Passion For Fresh Coffee Marketing Essay
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 3483 words||✅ Published: 1st Jan 2015|
Starbucks Coffee origin from Seattle since 1971, it was set up by three friends named Jerry Baldwin, Zev Siegl and Gordon Browker (“A Short Story of Starbucks”, 2007). Three of them were passion for fresh coffee, thus, they decided to be partners and opened a small shop that selling fresh roasted, gourmet coffee bean and brewing and roasting accessories. Although, in the era of growth, Starbucks Coffee Company experienced a lot of suffer but now Starbucks became an international corporation with more than 9,000 locations in 34 countries (“The history of Starbucks”, 2012).
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Entry mode defined as the basic decision that a particular company should be consider when plan expand its’ businesses to foreign countries. There are seven essential methods of entry modes, which included exporting, licensing, franchising, turkey project, merges & acquisition, joint venture and wholly owned subsidiary. Every method of the entry modes contains their own advantages and disadvantages (“Modes of entry into an International Business”, 2012).
Starbucks used more than one method of entry mode for international extension. Even, Starbucks used several entry modes within the same host country. The entry mode Starbucks used include joint venture, licensing and wholly-owned subsidiaries (Santamaria, and Shuang Ni, 2008).
In 1996, Starbucks was opened first Japanese store in Tokyo Japan and utilize joint venture as its entry mode. Starbucks enjoyed its successful and opened 600 stores were using joint venture by year 2008 (“Starbucks Goes Global”, 2009). For instance, Starbucks and India’s Tata Group will be equal joint venture to open 50 cafes in India. Tata Coffee was separate agreement with Starbucks Coffee for supplying coffees to India outlets. The company will used Starbucks know-how, technology and packaging for the process roasting coffee (“Tatas, Starbucks Joint Venture”, 2012).
Moreover, Starbucks was utilizing entry mode of wholly-owned subsidiary in United Kingdom (UK). Starbucks is employing wholly-owned subsidiary as an expansion strategy to different countries (Santamaria, and Shuang Ni, 2008). For instant, the first Starbucks store was opened on December 1996 at Liat Tower. After few years later, Starbucks was used wholly-owned subsidiary entry mode expand to Singapore since June 2004 (“Starbucks Singapore”, 2011).
On the other hand, Starbucks used licensing as an entry mode expansion. Starbucks has licensing agreement with Kraft Foods Incorporation which is market and distribute Starbucks whole bean and ground coffee in United State grocery. During 2001, Starbucks was open 282 new international license store in Bahrain, Saudi Arabia, Switzerland and Israel (“International Guild of Hospitality & Restaurant Managers”, 2001).
Current expansion strategy
When Starbucks is going to explore their business globally, there are six essential different entry modes for their expansion strategy. The entry modes are exporting, turnkey projects, licensing, franchising, joint venture with a host country firm, and setting up a wholly-owned subsidiary in the host country (Hill, 2007). The entry modes are all including advantages and disadvantages which need to concern by the Starbucks’s top management. Therefore, managers should make decision carefully because it will influence the business whether will succeed or not in its global expansion.
Licensing from the entry modes includes a licensor and licensee that has an agreement which are benefits for both of them. For Starbucks, they act as a licensor that sell their intangible properties such as patterns, inventions, formulas, processes, designs, copyrights and trademarks to the licensee. Furthermore, the licensee needs to pay the royalty fee to get the agreement with Starbucks Company. In addition, licensing is the primary stage for Starbucks which wants to enter a foreign market. There are few uncertainty situation will cause some instability. Therefore, Starbucks will be induced to consider about developing a licensee agreement to help them to make their expansion in a more steady way (Santamaria, and Shuang Ni, 2008).
Besides that, Starbucks usually locates foreign companies that have the experience to manufacture and to market its products with minimal transfer, in order to import duties and to provide the simplest avenue to local sales (Briscoe, and Schuler, 2004). The advantage of licensing is Starbucks do not need to invest money on the partnership. Starbucks are also given opportunity to enter markets with high trade barriers via their licensees. Other than that, licensing also has the disadvantage that will harm the company. The disadvantage is the risk that licensee will underreport their sales to cut down the loyalty payment (Alexandrides, and Bowers, 2005).
