lower risk. And thirdly, it gives better image to
local customers.
Local companys cooperation is necessary when a company enters a foreign market, For
example, in the period of building joint venture in Thailand, Siamese company can negotiate
with government agency. Other than this, local company can support Starbucks by helping in
information gathering, moer linean political systems, and building employees realtionship.
Starbucks is the greatest coffee shop in the world. To become more persistent in the market,
Starbucks has developed strategies to achieve it. One of the strategies is to open lot of
branches not just in America but also to other country. Thailand is one of the overseas
branches. Initially, Starbucks expanded its products to Thailand using licensing strategy
through an agreement with the local Thai company, requiring the opening of at least 20
Starbucks coffee stores within five years. But, because the Coffee partners were unable to
raise funds from the Thai bank to fulfill the expansion, therefore Starbucks used $12 million
to acquire the Coffee partners to gain tighter control over the expansion strategy in Thailand.
(Hill,2008) Now, Starbucks Coffee Thailand is a wholly owned subsidiary of Starbucks
Corporation. Therefore, it is able to reduce the risk of losing control of the Thailand market.
By bringing the Starbucks experience and developing new innovation beverages to Thai
consumers, this causes Starbucks Coffee (Thailand) to gain support by Starbucks lovers and
that drives the rate of expansion rapidly. In the year 2011, Starbucks already has 141 stores in
Thailand. (Starbucks website, 2009) With entering to the market of Thailand, business of
Starbucks can be more stable because they get the new foreign customer. Compare to other
brands coffee shop, Starbucks is more famous and they have many current customers in
different countries since Starbucks has been opened. Build more coffee shops in Thailand will
brings Starbucks a better known, can compete against other coffee shops which exist in the
market, and be more permanent in the market.
Starbucks have had a hard time in Thailand due to various issues such as intense competitions
from rivalry as well as the limited time for sitting policy implemented. With the
recommendations provided, I strongly believe they can strive forward and have a better edge
in beverages industry. Starbucks must always be alert with the changing environment and
surroundings to better cater for the changing needs of customers. They need to realize that the
government policies and rules and regulations might change accordingly, hence came up with
analysis whether it is feasible for continuing doing business in Thailand. Even though low
cost is not a viable strategy, Starbucks is actually trying its best to serve every target market
to enable the population in Thailand to enjoy its coffee and tea in terms of introducing usage
of Tumbler. Besides, to win the hearts of Thais, they need to have a clear differentiation in
terms of products characteristics to appeal to potential customers for example comparison of
product quality among competitors. Overall, Thailand is a still a potential market with
opportunities and good for business expansion due to the rich diversity of culture and a good
tourist destination.
Starbucks might consider extending its product line. Although Starbucks is specialized in
serving coffee and tea, they can add on new products which is compatible with the Thai
peoples taste and preference. Before Starbucks introduce or launch its new product, they can
conduct a survey on the acceptance of the new product they are about to bring it out to the
people to be on safe side. Example of products that can be introduce are cuisines which is
spicy and sour .That would enhance the variety of their offerings and indirectly increasing the
profitability of the company.
In the Thailand market, Starbucks recognize Chiang Mai and Mae Hong Sorn as an
opportunity which its geographic environment was suitable for farming the coffee seeds.
Thus, Starbucks Coffee coordinated with Integrated Tribal Development Project (ITDP), so
they can get the Arabica coffee beans. In a year, there was being 130 tons of coffee beans
produced from all hill tribes through Integrated Tribal Development Project (ITDP).
Therefore, Starbucks Coffee can used those high qualities Arabica coffee beans that were
sourced from Chiang Mai and Mae Hong Sorn to introduce the countrys first Starbuck
Coffee blend which is Starbucks(R) Muan Jai Blend in 2003. (Press Release, 2004)
According to the Starbucks customer review website showed that the rating of customers
comment to the Starbucks(R) Muan Jai Blend is 4.5/5 that means the responses of customers
is good. Moreover, the Starbucks purchase the coffee bean directly with the farmers who
grew it with an agreed price. This approach can help Starbucks getting the high quality of the
coffee beans that meets Starbucks standards because it will guarantee the price of farmers
received.
5.3. EMPIRICAL INFORMATION FROM THE MARKETS

INVESTIGATED
In this section we present the information found in annual reports, Starbucks homepage,
interviews and other sources for our three cases. In the following section, we will analyze
data based on our literature review. Finally, we compare the three cases in order to attain
reliable conclusions for our research.
5.3.1. Case 1: United Kingdom:
Starbucks Coffee Company Ltd (UK) is a wholly-owned subsidiary of Starbucks

