Starbucks’ Foreign Entry Strategy
Starbucks’ Foreign Entry Strategy
Starbucks has become a phenomenon worldwide, with more than 24,000 stores in more than 60 countries. Sales are great even at relatively high prices for its products. This can perhaps be explained in the United States (and other wealthy markets), but how can Starbucks’ success be explained by its foreign market entry in less developed and emerging markets?
Entry into foreign markets that are characterized as emerging and less-developed markets is usually challenging to premium brands such as Starbucks. In this regard, Starbucks employs various strategies to overcome the entry barriers that such markets present. Firstly, Starbucks engages in an elaborate an extensive market research that unearths pertinent information related to the political and economic environment in the destination market, the cultural orientation of the market, and the legal environment in the market (Hill, 2013). Secondly, Starbucks then chooses the best market entry mode addresses the unique economic, cultural, political and legal aspects of the foreign market so that the entry can be as seamless as possible. Thirdly, Starbucks gradually and patiently popularizes its brand so that it is a brand of choice with regards to coffee drinking. Finally, Starbucks engages in a massive expansion campaign that positions its brand as the dominant coffee brand in the foreign market.
From this precept, Starbucks uses the findings of the market research to target the emerging middle class, which is often open to the western culture and lifestyle that they view as being superior, fashionable and modern. In addition, the market research findings inform on the cultural barriers and competitive environment that Starbucks is likely to face in the foreign market and as such, Starbucks adopt a market entry strategy that does not upset the cultural orientation of the market and withstands the competitive forces and rivals therein. Further, the market research informs on the risks that Starbucks is likely to encounter in the emerging market considering that emerging and underdeveloped countries present numerous risks to foreign companies and often cause them to fail in the new markets. In this regard, the foreign market entry mode selected by Starbucks has not only been able to absorb the risks but also facilitated in the dispersing of the risks in a manner that does not influence the profitability of the company aversely.
Starbucks has used joint ventures predominantly to enter into emerging markets in Asia such as China, India and South Korea although this strategy has been preceded by the licensing strategy in some markets such as South Korea. For instance, in China, where Starbucks’ entry strategy stands out, the company partnered with Beijing Mei Da coffee company, Uni-President and Maxim’s Caterers in northern, eastern and southern China respectively. Likewise, in India and South Korea, Starbucks entered into joint venture with Tata Global Beverages and ESCO Korea Company Limited respectively, although the South Korean partner acted as a licensee prior to the joint venture agreement (Trefis Team, 2016). These foreing market entry modes have presented several advantages that influenced the success of the company. Firstly, the licensing market entry model allows Starbucks to protect its proprietary assets such as brand name, service processes and product design while testing the potential and lucrativeness of the foreign market, as was the case with South Korea. In addition, the joint-venture mode is a smart entry strategy because it leverages on the vast knowledge of the partner in the local market, thus quickening and shortening the learning curve about the foreign market for Starbucks. In this regard, Starbucks is able to learn about the cultures and preferences of the foreign markets through the strategic partners while enabling Starbucks to diversify its risks by sharing them with the partners, as has been the case in the Asian emerging markets and specifically China. This informs the cultural sensitiveness of the marketing campaigns that Starbucks uses in emerging markets that have a market cultural difference from that in America and Western Europe, which is considered to be a western culture. In the same vein, Starbucks is able to target the middle and upper middle class in the emerging market through the information gained from the strategic partner, which helps the company create new demand among this demography while maintaining its premium brand positioning and pricing (Wang, 2012). Besides, Starbucks is able to navigate through the political and legal environment in the emerging market with the help of the strategic partner, thus helping Starbucks address the otherwise market entry challenges.
