Starbucks - Going Global Fast (case

study)

I.

Summary

Starbucks is an American worldwide coffee company based in Seattle, Washington. It was founded on March130, 1971. Actually, it is considered as the largest coffee shop chain in the world with total stores of 17,651(as of July 1, 2012, official companys website) locally and internationally. Starbucks stores are serving both hot and cold beverage, snacks, pastries, sandwiches and other non-coffee products. Different mugs in term of shape, size and color are available as well. After foundation, the company experienced an immense and huge expansion that only few companies managed to do it. In fact, Starbucks has several stores in both USA and worldwide. Its expansion philosophy makes it very hard to compete with. It was present in almost every market both the national and the international level.

II.

The Controllable and Uncontrollable Elements that Starbucks Has Encountered in Entering Global Market.
Japan:
Uncontrolled Event(s):

Although the Japanese market is wealthy, Starbucks is fiercely dealing with its competitors products that also include Starbucks lookalikes; the most known one is called Mt Rainier.
Controlled Event(s):

Starbuck could successfully made partnership with a known Japanese maker and distributer called Suntory Ltd. France :
Uncontrolled Event(s):

Actually, the French consumers are ready to experience the sweetness brought by Starbucks; however, the French government is very strict when it comes to labor rights and benefits. This uncontrollable element made, Howard Schultz doubting if his firm can adapt to those restrictions and, thus, stay as much profitable as expected. Italy :
Controlled Event(s):

Unfortunately, entering the Italian market is hard to achieve. Italian coffee is much cheaper than Starbucks one. While Starbucks offers coffee for $1.5, Italian coffee bars propose a variety of non-coffee products such as sandwiches as well as coffee for only 67 cents/coffee in the north and 55 cents/coffee in south. This huge difference of price between American coffee and Italian coffee made it hard for the firm to enter to the market. Hopefully, this element can be controlled; basically, the company has to offer something special to make its customers delighted and ready to spend more and more on American coffee. Vienna:
Uncontrolled Event(s):

Culturally speaking, Viennese young consumers are very attached and excited about the new. Most of Coffee stores in Vienna have an obsolete style which the young populations dont frequent. Starbucks came to the market with a new, fresh and a young image which attracted most the young population. This cultural attitude has a positive impact on penetrating and rapidly expending in the Viennese coffee market. Middle East Countries
Controlled Event(s):

Cultural and value aspects are the fundamental elements that firm has to carefully deal with when it decides to go globally. Howard Schultz did mistakenly offend the Palestinians which light up slight disturbance among Palestinian supporters who are Starbucks consumers in many Middle Eastern countries like Saudi Arabia, Qatar and Oman. Those cultural challenges need careful management and awareness since they are very sensitive and may cause a disaster for the company which sometimes results in shutting down all its activities in those areas. England:
Uncontrolled Event(s):

England is considered as the second biggest market after Japan with a total of over 400 stores. However, the firm is facing several imitators that are thirstily trying to take over the market share.

III.

The Major Sources of Risk Facing the Company and the Potential Solutions.

In fact, Starbucks did face four major risks at local regions. The first one is a saturated market. The company did not stop opening as much stores as it could; this resulted in selfcannibalization which heavily affected and did slow down the domestic market. Each new opened store decreases revenues and profits for all existing local stores (including the new one). In addition, customers are left with less choice in the market; this creates an unwanted image about the firm and may potentially spread a bad word-of-mouth between customers. Additionally, Starbucks is really facing a major local problem with its customers, especially, the young coffee drinkers. Even though, the firm introduced many services inside its coffee shop such as free high speed internet, still the young generation, is unable to afford for a cup of coffee. In fact, its not only about providing free and interesting services inside the stores, but it is also about pricing. The company should lower its price instead of investing dozens of dollars in acquiring these services for consumers for free. Hopefully, the company can overcome these issues by lowering the opening store rate and deciding to close stores that they believe they are useless. To go further, the firm may completely change the design, the name of existing stores; therefore, the company will be able to introduce something new to the market and exciting to the consumers. Starbucks may also need to deeply understand and target the youth segment by introducing new products inside its stores and lowering its prices such as offering special discounts on its menus for students. Even though, the company used to offer outstanding working conditions such as offering health insurance to its employees, employment conditions become tougher. Employees pledge to work heavily without asking for any extra money that will at least make a descent income; many employees decided to leave the firm to work elsewhere. In addition, these conditions put current employees under stress which negatively impacted their behavior with the customers. To tackle this issue, Starbucks should increase employees salaries and giving them more advantages such as less work load. The company can also introduce a new rewarding system where the more you sell the more awarded you are. Because the companys stores are almost found everywhere in the US as well as its worldwide stores are firm-owned, Starbucks just rely on the word of mouth spread. Contrary to other multinational companies, Starbuck only spends $ 30 million on marketing; this value roughly equals to 1% of its total revenues. This lack of marketing budget may harm the company on the long term. To come up with a solution, Starbucks should heavily invest in marketing campaign in the aim to give a good image about itself. The firms marketing budget could also be invested in social activities such as donations and charities. This will give a positive and a clean image about the firm.

IV.

Critique Starbucks overall corporate strategy.

It is true that Starbucks is trying to develop new strategies to grow, but still its strategies results do not really meet the customer's expectations and the market's trends. These can be noticed from the following: All the US should have a Starbucks coffee shop, but there are still states with no Starbucks stores. The quality wanted by the customer is not fully met while they are continuously expending without taking into consideration what the customer is searching for. The customers of Starbucks are of different ages and generations, but still there is no difference in prices to encourage the young generation consumption Starbucks is focusing more on its US stores more than its outside USA shops knowing that they also have a great impact and considerable sales. Starbucks is not spending enough in advertising compared to its status in the market. (about to be a global company) Its self-cannibalism killed the presence of competitors which led to less choice for the customer and to a lower profit for the stores since they have to share the sales. Salaries of Starbucks employees do not match with the work they are doing. Thus since the employee is not well awarded for his/her work, hi/her performance will decrease which means that the quality of the product will also decline. Even if Starbucks is expending globally still it is not trying to adapt to the cultural diversity by presenting an adaptable product to the culture of its customer.

V.

Strategies to Improve Profitability in Japan.

In order to do so, Starbucks needs to change the way it conveys and presents its products and services in the Japanese market. Starbucks is fiercely facing many competitors and imitators that they are trying to take over the market share. To overcome this issue, the firm should lower its products. Japanese are known for being busy all the day, thus introducing similar US style order system will create on the go manner which will be highly appreciated by the Japanese Life style. Introducing pre-filled card will be also highly welcomed by the Japanese; since it will cut the time transaction and make the process of grabbing a coffee a much easier and faster.