Corporation of the US, which is the worlds largest retailer and roaster of specialist coffee.
It is the market leader of branded coffee shops in the UK. (Caterersearch 2006)
In May 1998, Starbucks entered into the UK by the acquisition of sixty-five Seattle Coffee
Company stores (Starbucks UK Home Page). It acquired the Seattle Coffee
24
2008 Master Thesis Group 2023
Company in exchange for about 1.8 million shares of common Starbucks stock, or about
50.8 million (Holmes 1998). Starbucks re-branded the purchased Seattle Coffee stores in
the year following their purchase. The Starbucks Coffee Company also let Seattle Coffee
managers Scott and Ally Svenson continue to manage the original UK operations (BBC
news 1998).
Seattle Coffee Company was founded in 1995. It included the Seattle's Best Coffee and
Torrefazione Italia Coffee brands (Coffeegeek 2003). The company was managed by two
Americans, Scott and Ally Svenson. Seattle Coffee Company opened its first coffee bar in
Covent Garden in 1996. As of 1998 it had sixty-five retail stores selling American- style
coffee which has a similar coffee culture as Starbucks. (Bitic 2003)
The United Kingdom was the first European country which Starbucks entered. The UK was
to be a springboard from which to internationalize its business in Europe. Acquisition was
therefore an efficient and fast way for Starbucks to enter into a new foreign market.
Entering the UK was a milestone for Starbucks international expansion. The

internationalization plan in Starbucks long-term strategy consisted of opening 500 retail
stores in Europe by the end of 2003. "We are a way from taking the step from the U.K. to
Europe," said Schultz, Chairman and Chief Executive Officer of Starbucks (Holmes 1998).
Whats more, Schultz said Europe was a "major strategic opportunity to achieve our goal of
creating and building an enduring global brand" (Holmes 1998). The low competition
intensity in earlier times drove Starbucks to expand in a strategically smart way, which was
to create and build a sustainable brand.
In the UK Starbucks has grown step by step until becoming recognized as one of the Top
10 UK Best Places to Work in 2007 (Starbucks Homepage 2008). In 1999, Starbucks
formed an alliance with Sainsburys. Starbucks also acquired London coffee shops from
Madisons Coffee for 1.4 million in 2001. In 2002, Starbucks formed a partnership with
Borders bookshops and bought 13 coffee bars from Coffee Republic for 2 million. By
early 2005, Starbucks had 30 concessions in supermarkets (Caterersearch 2006). In 2006,
Starbucks UK was listed as one of UK Top 50 Best Places to Work (ranked 34th),
awarded by the Great Places to Work Institute, in partnership with the Financial Times.
Howard Behar, President of Starbucks Coffee International said "We do not believe we are
an American company, but an international brand. We hope to benefit from the pub culture
in the UK to make Starbucks a natural meeting place for people (BBC News 1998). The
above remark intends to reduce the importance of cultural distance between Starbucks
coffee concept and United Kingdoms coffee concept. Between the two countries, there was
a huge gap. British people had a different way of thinking than Americans. In the United
Kingdom, there was also certain opposition to American products and concepts. Starbucks
sought to reduce that distance by acquiring an existing British coffee chain, Seattle Coffee
stores. In addition, Starbucks waited a year to re-brand the acquired Seattle Coffee stores
with the Starbucks brand. In this way,
25

