Foreign Direct Investment: Starbucks Case Essay

RequirementsThe case should trade solely the questions provided plus any additional come out of the closets the group members feel argon pertinent to the case and accept a comprehensive update on the alliances situation since the time of the case. The case should be written up and presented in case format scenario, problem to be lick or decision to be made, alternatives with the pros and cons of all(prenominal) and finally the recommendation with the ensuant rationale.Foreign Direct Investment Starbucks CaseBackgroundGeneral cardinal years ago Starbucks was a single store in Seattles Pike Place Market moveing premium roasted burnt umber. straightaway it is a spherical roaster and seller of drinking chocolate with everyplace 7,000 stores in U.S. and right(prenominal) U.S. Starbucks Co. set out on its current course in the mid-eighties when the companys director of marketing came back from a charge to Italy enchanted with the Italian coffeehouse experience. Schultz persuaded the companys owner to experimentation with the coffeehouse format-and the Starbucks experience was born. The basic dodging was to sell the companys own premium roasted coffee, along with freshly brewed espresso-style coffee beverages, a variety of pastries, coffee accessories, teas, and other crossways, in a tastefully knowing coffeehouse setting.The company overly stressed providing superior customer service. think that motivated employees provide the best customer service, Starbucks executives devoted a circumstances of attention to employee hiring and training programs and progressive compensation policies that gave even part-time employees germinate option grants and medical benefits. The formula met with spectacular success in the linked States, where Starbucks went from obscurity to unrivaled of the best known trade names in the country in a decade. ( hummock, 2003)The keep companys physical object is to establish Starbucks as the approximately recogn ized and delight ined distinguish in the world. Starbucks purchases and roasts high-qualitywhole noggin coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee- colligate accessories and equipment primarily finished its company- becomed retail stores. In addition to gross sales through our company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells bottled Frappuccino coffee fox and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly possess subsidiary, Tazo Tea Company.The Company divides its operation into two portions, United States and internationalistic, distributively of which include Company-operated retail stores and Specialty Operations.1.Company-operated Retail StoresThe Companys retail polish is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing superior customer service, thereby building a high gradation of customer loyalty. Starbucks scheme for expanding its retail credit line is to increase its market assign in existing markets primarily by opening additional stores and to open stores in new markets where the opport unit of measurementy exists to become the leading specialty coffee retailer.All Starbucks stores offer a choice of regular and decaffeinated coffee beverages, a considerable pickaxe of Italian-style espresso beverages, cold blended beverages, iced shaken refreshment beverages and a selection of teas and distinctively packaged roasted whole bean coffees. Starbucks stores besides offer a selection of fresh pastries and other food items, sodas, juices, coffee-making equipment and accessories, a selection of compact discs, games and seasonal novelty item s. Each Starbucks store varies its product mix depending upon the size of the store and its location.Larger stores carry a broad selection of the Companys whole bean coffees in unlike sizes and types of packaging, as well as an assortment of coffee and espresso-making equipment and accessories such as coffee grinders, coffeemakers, coffeefilters, storage containers, conk tumblers and mugs. Smaller Starbucks stores and kiosks typically sell a full line of coffee beverages, a limited selection of whole bean coffees and a few accessories such as travel tumblers and logo mugs. Approximately 1,200 stores carry a selection of grab and go sandwiches and salads. During m unitytary 2003, the Companys retail sales mix by product type was comprised of approximately 78% beverages, 12% food items, 5% whole bean coffees and 5% coffee-making equipment and accessories.2.Specialty OperationsStarbucks Specialty Operations sieve to develop the Starbucks brand outside the Company-operated retail st ore environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop and dine by establishing relationships with prominent third parties that sh atomic number 18 the Companys values and trueness to quality. These relationships take various forms including licensing arrangements, foodservice accounts and other initiatives related to the Companys sum of money occupancyes. In genuine situations, Starbucks has an equity ownership inte comfort in licensee trading trading operations. During fiscal 2003, specialty revenues (which include royalties and fees from licensees as well as product sales derived from Specialty Operations) accounted for approximately 15% of full(a) net revenues.Go internationalisticThe US coffee-bar market may be reaching saturation. Further, Starbucks store origination is also maturing, leading to a slowdown in the upraiseth of unit volume and firm profitability. In