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Starbucks Expansion into China: Human Resource Policies

2899 words (12 pages) Essay in Human Resources

08/02/20 Human Resources Reference this

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Executive Summary

This paper examines Starbucks Expansion into China with an emphasis on Human Resource policies implemented by Starbucks. The paper begins with an industry and company analysis of Starbucks in China. This is followed by a look at how Starbucks has succeeded in China by adhering to the cultural values of the country and subsequently, applying these values in terms of Human Resource policies that are relevant for employees in that region. The paper concludes by looking at the potential Impact of the China specific policies and concludes by assesing the transferability to other markets and makes a recommendation on whether they should be implemented elsewhere.

 

Industry Analysis & Company Analysis

 

 

As Wang explains, China ranks low on coffee consumption (per-capita basis), but “total consumption grew at an average annual rate of 16% in the last decade, significantly outpacing the world average of 2%” (Wang, J, 2018). To add on, potential for growth is backed by statistics, as purchasing power and consumer base of the country is increasing, that is, “the population of China’s middle class is on track to double to 600 million by 2022, while disposable income grew 8% a year in the past five years…” (Wang, J, 2018). In addition, the main customer force is the middle class, at around 75 percent, and among that 75 percent, 70 percent are female customers (Coffee Business Insider, 2018). In terms of taste preferences, Coffee Business Insider explains that “the beverage with notable major success is the latte– indeed the Chinese consumer has almost zero interest in beverages without milk and sugar” (CoffeeBi, 2018).  However, much of the consumption is concentrated in major cities and as Wang explains, “the average annual coffee consumption in China is less than 5 cups per year each person, but in Shanghai, Beijing, Guangzhou and other first tier cities in China, the consumption of coffee per capita is 20 cups per year” (Wang, E, 2017). In comparison, Japan is 360 cups a year, while Europe and North America are around 400, which shows there is potential for growth in China (Wang, E, 2017). This is very important for Starbucks as “many of these middle-class consumers reside in third- and fourth-tier cities, rather than Shanghai or Beijing…That means they have a lot of untapped potential, as consumers take some of their lifestyle cues from their peers in China’s more-established urban centers” (Wang, J, 2018).  And it appears Starbucks has taken this information about the growing middle class into account as they project to enter 100 new cities in China by 2022 and increase store count to around 6000 from roughly 3500 currently and corresponds to a new store added roughly every day (Wang, J, 2018).

While Starbucks faces competition from Costa Coffee, Luckin Coffee, McDonald’s, Dunkin Donuts, and soon Tim Hortons, as they have announced plans to enter China, they have managed to create a stranglehold on the coffee market. Christensen explains, “China’s specialist coffee shop sector is valued at $4.72 billion, and Starbucks dominates with a 58.6% market share” (Christensen., 2018). However, Starbucks faces increasing competition as newcomer Luckin Coffee is undercutting Starbucks pricing by providing a 20 percent cheaper large latte and are also attempting to steal away Starbucks staff by offering to triple salaries (Christensen, 2018). In addition, Costa coffee also plans to increase stores from 449 to 1200 by 2022 (Christensen, 2018). Nevertheless, according to Bloomberg, Starbucks expects to double operating profits in the country by 2022 and triple revenues there in the next five years (Bloomberg, 2018). In terms of payment, as Kowitt explains, Starbucks payment is 60 percent digital in China compared to only 40 percent in the US (Kowitt, 2018).

Starbucks Success In China

As Zakkour explains much has been written on Starbucks strategy in china which has led to their success such as the company’s long-term outlook, fruitful strategic partnerships, localization of items, adopting local technologies (such as mobile payment), and superior supply chains, but what made them stand out from other foreign firms was there fundamental strategy of “paying attention to and executing around Chinse culture” (Zakkour, 2018). In looking to establish their brand, Starbucks did not focus on coffee initially but rather, “It was about reviving a “tea house culture” that had existed for thousands of years. Starbucks’ global success was based on being the “third place” between home and work and brought that ethos to China — but with a modern, Western, upscale sensibility” (Zakkour, 2018). In addition, Starbucks focused on three pillars of Chinese society: Family, Community, and Status (Zakkour, 2018).