26
Starbucks first made the British familiar with the Starbucks Coffee concept prior to
rebranding.
In 2007, Starbucks gained a major success in the UK with more than 500 stores having been
opened. It remained the most recognized chain coffee store, with 27% of the respondents
rating it their favorite (with Costa at 15 %) (Manson 2007). As of the present moment,
Starbucks has more than 600 branches in the UK and Ireland. According to the retail analyst
Euromonitor, the company has a 16.7 per cent market share, one per cent ahead of Costa
Coffee (Hickman 2008). Costa Coffee is founded in 1971 by Italian brothers Vilas Costa
with a wholesale operation supplying roasted
coffee. Besides, it is based in United Kingdom.
Characteristic of the overseas country business environment
Before Starbucks entered into the UK, it analyzed the foreign market. The top management
expected the UK to be the springboard for entry into Europe (Pettigrew 1999). Koch (2001)
states that there are characteristics of overseas countries which are easy to obtain these days.
While understanding the Italian coffee market and French coffee market, Starbucks saw the
more significant opportunity in the British coffee market. The language was easy to
understand and the management would be easy to organize. Besides, compared with Italian
worldwide coffee culture, British coffee culture was much easier to merge into.
However, volatility of general business regulations/ practices, business infrastructure,
levels of industrial development, forms, scope and intensity of competition, customer
protection legislation and customer sophistication are of difficulty to define in an earlier
stage (Koch 2001). Thus, to gain knowledge about the United Kingdom market, Starbucks
decided to allow Seattle Coffee Company managers to continue operating for Starbucks.
They already had enough market knowledge to run Starbucks stores in the U.K.
Firm size
Starbucks is a relatively large firm. Until the end of 1997, Starbucks had around 1,400
stores. As it mentioned in Chen and Mujtabas theory, larger firms could have a greater
capability than smaller ones to expend resources and absorb risks. Therefore, Starbucks had
greater capability than others for expending resources and absorbing risk, which meant they
could afford to buy sixty-five stores with a cost of 50.8 million.
Resource commitment
Root (1994) argues that company who owns a huge amount of resources has numerous
entry mode options. Starbucks had management skills, experience and a huge amount of
resources. Thus it had more options regarding their choice of entry. In choosing the
particular entry mode the firm considered that it had the available capital to purchase
Seattle Coffee.
Speed
In an internationalization process, speed is related to the stated time a company desires to

dedicate before establishing itself in a host country. (Brassigton and Pettitt 2000). The
speed of Starbucks international expansion was getting more and more aggressive in
1990s. In order to explore the new market, Starbucks needed to find a way to enter into the
UK. With the acquisition of Seattle Coffee, Starbucks achieved expansion of its business in
a short time.
Global management efficiency requirements
Degree of internationalization influences the quantity of available resources in a company

(Koch 2001). Starbucks had the strategy to enter into the UK as the first step in expanding
into the European continent. As Koch defined, as the firms degree of internationalization
becomes higher, the resources become more limited. Starbucks was a relatively large
company in 1997, with 1400 stores. Instead of limiting its resource commitment and
redefining their global strategy, Starbucks instead chose the resource-intensive route of a
wholly-owned subsidiary. Therefore, this was not a significant factor affecting Starbucks
mode of entry choice in the UK.
Management risk attitudes
The management risk attitudes of Starbucks were clear due to the uncertainty of the British
market. Koch (2001) determined degree of risk depends on: companys financial situation,
its strategic options, and competitiveness of the environment. When Starbucks entered into
United Kingdom, Starbucks had carried out a policy of minimizing risk.
EXTERNAL FACTORS
Culture distance
Culture distance refers to the possible differences existing in relation to the way in which
individuals from different countries observe certain behaviors and ways of thinking. They
will influence the ability of companies to transfer work practices and methods from one
country to another (Quer, Claver & Rienda 2007). When Starbucks, as the American coffee
giant, entered the UK market, it widely acknowledged the basic culture distance between
American and British culture. Thus, Starbucks tried to look for a local company to adapt to
the British coffee culture.
31
Howard Behar, President of Starbucks Coffee International, told BBC News Online that
taking account of local conditions was very important (BBC news 1998). Starbucks made a
distinctive decision to acquire Seattle Coffee Company unlike its more common strategy of
a joint venture. It was a good way to enter into a new market and solve the problem of
cultural distance. Furthermore, Starbucks waited a year to re- brand these stores with the
Starbucks name. In this way, Starbucks made the British first become familiar with
Starbucks Coffee. In addition, Seattle Coffee Company was operated in an American coffee
style by two Americans. It was a good advantage for the Starbucks operation in UK to
already have a similar style of coffee.
Market barriers
Market has obstacles such as tariff barriers, governmental regulations, distribution access,
natural barriers, existed barrier and level of country development (Koch 2001). Market
barriers are not a distinctive factor in considering the British case.
Market potential
Chen and Mujtabas theory of market potential refers to growth and size potential of
foreign market. The market potential affects the strategy of Starbucks European expansion.
Howard Schultz, chairman of Starbucks Coffee Company, recognized that the market
potential of the United Kingdom was an important factor in internationalization in the
following statement: While these are still early days in our growth, our success worldwide
firmly validates our ongoing belief of the enormous potential for expansion in Europe.
(Starbucks 1998)
Competitive intensity
Competitive intensity is measured by the number of competitors in the host country. The
degree of the market density of the competitors affects MNCs strategy of entry mode.
Competitive pressures drive MNCs to perform shared-control modes, franchising,
licensing, or others when the market could be assumed to be operating under perfect
competition. (Chen and Mujtaba 2007)
Based on the above analysis, Starbucks was a case of a company using direct investment in
order to enter the market in the UK. In 1998, the British coffee market was not mature, and
competitive pressure was high. Through the acquisition of the established coffee chain,
Seattle Coffee Company, Starbucks could gain a lot of advantages. Starbucks eliminated a
potential competitor and reduced competitive intensity in the United Kingdom. Starbucks
also used its capital and influence to obtain prime locations and to gain competitiveness.
Even some of them were operated at a financial loss. Critics claimed this was an unfair
attempt to drive out small, independent competitors, who could not afford to pay inflated
prices for premium real estate. (Wikipedia 2008)
32

