Case Study: Starbucks Corporation

The original idea for Starbucks came from understanding that people not only drink coffee in the morning to get what they need for that but also that people enjoy drinking coffee. They, therefore, drink it during the day just to have fun out of it. Therefore Starbucks realized that people do not just buy a cup of coffee but they buy an experience which they get out of it. Therefore Starbuck realized that to be able to offer people this experience, they must stand out from their competitors by offering strong smelling coffee with rich taste in a laid-back atmosphere. This recognition formed the basis for the success of Starbucks (Hart, 2011).

One of the lessons that can be learned for international business is that the first step to maintaining competition in international business is by understanding the willingness of the buyers in the target market to pay for the product. After realizing this, a company can differentiate itself from the competitors by offering exactly what the buyers want. Another important lesson is that it is important to understand what other benefits the customers can enjoy from the product being offered to them. Not to focus only on the main reason for taking a cup of tea but also look at another way that people can benefit from that cup of coffee. This is very important, especially during entry to the international markets because it helps the company identify the key thing to help in differentiating itself from the competitors. People can pay a lot of money just for a good experience or to have fun. They can pay even more to get satisfaction. Therefore, that is the key area that a company, especially one offering beverages, can focus on.

Starbucks has been offering high-quality coffee to anyone who wants to pay a high price for a cup of coffee to get the experience. Starbucks has therefore protected its intellectual property rights, which are very important in international business. This is another lesson that it is very important for businesses that are planning to turn global to protect their intellectual property rights by trying as much as possible to always stand out from their competitors. This is important in that it earns the company international recognition and this ensures easy entry to foreign markets because of the well-known quality of the products.

Question 2

Starbucks was driven into expanding internationally because of successful position that it had gained in the American market by acquiring a great number of customers and being able to meet their expectations. Therefore, the management of the company realized great potential that the company had and therefore there was a need to fully exploit that potential. The company had a superior business model that it needed to extend to other countries. Basically, having succeeded in the American market and also being able to meet the preferences of Americans is an indication that such a business can succeed in any other country in the world. Therefore, the key driving force of venturing into international markets was the great potential that the company had (Hart, 2011).

By expanding internationally, Starbucks is creating value for its shareholders in three ways: the first one is by increasing the cost effectiveness of its operations. This is because in some countries it may be cheaper to carry out the operations due to difference in the economic level of the countries. Therefore, by trying out new countries, some of which are cheaper to carry out its operations, the company is creating value for its shareholders through cost effective operations. Secondly, it is doing so by gaining new customers. Through venturing into international markets, the company has attracted new customers and this contributes to more sources of revenue, even for shareholders. Thirdly, the company is pursuing global customers and this has earned it an international recognition. Every shareholder would want to be associated with an internationally recognized company.

Question 3

I however think that Starbucks decided to enter Japan through a joint venture because it feared the superiority of the Japanese market as compared to the American one. Japan is the third largest coffee consuming nation in the world. This meant that there were already established coffee providers who dominated the market. Therefore, there were no much new things to introduce to customers in the third largest coffee consuming nation and entry to such a market by a foreign company may be a bit difficult. Thus, Starbucks choose to enter through a joint venture to first test the market and see whether its coffee will be accepted. This is also the reason why they choose to first allow the customers have the “Starbuck experience” as a way of testing the market. However, the company was finally licensed to venture and this resulted to the growth of its presence in Japan.

Another reason is that Japan was their first target market when the company was exploring foreign opportunities. Therefore, it was the initial step that they were taking towards entering the international market. Being the first target, it was important for Starbucks to test its capability by first operating in a joint venture. It is after this testing that the company became assured that they have the full potential to operate in the international markets. Therefore, it was a way of testing whether the company has the full capability of operating in the international markets.

One of the lessons that can be learnt from this is importance of testing a company’s potential even if the management has full faith on the potentiality. This is especially important because a joint venture is usually used in gaining access to new markets in foreign countries. With the current trends in economic protectionism it may in future become very difficult to enter directly to new foreign market. It is therefore important for companies with plans of entering foreign markets to learn to be slow when venturing into new countries. It is also a means of earning trust from the customers because it assures them that the company has long term plans for its customers and it is not planning to exit the market soon (KPMG, 2009).