Other than licensing, joint ventures is also one of the elements from entry modes. International joint venture is a strategy in which two or more companies create a new business entity with shared managerial and ownership responsibilities. International joint ventures are economically and legally separate organizational entities that created by two or more parent organizations that collectively invest financial as well as other resources to achieve certain objectives (Schuler, et al., 2003). Starbucks combine licensing and joint venture strategies in order for them to work with companies that have local business expertise, cultural knowledge, and skills in finding local real estate (Alexandrides, and Bowers, 2005).
The advantage of joint ventures is that both of the companies share the costs and benefits as well as the risk. Starbucks could also gain their market knowledge from the local company. The local company might have a way to influence the local government, which will ease the market entry for their joint partner. On the other hand, the disadvantage of joint ventures is that company might have major conflict with its partner. It will bargain about the relative share ownership in order to have more control towards the company. Therefore, the joint ventures’ partner with strong bargaining power will continue lead an unstable joint venture. For an international expansion, giving up control of technology could be very dangerous for the company (Santamaria, and Shuang Ni, 2008).
One of the expansion strategy that currently used by Starbucks is licensing. Starbucks started to enter a limited number of agreements for licensing. By using this strategy, Starbucks is giving out it license to who is qualified. Then, Starbucks will received the royalty fee and license fee from them and supply the coffee for resale in the licensed locations. All licensees have to adapt the operating system of Starbucks, for example, the same training is giving to the manager and employee as well. This will ensure that their licensee able to provide the same standard of quality service to all the customers (“Starbucks outlines international growth strategy”, 2006).
Moreover, licensing can help Starbucks expand their business into globally. Starbucks had signed an agreement with Marriott Host International which permit Host to operate Starbucks retail stores in airports. Furthermore, Starbucks also set up the stores in university campuses through had a licensing agreement. Licensing enable Starbucks expand their business widely into different places , for example business offices, country clubs, restaurants, airlines, hospitals, hotels, and the retailers which selected by Starbucks. This directly will generate Starbucks sales and profit too (“Starbucks outlines international growth strategy”, 2006).
Other than that, the current expansion strategy of Starbucks is joint venture. Starbucks go into joint venture with PepsiCo in the year 1994. This enables Starbucks to develop a new coffee-related product through Pepsi channels for mass distribution. Starbucks is able to solve certain problem through joint venture. When there is a problem occur, Starbucks could do research and solve the problem together with their partners this is because of the partners may have different expertise in certain field. For example, research and experimentation was carry out from the joint venture product research team to overcome the poor market of cold coffee and they able to create shelf-stable version of cold coffee which has a better taste (“Starbucks outlines international growth strategy”, 2006).
Starbucks Coffee Company has transformed the way of people at 37 countries enjoy their coffee. Starbucks is striving to provide a better environmental, social, and economic well being to its partners, for example, coffee farmers, countries of coffee origin, and the communities which it serves. On the other hand, Starbucks offers its customer the highest quality of coffee and human connection through Starbucks Experience. The brands unique and innovative personalities allow Starbucks give an account to a broad consumer base, for example, Starbucks surprises and delights its customers by producing and selling bottled Starbucks Frappuccino(R) coffee drinks, Starbucks(R) superpremium ice creams and Starbucks DoubleShot(R) espresso drinks through its joint-venture partnerships, and Starbucks Coffee and Cream Liqueurs through a marketing and distribution agreement, in other convenient locations outside its retail operations. The Company’s brand portfolio also includes superpremium Tazo(R) teas, Starbucks Hear Music compact discs, Seattle’s Best Coffee and Torrefazione Italia. Starbucks established joint venture with Sazaby Inc, a local retailer in Japan. It same goes to Thailand and South Korea so that Starbucks has a greater control over the expansion strategy (“Starbucks Corporation”, 1999).