33
HOW TO EXPAND INTERNATIONALLY (METHOD)
Having determined that global expansion was the next frontier for Starbucks, thecompany
needed to determine how to go about entering these new, global markets. In 1995,Starbucks
Coffee International was created to drive the expansion of the Starbucks experiencearound the
globe.
15
Consisting of 12 experienced multinational and multi-lingual employees, thissubsidiarys

primary responsibility was to help research the international markets and to ensuresuccess in its
international expansion.
16
Starbucks Coffee International (SCI) is responsible for all Starbucks business development
outside North America, including developing new businesses, financing and planning stores,
managing operations and logistics, merchandising, andtraining and developing Starbucks
international managers.
17
SCI was also responsible for the local partnerships that have proven to be one of the primary
reasons Starbucks has been successful moving overseas.
18
Starbucks sought out local partners to use for much of its overseas expansion. Kathy Linderman,
SVP of Operations for SCIdescribes the companys approach as focusing on the partnership first,
country second.
19
Linderman explained:We rely on the local connection to get everything up and working. The key
is finding theright local partners to negotiate local regulations and other issues. We look for
partnerswho share our values, culture, and goals about community development. We
are primarily interested in partners who can guide us through the process of starting up in
aforeign location.
20
Starbucks ability and willingness to adapt has proved successful in helping Starbucks to enter
theinternational market and expanding their international brand.
21
Prior to venturing into a newinternational market, Starbucks had done extensive research for
local partners.
22
They look for partners who share the same managing mentality as their corporate office and
ones who arealready established so as to help build a connection in the local culture.
23

4The first Starbucks store outside of North America opened in 1996 in Tokyo, Japanthrough a
joint venture agreement with Sazaby Inc.
24
As Schultz explained, [Our local partner]SAZABYs understanding of the Japanese consumer

and the insight they have aboutmerchandising and unique products [has been a big help].
25
In the Asia Pacific marketplace,other than China, licensing agreements were widely used in the
early stages of expansion.
26
From1996 to 1999, licensing agreements with local partners were established in Singapore,
thePhilippines, Thailand, New Zealand, Malaysia and South Korea.
27
These agreements providedStarbucks with the business know-how from a local perspective on
how they needed to enter themarkets. Starbucks would eventually acquire 100 percent equity in
the operations of Singaporeand Thailand, creating fully owned subsidiaries, and would increase
its equity in South Koreaand Malaysia by partially acquiring the operations and creating joint
ventures.
28
The Australianmarket was also entered with a joint-venture agreement in Sydney in 2000, and
two years later itwould become a fully owned operation.
29
Starbucks entered the greater China market in the late 1990s with a joint venture inTaipei,
Taiwan.
30
More joint ventures followed in the early 2000s in Hong Kong, Shanghai andShenzhen.
31
Starbucks would then acquire majority in Shanghai and Taiwan.
32
However, the firststore in Mainland China opened through a licensing agreement in Beijing in
1999, but it wouldlater on become a joint venture operation as well.
33
Just like in China, most of Europes entry strategy consisted of joint ventures, mainlywith two
partners that had local expertise in the region: Sigla S.A. and the MarinopoulusGroup.
34
Starbucks and Sigla S.A opened joint ventures in Spain and France in 2002 and 2004.
35
Starbucks and the Marinopoulos Group established joint ventures in Greece,