 

Family, Community & Status

 

As Zakkour explains, China’s Confucian values connect parents and children throughout stages of life and responsibility is a bond that is shared as family is seen source of security; parent engagement is high in all aspects, and in return it is expected that children will return the favor when parents age (Zakkour,2018). This cultural aspect of family was something Starbucks understood, and they made engaging parents a strategic part of their people operations in China (Zakkour,2018). In 2012, they started an annual Family Forum for partners (employees), and they also recently launched the Starbucks China Parent Care Program in order build on their focus on family culture (Zakkour,2018). In terms of community, one key aspect Starbucks focused on was providing bigger spaces compared to North American locations with a more open format that is suitable for lounging and to better provide space for community engagement as many of the stores are up to 40 percent bigger (Zakkour,2018). To sum, “as Quartz’s Gwynn Guildford put it: In China, Starbucks doesn’t sell coffee to make its millions—it rents couches.”, which seems to complement their strategy of being a third place between work and home (Zakkour,2018). Lastly, in terms of status, Starbucks understood that, “Chinese place a premium on gaining and upholding reputation and status, especially for their family and community. Consequently, they want to be associated with brands and products that portray prosperity, success and upward mobility” (Zakkour, 2018). A few of the things Starbucks does in order to establish itself as a prosperous brand are: charges 20 percent higher prices in China, chooses expensive, high-end locations with high proximity to customers, labels imported products to establish premium quality, and as we discussed earlier, family forums which look to establish status for the company as a whole and the employees within the company and have provided an environment that both the community and employees can be proud of (Zakkour, 2018). 

Human Resource Policies in China

Starbucks recently won the Aon Best Employers award in China for the fourth year which “…recognizes the company’s investments in building a warm and welcoming family culture, with deep respect for China’s unique culture.” (Web Wire, 2018). Part of this success can be attributed to the CEO of Chinese operations, Belinda Wong. As an external hire, who worked her way up internally for 18 years, from Marketing to Presidency, and finally as CEO of China, and with a 79-year-old dad who suffers from dementia, she has a great grasp on the internal aspects of the company and the cultural issues which are important to Chinese employees such as family values; taking care of the elderly as well as the community aspect which comes with understanding that she has to take care of the 50,000 and growing number of partners in China (Dahlstrom, 2018). As Belinda states, “I need to promote a store manager every day…I need to promote a district manager once a week and an area director once a quarter” (Dahlstrom, 2018). In the last seven years that she has been CEO and president (last 2 as CEO of China Starbucks) She has assisted in implementing the following Human Resource Policies outlined below which have looked to further build on the cultural values we discussed earlier (Dahlstrom, 2018).

Starbucks Partner Family Forum

In 2012, she helped start the first ever Partner Family Forum, “Starbucks China Partner-Family Forums have become extraordinary annual events that honor the special role family plays in the lives of Starbucks partners, while providing an engaging platform for partners and their loved ones to share their hopes and dreams.” (Web Wire, 2018). This builds on establishing Starbucks as a high-status organization, by showing prosperous career paths, it will be easier to attract workers if parents see it as a desirable career path with room for prosperity such as other high-status positions that Chinese people may value, for instance, doctors or lawyers.

Starbucks China Parent Care Program

In one of the partner family forums in Beijing in 2017, Starbucks announced the Starbucks China Parent Care program which allowed partners to add parents to the company’s health insurance plan (Human Resources Online, 2017). This will provide employees who have been with the company for two years or longer the ability to provide their parents below the age of 75 who reside in mainland China critical health insurance (Human Resources Online, 2017) This was backed up by company analysis, that is,”70% of Chinese staff members are concerned about the health of their parents as they age. Moreover, the company found those who are single – about 80% of the retail staff – are especially worried about their financial ability to provide for their parents’ long-term care in case of a critical illness” (Human Resources Online, 2017). To add on, the company added, “Supporting critical illnesses for aging parents exemplifies what we believe is our responsibility as a global public company and honors the family values deeply-rooted in the Chinese culture,” (Human Resources Online, 2017). The company hopes this will have the impact of retaining more of their front-line staff, since retention is a key issue in a competitive service environment, and with the expected growth of competitors such as Costa, Luckin, and Tim Horton’s, there will be a war for talent at all levels of the organization.

