International Business Essay - 1,710 words

International Business Cup by cup, Starbucks Corp. caffeinates the world, its green-and-white emblem beckoning to consumers on three continents. In 1999, Starbucks had 281 stores abroad. Today, it has about 1,200 - and it is still in the early stages of a plan to colonize the globe. Starbucks has grown from 17 coffee shops in Seattle 15 years ago to 5,689 outlets in 28 countries. Sales have climbed an average of 20% annually since the company went public 10 years ago, to $2.6 billion in 2001, while profits bounded ahead an average of 30% per year, hitting $181.2 million last year. The Starbucks name and image connect with millions of consumers around the globe. To duplicate the staggering returns of its first decade, Starbucks has no choice but to export its concept aggressively.


Some analysts give Starbucks only two years at most before it saturates the U.S. market. The chain now operates 1,200 international outlets, from Beijing to Bristol. That leaves plenty of room to grow. Indeed, about 400 of its planned 1,200 new stores this year will be built overseas, representing a 35% increase in its foreign base. Starbucks expects to double the number of its stores worldwide, to 10,000 in three years. During the past 12 months, the chain has opened stores in Vienna, Zurich, Madrid, Berlin, and even in far-off Jakarta.


Basic entry decisions of Starbucks include identifying which markets to enter, when to enter those markets, and on what scale. From practical point of view, the optimal choice of every entry mode depends on the firms strategy. Initially strategic management of Starbucks decided to operate under the scheme of wholly owned subsidiaries, which constitutes greater practical and strategic advantages for the company, oppose to franchising entry mode. The advantages of wholly owned subsidiaries include tight control over technological know-how, and it becomes extremely important factor to consider in the Starbucks example. Creating the perfect cup of coffee is stressed and has been vital for the companys success. Brewing the Perfect Cup is one of the 5 classes that all partners must complete during their first six weeks with the company (Reese, 192).


The milk must be steamed to at least 150 degrees but never more than 170 degrees. Every espresso shot must be pulled within 23 seconds or tossed (Reese, 192). The drink making technicalities are dispensed within Retail Skills, an eight hour marathon of lectures, demonstrations and hands on practice. They demonstrate how to wipe oil from the coffee bin, open a giant bag of beans, and clean the milk wand on the espresso machine (Reese, 192). The employees are showed the proper way to fill one pound sacks with coffee and how to affix a sticker exactly one half inch over the Starbucks logo (Reese, 192). All these factors seem to contribute to the quality of the coffee. From the practical point of view, since the technological know-how represents the companys core competence, the entry mode through wholly owned subsidiaries is the most efficient one. Another important dilemma lies in the ability of companys expansion strategy through wholly owned subsidiaries to cope with dynamics of such expansion.


Probably the biggest concern about the future of Starbucks is that it wont be able to keep it up (Reese, 200). There is also some doubt whether the company can maintain its rigorous standards. Starbuckss aggressive real estate stratagem allows it to accumulate prime properties and cluster its stores, especially internationally. By locating two or more outlets near one another, the company can attract spillover from its own stores during busy hours. The method also serves to neutralize competitors by giving customers more chances to bump into a Starbucks (Simons, 44). Even the company admits that while its practice of blanketing an area with stores helps achieve market dominance, it can cut sales at existing outlets. Starbuck is capable of designing and opening a store in 16 weeks or less and recouping the initial investment in three years.


The stores may be oases of tranquility, but managements expansion tactics are something else. Moreover, predatory real estate strategy - paying more than market-rate rents to keep competitors out of a location should be reconsidered. Starbucks innovation strategy, incorporated into its international expansion strategy, deserves particular attention. On Aug. 21 2002, it announced expansion of a high-speed wireless Internet service to about 400 Starbucks locations Europe and Asia. Partners in the project - which Starbucks calls the worlds largest Wi-Fi network - include Mobile International, a wireless subsidiary of Deutsche Telekom, and Hewlett-Packard. Customers sit in a store and check e-mail, surf the Web, or download multimedia presentations without looking for connections or tripping over cords. They start with 24 hours of free wireless broadband before choosing from a variety of monthly subscription plans.


Starbucks executives hope such innovations will help surmount their toughest challenge in the international market: attracting the next generation of customers. Younger coffee drinkers already feel uncomfortable in the stores (Rice, 27). Considering the current situation in the market of multinationals and China, it becomes vitally to incorporate and apply the HR function from the beginning. Most Chinese companies underestimate Human Resources as a strategically important aspect and thus, underestimate the value its successful application can bring to companys international strategy. Proper HR strategy can eliminate the possibil ...................................................................................................................................................................................................................................................................................................................................................................

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