Switzerland,Austria, and Cyprus during the same time frame.
36
The German market was also entered with a joint venture in 2002 but it would soon become fully
owned and operated by Starbucks (in2004).
37
In the United Kingdom however, Starbucks acquired a chain of coffee shops in 1998:the
acquisition of Seattle Coffee Company provided Starbucks with more than 65 retail storesand it
paved the way for expansion in this region.
38
Furthermore, the Middle Eastern market was penetrated with the creation of a largelicensing
agreement with the M. H. Alshaya Company W.L.L, one of the leading internationalfranchise
retailers in the region.
39
In 1999, Starbucks opened its first stores in Kuwait andLebanon, and in 2000 it opened its first
stores in the UAE, Qatar, Saudi Arabia, and Bahrain, allthrough the licensing agreement with the
Alshaya group.
40
A few years later the same licensingagreement opened doors for Starbucks in Oman, Turkey,
Jordan, and even Russia.
4
Why Japan Chose Starbucks
Guest Contributor
Aug 6, 2014
Approximately 18 years ago, Starbucks opened up their first location outside North America:
Japan. Today, Starbucks Japan has become the largest coffee chain in Japan with a market share
of 48.0%. Their store locations have grown by an average of 7.3% per annum over the past
decadeapproximately 70 new stores a year, and now over 1000 stores in total.
Their aggressive expansion plan projects a goal of 10% annual growth in their locations
(approximately 100 new stores a year) in the coming three years. Not to mention, revenue has
grown by 14.7% in the past five years. It seems that more than a few Japanese consumers are
choosing Starbucks over the other coffee shops, like Detour, Saintmarc, or Tullys Coffee.
Its clear that Starbucks Japan is a great success story. But the question remains: Why? Why do
we choose Starbucks over other coffee shops? Why are we willing to wait in that never-ending
line to pay a premium price and then struggle to find an empty seat?
Well, the secret may lie in the balance Starbucks has found between maintaining the trendiness
of being an American brand and adapting to the Japanese market. From the moment Starbucks
set foot in Japan, innovation and a fresh American perspective were at the heart of their strategy.
Taking the Innovative Approach
Starbucks was the first caf to offer a wide range of drinks with customizable options. Lattes
made with soymilk and reduced sweetness were unheard of at the time, and Frappucinos offered
non-coffee drinkers an option that made it the top-selling product today.
Starbucks was the first coffee chain to implement a non-smoking environment, which appealed
to the younger Japanese generations. In addition, they added an exciting new alternative for their
suburban customersdrive-thrus. Based on their FY13 annual report, the 20 new drive-thru
locations had 25% greater revenue than the overall average the year before.
Starbucks Japan also recently partnered with Amazon Japan to offer Kindle tablets at one of their
newly renovated locations in Roppongi, Tokyootherwise known as the foreign business
district. This is in response to the fact that many businessmen require larger screens than what
their smartphones provide for the applications they use. Since they do not have their laptops on
them, Starbucks saw the demand for those who are on break to still be connected to the news,
work, or their personal interests.
Lastly, Starbucks has realized that it is not just about the product, but the experience as well.
They are consistently on top of trends and renovating their stores to maintain the look and feel of
a trendy American caf. Their use of digital marketing through social media platforms has
expanded their Starbucks fan community. They have even hosted a Frappucino themed fashion
show in Tokyo with models and a live orchestra, offering samples of their newest drinks. Its not
a stretch to say that they have been the market leader in innovation.
Understanding Japanese Culture
Innovation has not been the only factor in their success. Starbucks has also taken the extra step to
become familiar with Japanese culture. An example is the importance of top quality customer
service in Japan. Starbucks has also removed their signature service of asking for a customers
name when writing down their order as a result of the Japanese highly valuing their privacy.
To address the Japanese love of tradition and national festivals, Starbucks has developed limited-
time seasonal drinks such as the Sakura (cherry blossom) Frappuccino. They have also
implemented concept stores that are specifically designed to complement the atmosphere of
certain neighborhoods, and whose product offerings have been changed to reflect Japanese
tradition more thoroughly.
Investing in Training and Development
Another aspect they have focused on perfecting is the training and development of their
employees. Starbucks requires their baristas at Starbucks Japan to go through a two-month
extensive training program that makes them experts in both Starbucks drinks and Starbucks
coffee beans.
They provide both a product manual to their partners (baristas), and assign a mentor for the
customer service portion of the training. Prior to becoming a certified partner, trainees are
expected to pass both practical and written tests.
You may be surprised to hear that baristas also wear two different apron colorsgreen or black.
This is due to the globally implemented Coffee Master Program, where a barista may wear a
black apron only if they are a Coffee Master. To become one, you are required to pass an exam
on extensive coffee bean theory, held once a year.
At Starbucks Japan, one in twelve baristas have been certified as a Coffee Master, and you can
also find these black aprons around the world. Only in Japan, however, will you find the
first black aprononly Starbucks, where all baristas are coffee masters. The store features a
coffee concierge counter where the beans are brewed using only a coffee press and a metal coffee
filter, with a selection of 24 premium coffee beans available for sampling.
Conclusion: A finely tailored customer experience
While many businesses fail to understand the extent to which Japanese culture cherishes
tradition, Starbucks has managed to combine their exciting American flair with the underlying