response, Starbucks has turned its attent ion to contradictory markets for go along growth.ObjectiveStarbucks mission for international development is to be a global company, making a difference in peoples lives by leveraging our brand and the coffee experience to foster human connections. The Starbucks Experience is about lovingness for a quality product, excellent customer service, and people.The Companys objective is to establish Starbucks as the or so recognized and respected brand in the world. To achieve this goal, the company plans to continue rapid expansion of its retail operations, to grow its Specialty Operations and to selectively pursue other opportunities to leverage the Starbucks brand through the introduction of new products and the development of new channels of distribution.In doing global business, Starbucks greatly consider topical anesthetic culture as mentioned by Howard Schultz that Starbucks remain highly respectful of the culture and traditions of the countries in which we do business. Starbucks also recognizes that its success is not an entitlement, and Starbucks must continue to earn the trust and respect of customers every day.Entry ModeIn 1995, the firm established a subsidiary called Starbucks Coffee International Inc. This group is responsible for all Starbucks business development outside North America, including developing new businesses, financing and mean stores, managing operations and logistics, merchandising, and training and developing Starbucks international managers.Starbucks first non-North American store was opened in 1996 in Tokyo. Starbucks initially used licensing agreement for its global strategy. Because Starbucks wanted to take in business strategy in japan market, it changed the strategy by establishing joint venture with a local retailer, Sazaby, Inc. Then, Starbucks licensed its business format to the joint venture company.After entering into the Japanese market, Starbucks increase the pace of international expansion significantly. In 1998, Sta rbucks acquired Seattle Coffee Company in the United Kingdom, a set up with more than than 60 retail locations. That alike(p) year, it opened stores in Taiwan, Thailand, New Zealand, and Malaysia. In 1999, Starbucks opened in mainland China (Beijing), Kuwait,South Korea, and Lebanon. In 2000, it entered another seven markets (China Hong Kong and Shanghai, Dubai, Australia, Qatar, Saudi Arabia, and Bahrain). It added three markets in 2001 (Switzerland, Israel, and Austria). In 2002, another nine markets were opened (Oman, Spain, Indonesia, Germany, Southern China Macau and Shenzhen, Mexico, Puerto Rico, and Greece).In Asia, the most common strategy used by Starbucks was under licensing agreement. merely due to similar reason such as in Japan, Starbucks born-again licensing format to joint venture or wholly owned subsidiaries. Thailand, for example, Starbucks acquired its licensee wheeler dealer to gain control over the expansion strategy in Thailand. In South Korea, Starbucks chose to use joint venture.However, Starbucks development strategy adapts to unlike markets addressing local needs and choosements. They currently use three business strategiesJoint venturesLicensesCompany-owned operationsAs of At fiscal year end 2003, the Company had a total of 1,257 licensed retail stores in 28 countries managed by the Companys international divisions and located as followsAsia-Pacific (9 countries) 968Europe/Middle eastward/Africa (13 countries) 176Americas (6 countries) 113Total1.257ResultsStarbucks is well on its way to becoming a global brand. agree to Business Week The Starbucks name and image connect with gazillions of consumers around the globe. It was one of the fastest-growing brands in a Business Week survey of the top deoxycytidine monophosphate global brands published August 5 2002. But becoming a global company is not without risks. Global expansion poses huge risks for Starbucks. For one thing, it makes less money on each overseas store because most of them atomic number 18 operated with local partners. While that makes it easier to start up on foreign turf, it reduces the companys share of the profits to only 20% to 50%.The Companys financial performance is highly dependent upon the retail operations of the United States operate segment. The Companys International in operation(p) segment (excluding Canada) is not currently profitable, and its international stores and licensees may not be successful in their operations or in achieving expected growth. roughlywhat factors critical to the success of the Companys international stores and licensees are different than those affecting the United States stores and licensees. The economies of a number of the international markets in which Starbucks and its licensees operate have been weak in recent years. Tastes naturally vary by region, and consumers in the new international markets into which Starbucks and its licensees expand may not mash products and services to the sam e extent as consumers in the Companys existing United States markets.Occupancy costs and store operating expenses are sometimes high internationally than in the United States due to higher rents for prime, inner-city store locations or due to local laws that make it more expensive to retain or terminate employees. The Companys International operations are also subject to the inherent risks of foreign currency fluctuations and changes in economic, social and political conditions. Because the