1. Starbucks Company is usually fully responsible for the management of their own outlet stores and is in possession of the premises, the outlets are built on. Licensing agreements or partnerships, on the other hand, allow companies in foreign countries to purchase the rights on selling and producing firm’s products in the respective country or a in a specific region (Luo 173-174). In return, the licensor is given a royalty or a payment for the right to use the brand name and business practices (Holmes). The burden of bearing the risks of opening a new store and of investing money in the new facilities and marketing efforts is carried by the licensees. Therefore, licensing is considered the cheapest and the least risky method of international expansion. However, licensing has a number of disadvantages. Thus, it is crucial to define all the conditions of the deal very clearly, as further control of the marketing campaigns and store management will be complicated. Inability to influence licensees effectively also adds inflexibility to the Starbucks model. Thus, in case of a business downturn, it will be difficult to convince licensees to commit to investing in the improvement of the brand. Moreover, the returns from the licensed business are lower than those of the own stores. Finally, licensees may become aware of the technological know-how as well as of the business practices of Starbucks, and try to create a company, which would use this information in order to compete with Starbucks in the regional market (Hitt, Ireland, and Hoskisson 232-233).
Based on the abovementioned characteristics of licensing and own outlets, it is possible to suggest the reasons of the differences in the expansion strategies. As a U.S. company, Starbucks has a significant knowledge about the U.S. market and American consumer preferences. Therefore, it makes sense for them to own stores, thus increasing the risks, but also the potential returns of the new outlets. In the international markets, Starbucks has no expertise regarding business practices and consumer preferences. Therefore, it is cheaper and safer to sell licensees to the local companies, which would be able to tailor Starbucks strategy to the local needs. Such approach to international expansion also allows faster market penetration, thus resulting in greater returns already in the short-run.
2. One of the core principles of Starbucks “…has always been, and will always be, about quality” (Starbucks Corporation). Therefore, providing the finest coffee to the customers all over the world is a part of the company’s strategy and positioning. Thus, introducing a line of instant coffee may significantly harm the perception of consumers about the quality standards of Starbucks coffee, and might damage company’s reputation. Low cost breakfast meals also do not contribute to the brand image of Starbucks. Moreover, this strategy places Starbucks in direct competition with some low-cost fast food restaurants, which have more knowledge and expertise about the fast food market, thus leaving Starbucks little chance for success.
3. Although it is impossible to predict the future winner today, it is important to acknowledge the significant progress of McDonalds in this field. As they managed to turn around their image of the cheapest and lowest quality fast food restaurant, their coffee business started to gain momentum. Due to the fact that their menu is not limited to coffee, but offers a larger variety of products, McDonalds is likely to attract a great number of people. However, Starbucks can still maintain its leadership in a market niche, which includes a group of customers, who appreciate the cosy atmosphere of Starbucks, their commitment to high quality and innovations, as well as the attention they pay to “human connection”, which goes far beyond making beverages (Starbucks Corporation).
4. As customer preferences differ across the countries it is hard to predict what the reaction of the consumers in other countries might be. While introducing new products into the new markets may be quite easy, as consumers are not yet used to the Starbucks product offering, in the more mature markets the new menu may face resistance. Therefore, it might be helpful to evaluate the chances of the new products on a country to country base, as well as to conduct small-scale tests in the respective regions.
Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. Strategic Management:
Competitiveness & Globalization, Concepts. 9th. Mason, OH: South-Western
Cengage Learning, 2010. 232-233.
Holmes, Kevin. The concept of income: a multi-disciplinary analysis. Amsterdam,
the Netherlands: IBFD Publications, 2001.
Luo, Yadong. Entry and cooperative strategies in international business expansion.
Westport, CT: Greenwood Publishing Group, 1999. 173-174.
Starbucks Corporation, . “Our Starbucks Mission Statement.” N.p., 2011. Web. 21 Oct 2011.