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Starbucks International Entry Methods and its Global Marketing

Introduction

In 1971, in Seattle’s Pike Place Market two teachers and a writer opened the first Starbucks retail shop, as a roaster and retailer of bean and ground coffee, tea and spices (Roos, 2010). Today, with over 20,000 stores across the world, from Monaco to Colombia and many in between, Starbucks is a name that stands for innovation beyond its industry and constant growth (Chen, 2014). From ethical sourcing initiatives to the employee stock options and health benefits, Starbucks is a unique company, in a continuous evolution across the world (Hincha-Ownby, 2013). The company is a global marketing phenomenon, reinventing its operations to suit their growth ambitions, but remaining true to the passion of serving coffee in a friendly atmosphere (Thompson & Arsel, 2004).

Starbucks has been a pioneer in the coffee house industry in many geographical regions, having virtually introduced this concept to various countries in the Asia-Pacific region (Otmazgin, 2008). In addition to this, the company is continuously reinventing itself in European countries where the coffee house culture is more sophisticated (Patterson, Scott, & Uncles, 2010). It is mandatory to analyse their strategy for market entry mode selection, as their success suggests they have found the golden middle between adopting distinct tactics and allowing local influences to shape their product, whilst keeping their core business values intact.

In addition to using secondary sources to analyse the global expansion of Starbucks, this paper also outlines how the global marketing strategy of the company compromises between standardisation and adaptation to local target audiences’ preferences (Alderman, 2012). From the product-price-place-promotion marketing mix adaptation tactics to the use of loyalty card that reward loyal customers and the encouragement to share Starbucks moments via social media, the company continuously seeks the view of their customers through crowd-sourcing and creating a sense of community (Misener, 2014). However, similarly to their entry mode selection, the coffee house giant manages to preserve their core values in all the regions where it operates.

Entry mode of Starbucks

Globalisation and technology as the two core macro environmental elements of the 21st century business settings have imposed and aided companies’ international expansion strategies and tactics (Daft, 2010). As such, success beyond the national borders of a corporation is not only an indicator of success, it has ultimately become necessary for survival in a competitive market (Zahra, Ireland, & Hitt, 2000). Whether through Joint Ventures (JVs), Exports, Franchises, Foreign Direct Investment (FDI), take overs or any other strategies, everyone, from SMEs to large corporations is jumping on the bandwagon of international expansion (Kim & Hwang, 1992). However, beyond the need to expand internationally, companies need to carefully evaluate all factors influencing the decision regarding the area of expansion and the entry mode of the company in the new region. A timeline of the geographical evolution of Starbucks over the last decade (Figure 1) shows that the company aims to increase their global presence, becoming the coffee shop of choice of all the coffee aficionados (Starbucks, 2014).

Figure 1 Geographical expansion of Starbucks. Authors own, adapted from Starbucks (2014)

Root (1994) defines the entry mode as a strategic decision making process in which the company’s products, technology, human skills and all other resources are evaluated in relation to the country of destination where the organisation is planning to extend its operations. In addition to this, the characteristics of the market that a company intends to penetrate are also taken into account for the purpose of selecting the most suitable entry mode (Canabal & White III, 2008). The capital and human investment of a corporation towards expansion in new geographical areas is ultimately decided in correlation with profitability potential for the organisation.

The factors influencing the entry mode of a corporation in new markets were divided by Chen and Mujtaba (2007) into three categories: firm specific factors, country specific factors and market specific factors. Although their categorisation of factors is valid in the strategic management of internationalisation of firms, it can be argued that market specific factors can be integrated in the country specific factors and another category called industry specific factors can be added to the mix. Figure 2 below presents a new theoretical framework developed by the author of this paper, which presents the changes enumerated, underlining the importance of trends and particularities of the overall industry in which a company operates.

Figure 2 Factors influencing Selection of Entry Mode. Authors own, inspired by Chen and Mujtaba (2007)

Although not exhaustive, the list of elements presented above indicates the variety of elements involved in the selection of markets where Starbucks can extend its chain of stores and the best strategy to ensure success in the new region. According to Root (1994) and Koch (2001) the factors influencing the entry mode selection can also be divided into external and internal factors. Political, economic and socio cultural dimensions of a foreign country are crucial external elements that determine the profitability of marketing the products offered by a company (Koch, 2001). Starbucks is marketing a social product beyond its coffee offerings, having positioned itself in the industry as a company that offers a great environment where people can enjoy ethically sourced beverages and snacks (Schultz, 2011). As such, it is crucial to evaluate the socio-cultural environment of a target foreign country and the marketability of such an offering within that particular geographical area. The key to success lies within the ability to match the product offerings of a company with the demands of the local foreign market, without compromising the firm’s business model.