Companys International operations are in an early phase of development and have country-specific regulatory requirements, they require a more comprehensive field organization, compared to the United States, to provide resources and react to the business needs in each region.Though international total net revenues increase by $142.4 million, or 30.9%, to International specialty revenues change magnitude $26.1 million, or 28.1%, to $119.1million in fiscal 2003, excluding Canadian operations, ope rating losses increased by 11.1% to $18.5 million in fiscal 2003, compared to an operating loss of $16.7 million in fiscal 2002.RecommendationsAlternativeStarbucks can simply choose licensing for all international expansion. This method will reduce disaster that company latch ons operating loss from business partners. By licensing its format, Starbucks gain license fees and royalty from licensee. other benefit is that license agreement requires relatively low initial investiture for company. This will greatly improve company cash flow.However, behind the some benefits, licensing also has disadvantages. Company can not hope stringent control over licensee for business strategy or marketing. For company like Starbucks which has warring business passion, license agreement doesnt provide sufficient exemption to develop potential market. Another reason is that company know-how need to be delivered. Starbucks has competitive advantage in valuable management knowledge related to bran ding and operations of retail coffee stores. The other reason is that licensing opens possibility for potential foreign companys competitors to learn about companys know-how.RecommendationsThough Starbucks triumphed in North American, the other international segment hasnt significantly contributed to Starbucks income yet. This was partially contributed by Internationals symmetric share of net losses in Starbucks Japan reporting an annual net loss of $3.87 million.Japan market is a good example. With 486 stores, it is at large(p) to find Starbuckslogo in Japan, the site of its biggest expansion outside the US. The issue worrying investors is over saturation. Starbucks are vying for too few customers in Japan where also has so many coffee shops.Starbucks should consider about its strategy for international market. In U.S. and Canada market, the strategy to blanket an area completely, even if the stores take one anothers business, might be applicable. But for each international mar ket, which has unique regional and community acceptance, the strategy shouldnt be so aggressive. Furthermore, Starbucks should address local taste in every region. For example, in Asia country such in Japan and China, people have more long experience to drink tea rather than coffee. Therefore, demands on coffee beverages in those regions are different from market in North America.Starbucks should also setup a standardized methodology to select markets for entry or further expansion. In addition, Starbucks should investigate further to identify which investment come is the best in the intended market because the market environment is changing. A certain investment approach maybe is not suitable for a market anymore. By joint venture as an investment approach, Starbucks has tight control over business strategy in a certain country. In other hand, the consequence of joint venture approach is that Starbucks has to absorb proportionately when the joint venture company suffers loss.Updat eStarbucks enter France wizard of the traditional of French cafe life the small, china cup of strong, coloured coffee is under assault from a giant of American heathenish globalization. Frances first Starbucks coffeehouse opened on January, 2004, giving Parisians a smoke-free but generally more expensive (An espresso at a counter of a French cafe typically sets you back $1.25, bandage a shot of coffee costs $2 at Starbucks and a medium caramel frappuccino, for example, goes for $5.62.). Starbucks offers a new caf atmosphere which will get acrossaway a centuries-old addiction to espresso coffee and croissants in a stertorous cafe spiced with the smoke of Gauloise. In the worlds cafe capital, the Seattle-based chain has much the same feel as anywhere else there are comfortable sofas, and the soundtrack is jazz music and frappuccinos in the blender.However, with an increasing number of youngish French people living and traveling abroad, the company hopes its concept of bright, hail-fellow coffee bars will find a warm delightful among those who dislike grumpy barmen and cigarette smoke. Starbucks is confident that a younger extension holds the key to financial success, but the figures show that even they havent completely abandoned the idea of corner cafes. Only 15 share of clients to French coffee bars have their coffee to take away. The rest prefer to take a seat and drink it there.ReferenceStarbucks website. www.starbucks.comCharles W. L. Hill. International Business Competing in the Global Marketplace 4th Edition. New York McGraw Hill/Irwin, 2003Starbucks Corporation Competing in a Global Market. UW Business School. April 7, 2003Starbucks 10-K Report. indorsement Fillings. September 28, 2003.Planet Starbucks. Business Week. September 9, 2002. p.102Trouble brewing for Starbucks in Japan. Bloomberg. June 11 2003. http//www.theage.com.auIan Messer.Japans coffee shops spill over. Bloomberg News. May 21, 2003Caroline Wyatt. Starbucks invades Parisian cafe culture. January 15, 2004.http//news.bbc.co.uk.