Another lesson that can be learnt is on the importance of being patient as the company learns of the existing competitors and the customer’s preferences. This can be achieved by watching the market through other ventures. A company is able to learn of the existing market conditions and is also able to compare various business strategies to come up with one that is cost effective. Therefore, despite the fact that Starbucks was a well established company, it had to hold back its potential so that it can learn more about Japanese market. Even though joint ventures have their own challenges, it is important for a company to be patient as it gathers strength for entry into the market.

Question 4

I believe that Starbucks is a force for globalization because of how it has approached its global expansion plan. A driving force for globalization can be a company that considers a country like America as one large market which is part of the entire global landscape. The strategy that Starbucks used in venturing into the foreign markets is the best strategy that any company thinking of expanding globally should use. Starbucks has been going into geographical markets and trying to completely dominate them before deciding on any further expansion. This way it has been able to strongly establish itself before moving on into another country. With this manner of progress, the company was able to grow from 17 coffee shops in 1987 to 5,688 shops in 28 countries by the end of the year 2002.

According to Schultz, the manager of Starbucks, their strategy is never to hurt or eliminate the competitors in the existing markets. In most cases the competitors benefit from their entry because the company expands the market place. Thus, this implies that Starbucks always has something that the competitors are able to learn from. The company is also ready to work in a competitive environment rather than to dominate the markets. With such a strategy where the company can work with the existing competitors and contribute to expansion of the markets, it bears the driving force for turning the coffee making industry global (Kotha & Glassman, 2003).

Question 5

Fair trade refers to exchange of goods between the buyers and sellers in terms that meet the demands of justice. Free trade, on the other hand, refers to exchange of goods and information between countries with few or no barriers to that trade. According to the Fair Trade Federation’s Annual Report, fair trade is described as a movement consisting of global network of producers, marketers, consumers and advocates who are focused on building equitable trading relationships between the consumers and disadvantaged farmers and artisans. Therefore, fair trade organizations aim at alleviating poverty, enhancing gender equity, improving the environment and the working conditions and also ensuring distributive justice. This is different from free traders who even though they hope to alleviate poverty and improve the working conditions throughout the world. They prefer achieving this by taking measures that are less intrusive. Free traders, however, argue that at the end of it both the rich and the poor nations will benefit and therefore argue that free trade is also fair (Zentland, 2005).

The fair trade policy may benefit Starbucks in various ways. One of the ways in which it may benefit is by developing a closer link between the company and producers. Most consumers are increasingly aware of the need for environmental conservation and they want to know how much the original producers or the farmers in this case are getting out of their products. They will therefore want to be associated with a company that trades in fair terms with producers. Therefore, by creating a good relationship with the farmers, this will be reflected to its buyers and therefore it may result to increase in sales of the company.

Through fair trade, Starbucks is able to mobilize the purchasing power of consumers who are interested in improving the conditions of the producers. This is because fair trade offers the consumers an opportunity to participate in alleviating the global poverty and ensure sustainable development through the choices that they make when shopping. Through this principle Starbucks may be able to come up with a network of consumers who share the vision and this will add towards strengthening its customer base.

Starbucks is also able to acquire the FAIRTRADE Mark that assures consumers that the producers are getting fair deals from the company. This mark will enable it to easily venture into different markets because it will be perceived to be a fair trader. This mark will also give Starbucks a competitive advantage over other coffee making companies and this will eventually increase on its market size. The mark may also earn the company an international recognition and it will make it easier to venture into the global markets. Most coffee farmers would like to market their coffee with a fair trader to ensure that they get the right compensation for their products. Since they are the providers of the key raw materials used by Starbucks in its operations, this will earn the company an assurance of getting adequate supply of its raw material against its competitors (Fairtrade Foundation, 2005).