Future expansion strategy
A good decision made in selection and the implementation of effective entry mode strategies is very crucial for company’s market expansion in future. It can help company to gain competitive advantage and helps in control and utilize resources to develop in potential new markets. In order to make such a good decision, company should identify the potential markets and set sequence of priority to enter into those markets accordingly. Besides, determine the level of efforts which able to put in for marketing purpose and also analyze the right timing to implement the expansion strategy in each and different of those potential markets (Mas-Ruiz, 2002).
Starbucks need to run on its expansion strategies constantly on account of the continually increasing competition and rising economical conditions. Starbucks has been applied flexible entry strategies such as licensing, joint venture and wholly ownership since it established its subsidiary called “Starbucks Coffee International Inc.” in 1995 (“Thinking Bookworm”, 2012).
According to Zhang (2006), license and joint venture are two main business strategy adopted by Starbuck to enter into foreign countries liked Japan, Thailand and South Korea. In Japan, Starbucks has formed a joint venture with Sazaby Inc. to open Starbucks Café which each of the company held 50 percent of the ownership whereas Starbucks signed a licensing agreement with a local Thai company to operate at least 20 Starbucks Café in Thailand within 5 years (Zhang, 2006).
According to Aswathappa (2010), Starbucks formed licensing agreements with local companies in return for fees and royalties in most countries especially in Asia. In 1999, Starbucks formed a licensing agreement with Mei Da Coffee Co. Ltd. to enter into China market which its first stores opened in Beijing. Besides that, Starbucks entered into joint ventures with Hong Kong based Maxim’s Caterers to operate its business in Hong Kong and Macau, and with President (Coffee) Cayman Holding Ltd to launch its business in the Shanghai Region. Starbuck should shift to adopt wholly-owned strategy in China’s market and no longer just adopt licensing and joint venture (refer to appendix: Table 1: Starbucks International Presence).
According to Hill (2008), Starbucks are allowed to share the cost and risk of expand its businesses to foreign markets by using joint venture and licensing whereas wholly owned subsidiary would incur all of the cost and risk to Starbucks however it would give Starbucks full control of its businesses.
Starbucks can acquire its existing café that was modeled in China. Because the existing coffee chain was already successful, some of the risk that may incur normally be related with introducing a new products or services to a foreign market were eliminated (Hill, 2008). So, Starbucks can shift its joint venture to a wholly owned operation in China after its joint venture there experienced difficulty raising capital for further expansion. Starbuck was able to gain control over its operations by acquiring the joint venture.
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The accelerated growth of wholly foreign-owned enterprises (WFOEs) in China since year 1997 has shown that, wholly foreign-owned strategy has becoming favorable entry method for foreign companies to enter China (Yan, and Warner, 2001). The preference entry mode has changed from equity joint venture (EJV) to wholly foreign-owned enterprises (WFOEs) in recent years (Jonathan, and Ross, 2003), and claims that, this changing situation will carry forward to long-term.
There are several factors that cause foreign company shift from choosing equity joint venture strategy to wholly foreign-owned enterprises. Those factors include, the cultural difference between foreign and Chinese partner makes difficulty in joint venture, boundless of joint venture shown unexpected poor performance, potential benefits of WFOEs as well as the unwillingness for the foreign partner in sharing knowledge with Chinese partner to avoid in losing long-term competitive advantages (Jonathan, and Ross, 2003).
Therefore, wholly-owned strategy should be a more appropriate entry mode for Starbuck to enter China’s market.
With the aim of satisfying the demand of every market, Starbucks adapts its entry mode strategies according to different cultures and traditions. Nowadays, Starbucks uses three different strategies which are joint venture, licenses and wholly-owned subsidiaries (Santamaria, and Shuang Ni, 2008).
From figure 4 (refer to appendix: Figure 4: Starbucks’international strategy), it shows that, Starbucks is just focus on using joint venture, licenses and wholly-owned subsidiaries to enter markets in different countries. From here, we know that, Starbucks did not focus on using exporting strategy (Santamaria, and Shuang Ni, 2008).
Starbucks produces, distributes and sells its branded consumer products liked Starbucks-branded and Seattle’s Best Coffee-branded ready-to-drink (RTD) beverages in united state of America and Canada via joint-venture with Pepsi-Cola North America. Besides, Starbucks has a licensing agreement with Unilever in producing and marketing its branded ice cream in U.S. Furthermore, Starbucks and Kraft Foods have a licensing agreement in distributing and selling packaged coffee in U.S. and Canada (“Fact sheet: Global Consumer Products Group”, 2010).
