Starbucks Expansion Story

Question: Discuss the foreign market analysis and staffing approach used by Starbucks at Japan. Answer: Introduction Starbucks is a globally known roaster and retailer of coffee, which has its roots in US. Impressed by the coffeehouse format being used in Italy, Starbucks saw potential in the experience and created the Starbucks value (Brown, 2014). The company used its own freshly brewed coffee and coffee beans giving it a unique value proposition. The company first expanded outside US to Japan, where it had joint venture with local companies in order to reduce capital investment, increase local expertise and maintain control over the Starbucks experience. Following suit were nations such as Taiwan, Thailand and New Zealand where their main strategy was to license its format in return for an initial licensing fees and subsequent royalty on revenue earned (Burkitt, 2012). Foreign market analysis As a part of analysis, PEST analysis will be used to assess the various markets used in the case where Starbucks has its operations. The rationale behind choosing this tool is that it has wide scope/ applications and covers a gamut of parameters, which holds importance to an organization. United States Starbucks began its operations in the country in the year 1980 which now have expanded to more than 9000 stores marking its success in the coffeehouse space. The country presents a favorable business environment to ventures and is seen as one of the most fertile entrepreneurial countries in the world.th countrys fast growth trajectory, ease of doing business and a supporting infrastructure gives benefits that not many nations can provide to businesses (Chua Banerjee, 2013). Following is an analysis of the market analysis of US: Political The political scenario in the US is fair and just characterized by democracy. With its large presence in the global scenario, the US enjoys a strong influence in the global policymaking and is considered as a superpower, which governs all the countries. However, the country has faced severe criticism owing to its intervention in many nations, which has aggravated the threat of terrorism in the country. The US has one of the most liberal policies relating to ease of doing business, which attracts foreign investments as well as boosts internal businesses (Fitzgerald 2013, April). The entrepreneurial state in the country is highly progressive owing to the policies, tax structure and infrastructure that is available to current and prospective businesses. Economic Boasting a GDP of over $ 16 trillion, the US is the largest economy in the world (Bowen Sisson 2013, March). The economy of the country is mainly services and manufacturing driven and is considered one of the most stable economies of the world. All the currencies of the world are measured against the US, which makes it highly tradable and stable currency. The consumerism exhibited by the country is skewed towards foods and beverage industry and Starbucks has rightly tapped on the opportunity. Due to large local demand of coffee and beverages, Starbucks has been able to leverage the demand into commodity in the country. Social A severe problem that grapples the US is that of aging population which can result in serious labor shortage in the country in times to come. In order to deal with the issue, the US give citizenship to migrants from around the world, which also gives a vibrant demography to the country (Drobac, 2013). The lifestyle of the country is characterized by late working hours and corporate culture, which is a huge, plus for Starbucks. Also health concerns have shifted demand from sodas and other beverages to healthier alternatives such as Coffee. The purchasing power of average American citizens is high which gives a window to Starbucks to charge a premium on its core offerings. Technology Innovation and technological advancements can be considered as synonyms of the US as the country has been the leader in development of technology as well as successful deployment of technology. The technological advancement in infrastructure and consumer electronics change the way companies look at business in the country as the economy is wholly digital. Although countries such as Japan and China pose enormous competition to the country, US still emerges on the top owing to its sheer expertise in the area. Starbucks has been benefitting from technologies such as supply chain management systems, CRM and enterprise resource planning (Busch Moreno, 2014). Japan Japan was the second location whether company expanded its operations in the year 700. Japan holds strategic advantages such as cheap labor, technological advancement and entry into Asian market. Following is an analysis of the market of Japan: Political The political scenarios of the country are market by political stability with the tax structure being just and modern. However a major threat in the political environment of the country is the rising political intervention and military invasions, which is unfavorable for business. The country has successfully adapted free enterprise capitalisms structure, which is evident from the rise of many global companies (Keenan Evans 2014). The country has marine disputes with Russia, which has resulted in loss of control over some resources in the country. Economic Japan currently boasts an economy of more than $5 trillion, which makes it the third largest economy in the world, ahead of Germany. GDP Per capita of $41000 gives an impression of a healthy consumer buying power in the country (Hsu 2014). Japan is a strategic decision of Starbucks as the country offers the best opportunity to the company to enter Asia. The country is mainly exports drive and is characterized by low labor costs, which can result in cost optimization for Starbucks. Social Socially the country is progressive as the increasing influence of the Western countries have homogenized the culture the US and Japan. The education system of the country plays a crucial part in its recovery post World war and continues to propel its growth trajectory. Language poses a huge barrier in the country as 99% of the citizens speak Japanese as their first language. The purchasing patterns that have been observed in the country are similar to other developed countries such as the US, China, Russia, and Germany (Mahobia Jain 2015). Technology Like the US, Japan is a formidable