Research Project Starbucks Assignment

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Section 1

Chapter 1: Introduction

Starbucks has consistently been one of the fastest growing companies in the United States (Koehn, 2008). Over a 10-year period starting in 1992, the company’s net revenues increased at a compounded annual growth rate of 20%, to $3.3 billion in fiscal 2002. Net earnings have grown at an annual compounded growth rate of 30% to $218 million in fiscal 2002, which is the highest reported net earnings figure in the company's history (Jain, 2008).

However one of the major challenges which the company has been facing during last few years is the problem of globalization. In this study we will be looking some of the benefits as well as the challenges which the company face in its task of expansion to the other areas of the world. Also there are various modes of entry any of which can be used by the companies with the intention of entering in the foreign markets. It is also imperative for Starbucks to choose the most favourable mode of entry in these nations.

Chapter 2: Research Methodology

Research Questions

Following are the research questions which will be attempted to be answered through the study:

What are the benefits of globalization as a process and how it can help Starbucks?
What are the challenges of globalization as a process and how it can affect Starbucks?
What are the ways through which Starbucks can minimize the challenges of globalization and maximize the benefits of globalization?
What is the mode of entry which Starbucks should use for entering into the foreign markets for achieving the intended results of globalization?

Research Approach

Ethical Consideration

Since the study deals with some internal details of the company and also consists of an interview method, it will be of utmost importance for the researcher to ensure that any of the internal sensitive details is not published without the consent of the company.

Section 2

Abstract

Globalization has been a very important factor in the recent years of the business world which has been able to have significant implications on various global companies. This process of globalization can be defined as the procedure through which the international integration amongst the companies or the markets occur through the exchange of products, ideas, views, as well as various other cultural aspects. Starbucks Corporation is a coffee company based out of Seattle, Washington. It is in the business of buying, roasting as well as selling whole bean specialty coffees in addition to coffee drinks through a global retail outlet chain. The company is currently looking for expansion of the company in the various regions of Europe (including the Middle East), Asia Pacific (including Australia, India. and New Zealand) and Latin America. In this study we will be looking some of the benefits as well as the challenges which the company face in its task of expansion to the other areas of the world. Also there are various modes of entry any of which can be used by the companies with the intention of entering in the foreign markets. It is also imperative for Starbucks to choose the most favourable mode of entry in these nations.

1. Introduction

1.1 Globalization and Definition of Globalization

Globalization has been a very important factor in the recent years of the business world which has been able to have significant implications on various global companies. This process of globalization can be defined as the procedure through which the international integration amongst the companies or the markets occur through the exchange of products, ideas, views, as well as various other cultural aspects. The term started becoming a well-used one during the course of the decade of 1980 for describing the better movement as well as exchange of knowledge, people, and ideas. Apart from these various goods and money also started traveling across international borders which also led to interconnectedness amongst the populations of the world in an improved way. All of these exchanges took place with respect to economic, political, and social in addition to cultural characteristics.

Primarily the process of globalization is considered as an economic term which has led to the global marketplace for the various countries where the products or services manufactured in a particular country can also be offered to the people of the other nations. Apart from the economic effect this also has political and social implication in view of the fact that various domestic communities link the concept of globalization to that of the modernization. At the global level, globalization is thought of in terms of the challenges it poses to the role of governments in international affairs and the global economy.

1.2 Introduction to the Company: Starbucks

As already mentioned various companies in the past have been affected positively or negatively due to the factor. The company which we are discussing here is Starbucks. Starbucks Corporation is a coffee company based out of Seattle, Washington. It is in the business of buying, roasting as well as selling whole bean specialty coffees in addition to coffee drinks through a global retail outlet chain. Starbucks is quite a famous and well known company in the domestic market of it where it has been able to evolve into a company which is renowned for its coffeehouse, where people can purchase beverages and food items as well as packaged whole bean and ground coffee (Janet, 2008).

Although the company has been able to successfully change the way Americans view as well as consume coffee, the impetus on the company was to translate the success of the domestic region into a global success. Starbucks has consistently been one of the fastest growing companies in the United States (Koehn, 2008). Over a 10-year period starting in 1992, the company’s net revenues increased at a compounded annual growth rate of 20%, to $3.3 billion in fiscal 2002. Net earnings have grown at an annual compounded growth rate of 30% to $218 million in fiscal 2002, which is the highest reported net earnings figure in the company's history (Jain, 2008).

