Starbucks Expansion Into China

Starbuck 's has become a staple of American culture and for the most part, if you are in your 20 's, you have grown up with it and this has become what you expect coffee to be. Who can blame you, it is everywhere, so "wake up and smell the coffee"! I plan to tell you about the strategies that this giant uses, that have taken it from humble beginnings to a worldwide phenomenon. I also intend to explain how Starbucks is taking China by storm, mainly because marketer / entrepreneur Howard Schultz 's vision and mission statement is shared by everyone in the company!An excerpt from the London Financial Times published in February 2006 states the following in regards to Starbucks entering the Chinese market; "Mr Schultz said the company was

Starbucks was conscious of China’s economic and financial challenges and the fact that the average Chinese earns $500 a month and drinks just three cups of coffee a year was a major challenge to overcome. How many $4 cups of coffee do they actually want or can they afford? The Chinese are among the toughest lot in the world to convince on the price-value relationship. They are very cost-conscious and look for value in whatever they pay for.

There are 15,756 Starbucks stores in 44 countries. To have that many stores, serve that many people, and ensure they still maintain the best and highest quality of beans, really sets some doubts. Starbucks has truly become the McDonald’s of the coffee industry because of the supply and demand. In the Starbucks business, quantity is greater than quality because quantity equals to money, where as quality costs more money. There is no win/win situation with this equation when your business is serving practically the world.

The final project is going to be about the market entry of Starbucks into China. This project will focus on gauging the success of the company's market entry strategy thus far. Starbucks has announced in a press release that it believes China will be its #2 market by 2014, and the company has been one of the most successful American companies in that market (Starbucks, 2012). The company entered the Chinese market in 1999 with a store in Beijing. This followed the acquisition of greater knowledge about Chinese business culture through outlets in Taiwan. The company initially used a licensing agreement to enter the Chinese market (Starbucks, 2010).

Starbucks is known for their Frappuccino’s; unfortunately they are on a downward spiral in sales due to competitors such as McDonalds. In 2008 Starbucks admits to its losses due to their competitors. “Company executives now freely admit that such thinking is largely to blame for the woes that led to Tuesday’s announcement that Starbucks will close 600 U.S. stores and eliminate thousands of jobs. The coffee giant’s missteps have come at a spectacularly bad time, hitting as the economic slump deepens and consumers are seeing their discretionary spending eaten up by rising gas prices and grocery bills (Linn).”

Even so, just two weeks earlier Howard Schultz announced that the company will be expanding internationally. The plan is to open more than 1500 stores in Germany, France, and Britain over a 3-year span (Forbes, 2008). It is estimated that this expansion will boost revenue by more than 20 percent (MSN Money, 2008). In spite of Starbucks’ struggle among its love-hate relationship between customers and protesters, one thing that Starbucks

The Starbucks licensed plan (resale plan) has its own strict rules. Starbucks receives royalties and licensing fees from the licensees, and in turn the licensee obtains the ability to offer Starbucks products to their consumers. Starbucks prohibits the licensee stores from offering other firm’s products in their stores so they can control the quality of coffee in all coffee shops more easily. In addition, all employees of both corporate stores and licensed stores must receive the same training. The training is developed by Starbucks and implemented both domestically and internationally alike. Licensed stores make it possible for Starbucks to expand easily while still maintaining the quality of product and service in every single store (www.best-franchise-opportunity-insights.com).

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

When Starbucks entered China in 1999, many were sceptical that Starbucks had a chance. Given the fact that Chinese people have traditionally favoured tea, it seemed impossible that Starbucks would be able to break into this market. However, Starbucks did not let this scepticism stop it. A careful market study revealed that as the Chinese middle class emerged, there existed an

This case study gives an overview about Starbucks International Operations. It will explain how Starbucks expanded outside US and the strategies they adopted to give tough competition to its international rivals.

The start up capital requirement of accessing a foreign market is another impact to be considered for organisation (Alon, 2004). Eventhough, as we all known, Starbucks is a giant in coffee industry, it does not mean they can handle all the problem of capital in any country. The initial outlay of international orientation could be too high, even if the potential for potential profit is great.

Firstly, even though Starbucks has explored the Chinese coffee market and attracted many long-term customers, it is far away from enough. As you may know, the tea-drinking culture has been lasted over several thousand years. Moreover, there are a lot of products about tea in high-class, mid-class and low-class market. It is hard for Starbucks to enter the China market. As a result, Starbucks targeted the middle class market, especially the young people. In details, this kind of people contains some students, overseas returnees, foreigners, and white-collar employees. Due to the narrow range of customers, Starbucks limited herself to become more popular in China. Besides, the Chinese traditional tea drinking culture affects Starbucks expansion. Since China has 56 nations and huge size of land, there are different drinking styles in China. For example, the people in the north of China prefer to drink tea using bowl and drink fast, while the people from south are keen on drinking Gongfu tea and drink slowly. That’s why it is difficult for Starbucks to attract all kind of people by only one business model. Additionally, some researches show that tea is more suitable for the physical conditions of the oriental people. It is showed that the culture problem is still a big challenge for Starbucks developing Chinese market further.

Starbucks is one of the largest coffee shop chains in the world. In 2005 it was the leading coffeehouse retailer in the world with operations in 34 countries outside the US, counting 10.241 coffeehouses. Starbucks began its international expansion with Japan in 1995. We think Starbucks is a global company. Throughout the answer we will use Starbucks’ value chain activities to explain why Starbucks can be considered a global company.

With its Thailand expansion, the company entered the market with a licensing agreement with ‘coffee partners’ a local Thai company. It set its target to open more than twenty odd Starbucks outlets within a span of five years. But the company failed in its attempt as they found constraints in raising enough funds for the expansion. Starbucks then took over coffee partners in 2000. The licensing agreement did not work for the coffee company as they found restrictions in their expansion and growth. They turned the licensing to other mode of operations. By 2007, they managed to expand up to one hundred and three outlets in the region, just in 7 years time they had 5 times their target of Starbucks outlets. Similar to the Thailand market, the Starbucks expanded in Britain. It went ahead and bought the Seattle coffee company in 1998 which was originally a Britain based coffee shop operating similar to that of the American Starbucks. They followed a format similar to that of the American one. They had 60 retails outlets and Starbucks with the same format acquired the outlets from this widely known company and employed its expertise in the field to provide the customers with its range of products and services to the one similar to north America. But Starbucks did not have to struggle in Britain, as the culture in both America and Britain were similar and its was easy for the company to follow the same format and also the original company, Seattle coffee had expanded across Britain,

Starbucks wanted to expand its company into India but it also needed to find a mode of entry. Functioning as a corporation with great control, available cash and a aggressive U.S. retail strategy, wasn’t going to help Starbucks in India. When exploring their options for the best mode of entry, a partnership or joint venture with a local Indian company seemed like the best fit. The joint venture would provide lots of advantages for Starbucks and the other company; both firms would share cost and risk as well as the benefits. Having a local partner would provide Starbucks with first hand knowledge of culture, political and economic issues