Instead of using joint-venture and licensing to produce, distribute and sell its branded consumer products, Starbucks should consider to produce in home country and sell those products to other countries by exporting strategy because there are many advantages can be obtained from exporting.
Firstly, Starbucks faces less risk in producing the products as it is in home-based rather than oversea based by using exporting to sell the products overseas. Besides, Starbucks can lower the possible risk of operating overseas as exporting offers chances to learn the markets abroad before it opens its new coffee shop abroad. This helps to minimize the risk and cost as Starbucks pays less investment in the production of facilities (Gillespie, and Hennessey, 2004).
Furthermore, exporting increase the speed of entry because Starbucks can use its existing facilities to produce and sell the products. In addition, Starbucks is allowed to produce its products for several markets centrally and therefore achieve economies of scale (Gillespie, and Hennessey, 2004). Finally, Starbucks is able to gain more sales and revenue from middle and lower income society as the exporting products are in lower cost and affordable for low-income consumers (Gillespie, and Hennessey, 2004).
Starbucks involve in food and beverages business, focusing in serving different high-quality coffee drinks. By the end of year 2011, there are more than 17,000 Starbucks retail stores available in over 55 countries. Starbucks has been effectively using different mode of entry in its business expansion, mainly licensing, joint-venture, and wholly-owned subsidiary. For example, Starbucks had made a long-term licensing agreement with Kraft Food, Inc in the United States in order to market and distribute Starbucks whole bean and ground coffees in the grocery channel there.
Besides that, Starbucks expanded its business into Japan through joint venture since year 1996, and there had been more than 600 stores operating as joint-ventures in Japan by year 2008. Other than that, Starbucks chose wholly-owned subsidiary as its mode of entry when expanding into United Kingdom’s market. There are many more examples that show how Starbucks effectively use different mode of entry in expanding into different region and country.
By using licensing, Starbucks is able to enter to a market that has high trade barriers with the help of the licensees and with lesser investment on the partnership. Starbucks sell its intangible properties to licensee and earn royalty fees from them. The licensees will use Starbucks’ name, adapt its operating system, and provide the same products and services with same standard of quality. However, Starbucks may need to bear the risk where the licensees may underreport their sales to pay lesser royalty payment.
On the other hand, by using joint venture, Starbucks work together with another organization and jointly create a new business entity. They share the risk, cost and benefits, and other resources like technology and supply chain. The partner chosen usually has expertise in local business, cultural knowledge, or others which will help Starbucks to be easier in expanding the business into the local market. Despite of the advantages, Starbucks may face a conflict with its partner in bargaining the relative share ownership and controlling power, thus leading the joint venture unstable.
China is considered as one of the biggest market in the world and Starbucks had been expanding its business into the country since year 1999 through licensing and joint venture. Somehow, Starbucks’ joint venture in China is facing difficulty in raising capital recently, and several factors has shown that Starbucks’ current strategy is not that good. Thus, Starbucks is recommended to adopt wholly-owned subsidiary as its future expansion strategy in China. It is advisable that Starbucks acquire its existing joint venture, shift into wholly-owned operation, and take control of the business because the coffee chain in China has been quite stable and successful, and the risk had been reduced.
Besides that, Starbucks is also recommended to use exporting as its future expansion strategy. There are several Starbucks’ products that can be export but are currently distributed and sold through licensing and joint venture. By producing those products in home country and export to the other countries, Starbucks can reduce the cost and risk of investing in the host country. Exporting also allow Starbucks to expand faster and cover more market in the whole world.
In our current competitive world, a successful company will not just operate its business in home country. International expansion is a path they will take in order to make their products and services well-known and available to the whole world. However, expanding the business internationally is not an easy job as there are too many factors to be considered. As the past researches and literatures shows, the most important thing in business expansion is the entry, considering the time of entry and mode of entry. Selecting and utilizing suitable mode of entry and expansion strategies effectively will lead to the success of a business expansion.
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