Partnerships with local firms through a joint venture or penetrating the market through licensing or franchising offer a company low risk solutions (Yoshino & Rangan, 1995). However, when Starbucks decides to licence or franchise their product offerings, the extent to which they can monitor the quality of the products or operations of coffee shops that trade under their company name is significantly lower than in the case of joint ventures or wholly-owned subsidiaries. Joint ventures are often necessary due to political reasons, as is the case with some Middle Eastern countries that demand part ownership of local companies or residents within a foreign business (Terblanche, 2009). In addition to this, sharing the risk and costs with a partner in a local region can be advantageous for the company that extends their operations in a foreign market, due to lower capital investments (Root, 1994). However, there are disadvantages to be taken into account when opting for a joint venture, as sharing the technology with a potential competitor in the industry can lead to a conflict of interests and a potential loss of competitive advantage (Doz & Hamel, 1998). Although wholly-owned subsidiaries eliminate the risks associated with all other entry modes, offering exclusivity over the profits and technology control, a company runs the risk of misunderstanding the cultural aspects of the country of destination and decreases its chances of succeeding in a new market (Makino & Delios, 1996). Successful companies, such as Starbucks, are able to determine the best mix of entry modes specific to the regions where the expansion is taking place in order to become global leaders. The table below (Figure 3) shows that the company’s internationalisation strategy allows flexibility depending on country specific factors in the countries of destination.

Figure 3 Starbucks Entry Mode Type and Partners in each region. Authors own, adapted from Starbucks (2014)

In May 1998, Starbucks expanded its operations into the first European country, the UK, as part of a long-term internationalisation strategy (Bintliff, 2009). The company acquired sixty-five Seattle Coffee Company stores, a company founded and managed by two Americans (Scott and Ally Svenson) with a similar coffee culture as the American giant Starbucks (Simmons, 2012). The cultural gap between the US and UK attitude to coffee shops and the resistance of British consumers to American products was taken into account by Starbucks, who waited one year before they completely rebranded the existing Seattle Coffee Company stores, therefore allowing the consumers to adapt to the concept and products of Starbucks prior to the rebranding. At present, Starbucks has 549 company operated stores in the UK, with an additional 125 licensed and 57 franchised stores across the country, making it one of the industry leaders in the country (Campbell, 2014).

In October 1998, Starbucks extended its operations in New Zealand, through licensing its store concept to Restaurant Brands New Zealand, an authorised licensee of KFC and Pizza Hut brands at the time (Morrison, 2013). Due to its enthusiasm of bringing the Starbucks experience to consumers in the country, Restaurant Brands New Zealand was the ideal partner for Starbucks in positioning itself in the Asia Pacific market in an incipient stage of the coffee industry in this geographical region. The relatively low popularity of the coffee shop industry at the time in the region was a risk that could have deterred the success of a wholly owned market entry (Field, 2011). The leading position and market knowledge of the partner firm that Starbucks licensed its store concept to ensured the minimal risk and lead to the success that the brand is enjoying in New Zealand presently, operating 22 stores in the country, with a $25.1 million sales annually (Morrison, 2013).

Global Marketing Strategy

Although globalisation has allowed large multinationals to expand across the globe increasing their popularity and profits, this phenomenon has been widely criticised and Starbucks was also the victim of anti-consumerism and anti-globalisation movements (Klein, 2009). The growth experience by the company and its current world dominance has generated many negative discourses, primarily criticising Starbucks’ ascendancy at the expense of local coffee shops.

As a multinational brand that aspires to be a recognised global leader, Starbucks’ marketing strategy requires a degree of standardisation. To start with, the company hardly advertises in the traditional sense via TV, radio and print adverts, “instead relying on their ubiquitous cafés to do the talking” (Kiley, 2006, p. 56). In addition to this, the company has developed and perfected their social media marketing strategy, using Facebook, Twitter, Instagram, Pinterest, and other platforms for competitions and promotional offers for their customers (Moth, 2013). It can be argued that Starbucks’ success in the social media sphere is also highly dependent on the anti-Starbucks movement, as this generates increased coverage of the brand name, allowing the company to counteract the accusations and promote their ethical behaviour even more (Holden, 2012). The involvement of consumers in product development and range (i.e.: new drink flavours) as well as the encouragements to share personal experiences are now an integral part of Starbucks’ international marketing strategy (Shayon, 2013). The company often prides itself on the fact that it creates a community sense amongst individuals from distinct countries through the recognisable brand name Starbucks (Batchelor & Krister, 2012). The company uses social media to encourage its consumers to create a sense of belonging to a community and rewards its loyal customers through My Starbucks Reward, using polls to ensure a maximum potential of crowd sourcing (Schoultz, 2013). Through this, the company demonstrates loyalty on its own part to its customers, focusing on transforming their consumers in brand ambassadors, rather than investing time and large budget shares in aggressive marketing tactics aimed at accumulating large shares of new consumers.

Levitt (1983) sustains that standardisation of a marketing programme needs to have a positive impact on the performance of the organisation. Being able to maintain a consistency across the marketing strategy and tactics in operations that span across the globe can have a positive impact on a company’s financial performance, as the budget for developing the marketing program is significantly lower (Samiee & Roth, 1992). However, the cultural differences between different geographical markets make it difficult to distinguish the profitability and impact on performance of standardised marketing plans (Porter, 2011). Studies suggest that, irrespective of general traits of global marketing for brand recognition purposes, multinational corporations need to take into account any cultural aspects of the countries where their subsidiaries are. As such, Starbucks adapts their food and beverage offerings in their cafés in order to suit their customers’ taste (Bussing-Burks, 2009). Below (Figure 4) is a list of products that are exclusively available in specific geographical areas as evidence of adaptation tactics used by the company.