Secondly, Starbucks gains speedy acceptance in the market using the reputation of the already accepted and thriving strategic partner. In this regard, new markets may be resistant to foreign markets because of the unfamiliarity that accompanies the entrant alongside the prejudices that may be held by the destination market about the entrant and its country of origin, and the products it offers. In this regard, a joint venture helps address these barriers through the market assurance of trust and acceptability presented by the partnering with a local company. This also enables Starbucks to gradually, patiently persistently transfer its coffee-drinking culture in a different environment such as a tea-drinking culture environment, its third place experience in an environment where modern lifestyles are emerging, and brand values in an environment dominated by local brands, to the emerging market with little or no resistance (Wang, 2012). This has enabled to company to remain profitable while charging a premium price for its products in the emerging market.
Do you expect that the growth of the number of Starbucks stores worldwide will continue into more countries, or do you expect Starbucks to focus on more stores in the foreign markets in which the company already has at least some stores already established?
I expect Starbucks to focus its growth strategy in foreign countries that it already enjoys presence rather than on new markets. Notably, I expect the company to continue focusing its growth in the domestic United States and European markets as well as in its Asian markets that comprises majorly of China and India. There are various reasons why Starbucks would rather focus on growing its existing markets rather than entering into new market as part of its internationalization and growth strategy.
Firstly, the existing markets that the company already has presence present immense growth potentials that Starbucks is yet to exhaust. Indeed, the United States and the Asia Pacific markets continued to register growths overall, with the US market growing by 3 % while the Asia Pacific market including Chine grew by 5 % in 2016 (Kell, 2017). This demonstrates that these markets are yet to be saturated. More specifically, firstly, China and India have huge population and a burgeoning middle class, which presents huge expansion potential to Starbucks. Already, the training of baristas in these markets and especially in the Chinese market that is being undertaken by Starbucks is not only increasing the company’s knowledge about the local preferences, which is helping the company formulate offering that are more customized to these markets but also helping the company entrench the coffee drinking culture in markets that have a traditional tea-drinking culture, thus presenting a win-win benefit to both the company and its foreign employees (Wang, 2012). In this regard, the baristas not only train other employees in the outlet but also act as the brand ambassadors for Starbucks, which is indicative that the company has a long-term plan of improving the human capacity in its existing markets for the pursuit of its expansion program. In this regard, Starbucks would wish to continue with this strategy through a long-term commitment in these markets, which has proven to be highly successful in China (Wang, 2012). Indeed, the company has indicated that it wants to double its locations in the Chinese market in the next five years while adding 12,000 new Starbucks locations over the same period, which is expected to increase its stores globally by 50 % by the year 2021 (Kalogeropoulos, 2017).
Secondly, the customer preferences are changing and Starbucks intends to focus on satisfying the its loyal customers who are exhibiting new customer behavior trends such as a preference for online shopping and a taste for gourmet coffee. In this regard, Starbucks intends to keep it customers loyal to its brand by improving and enriching their coffee-drinking experiences though the integration of digital technologies. For instance, the company has implemented a loyalty program for its habitual customers, which is available on a mobile platform and intends to expand its use of mobile technologies to improve the customer experiences. Notably, the company is investing in mobile technologies to address the crowding and subsequent service delays being experienced at some of its stores particularly those that are located in high-traffic areas (Kalogeropoulos, 2017). In the same vein, Starbucks is implementing drive-through provisions alongside implementing footprint themes in its existing stores in the United States to improve the customer experience (Kalogeropoulos, 2017).
In addition, the company is investing in coffee roasteries and coffee tasting rooms to take advantage of the third wave coffee market that is characterized by the preference of gourmet, specialty and artisanal coffee while still maintaining and advancing the European coffeehouse culture. Notably, the third wave is sweeping the highly developed coffee markets in the United States and Europe s well as emerging markets like China, providing new expansion opportunities to Starbucks. To this end, the company is focusing on expanding its reserve outlets that specialize in exquisite, rare and gourmet coffees and offer specialized coffee-drinking experiences, with the intention of capturing larger a market share in existing markets (Trefis Team, 2016). This would leverage its large brand in a market niche that is populated by artisanal players, who lack the financial muscle to expand in their existing markets or venture into new and challenging markets.
With the CEO and driver of the company—Howard Schultz—stepping down as the company’s unquestioned leader, do you expect Starbucks to change its foreign market entry strategy in any way?