force globally when it comes to technology. Owing to its technological supremacy and cost cutting in the area, the country has attracted huge electronics and other technological demands from around the world. The main exports of the country are technology based and are a huge advantage for doing business in the country. Thailand Thailand is a developing country and is one of the largest tourist attractions in the world. The country is characterized by stable political environment, which attracts businesses in various fields. The economy of the country is relatively nascent but has a strong growth trajectory supporting its aspirations. The economy of the country is tourism based which has resulted in many international companies opening up their operations in the country. Language presents a barrier to all businesses as not many people in the country can speak English. The country itself is not progressive in terms of advancements in technology but the deployment of the technology has been effective in the country. China Being the second largest economy of the world, expansion of operations in the country is a natural step for the company. The political environment in the country is stable with communist party ruling the country from a long time. The country has been able to implement difficult policies owing to the consistency in the politics that the country enjoys. The purchasing power of the citizens in the country is healthy while the country supports indigenous brands as compared to international brands. China sees a major influx of expatriates annually which was seen by Starbucks as a major opportunity to tap on. Cheap labor coupled with infrastructure makes China a major manufacturing destination and likewise attracts companies around the world to outsource their operations to the country. Starbucks to be effective in the country needs to train the local talent so as to align them to the format that they follow globally. Market entry strategy The first market that Starbucks chose to exploit was Japan in the year 1995 where its first strategy was to license its format to interested parties in the countries (Gerhardt et al 2015). Later on realizing the differences in the culture as well as business environment, Starbucks realized that a pure license strategy will not yield the desired results as well as the control needed will not be given. Joint venture emerged at this point as a possible strategy for the company where Starbucks partnered with a local company- Sazaby to have a 50-50 partnership in the venture (Sindhwani Ahuja, 2014). Strategy of joint venture in Japan coupled with training of Japanese employees in the US and actual transfer of some employees from the US employees to elect locations in Japan was a well thought of move which will ensure complete integration and yielding outcomes that are in line with the format created by the company. For a strong presence, Starbucks needed to partner with a strong partner who had complementary skills and resources. Also Starbucks made sure that it contributed equally to the partnership so that situation of unbalanced partnership does not emerge in the partnership that Starbucks had with Sazaby. The company initially had a limited scope of partnership with the company, which it later built on seeing the progress and the ability of the partnership to give the desired outcome. The value that the company tried to deliver to the Japanese market needed local expertise, as Starbucks alone cannot do the distribution, advertisement, capital as well as segmentation in the country. Since a part of the agreement involved Starbucks giving training to the employees as well as management of the company similar to those of Starbucks, integration was ensured. In addition to the replication of the format that the company has in the US, Starbucks needed to create and deliver value to the employees in the country so as to attract the right talent in the organization. To do that, Starbucks introduced stock options for the employees at all levels making Starbucks the first company in the country to do so. Owing to its holistic strategy in the country, Starbucks expanded to 700 outlets in the country by the end of 2007 (Michelli, 2013). Switzerland was another instance where Starbucks partnered with Bon Apptit Group which was the country largest food service company to expand its operations. Just like Japan, Switzerland was chosen by the company to expand into Europe, which was a large market for Starbucks. This strategy turned out instrumental in successfully mapping the culture and business practices of Starbucks over a foreign location where the company took every step possible to replicate the Starbucks experience and it was successful in doing so. To strengthen its presence, Starbucks acquired Seattle Coffee in the year 1998 for $84million so as to expand its market share and cannibalize its competition. This strategy expanded the reach of the company in Britain where the company had no footholds initially. Following the same strategy, Starbucks acquired Coffee partners in 2000 for $12 million so as to tighten its hold over Thai market where it got disenchanted over the licensing strategy (Perera, et. al. 2012). Acquisition presented several benefits for Starbucks such as obtaining quality staff from other organizations, bringing new talent with additional knowledge base and access to better insights. Fund mobilization is another perceivable benefits that Starbucks had by acquisition of the companies. Also, the company was able to diversify the business as the companies that Starbucks acquired had additional offerings. A key advantage that the company had as cost reduction as the company now had to allocate a single marketing budget rather than separate budgets. Starbucks also chose licensing as an entry strategy in Taiwan, China, Singapore, Malaysia and South Korea where the strategy was to license its format in return for fees at the time of agreement and royalty from the revenue generated (Wu, 2013). This strategy although had benefits such as easy setup, low legal obligations and low capital requirements did not produce the results that Starbucks needed for the growth it aspired. The key issue associated with licensing strategy was that the company was not able to have control over the outlets as a result of which brand equity could possibly tarnish in future. Another issue related to this