2. Rationale for the Research Topic

In this study we will be looking some of the benefits as well as the challenges which the company face in its task of expansion to the other areas of the world. Also there are various modes of entry any of which can be used by the companies with the intention of entering in the foreign markets. It is also imperative for Starbucks to choose the most favourable mode of entry in these nations.

One of the major challenges which the company has been facing during last few years is the problem of globalization. In view of the fact that the intention of the company to maintain the rapid speed of growth which it has been able to achieve over last few years and the domestic market has been saturated significantly with the company’ outlets as well as various rival companies’ outlets, the leadership team of the company is trying to make an international expansion for the company through the process of globalization. Although the company is currently looking for expansion of the company in the various regions of Europe (including the Middle East), Asia Pacific (including Australia, India. and New Zealand) and Latin America, the expansion of the company in these areas can pose some serious threat to the company apart from the opportunities which can be achieved through global expansion. While the opportunity of increased revenues from further expansion is readily apparent to the company’s top management, what is not clear is how to deal with growing “anti-globalization” sentiment around the world (Kotler, 2011).

2.1 Research Questions

Following are the research questions which will be attempted to be answered through the study:

What are the benefits of globalization as a process and how it can help Starbucks?
What are the challenges of globalization as a process and how it can affect Starbucks?
What are the ways through which Starbucks can minimize the challenges of globalization and maximize the benefits of globalization?
What is the mode of entry which Starbucks should use for entering into the foreign markets for achieving the intended results of globalization?

3. Main Section

In this section of the report we will be carrying out a secondary study to look into all the research question which have been provided for the purpose of this study in the previous section. Secondary study is the process in which the researcher analyses various previously carried out researches as well as studies on the same or similar topic to gain insight on the research questions and hypotheses. We will first look into the benefits of globalization and the way those are applicable for Starbucks.

3.1 Benefits of globalization as a process and the way it can help Starbucks

There are a number of benefits which can be achieved by the companies which in turn has led to the top management of Starbucks to taken on the strategy of globalization as a future strategy for the company. One of the main reason for which globalization helps the cause of a lot of companies is it provides these companies with new playing field which can add to the profitability of the company. It has been seen often, that especially with the renowned companies the domestic market and the demand in that market saturates after few decades of existence in the market. Hence the only way forward for increasing the volume and sustaining the growth of the company becomes the process of globalization which provides the companies with a blue ocean strategy and enter into the unknown markets and expand their businesses there. As we can identify for the case of Starbucks, the company wants to maintain the rapid speed of growth which it has been able to achieve over last few years and the domestic market has been saturated significantly with the company’ outlets as well as various rival companies’ outlets. Hence the leadership team of the company has been trying to make an international expansion for the company through the process of globalization. For these reasons the company is currently looking for expansion of the company in the various regions of Europe (including the Middle East), Asia Pacific (including Australia, India. and New Zealand) and Latin America (Janet, 2008).

Apart from the new markets and territories and additional demands globalization also helps the company in increasing the brand name of the company. The money which the companies make in the international markets, can be used for the purpose of investing in brand building exercises in various other national markets as well as the domestic market, products in addition to services.

3.2 Challenges of globalization as a process and the way it can affect Starbucks

In spite of all of the benefits which we have discussed in the previous section, there are various challenges as well which are faced by the companies and it is expected that Starbucks will also face these challenges at the time of expanding the business to various other nations. Amongst these challenges the one which poses most threat is the mismatch of culture and thus localization of the marketing strategy of the company. It is possible that the culture of the country to which the company is planning to expand is vastly different from the original domestic market of the company. This creates the need of shifting the overall marketing strategy of the company as well as localizing the marketing strategy and marketing mix so that it can cater to the local people of the new country.

This can prove to be very difficult for Starbucks in view of the fact that the company has plans of expanding the business to various Asian countries as well and the customer taste and overall culture of the nations is significantly different from the market of USA and hence it can be difficult for the company to understand the market in these countries and design marketing and product strategies according to the same (Jain, 2008).

Also one major challenge is the local competition which can be faced in these nations. It is highly probable that there will be local companies which are providing same service or product as that of Starbucks in all of these nations at a relatively lower price due to the home advantage. Hence the company needs to convince the customers of these nations on the topic of their superiority in comparison to all these companies. The pricing strategy also acts as an important factor with respect to this challenge. Usually the pricing which Starbucks will be charging will be significantly higher than the local companies as a result of the higher quality of ingredients which are used for the products of the company. However the initial tendency of the market will be to opt for the cheaper domestic products (Kotler, 2011).