I do not expect Starbucks to deviate from its use of licensing, franchising, and joint venture foreign market entry strategies upon the exit of Howard Schultz as the company’s CEO. These approaches have helped the company enter into markets considered to be highly competitive and culturally challenging while targeting both highly develop markets in Europe, Japan and Australia alongside the emerging markets in China, India and South Korea. For instance, licensing and franchising remains attractive foreign market entry modes for highly developed markets in Europe that already have a coffee-drinking culture and may have large established coffee brands. However, the joint venture entry strategy remains Starbucks’ most used and successful foreign market entry strategy for highly developed and emerging markets because it enables the company to spread its risks in case of investment losses and capital overlays that the company could experience initially in highly competitive and hostile foreign markets (McLean, 2000). The joint venture strategy also enables Starbucks to engage in a market expansion strategy after the initial entry, because of provide the company with valuable information and experiences related to the political, economic, cultural and legal environments in the targeted country alongside an in-depth understanding of the consumer behaviors in those markets (Hill, 2013). For instance, in China, Starbucks has used to joint venture market entry mode to understand the diverse Chinese market and culture and in turn helped the company develop products that are appealing and culturally acceptable to the Chinese, while gradually tapping into the consumer aspirations towards being globally stylish.
However, I expect that Starbucks would modify these strategies to make them suitable to individual markets in different countries and regions in large countries, including the customized targeting of customers in specific demographics in the targeted markets. Already, the company is planning to diversify the constitution of its board of directors with the addition of three directors from culturally different backgrounds. Specifically, the board is planning to include three individuals with one director from the African-American community, another from the Indian-American community and another who is a Danish individual (Sorkin, 2017). This is aimed at making the board of directors as culturally diverse as the rest of the workforce at Starbucks, which in turn, would help the board to make culturally sensitive decisions and thus make the foreign market entry strategy more culturally-friendly. In addition, the company was planning to hire 10,000 refugees across its operations all over the world to further its inclusivity and diversity strategy that enriches its foreign market entry strategy, even though this strategy has been unpopular in the United States market (Lieber, R. (2017).
In addition, I expect Starbucks continue infusing digital technology into its offerings, which would influence the choice of strategic partner for the joint venture entry mode. Specifically, I would expect Starbucks to enter into joint venture agreements with companies that already have a longstanding experience and visibility in the online environment and electronic commerce (Kell, 2017). For instance, Starbucks is already exploring a strategic partnership that would help it undertake and implement digital innovations in the Chinese market to build on the positive effects the company has experienced with its electronic store that is hosted in the Tmall B2C digital platform that is owned by Alibaba; a prominent internet retailing platform in China (Trefis Team, 2016). In addition, Starbucks is leveraging its digital and mobile technologies to endear its brand in the Indian market as part of its input in the joint venture with Tata Global Beverages (Trefis Team, 2016). Further, Starbucks is improving its customer experience by including Wi-Fi internet and other amenities that are attractive to thee millennials, which is a large population segment with increasing purchasing power alongside their unique preferences (Hill, 2013). As such, Starbucks is expected to continue improving its joint venture entry mode with digital and mobile technologies considering that Kevin Johnson, who replaces Howard Schultz as the CEO has been involved in the integration of technology and development of the company’s digital platform alongside the exiting CEO (Trefis Team, 2016). Therefore, I expect that Johnson would continue driving the digital and mobile initiatives and their inclusion in the foreign market entry strategies using his experience in technology and informed by the market trends.
Hill, C. W. L. (2013). International business: Competing in the global marketplace. New York, NY: McGraw-Hill Irwin.
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Sorkin, A. R. (2017). Starbucks set to add three to board, making it more diverse. The New York Times. Retrieved from https://www.nytimes.com/2017/01/24/business/starbucks-board-diversity.html.
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Wang, H. H. (2012). Five things Starbucks did to get china right. Forbes. Retrieved from https://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/#6714d9253af2.