The globalization of Starbucks

Thirty years ago, Starbucks was a single store in Seattles Pike Place Market
selling premium-roasted coffee. Today it is a global roaster and retailer of
coffee with some 16,700 stores, 40 percent of which are in 50 countries
outside the United States. Starbucks set out on its current course in the
1980s when the companys director of marketing, Howard Schultz, came
back from a trip to Italy enchanted with the Italian coffeehouse experience.
Schultz, who later became CEO, persuaded the companys owners to
experiment with the coffeehouse formatand the Starbucks experience was
born. The strategy was to sell the companys own premium-roasted coffee
and freshly brewed espresso-style coffee beverages, along with a variety of
pastries, coffee accessories, teas, and other products, in a tastefully
designed coffeehouse setting. From the outset, the company focused on
selling a third place between work and home experience, rather than just
the coffee. The formula led to spectacular success in the United States,
where Starbucks went from obscurity to one of the best-known brands in the
country in a decade. Thanks to Starbucks, coffee stores became places for
relaxation, chatting with friends, reading the newspaper, holding business
meetings, or (more recently) browsing the Web.
In 1995, with 700 stores across the United States, Starbucks began exploring
foreign opportunities. Approximately 18 years ago, in the mid-1990s,
Starbucks opened up their first location outside North America: Japan. The
company established a joint venture with a local retailer, Sazaby Inc. Each
company held a 50 percent stake in the venture, Starbucks Coffee of Japan.
Starbucks initially invested $10 million in this venture, its first foreign direct
investment. The Starbucks format was then licensed to the venture, which
was charged with taking over responsibility for growing Starbucks presence
in Japan.
Today, Starbucks Japan has become the largest coffee chain in Japan with a
market share of 48.0%. Their aggressive expansion plan projects a goal of
10% annual growth in their locations 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; and 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.
Firstly they have managed to identify certain cultural shifts; the country was
slowly moving away from certain traditions of collectivism towards
individualism. For global brands such as Starbucks, this change in values has
translated into many persons who can both afford and wish to be seen

consuming an upscale coffee-based drink in its own distinctive packaging

and cup, Starbucks being merely one Western luxury or status brand to
which people can aspire. For at least as long as the novelty or cachet of such
a famous American brand is in effect, many young people are willing to break
with any traditions of visiting teahouses or Japans previously existing
coffeehouses, the latter of which Starbucks differed from greatly by being
clean, smoke-free, family-friendly, and well lit. Secondly, although certain
cultural changes were noticed but those were not enough to support such
foreign venture and while many businesses fail to understand the extent to
which Japanese culture cherishes tradition, Starbucks has 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. On the other hand, to make sure the
Japanese operations replicated the Starbucks experience in North America,
Starbucks transferred some employees to the Japanese operation.
The licensing agreement required all Japanese store managers and
employees to attend training classes similar to those given to U.S.
employees. The agreement also required that stores adhere to the design
parameters established in the United States. Thus it could be said that
Starbucks has successfully managed to combine their exciting American flair
with the underlying values of the Japanese to create an unbeatable
experience.
After Japan, the company embarked on an aggressive foreign investment
program. In Asia, Starbucks most common strategy was to license its format
to a local operator in return for initial licensing fees and royalties on store
revenues. In 1998, it purchased Seattle Coffee, a British coffee chain with60
retail stores, for $84 million. In the late 1990s, Starbucks opened stores in
Taiwan, China, Singapore, Thailand, New Zealand, South Korea, and Malaysia.
Hence it could be said that although originally they were concentrating on
the franchising method of expansion and licensing of its products, Starbucks
later pursued other options such as joint ventures, wholly owned
subsidiaries, and acquisitions to retain tighter control over operations.
As it has grown its global footprint, Starbucks has also embraced ethical
sourcing policies and environmental responsibility. Now one of the worlds
largest buyers of coffee, in 2000 Starbucks started to purchase Fair Trade
Certified coffee. The goal was to empower small-scale farmers organized in

cooperatives to invest in their farms and communities, to protect the

environment, and to develop the business skills necessary to compete in the
global marketplace. In short, Starbucks was trying to use its influence to not
only change the way people consumed coffee around the world, but also to
change the way coffee was produced in a manner that benefited the farmers
and the environment. By 2010, some 75 percent of the coffee Starbucks
purchased was Fair Trade Certified, and the company has a goal of increasing
that to 100 percent by 2015.

QUESTIONS
1. What drove Starbucks to start expanding internationally? What lesson
for International Business can be drawn from this?
2. How culture played a dominant role in Starbucks foreign operation
staring from choosing location to entry mode to changed market
offering, explain
3. Why do you think Starbucks entered the Japanese market via a joint
venture? What lessons can you draw from this?
4. Which theory of FDI best explains the international expansion strategy
adopted by Starbucks?
5. When it comes to purchasing coffee beans Starbucks adheres to a fair
trade program. What do you think is the difference between free trade
and fair trade? How might a fair trade policy benefit Starbucks