Issues Prevalent In Influencing Starbucks’ Future Internationalisation Agenda
The main driver of growth within the retail coffee sector is domestic and international expansion. The majority of stakeholders in this industry rely on company-operated outlets as the main distribution points, which have to be located in high-traffic areas (Glowik, 2017). Furthermore, competition in this sector is structured around the ability to open and run new retail shops in large cities throughout the globe (Richey and Ponte, 2020). Starbucks, in the case of this paper, has been opening stores in various markets in Australia, the UK, Japan, Latin America, and the Middle East. This level of expansion is what Sholihah et al. (2016) consider to be the driver of growth in the retail coffee sector. In this regard, the retailer seeks to have over 30,000 stores across all its international markets in the coming ten years (Garthwaite et al., 2017). As a matter of competition, such retailers as Dunkin Donuts also seek similar levels of internationalization to confront Starbucks in the international arena.
A second issue likely to influence the coffee retailer’s future internationalization agenda is product innovation. Like many other coffee shop contenders, Starbucks offers a selection of products beyond the traditional cup of coffee (Gorgoglione et al., 2018). Companies operating within the retail coffee sector boast of menus offering coffees, bottled water, pastries, and even sandwiches. Upon launching in such countries as China, Starbucks made an effort to adapt itself to the local environment, a strategy that has proven to be instrumental to its internationalization (Qian and Xing, 2016). It would be necessary for the company to continue doing so in its ambition of expanding to other foreign markets. Product innovation has made it possible for Starbucks to outdo early entrants in China, and this has been driven by extensive research and design (Azriuddin et al., 2020). By launching new seasonal drinks on an annual basis, the retailer sustains and increases its customer base. Importantly, Starbucks’ continued use of product innovation should consider not only customer acceptance but also the fitness of the product to the chain’s ergonomic flow.
A further determinant of the internationalization strategy is collaboration and partnership, which is also tied to the focus on product innovation. Starbucks was amongst the first companies in the retail coffee sector to reap the benefits of this entry mode by seeking collaboration with powerhouse brands, such as United Airlines, Pepsi, and Nordstrom (Garthwaite et al., 2017). In this case, the retailer was able to develop new products, enter new markets, gain customers, and venture into new distribution channels such as the airline and cruise line industries. However, competitors like Caribou followed in these footsteps to partner with General Mills, therefore, producing breakfast bars (Sholihah et al., 2016). In realizing its future internationalization agenda, Starbucks can consider venturing into more partnerships in the foreign markets and directly compete with existing retailers. Such alliances would allow the company to become innovative and extend its channels as well as geographic coverage.
Another driving force shaping the retail coffee industry is the level of disposable income in the country of operation. According to Ferreira (2018), this is a key element that all actors in the specialty coffee sector should be keen to observe. Starbucks’ stock, for example, was hit significantly during the 2008 economic crisis. The value of its shares dropped by a great margin from $40 to less than $10 between 2007 and early 2009 (Chang, 2020). Such a decline was an indication that consumers scaled back their budgets on the consumption of specialty coffee due to the tough economy. However, BRIC nations have recently recorded a growth in their upper and middle class (Alwaleed et al., 2019). These markets present an opportunity for Starbucks to take advantage of the population with gained finances, expended income, and the ability to afford specialty coffee. If the company takes into consideration the power of expendable income in its internationalization strategy, it is likely to become successful.
Industrialization has also been a driving force for internationalization in the coffee industry. Countries are becoming more industrialized, which Shih (2017) considers to be influenced by westernization. India, for example, has tea as the dominant beverage amongst upper and middle-class families and individuals (Fischer, 2019). However, the effects of industrialization have made coffee to be a statement of wealth and prosperity. Starbucks should monitor the global trends of industrialization and subsequent westernization in developing countries, considering that coffee is likely to emerge as the beverage of choice. In this regard, it is expected that a rise in industrialization– the main driver of disposable income – will have a significant effect on the coffee industry in the future as new countries will follow the trends in India and create a market for specialty coffee vendors.
Starbucks’ Trouble Establishing and Sustaining Its Presence in Australia
Australia’s love for coffee began with the influx of immigrants from European countries after World War II. The migrants, who were mostly Greeks and Italians, established the culture, with the rest later embracing it during the 1980s (Tucker, 2017). All along, Australians were used to a variety of coffee experiences, even when Starbucks it in the US, and savoring morning coffee seemed to be a ritual for them (Garthwaite et al., 2017). It would be fair to describe the Australian coffee culture as striving and sophisticated by the time Starbucks joined the market. With such an established culture, Australians did not find the need to move out of their way in favor of Starbucks, considering that they had already developed a cult-like following of local brands. Given the nature of the Australian coffee consumers, it would not be easy for a global chain to replicate the intimacy and personalization of the local boutique café (Honack and Waikar, 2017). Besides, unlike American consumers, Australians enjoyed their coffee straighter and without disguised flavors and syrupy shots throughout the years of coffee drinking.
