Cultural Challenges Faced by US Companies Entering Foreign Markets

ABSTRACT

This essay explores cultural challenges faced by American companies when they expand into foreign markets. The expansion of Starbucks into China is the focus for this essay. Two of Hofstede’s Cultural Dimensions theories aid in providing a deeper and more clear analysis of the challenges faced by Starbucks as they continue to expand into the Chinese market.

When a US based firm makes the decision to move into new international markets there are several cultural challenges that need to be identified and addressed when creating their strategic plan for expansion. That firm must closely understand that some western or US cultural norms may not only be completely new but may also face hostility from nationalists of that foreign country.

A few of the cultural challenges that every company should contemplate include:

• Examination of traditional work customs in the new foreign market
• Introducing new US centric traditions entirely
• Introducing various products that are either equivalent or in the same spirit of the US product line but that will also appeal to consumers in that foreign market
• Gaining a keen understanding of the wants and interests of their key demographic (especially as it relates to specific socio-economic status, “millennials” “upper middle-class”, etc. of the target audience).

The above are all key considerations that Seattle based coffee juggernaut, Starbucks has had to grapple with as they continue to expand into China at an aggressive pace that shows no signs of slowing down. Starbucks placed its first location in China inside the China World Trade Center in Beijing in 1999. While that is close to almost two decades, Starbucks still feels if they are fine-tuning how to meet cultural challenges in China.

“We are only in chapter 4 or 5 of a 20 chapter book with our ties to China.”

Starbucks founder and Chairman, Howard Shultz said in a CNN interview in Shanghai. (Mullen 2016).

That sentiment is reflected in their initial and even continued challenges today as they work to bridge cultural differences. It is important to Starbucks to remain loyal to their key principles and business model in China but they have a strong will to better acculturate their presence in China in a way that resonates with its culture. The primary cultural barrier that Starbucks has had to overcome is the fact that China is a country where drinking tea has been the tradition for centuries. (Butch 2016). Coffee, just as it is in many other nations outside of the US, such as the UK, has either not been the beverage of choice or it’s been a distant second and China is no different.

They have had to cultivate a culture that sees drinking coffee as en vogue, which plays into deep western culture and traditions. Starbucks needed to capitalize on China’s long history of romanticizing western culture, especially trends that originate in the US.

Doing so has been by far the largest hurdle that Starbucks has had to jump in their goal to bridge cultures in China.

To overcome this cultural divide Starbucks has had to implement two direct to consumer strategies. The first being their decision to partner with their tea retailer, Teavana, to produce more tea related products and sell them in Starbucks locations. (Daniels 2016). This draws a connection to Chinese traditions with tea drinking while under the Starbucks umbrella of businesses. They have also began launching tasting room outlets to resemble a tea house drinking experience but with coffee. Both endeavors are yielding favorable returns financially for Starbucks as well as growing customer loyalty from the Chinese.

To further overcome cultural challenges, Starbucks has identified Chinese millennials who are a part of the swelling upper middle-class in China as a core demographic to bring into the Starbucks fold. They continue to design and implement digital marketing campaigns that can only be found on China’s top social network, Weibo, which is heavily utilized by China’s millennials. The company feels that they are the best group to court to cultivate a growing demand for coffee in China.

Two of Geert Hofstede’s cultural dimensions’ theories can be applied to Starbucks’ continued efforts to bridge the cultural landscape as they open more stores in China. The first is the Weak Uncertainty Avoidance theory. With this model, it essentially points out how Starbucks must ask its target market to take risks, have flexibility, and have a tolerance for changing customs. This theory could lead to positive impacts on the company’s longevity in China. The other theory, Long-Term Orientation is rooted in thinking about what’s to come. This theory calls for Starbucks to maintain a futuristic and dynamic mentality that places an emphasis on persistence and perseverance with an eye towards sustainable economic growth.

Combined those theories paint a positive forecast for Starbucks ability to overcome their cultural challenges in China as they charge towards growth. Because many critics and Wall Street analysts felt that entering the Chinese market would be a failed attempt, Starbucks has continued to press forward close to twenty years later.

It is worth noting that Starbucks lost millions the first five years while working to educate Chinese consumers about coffee. The idea of even a latte was relatively unknown at the time and the clear majority of their consumers in China during those introductory years were expats and foreign visitors. However, by all accounts, Starbucks has adequately identified their cultural challenges to doing business in China and continue to implement robust strategies for sustaining growth and growing the popularity of coffee in China.

WORKS CITED

Butch, Taylor. (2016). How Does Starbucks Succeed In China? The Diplomat.

http://thediplomat.com/2016/07/how-does-starbucks-succeed-in-china/

Daniels, Jeff. (2016). Starbucks’ China Business Will One Day Overtake Its US Market.

CNBC. http://www.cnbc.com/2016/12/07/starbucks-sees-china-business-one-day-overtaking-us-market.html

Kapur, Mallika. Mullen, Jethro. (2016). China Will Get A New Starbucks Every Day for 5 Years. CNN MONEY. http://money.cnn.com/2016/10/19/investing/starbucks-howard-schultz-china-growth/