Case:
Forty years ago, Starbucks was a single store in Seattle’s PikePlace Market selling premium roasted coffee. Today, it is a globalroaster and retailer of coffee with some 21,536 stores, 43 percentof which are in 63 countries outside the United States. China(1,716 stores), Canada (1,330 stores),
Japan (1,079 stores), and the United Kingdom (808 stores) arelarge markets internationally for Starbucks. Starbucks set out onits current course in the 1980s when the company’s director ofmarketing, Howard Schultz, came back from a trip to Italy enchantedwith the Italian coffeehouse experience. Schultz, who later becameCEO, persuaded the company’s owners to experiment with thecoffeehouse format—and the Starbucks experience was born. Thestrategy was to sell the company’s own premium roasted coffee andfreshly brewed espressostyle coffee beverages, along with a varietyof pastries, coffee accessories, teas, and other products, in atastefully designed coffeehouse setting. From the outset, thecompany focused on selling “a third place experience,” rather thanjust the coffee. The formula led to spectacular success in theUnited States, where Starbucks went from obscurity to one of thebest-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 (morerecently) browsing the web. In 1995, with 700 stores across theUnited States, Starbucks began exploring foreign marketopportunities. The first target market was Japan. The companyestablished a joint venture with a local retailer, Sazaby Inc. Eachcompany held a 50 percent stake in the venture, Starbucks Coffee ofJapan. Starbucks initially invested $10 million in this venture,its first foreign direct investment. The Starbucks format was thenlicensed to the venture, which was charged with taking overresponsibility for growing Starbucks’ presence in Japan.
To make sure the Japanese operations replicated the “Starbucksexperience” in North America, Starbucks transferred some employeesto the Japanese operation. The licensing agreement required allJapanese store managers and employees to attend training classessimilar to those given to U.S. employees. The agreement alsorequired that stores adhere to the design parameters established inthe United States. In 2001, the company introduced a stock optionplan for all Japanese employees, making it the first company inJapan to do so. Skeptics doubted that Starbucks would be able toreplicate its North American success overseas, but by June 2015,Starbucks had some 1,079 stores and a profitable business in Japan.After Japan, the company embarked on an aggressive foreigninvestment program. In 1998, it purchased Seattle Coffee, a Britishcoffee chain with 60 retail stores, for $84 million. An Americancouple originally from Seattle had started Seattle Coffee with theintention of establishing a Starbucks-like chain in Britain. In thelate 1990s, Starbucks opened stores in Taiwan, Singapore, Thailand,New Zealand, South Korea, Malaysia, and—most significantly— China.In Asia, Starbucks’ most common strategy was to license its formatto a local operator in return for initial licensing fees androyalties on store revenues. As in Japan, Starbucks insisted on anintensive employee-training program and strict specificationsregarding the format and layout of the store. By 2002, Starbuckswas pursuing an aggressive expansion in mainland Europe. As itsfirst entry point, Starbucks chose Switzerland. Drawing on itsexperience in Asia, the company entered into a joint venture with aSwiss company, Bon Appetit Group, Switzerland’s largest foodservice company. Bon Appetit was to hold a majority stake in theventure, and Starbucks would license its format to the Swisscompany using a similar agreement to those it had used successfullyin Asia. This was followed by a joint venture in other countries.The United Kingdom leads the charge in Europe with 808 Starbucksstores. By 2014, Starbucks emphasized the rapid growth of itsoperations in China, where it had 1,716 stores and planned to rollout another 500 in three years. The success of Starbucks in Chinahas been attributed to a smart partnering strategy. China is notone homogeneous market; the culture of northern China is verydifferent from that of the east, and consumer spending power inlandis not on par with that of the big coastal cities. To deal withthis complexity, Starbucks entered into three different jointventures: in the north with Beijong Mei Da coffee, in the east withTaiwan-based UniPresident, and in the south with Hong Kong-basedMaxim’s Caterers. Each partner brought different strengths andlocal expertise that helped the company gain insights into thetastes and preferences of local Chinese customers, and to adaptaccordingly. Starbucks now believes that China will become itssecond-largest market after the United States by 2020.
Question:
1. Starbucks prefers a combination approach to foreign marketentry: the use of joint ventures and licensing. Do you agree withthis approach? Why or why not?