Starbucks was successful in such markets as the UK and China. They happened to have introduced the coffee culture in these countries, given that the preferred beverage was tea. On the contrary, Australia had a well-established independent coffee culture (Tucker, 2017). Besides, Starbucks did not use above-the-line promotional activities and instead relied on the brand name and stores as the core of the business (Sholihah et al., 2016). This initiative was introduced by Howard Shultz using the slogan “Build Starbucks one cup at a time.” The motto meant that the company relied on customer experience for generating loyalty and word-of-mouth advertising, hence the growth of the business (Honack and Waikar, 2017). However, the strategy could not apply to a market as competitive as Australia, where consumer loyalty was with particular baristas. Considering the lack of advertising, Australians were unable to shift to Starbucks. On the other hand, such competitors as McDonald’s effectively communicated their messages.
Starbucks failed to customize its business model to fit the Australian market based on the assumption that what worked in the US would work in any other English-speaking nation. Contrastingly, the company’s success in the first place in Asian markets was a result of its ability (Glowik, 2017) to adjust the original business model. Even though Starbucks made changes to the Japanese and Saudi Arabian menus, the retailer generally offers similar products in all its international markets. This explains why it introduced and applied the “American” offering in Australia without taking the time to understand the locals’ preferences. Australia has at least 235 ethnicities, which means that a company will need to be aware of the homogeneous nature of the country before settling on an entry strategy (Tucker, 2017). Further, coffee consumers in Australia are used to the idea of buying local, sharing bonds with sellers, and supporting ethically-minded businesses. The business model used by Starbucks clashed completely with the interests of the locals to the point of considering the company non-corporate.
Starbucks started its US business with a single store and proceeded to capture the imagination of consumers, leading to second, third, and more outlets. It did not take long for the retailer to become a demand-driven phenomenon (Alwaleed et al., 2019). A similar case happened with McDonald’s in Australia, starting with one shop in each city and creating a buzz around the brand experience (Honack and Waikar, 2017). On the contrary, Starbucks immediately imposed itself in Australia by opening multiple establishments in every city. The company, therefore, denied Australians an opportunity to “discover” the brand. According to Tucker (2017), the company identified strategic sites, put up huge signs, and introduced non-traditional coffee names and sizes. This amounted to showing Australians a new way to drink coffee, an initiative that quickly resulted in market saturation. On the other hand, Starbucks’ expansion had little impact on competitors, and instead, the company was cannibalizing its stores. Furthermore, Starbucks ended up violating the principles of novelty and scarcity by initiating too many outlets.
The Geographic (Country) Targets; Their Historical Sequence; and Entry Modes for Starbucks’ International Expansion to Date
The decision for international expansion came after Starbucks had focused on the North American market for an extended time. Since being founded in 1971, the company grew to over 700 outlets by the mid-1990s, with the growth taking place within the US and Canada (Yurtseven and Sandir, 2018). Starbucks made its first entry into the international scene in 2000, and by the year 2006, the company was operating about 11,000 shops. However, only 30% were international, with the remaining 70% in the US (Garthwaite, et al., 2017). On the other hand, the revenue obtained from foreign-based stores accounted for 20% of its total revenue (Glowik, 2017). Surprisingly, Starbucks used a similar coffee menu in other nations as it did in the US but customized a range of other items, such as coffee mugs, depending on local customs and tastes.
The first move to an international market outside the traditional US and Canada was in Japan and came in as a joint venture. The internalization of the company was motivated by the fact that Japan’s economy was second largest to the US and consistently appeared among the top importers of coffee in the world (Li, 2017). The company decided to use a joint venture as an entry strategy in Japan because the senior executives were concerned that they lacked local knowledge and questioned the ability to attract local talent (Chuang, 2019). This proves the extent to which Starbucks acutely acknowledged that doing business in Japan was different from the situation in the US, and they did not have the necessary experience to succeed alone. The major concern for Starbucks to operate in Japan was paying for the shipping of coffee from the Washington roasting facility to Japan and the cost of retail space in Tokyo (Honack and Waikar, 2017). Starbucks, therefore, saw it best to form an alliance with a local entity with enough experience operating in Japanese cities.
In China, Starbucks chose to settle for minority share licensing agreements with local companies as a way of minimizing entry risks. The partners took care of all capital costs to bring the Starbucks brand abroad (Sholihah et al., 2016). The company was, therefore, relieved of general and administrative expenses and established its presence in China more quickly than if it invested its capital and absorbed all start-up losses. In this case, Starbucks’s main consideration was the potential risks of entering China (Chuang, 2019). On the other hand, the untapped Chinese coffee market offered high-volume opportunities despite the potential problems posed by the prevailing culture and politics. The ordering of Kentucky Fried Chicken in Beijing to close its store after the expiration of its lease in 2002 demonstrated the ambiguity of doing business in China (Qian and Xing, 2016). Another challenge for Starbucks’ operations in China was the recruitment of the right talent, given that the brand was driven by the uniformity of coffee quality and customer experience. The use of licensing agreements ensured that the company got everything right and preserved its image globally.
