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Case 1-1 - Starbucks
International Marketing class – Dr. Shivakumar
Alaeddin Khader

Answers to the case study questions: 1. In Its journey to the top of international success in coffee stores, Starbucks has faced a lot of controllable and uncontrollable challenges.

Starbucks started in Seattle in the United States where the people there love coffee and have a lot of coffee shops to visit. That was the first uncontrollable challenge facing the company as it started in nearly saturated environment with lots of competition.

When operating in international market they need to operate through local partner who will cut from their profit so that they will keep only 20 to 50 percent of the profit.

Expansion to international market poses with huge risks. While spreading out they have faced cultural challenges.

Below picture shows the protesters against the globalization attaching Starbucks as they see it as a symbol for the free market international company and represents the globalization.

For the controllable challenges that Starbucks have faced, the company growth largely in the United States as they have participated themselves of saturating the market of coffee shops as their crowding of so many stores so close to each other has become a national joke. Such as the headline in the Onion (a satirical publication): “A New Starbucks opens in restroom of existing Starbucks”. Opening so many stores near to each other will cut the profit of the existing stores.

Starbucks decided to export its concept aggressively to duplicate its staggering returns of the first decade. They operate now 1700 international outlets.

Starbuck faces slumping morale and employee burnout among its store managers and its once-cheery army of baristas. Employees are forced to work more and they pay less for them ha nth actual work they are giving. This is controllable element that they can avoid by reviewing their human resource policies and strategy.

Starbucks succeeded to fuel its expansion growth from its internal cash flow. This is a strength to the company they are not relying on debt and they are generating profit enough to cover their daily operations and open new stores, Another strength of the company is that they are capable to design and open a new store in 16 weeks or less. This is made possible by the experience and standard management.

Their competitive strategy is anther controllable element that they can improve in order to be ethical and fair with their competitors. In the past they were tough with their competitors as they were ready to rent the empty store and not using it just to prevent their competitor from moving in.

Product lines are another controllable element that they can use to increase their profit. Starbucks hoped to get more sales by selling other items rather than coffee but did not succeed as they were famous of their main item which is coffee.

Starbucks tried to use web technologies for faster service where the customers can order coffee online and when they go to the store they find I waiting for them. However that innovation did not succeed as well and hence they have eliminated the service. But another technical service they have succeeded to provide and the customers liked it was the high speed wireless internet service.

2. While operating in local and foreign countries, the company will face lots of risks operationally, legally, and financially.

For Starbucks, they have faced cultural risks when operating in the Arab countries. For instance, when Schultz visited Israel to meet Shimon Peres, he did not consider the impact of that on the Palestinians and Arab people knowing that the critical situation between the Arab countries and the Israeli government who took the land of Palestinians and are killing them.

Being symbol for the global company, they were under continuous attacks from the protesters against the globalization. Example is what happened in 1999 when protesters flooded Seattle streets and among their targets were Starbucks as a symbol of free market and globalization.

Being forced to deal with local partners has financial risk to Starbucks as they have to share their profits with the partners leaving them only 20 to 50 percent of the profit.

3. With no doubt, Starbucks is a successful international company with huge cash flow of profit. This came from their good products, marketing efforts and corporate strategy .

However that does not mean that their corporate strategy is perfect and they do not have room for improvement.

In the local market, their crazy expansion may not be a wise choice. Although it bring more convenient to the customers having Starbucks in very corner of the street and near to them wherever they go. But having so much of branches will first make them cut from the revenues of others nearby branches and hence delay the return of investment of all branches. Secondly having so many branches keeps the management more difficult and hence focuses more on the volume rather than the quality and the innovation.

In the global strategy, they have to pay more attention to the cultural and political situations in the countries they are operating in to avoid situations such what happened when the CEO of the company visited Israel to discuss the region’s situation ignoring the other parties in h conflict.

The international policy of America is affecting the Starbucks as this company presents the international face of America. As shown in the below picture, the American soldiers in Afghanistan are carrying Starbucks giving the message: “Gun in one hand, Starbucks in the other - ready to dominate the world”.

4. Japan seemed a very good market for Starbucks as they could develop new successful products like bottled and canned coffee. And they could develop broader menu that includes custom products.

In Japan they have more competition and this is the room where they can improve by wisely handling the competition.

Japan is a rich cultural country; every picture, symbol, or move has a meaning and can easily interpreted wrongly. So they have to be more conscious about the cultural aspects of japan in order to succeed in the business in japan they have to develop their understanding and learn the Japanese culture. They can hire Japanese managers and employees to bond more to the local market.

References: * http://www.inminds.com/article.php?id=10228 * http://blogs.seattleweekly.com/voracious/2010/07/starbucks_rolls_out_free_wifi.php * http://ipadinrealestate.com/2010/07/starbucks-now-offers-free-wi-fi/ * http://www.akiodesigns.com/2010/07/starbucks-japan-with-lcd-tv/