values of the Japanese to create an unbeatable experience.
And although they have built the reputation of a caf that offers innovative products and
exceptional customer service, they have also become a place that can satisfy their customers
other motives for visiting a caf: to meet with friends, study, or conduct a quick business
meeting. Today, Starbucks has become the go-to coffee shop in Japan, serving both quality
products and a comfortable atmosphere.
Now the question remains: How are you going to find that perfect balance of foreign allure and
cultural adaptation for the consumers in your market?
Question 3
Critically assess the suitability of the staffing approach that Starbucks utilised in Japan in
relation to their corporate strategy.
Starbucks Human
Resource Management PracticesThe Starbucks Corporation sees its employees as a key part of
its view of itself as abusiness serving the community; its employees are vital for its growth,
helping the businessgrow and thrive (
Working at Starbucks
,
n.d.). To work at Starbucks is much like workingwith friends, its website claims; the company
understands appreciates, respects, and includesdifferent kinds of people. It is a company that
also embraces diversity. Starbucks provides allemployees and their same-sex or opposite sex-
partners comprehensive health benefits thatinclude medical, dental, and vision care as well as
tuition reimbursement, stock options,vacation, and the 401 (k) retirement plan (Noe, Hollenbeck,
Gerhart & Wright, 2010).Starbucks is also company that practices open communication. It
keeps employees or
partners frequently informed, its senior leaders frequently holding Open Forum events to
answer employee questions and mitigate issues or concerns. Starbucks believes that it
isimportant to hire those not just for the ability to be trained in cafe work and
customersatisfaction, but also those with an aptitude for social consciousness. Its mission is to
inspireand nurture the human spirit
one person, one cup, and one neighborhood at a time (Our
Mission,
n.d.). The company is well-known for its ethical sourcing of coffee from farmersall over the
globe and environmental leadership (by 2015 all its cups will be reusable orrecyclable). It is also
renowned for its community involvement through volunteer work inneighborhoods where stores
are located (Noe et al., 2010).
Human Resource Management (HRM) is an integral part of every company as the corporations
are realising that the only way of maintaining an edge is to invest properly in the development of
employees competencies (Rupidara & McGraw, 2011). One of the key success factors of
Starbucks is its efficient and committed workforce who is satisfied with the working conditions
of the corporation. In order to enhance the motivation level of its employees, Starbucks has made
drastic changes in their compensation packages. For instance, the part-time employees are given
medical benefits and stock grant options.
Since uniformity among the business operations are the important aspects of a firm that is
considering the FDI options, it has to ensure that the employees are trained in offering similar
service level to the customers (Paryani, 2011). As the demand of highly efficient and competent
personnel has increased in todays world, the corporations are allocating sufficient amount of
funds in their competency development programs (Tu, Wang & Cheng, 2012). Starbucks has
ensured that it employs the superior quality resources for efficient management of its staff and
provides them the same capabilities required for managing their international operations.
Since Starbucks aimed at offering the customers similar taste of coffee and ambience in all of its
international outlets, it has developed a distinctive employee training and development program.
The HR department of the corporation ensures that adequate time is designated in the
recruitment, selection and training program so that the personnel possess the mandatory skills
required for the business operations.
In the service industry, one of the most common problems encountered by the HR department is
the high employee turnover (Rupidara & McGraw, 2011). However, the employees who are
satisfied with their jobs are less likely to switch to other corporations. Starbucks has initiated a
health and safety benefits program for the employees working more than twenty hours per week
so that they are given an indication that they are valuable part of the corporation. Besides this
fringe benefit, the employees are provided an opportunity to gain foreign market experience by
sending them in their international outlets.
As the culture of Japanese market is different from American market, the employees were
provided training opportunities that enhanced their skills and allowed them to learn the dynamics
of the new market. Since HR department of Starbucks was well-aware of the problems that could
be encountered, it developed an effective strategy in which details about the training and
development initiatives were worked out. The employees working in America were trained in
working in Japanese business culture and they were prepared to transfer the relevant skills to the
Japanese workforce.
In order to enhance its operations in the market of Japan, Starbucks transferred some of its
employees to the new market and ensured that every employed possessed the required set of
skills as mentioned in their standards list. The Japanese employees were also mandated to attend
the training sessions that were done by US employees so that they could provide the similar
experience to the customers. Once the workforce was ready to offer the best and consistent
services to the customers, the staff was deployed to the destination outlets and they were even
given the stock grant option for enhancing their productivity level.
Hence, the strategic role of HRM in the internationalisation strategy of Starbucks ensured that
the personnel was compatible with the requirements of the corporation. The management team
has ensured that sufficient amount of funds are allocated for the developmental needs of the
employees so that they remain competent and loyal to the firm. In todays business environment,
HR department has to make effective use of the available tools required to motivate and retain