Unlike the internationalization strategies for Asian and Middle East markets, Starbucks used acquisition in place of partnerships when entering the United Kingdom. The company needed the fastest way to enter the fast-growing UK (Campbell and Helleloid, 2016). Moreover, it found that labor economics, language, and culture were similar to the countries the management was accustomed to. Given these dynamics, Starbucks concluded that a 100% ownership of UK stores could succeed from the outset (Chuang, 2019). The leadership modeled the company to grow based on its style of operations. The acquisition and rebranding of Seattle Coffee Company in the UK were driven by a focus on small market capitalization and the fact that the company already had retail units (Glowik, 2017). Having started at 52 shops in 1998, Starbucks had 469 by 2005, making the UK Starbucks’s third-largest market after the US and Japan.
The strategies adopted by Starbucks when venturing into new international markets are meant to lower costs while increasing customer accessibility. Considerably, the geographic targets of Starbucks are dependent on the extent to which the political and economic characteristics favor the nature of the business (Kang and Namkung, 2018). Additionally, the company looks at the strategic location of stores within the cities in areas where customers can easily access products and services (Campbell and Helleloid, 2016). Given these strategies, Starbucks has been able to expand and establish a foothold in different parts of the world. More especially, the focus of the management has been to increase convenience through capacity and flexibility of low operating costs and attract greater market share.
Challenges and Opportunities for Starbucks in Securing Supply Chains in Its International Expansion Strategy
Overall, Starbucks operates using a generic strategy, which is guided by its competitive scope. The company puts much emphasis on the cost of leadership, differentiation, and the anticipated marketing. Starbucks finds it necessary to control profit margins by focusing on customers’ needs (Gouda and Saranga, 2018). Besides, the retailer also develops a seasonal product, commits to the advertisement, and ensures satisfactory customer service (Chuang, 2019). Interestingly, the coffee retailer has unique products and services which are well-positioned in the market. The generic strategy used helps the company deal with limitations, enhance the identity of the brand and maintain customer loyalty. However, some areas, such as working with multiple distributors of coffee and other business partners, pose challenges for the company (Tucker, 2017). In this regard, the executives at Starbucks address potential challenges about the respective geography and product lines. This makes the overall focus of the company to be on differentiation.
In recent years, Starbucks has had increased visibility in its supply chain. Practically, the decision made it easier for the company to better foresee potential shortages (Alwaleed et al., 2019). Given that the majority of the coffee used by Starbucks is grown in developing countries, the company has in the past faced significant supply shortages caused by instabilities in the regions (Honack and Waikar, 2017). Without much visibility, Starbucks was not in a position to reliably predict the consequences of such shortfalls on its coffee supply. Today, it exercises increased the attention given to corporate activities to the point of linking various forms of instability to reductions in particular coffee types and finding alternative sources (Shih, 2017). In this regard, Starbucks has been proactive in the management of supply disruptions.
The fact that no coffee is grown in the US makes the production and delivery of coffee critical global processes. It is, therefore, upon Starbucks to initiate procedures for protecting the raw supply chain, which translates to ensuring the satisfaction of customers (Azriuddin et al., 2020). As an initial step, Starbucks’ success comes from the purchase and use of only high-quality coffee beans. To secure its competitive position over its rivals, Starbucks’ has a dedicated category of personnel visiting coffee-producing countries regularly (Ferreira, 2018). Through the visits, the company has improved its relationships with actors in the supply chain while identifying diverse sources capable of meeting its standards for quality and flavor. The strategy used by Starbucks affirms the strong belief that success in the coffee business relies on the quality of the beans (Glowik, 2017). Apart from the focus on the production line, Starbucks leads in the promotion of sustainable practices in the coffee-origin countries. The organization’s policy includes the payment of prices high enough to meet the production cost and improve the living standards of farmers.
Starbucks has set up a formal process for coming up with strategies and operations, therefore ensuring that there is a link between the manufacturing, procurement, and logistics functions in a manner that meets the business needs. The flow of materials begins with the purchase of green coffee beans, their shipment to the company, roasting, packaging, and serving of brewed coffee to customers (Gouda and Saranga, 2018). Throughout all these processes, Starbucks ensures that only high-quality products move to the next stage of the value chain. In all Starbucks outlets throughout the globe, there are yet to be serious concerns from customers regarding the quality of the products (Azriuddin et al., 2020). The company’s standardization helps with maintaining a reputation for its products to consolidate the relationship with its consumers.
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