strategy was that financing was not available at some instance to interested parties in Thailand, which resulted in failed operations of the company. The format was not consistently replicable under this strategy and Starbucks saw this as a huge threat to its image and brand in specific. Staffing approach used by Starbucks at Japan Strategy of joint venture in Japan coupled with training of Japanese employees in the US and actual transfer of some employees from the US employees to select locations in Japan was a well thought of move which will ensure complete integration and yielded outcomes that are in line with the format created by the company. For a strong presence, Starbucks needed to partner with a strong partner who had complementary skills and resources. As a part of the agreement, Starbucks was to train the employees as well as management of the company in a similar method used by Starbucks in the US. This method would ensure a consistent culture across all the Starbucks coffeehouses and a consistent image of the company in the eyes of the customers. Starbucks further extended the integration efforts by actually sending some of the employees from the US office to the Japanese outlets to completely phase out the operations in the country. In effect, Japan presented huge growth to the company as the form at was successfully in the country and Starbucks expanded to more than 700 outlets in Japan by the year 2007 (Sam Cai, 2015). The company now had to create a value proposition for the employees so it offered stock options to the employees at all levels in the country. This strategy made Starbucks a preferred employer in the country, which is very necessary to attract right talent to the organization. This was the first time in the country that a company had introduced stock options to the employees and was seen as a positive move from Starbucks end to maintain long-term relationship with its employees and country at large. Since it was the first time Starbucks was expanding into any foreign location it was necessary for the company to get off to a good start so as to build on its foreign market entry success. New employees that get hired at Starbucks in Japan had to be made familiar with the business practices, vision, and mission ad well as rules and regulations of the companies to smoothly get them on board. The employee exchange program was also necessary so as to bring the existing knowledge base of the employees at the US locations to Japan. Training at Japan was of particular importance as the country being a distant nation from the US culture had several barriers in front of its before adopting the Starbucks experience and delivers the same to the employees (Stinson 2014). Without such a staffing strategy, Starbucks could not have created an experience that was necessary in order to expand. For Starbucks, the key value proposition is not the products that they sell at their coffee houses but the entire experience that they yield to the customers inside their coffeehouses. It has been observed over a long period of time that the products do not make as big a difference as the overall experience makes in the coffeehouse business. Customers use these outlets to work, relax and even recreate. Logistically, the entire procurement as well as preparation of the beverages needed to be in line with the Starbucks in US otherwise a homogenous experience could not have been created for the customers. By following the staffing strategy in the country, Starbucks was able to map its processes onto the Japanese outlets, which at that time was very tough. Training of the employees also resulted in reduction of accidents and order mismatching in the coffeehouses in Japan, as the country was relatively new to the coffee experience. Starbucks at the time of formulation of the strategy realized the differences in the customer preferences in the US and Japan and to tailor the services of the company to suit the Japanese market, training was necessary as through it, Starbucks would directly occupy the market leader position in the country (Yu 2013). Employee loyalty as another motivation for the company to train employees and staff them in a way that it did in Japan. Since labor was cheap as well as relatively less skilled in the country, it was important for Starbucks to train them to build competencies that no other competitor as able to build. Employees in this business play a crucial pa rt in creating and delivering the experience so they have to be made the focal point in the business. Without trained employees, the servicescape and ambiance was not adequate to cater to the needs of customers which was completely different from the needs presented by the customers in the US market. In essence the strategy that Starbucks used to reach out to its customers in Japan was an effective strategy. The means that they used to create a compelling value proposition was through employees and it resulted in immense growth of Starbucks in the country and Asia in general. Japan being the first location of expansion for Starbucks had to be carefully integrated into the Starbucks experience which required the right training strategies and right employee motivation strategy (Smith Maguire Hu, 2013). Conclusion In conclusion, it can be stated that the process of internationalization is complicated and often marked by different set of challenges posed by various geographies. Starbucks being an American coffeehouse chain saw growth potential in foreign markets and subsequently began its operations in these locations. To expand, Starbucks used a variety of strategies such as licensing, acquisition as well as joint ventures suitable to the companys objective and business needs. Company has now successfully expanded into more than 39 countries around the world and the approach that it uses is holistic in nature. Company lays great emphasis on the integration strategies, which is necessary to create the right experience at its coffeehouses. References Aiello, G., Dickinson, G. (2014). Beyond authenticity: a visual-material analysis of locality in the global redesign of Starbucks stores.Visual Communication,13(3), 303-321. Brown, S. (2014). Starbucks Rolling Out Wireless Charging Mats To All US Stores.Science. Burkitt, L. (2012). Starbucks plays to local Chinese tastes. com. Chua, A. Y., Banerjee, S. (2013). 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