the employees because the rival firms cannot replicate the HR competency of Starbucks.
Conclusion
Conclusions
The company that reinvented the way in which people enjoy their traditional cup of coffee,
Starbucks has conquered the globe in less than half a century, since the first store opened. The
pace of growth and geographical reach of Starbucks is an undeniable reality that has sparked
debates over the past decades. Most of the elements that have contributed to this successful
expansion and brand recognition can be associated with the entry mode selection, the marketing
mix adaptability and promotional strategies used by the company.
Starting with the successful collaborations with local companies in the countries of
destination through JVs or licensing through to the slight alterations made to the menu to suit
the taste of local consumers, the company displays an exquisite cultural awareness. American
giants in the food and beverage industry like Dunkin Donuts or Burger King have attempted to
penetrate Asian markets preserving their business model and menu offerings. They encountered
resistance from the local consumers, as their culinary and beverage preferences were not met by
the menu of the American companies. Whilst it is understandable that MNCs desire to preserve
their business model and should avoid making big compromises for each geographical region
where they extend, as this would incur additional operational costs for product development and
marketing, organisations need to demonstrate a willingness to take into account the culture of
the host country. Starbucks main philosophy revolves around the atmosphere they can create in
their coffee shops and the manner in which the company values its
employees, rather than their product offerings, therefore allowing the organisation to
expand, adapt and yet, stay true to their core values.
Carefully selecting its international partners whose values match the Starbucks passion for
great customer focused services, Starbucks seeks the necessary help from well- established
local retailers. Although the whole-ownership market entry mode guarantees immediate
higher profitability, Starbucks focus is on creating long-lasting relationships with
consumers in every geographical region, seeking and rewarding the loyalty of the brands
customers. As such, JVs, licensing or partly-owned subsidiaries are the entry modes of
choice for Starbucks in their pursuit to establish themselves as market leaders. The company
is clearly not seeking short term goals through aggressive tactics, rather focusing on a well-
established strategy that promotes a steady continuous growth, which has so far proved to be
a successful approach to
internationalisation.
References
Bibliography
.
References
CONCLUSION
The main purpose of our research was to know why an MNC such as Starbucks used
different entry modes, and what factors have influenced their entry mode decisions. To
obtain findings: first, based on our literature review, we developed a set of possible
influential factors affecting the entry mode decision in our conceptual framework. Then
we collected our empirical data from different sources. Finally, we analyzed and contrasted
our three cases in order to determine similarities and differences between
them.
In our first research question: What factors affected Starbucks entry mode decisions, we
obtained the following findings: First, entry mode decision is influenced by a number of
factors. Factors which influenced entry mode decisions can be related to either internal or
to external environment of MNC. In our case, we have found that internal factors that have
affected Starbucks choice of entry modes are: culture distance, market potential and
competition intensity. On the other hand, relevant external factors are: characteristic of
overseas country business environment, resource commitment, speed, management risk
attitudes, and global management requirement. Both sets of factors are relevant in entry
mode decisions, but the external factors are often decisive in devising the choice of
international strategy. Furthermore, internal and external factors can influence companies
internationalization strategies to different degrees. Factors that influence entry mode
decisions can be different in each case; not always is an entry mode decision influenced by
the same factors. Even, some factors can affect other as it happened in New Zealand and
Spain case with firms size, resource commitment and global management efficiency
requirement factors. Starbucks was a big company with high experience and resources
when internationalized in both countries. However, the company had to limit and
rationalize their resource and to reduce its entry mode options to fulfill its ambitious
internationalization plan. Last but not least, there are several factors which influence choice
of international strategy, but one or two factors are often crucial in the decision. Those
factors are often external factors.
The results of our second research question Which entry mode strategies did Starbucks
use in foreign markets and why?: We show that Starbucks used three different
international strategies: joint-venture, wholly-owned subsidiary and licensing. Our findings
have determined that the reason for using three different strategies is that Starbucks seeks
to adapt to different local needs, requirements and influential factors in every country. It
means that the cause of using different entry modes is mainly owing to external factors.
In summary, we can conclude by saying our investigation shows that entry mode strategy is
an important decision in the internationalization process of Starbucks. The choice of
international strategy has long-term implications for the company. Therefore, managers
needed to analyze every influential factor thoroughly in the internationalization process
prior to make entry mode choice.
7.2. RECOMMENDATION
Our study has shown that internal and external factors influenced the choice of entry mode
for Starbucks. Moreover, we have determined that external factors are often the most
decisive ones.
As for the firm, it is significant to analyze the external factors first-hand. Then to choose
the suitable way of entry among possible entry modes is to find the most effective and
efficient way for the companys international expansion.
46