 

Housing Subsidies for Baristas and Shift Supervisors in China

As Paterson writes, Starbucks is offering Chinese employees who are full-time, a monthly housing subsidy which is intended to help hurdle financial challenges that are faced by potential employees looking to begin their career at Starbucks (Paterson, 2016). They are expected to cover roughly 50 percent of the monthly cost of housing for employees (Paterson, 2016).

 

Coming Home Program

This program has a focus on the family aspect we discussed earlier. As taking care of an aging population is both in the minds of employees and the government, this program allows for partners who have moved away for work a chance to relocate to be closer to their family members. We can see how this continues to build on the company’s focus on easing family issues employees may face and further push their cultural awareness in that area.

Starbucks China University

This is “a cross-functional mobile learning platform, has been specially designed to allow its partners to personalize their individual training plans” (Web Wire, 2018).

Starbucks China Talent Exchange Program

This is a program which, “sent 16 employees to a one-year exchange program in Singapore” (Paterson. 2016).  By providing international experience to employees, the company can provide better career development and give a chance to promote internally when looking to fill the increasing number of positions in China.  

Potential Impact

Through, family forums, talent exchange programs, and the China University, Starbucks have created a working environment that is respectable and seen as high status by their Chinese employees and their families. Through engaging parents and making a commitment to their overall health, they have both helped remove some of the anxiety and uncertainty employees feel about their aging parents, and this will provide a competitive advantage in attracting talent which they will need as they look to add a large number of employees every year. By providing a chance for personal growth and advancement, parents and employees may be more willing to enter lower levels of the company and stay for development as they may envision themselves in a potentially high-status position in the future. In addition, the Parent Care program has a 2-year minimum requirement, and this could impact retention as employees may choose to stay longer in order to provide security for their parents. Starting with 10,000 and now with 14,000 partners signed up for the parent care program (Dahlstrom, 2018), it is still too early to discuss its long-term impact as it is only in the second year. Since it takes two years minimum for new employees to get into the program, it will be better to assess this program in another two years to see if retention numbers have significantly changed because of it.

Transferability

In terms of transferability, the University, the Talent Exchange Program, and the coming home program, seem to have the highest degree of transferability across borders. These are less based on culture, and more based on individual progression and as such, I expect Starbucks to provide some if not all of these in other countries they operate in. However, as far family forums and the Parent Care Program, I question how transferable they will be in individualistic cultures which do not put as high emphasis on family and taking care of the elderly. I think this will also depend very highly on the demographic of the population, and how much of a cultural issue, elderly health is in that region of the world. However, in a globalized working environment and with their worldwide presence, it is a fair to question if employees in certain regions will demand equal treatment in term of care for their parents and as such, Starbucks should carefully consider making it available to all employees through the globe.

 

Recommendation:

 

  1. Extend Parent Care Program to all partners globally, in order to avoid future issues such division between Asia Pacific and North American subsidiaries. Avoid potential impact for employees wondering what makes Chinese employees eligible for parent care program, but not theirs which could lead to backlash as they may feel like they are treated differently based on race or location and have the perception that the Company seems to care more about Chinese employees.
  1. Extend Housing Allowance globally based on cost of living. Cost of living should be considered as a means to attract talent to the company. Where cost of living is most prohibited by rising cost of rent, an allowance should make up for it to attract premium talent for entry level positions and allow for better chance to promote internally. Alleviated issues with regards to housing can go a long way to convince people to move to a new location.

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