Figure 4 Country Specific products. Adapted from Misener (2014)

In China, Starbucks has adapted their product offerings in order to be able to introduce the coffee shops in a market which was loyal to a long-lasting tradition of tea. Despite the concerns expressed by many in regards to the potential success of an American coffee-house chain in a country where other multinational food and beverage brands like Dunkin Donuts and Burger King have failed, Starbucks opened 500 stores across China (Fellner, 2008). The company licensed its brand name to Mei Da Coffee Co. and entered a JV with Shanghai President Coffee Co. (Figure 3). Instead of trying to force the products that appealed to Americans and made the company successful in their mother land, Starbucks launched green-tea flavoured coffee drinks and relied less on takeaway orders due to their lack of popularity in China (Rein, 2012). More importantly, through charging premium prices for their beverages, instead of adopting the general strategy of under-pricing their products in the Asian market, Starbucks cups have become a status symbol in the urban areas of Beijing and Shanghai (Schiavenza, 2013).

Unlike many of its competitors, Starbucks prefers investing the money that companies spend on advertising into the benefits and training of their staff members (Kessler, 2012). In line with this philosophy, the company became one of the very few to extend their full health policy to their part-time workers (Schultz & Yang, 1997). This philosophy applies even in their overseas stores, and employees in China reported a high level of satisfaction with their job benefits, indicating that this is one of the core values of the company and even through licensing and JV, Starbucks ensures that the contentment of all employees under the Starbucks brand name is indistinguishable across the globe (Rein, 2012). The Chairman of the company, Howard Schulz, believes that the training and satisfaction levels of the Starbucks baristas represent one of the best marketing tactics. He discovered that the attitude and skills of Italian baristas in coffee shops from Rome is what created the atmosphere within a café (Bussing-Burks, 2009). In addition to this, the leadership team that sits in the head offices of Starbucks have a weekly exercise of reading consumers’ feedback, keeping them in touch with the realities of the consumer experience, not allowing them to lose sight of the end user of the services and products of Starbucks (Gulati, Huffman, & Neilson, 2002).

Although Starbucks has ventured into markets where the coffee culture was in its incipient stages, like countries in the Asia-Pacific area, the most difficult task that the company has had to date is strengthening its market position in nations with a strong coffeehouse culture, like France or the UK (Rudarakanchana, 2013). Their marketing strategies require more creativity in these geographical areas, particularly because Starbucks is up against well established coffee houses that offer a more unique and tailored cultural experience to its customers. However, the company is not oblivious to this issue and Starbucks inaugurated a coffee shop in Amsterdam in 2012 with an avant-garde architecture and a stage for poetry reading (Alderman, 2012). Howard Schultz is planning on expanding the plans for introducing more concept stores across Europe, in order to increase the appeal of the coffee house for consumers beyond the young hip customer, who sees Starbucks as a product that stands for the American lifestyle.

Conclusions

The company that reinvented the way in which people enjoy their traditional cup of coffee, Starbucks has conquered the globe in less than half a century, since the first store opened. The pace of growth and geographical reach of Starbucks is an undeniable reality that has sparked debates over the past decades. Most of the elements that have contributed to this successful expansion and brand recognition can be associated with the entry mode selection, the marketing mix adaptability and promotional strategies used by the company.

Starting with the successful collaborations with local companies in the countries of destination through JVs or licensing through to the slight alterations made to the menu to suit the taste of local consumers, the company displays an exquisite cultural awareness. American giants in the food and beverage industry like Dunkin Donuts or Burger King have attempted to penetrate Asian markets preserving their business model and menu offerings. They encountered resistance from the local consumers, as their culinary and beverage preferences were not met by the menu of the American companies. Whilst it is understandable that MNCs desire to preserve their business model and should avoid making big compromises for each geographical region where they extend, as this would incur additional operational costs for product development and marketing, organisations need to demonstrate a willingness to take into account the culture of the host country. Starbucks’ main philosophy revolves around the atmosphere they can create in their coffee shops and the manner in which the company values its employees, rather than their product offerings, therefore allowing the organisation to expand, adapt and yet, stay true to their core values.

Carefully selecting its international partners whose values match the Starbucks passion for great customer focused services, Starbucks seeks the necessary help from well-established local retailers. Although the whole-ownership market entry mode guarantees immediate higher profitability, Starbucks’ focus is on creating long-lasting relationships with consumers in every geographical region, seeking and rewarding the loyalty of the brand’s customers. As such, JVs, licensing or partly-owned subsidiaries are the entry modes of choice for Starbucks in their pursuit to establish themselves as market leaders. The company is clearly not seeking short term goals through aggressive tactics, rather focusing on a well-established strategy that promotes a steady continuous growth, which has so far proved to be a successful approach to internationalisation.

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