As for Starbucks, each mode of entry for the three cases was a good choice for the short-term
or early stage entry. As part of a long-run strategy, it is critical that Starbucks chooses stable
entry mode strategies in order to stand still in the highly competitive market situation.
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Bibliography
Appendices
Systematic Review
Systematic Review
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Journal Title Aim Results Conclusion
Name Publication
Valizadeh, 2013 Journal Nurses' The aim of The majority According

of of the to the
nurses'
i When a company expands so much that their stores starts competing with each other
ii

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Running Head: STARBUCKS FOREIGN DIRECT INVESTMENT

Starbucks Foreign Direct Investment

[Name of the Author]

[Name of the Institution]

Starbucks Foreign Direct Investment

we found that Starbucks takes different entry modes to internationalize.

international strategy. We consider that it is an interesting case to investigate and

Furthermore, we were interesting in exploring if the choice of Starbucks entry mode

can be determined by factors enumerated by entry mode theories.

licensing and wholly-owned subsidiaries (Starbucks.com 2008). We have chosen three

countries; each one represents one of three Starbucks international strategies.

We decided to study three countries because of two reasons. First, we sought to

to reach reliable conclusions. Second, we knew it is really difficult to obtain

information regarding Starbucks internationalization. If we explored more countries

contrast the reliability of our data.

represented the three Starbucks entry modes. In United Kingdom, we investigated

subsidiary the company entered with a different strategy to wholly-owned subsidiary.

investigation has to follow a structure. Therefore we decided to use these depicted

factors in our conceptual framework as guidance or structure within our research.

choice of entry mode.

of entry mode. In addition, we will determine if the factors developed in our

the causes of Starbucks choice of entry mode.

Background of the Study

is the most critical decision in international expansion. The choice of international

licensing, a turnkey project, franchising, joint ventures and wholly-owned subsidiaries.

their internationalization process.

The questions in focus of this research is about

It is also another advantage of going internationally that it gives an opportunity to

Foreign Market Analysis

Before entering international marketing, if we reflect on our perception what marketing

providing customer needs and wants,

orienting the firm towards the process of focusing on that satisfaction,

meeting organizational objectives.

When domestic and international marketing are compared, it is argued that"what

Reasons Behind Starbucks Foreign Market Expansion

Count Partn Agreem Starbucks

Starbucks involvement in the internationalization process varies only in degree (e.g.

the size and financial resources of the company

its existing foreign market involvement

the intensity of the competition in target market,

the affect of existing and expecting tariff and non-tariff barriers

the timing of entry in relation to t he market and intensity of competitive situation

Foreign Market Expansion Strategy Outside of USA

Foreign Production Sources

-100 Percent Ownership and / or

-Export Management Company

-Overseas Marketing Subsidiary

What are entry modes?

appropriate entry mode for that specific market, such as exporting,

licensing, a turnkey project, franchising, joint ventures or wholly-owned

different degrees of impact for each particular country. As a consequence,

situations it faces in its international expansion strategy.

A strong brand all over the world Cannibalisingi

They sell coffee and it's substitutes High prices

Howard Schultz No use of franchising

Educate their employees

Yuppies/Dinks /Woopies ii Baresso and other competitors

Business people cash/rich-time/poor

Company, form a wholly-owned subsidiary, and enter the UK market.

STARBUCKS INTERNATIONAL EXPANSION

1996 Hawaii, Japan, Singapore

1998 United Kingdom, Taiwan, Thailand, Malaysia, New Zealand

2000 United Arab Emirates, Shanghai, Hong