As a result of the globalization various international brands in addition to Starbucks have faced situations “community push back” in various nations. This factor is a live matter and it is necessary that the companies manage all the incidents of push back in an approach of case-by-case. There are 2 recent examples for Starbucks where this has happened, one in London, where Starbucks decided to withdraw its efforts to open a store after local activists actively campaigned against the firm, and the other in Beijing, where the firm opened a store in an historic district, and, following subsequent and significant adverse comment reported in local and international media, decided to stay put.

3.3 Processes through which challenges of globalization can be minimized and benefits of globalization can be maximized

The first and foremost step which the company needs to carry out for successfully implementing a process of globalization through entering new countries of operations is to carry out a detailed market research in those countries. This will not only provide the company with the potential size of the industry in that country but will also provide various demographic characteristics of the consumers of the industry which will help the company is segmenting and targeting the customer base.

Apart from this it will also be important to understand cultural aspects of the nation so that the communication and marketing activities can be altered according to the same. For example, at the time of entering Indian market, McDonalds had to change the marketing communications of the brand highlighting the vegetarian food items (Lauren, 2007). Traditionally the company used to communicate various marketing activities or products which were non vegetarian. However in view of the fact that India is a country with predominant presence of consumers who do not ear non vegetarian foods, the company needed to make requisite changes.

Through the understanding of the target market and the consumer behaviour it will be possible for Starbucks to not only minimize the challenges of globalization but also to maximize the benefits of globalization. Also to get maximum benefits out of process of expansion, the intention of the companies should be to enhance the market and the industry rather than rescinding it through its strategies. As has been mentioned by Schultz, current CEO of Starbucks (Koehn, 2008):

The market is much larger than we originally thought. … In most cases local competitors benefit from our arrival because of the expansion of the marketplace. Our strategy is never to eliminate or hurt the competition. We never under-price our coffee and it's clear that we position ourselves so as not to undercut the pricing structure in the marketplace.

3.4 Mode of entry which can be used by Starbucks for entering foreign markets

There are various tried and tested mode of entry which have been employed by different companies for the purpose of entering a new market. Following are the details of the same (Kotler, 2011):

Mode	Conditions Favouring this Mode	Advantages	Disadvantages
Exporting	Distribution channels close to plants	Maximizes scale; uses existing facilities.	Company viewed as an outsider
	High political risk	Minimizes risk and investment.	Limits access to local information
	High target country production costs	Speed of entry	Trade barriers & tariffs add to costs.
	Liberal import policies		Transport costs
	Limited sales potential in target country; little product adaptation required
Joint Ventures	Assets cannot be fairly priced	Combines resources of 2 companies.	Difficult to manage
	Government restrictions on foreign ownership	Less investment required	Dilution of control
	High sales potential	Overcomes ownership restrictions and cultural distance	Greater risk than exporting a & licensing
	Import barriers	Potential for learning	Knowledge spill overs
	Large cultural distance	Viewed as insider	Partner may become a competitor.
	Local company can provide skills, resources, distribution network, brand name, etc.
	Some political risk
Licensing	Import and investment barriers	Able to circumvent trade barriers	Knowledge spill overs
	Large cultural distance	High ROI	Lack of control over use of assets.
	Legal protection possible in target environment.	Minimizes risk and investment.	License period is limited
	Licensee lacks ability to become a competitor.	Speed of entry	Licensee may become competitor.
	Low sales potential in target country.
Direct Investment	Assets cannot be fairly priced	Can be viewed as an insider	Higher risk than other modes
	High sales potential	Can better apply specialized skills	May be difficult to manage the local resources.
	Import barriers	Greater knowledge of local market	Requires more resources and commitment
	Low political risk	Minimizes knowledge spill over
	Small cultural distance

Amongst all of these the approach which can be favourable for the company is to concentrate on building partnerships through the process of joint ventures. This will help the company to utilize the various local connections gathered through the joint venture for getting everything up and working. In view of the fact that investment is less in this mode the risk is also limited for the company. However it will be necessary to find right local partners for joint venture so that local regulations and other issues can be negotiated. Also the partner needs to share the culture, values, and objectives regarding the development of the community.

3.5 Research Approach

This research is investigative in nature in view of the fact that through this we are trying to identify some of the factors which are affecting Starbucks as an organization. Hence instead of finding some results for the study the intention will be to understand the nature of the challenge which the company is facing as well as identify the probable solutions which can be used for tackling these challenges of globalization. Hence a secondary research will be conducted for this study. In this secondary research process we will be looking into the research question which have been provided for the purpose of this study in the previous section on the basis of past researches and studies on the same or similar topic to gain insight on the research questions and hypotheses (Gillham, 2000).

