Case: The Globalization of Starbucks

1. What drove Starbucks to start expanding internationally? What lesson for International

Business can be drawn from this?

Starbuck's CEO Howard Schultz started Starbucks in the 1980s in the United States

where it gained immense popularity. By 1995 Starbucks have spread all over the USA thus

saturating the market. As no further profit could be made, Howard Schultz decided that

Starbucks should expand its horizons and start its business in other countries.

From an international business point of view, by expanding globally Starbucks now earns

its profits at an exponential rate with a much lowered cost of production. Also by starting its

business in other countries they are providing their products to a world market compared to local

market. The benefit of this is that more people are being exposed to Starbucks coffee thus

becoming aware and raising the Starbucks brand image. Also Starbucks is able to create new

versions of their products due to the different needs of the people of different cultures.

2. How culture played a dominant role in Starbucks foreign operation starting from

choosing location to entry mode to changed market offering, explain.

During the period when Starbucks started its operations in Japan, the country was shifting

away from many collectivism traditions to a more individualist mindset. Starbucks being a

company which has set its roots on a country which values individualism, took advantage of this

cultural shift. Starbucks was viewed as a luxury product within Japan and most of its customers

were young Japanese people. This new generation embraced newer traditions within Japan and

wanted to break away from the old views. They wanted to be westernized, thus Starbucks being a

symbol of the West gained immense popularity. The Japanese started shifting away from their

traditional tea houses and started favoring coffee from a famous Western company. Thus

Starbucks thrived in Japan. However not all Japanese tradition was forgone. Even the newer

generation kept following several of the older Japanese traditions and culture. For example: the

Japanese highly valued privacy thus Starbucks took a step further so that the company remains in

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line with these traditions. Starbucks does not write the names of its customers when the

customers order their products. Also Starbucks made promotional, limited offer sales of Sakura

flavored products to appeal to a wide range of customers.

3. Why do you think Starbucks entered the Japanese market via a joint venture? What lessons can you draw from this?

Starbucks is a western company with American values. Some of these values may not

positively affect the Japanese even if these values had a positive effect on Americans. Therefore

in order to appeal to the Japanese customers, Starbucks entered via a joint venture with a

Japanese company, so that they are able to give a 'Starbucks Experience' to the Japanese while at

the same time respect the underlying Japanese values. Apart from a cultural standpoint, being in

a joint venture allowed Starbucks to share its costs and risks with the local retailer. Another

reason for the joint venture was that Starbucks wanted to have a tighter control over its

operations compared to the lesser amount of control they had when they pursued licensing or

franchising.

4. Which theory of FDI best explains the international expansion strategy adopted by

Starbucks?

FDI means when a firm directly invests in new facilities to produce and/or market in a

foreign country. Although initially Starbucks expanded through licensing and franchising, they

later went for joint ventures, wholly owned subsidiaries, and acquisitions so that they have a

tighter control over their operations. As evidence we see that in Japan they entered into a joint-

venture with the local Japanese company, Sazaby Inc. In the United Kingdom, it purchased

Seattle Coffee, a British coffee chain with 60 retail stores, following the FDI theory of aquisition.

And lastly, Starbucks opened stores in Taiwan, China, Singapore, Thailand, New Zealand, South

Korea, and Malaysia, making them wholly owned subsidiaries of Starbucks.

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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 ?

Free trade means that there are no barriers between countries when trading and also no

specific country or industry is favored when involved in global trade. Fair trade focuses on the

wages and working conditions of labor in developing markets. For example, a fair trade activist

will fight to increase the wage rates of workers and improve their working conditions.

A fair trade policy provides double benefit. On one side investing in the farms and

communities, the economy and the livelihood of the coffee farmers become better. These farmers

and communities will remain loyal to Starbucks thus ensuring that Starbucks will maintain a

steady supply of raw materials for their products. On the other hand, pursuing fair trade is a very

ethical policy. This enhances Starbuck's image not only a global, multinational company but also

as a company who cares for the less privileged. This image builds a huge goodwill and positive

image within the customers and as a result, the customers to show their loyalty towards

Starbucks and their ethical cause, will purchase more of Starbuck's products thus raising

Starbucks's profits.

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