Apart from this secondary study a primary research process will also be carried out in which few senior level employees will be questioned regarding the topic of the study. For this process a personal interview process will be carried out with these employees. There are various processes through which the primary research can be executed. However the personal interview method has been chosen by the researcher keeping the nature of the study and the profile of interviewers in mind. In view of the fact that the research questions call for discussions on a broader level, it is necessary to carry out this process on the basis of an unstructured questionnaire which is possible only through the personal interview method (Gillham, 2000).

3.6 Tool for Data Collection

As far as the secondary study is concerned, the data will be collected from various past researches and studies on the same or similar topic to gain insight on the research questions and hypotheses. For the primary research, a semi structured questionnaire will be used for the purpose of carrying out the personal interview. In view of the fact that the study is investigative in nature, it is required for the researcher to gather as much understanding and insight as possible from the senior level managers of the company, which in turn is only possible through an unstructured questionnaire. Following are few of the questions which have been asked to these senior managers of the company for the purpose of this study:

What is the outlook of the company towards the process of globalization and expansion in various countries?
What has been the approach of the company to tackle with the challenges of globalization?
How the benefits of globalization are expected to help Starbucks?
How the challenges of globalization can affect Starbucks?
What are the processes adopted by Starbucks to minimize the challenges of globalization and maximize the benefits of globalization?
What is the mode of entry which Starbucks uses for entering into the foreign markets for achieving the intended results of globalization?

3.7 Ethical Consideration

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4. Summary of Findings

As we can understand from the primary research with the backing of the secondary research is that the company wants to lead the specialty coffee markets across the globe and for this reason it is trying to explore the options of entering into various new markets over the world as the analysts have observed that the US coffee-bar market is reaching saturation.

As confirmed by Schultz (Koehn, 2008),

Whenever we see the reception we're getting in markets in places such as China, the Philippines, Malaysia, the U.K., and most recently Spain and Germany, we recognize that the growth potential for the company [overseas] is very significant. We want to accelerate that growth, maintain our leadership position, and, ultimately, become one of the most respected brands in the world. Ten years ago, we had 125 stores and 2000 employees. Today we have 62,000 people working in 30 countries outside of North America, serving approximately 22 million customers a week.

For the choice of the market entry model, the company looks for partners which can lead Starbucks through the process of starting up in a foreign location. The company seeks for partners with:

Multi-unit restaurant experience,
Similar philosophy to Starbucks in terms of shared values, corporate citizenship, etc.
Financial resources for expanding the concept of Starbucks,
Strong real-estate experience with knowledge about how to pick prime real estate locations,
Familiarity with the retail market, and
The availability of the people to commit to our project.

The company has also been putting a lot of stress on understanding cultural aspects of the nations to which it is expanding through market research activities.

5. Conclusion and Recommendations

The first of the recommendations which can be given to the companies expensing the business to various other nations is shifting the overall marketing strategy of the company as well as localizing the marketing strategy and marketing mix so that it can cater to the local people of the new country. This can prove to be very difficult for in view of the fact that the companies usually go to nations where the customer taste and overall culture of the nations is significantly different from the domestic market of and hence it can be difficult for the company to understand the market in these countries and design marketing and product strategies according to the same.

To minimize this it is also necessary to ensure that a lot of market research is carried out for identifying these factors. Apart from this it will also be important to understand cultural aspects of the nation so that the communication and marketing activities can be altered according to the same. Through the understanding of the target market and the consumer behaviour it will be possible for Starbucks company to not only minimize the challenges of globalization but also to maximize the benefits of globalization. Also to get maximum benefits out of process of expansion, the intention of the companies should be to enhance the market and the industry rather than rescinding it through its strategies.

References

Adamy, Janet. “Starbucks Moves to Cut Costs, Retain Customers”, Wall Street Journal, December 5, 2008.
Baertlein, Lisa, “Starbucks Rivals Seen Slurping Up Its Sales” Reuters, July 28, 2008.
Gatignon, H & Anderson, E 1988, ‘The multinational corporation’s degree of control over foreign subsidiaries: An empirical test of a transaction cost explanation’, Journal of Law, Economics and Organization, vol. 4, pp. 305-306
George, B, Lance Pierce. Howard Smith: Building Starbucks Community (B).
George, Bill, Andrew Mclean. “Howard Smith: Building Starbucks Community.”
Ghoshal, S & Westney, DE 2005, Organization Theory and Multinational Corporation, 2nd edition, Palgrave McMillan

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