STARBUCKS INTERNATIONAL ENTRY STRATEGY Starbucks International has gone beyond the normal philosophy of Starbucks, to create a re-birth of their product line in foreign countries. Typically in the Unites States, Starbucks owns its entire line of coffee-bar stores outright with no franchise investments or partnerships. However, their international operations are quite the opposite. Starbucks International has adopted a strategy of partnerships to create its line of international coffee-bar stores. These joint ventures create an increased ease of entry into the foreign market.
Starbucks International choose to be involved with partnerships for the benefits these relationships offered over their typical wholly owned subsidiary philosophy. However, choosing the right partner, poses a potential problem for the company. Although Starbucks uses multiple lines of distribution to saturate to US coffee market, its international operations consist only of coffee-bar restaurants. Therefore, they only have one channel of distribution internationally. Through this, Starbucks had to choose a partner that would facilitate their creation and expansion of coffee bars in the international arena, specifically Asia and Japan their primary target. Starbucks developed a series of criteria to which they evaluated different potential partnerships in Japan and other foreign countries. First, they sought to implement the idea of “partnership first, county second,” as a means of developing partnerships that focuses on the companies goals, and not the countries goals. Second Starbucks noted six additional criteria they used to narrow and conclude their partnership search. (1) They looked for companies with similar ideas about values and corporate life. (2) They wanted companies that had experience in the multi-restaurant business. (3) Potential partners had to have enough financial resources to help saturate a given market so as to counter the possibility of imitations. (4) Starbucks sought partners that had the ability and experience to locate prime real estate for coffee-bar locations with a (5) knowledge of the retail market. Finally, (6) Starbucks looked for partners who had the manpower available to make a full commitment to the project. It was this selection criterion which aided Starbucks in implementing the benefits of partnerships to their international operation expansion.
When looking at Starbucks international entry strategy, three main potential benefits arise from the development of the partnership. These benefits had and have the potential to be varying in their degree of usefulness dependent upon the entry strategy Starbucks chooses, in this case Joint Venture (partnership). The three main potential benefits of a joint venture entry strategy are: protection of the sustainable competitive advantage, reduction in the financial risk incurred by the firm (Starbucks), and the benefit of knowing how well the US product will do in the foreign market through local adaptation. We will examine each of these more fully from the viewpoint of Starbucks entering into the Japanese foreign market.
In a company where coffee is a way of life, Starbucks had to fully deploy the creativity of its originator to develop a sustainable competitive advantage and be a focused differentiator. It could be said, that the quality of the coffee Starbucks serves is a competitive advantage, however, even though the coffee process is valuable to the company, it is not unique. It fact, they have developed their process from other peoples ideas, not their own invention. Actually, it is their people who are their competitive advantage. After all, working at a place you could be called a baristas, you know people are the business. The found of Starbucks agrees with this stating ‘”Our only sustainable advantage is the quality of our work force”’. However, a joint venture offers the lowest possible protection of the sustainable competitive advantage (SCA). Therefore, Starbucks will have to implement strict guidelines to be able to keep their SCA alive and well in the Japanese market. Starbucks partnership with Sazaby, Inc., an upscale retail and restaurant operating company, they did just that, protected their SCA with a company that shares the same type of SCA while being a focused differentiator.
Still, a joint venture relation ship does offer a moderate reduction in the financial risk Starbucks must incur. When Starbucks developed it 50/50 partnership with Japanese based Sazaby, Inc., they cut their financial risk in half. However, the financial risk for the entire partnership is inflated due the a higher priced product, compared with other coffee’s available in the market, and because of the possible risk factors associated with local adaptation of their product.
Finally, it is that local adaptation which serves as the greatest benefit of the partnership. Local adaptation looks at how well a US product will sell in the foreign market. A partnership allows for the collaboration between foreign and US partners to develop a product that will functionally be similar to the original US product yet also appeals to the consumers of the foreign market. Starbucks coffee bar design seems to have been a good match for the Japanese market. The coffee culture in Japan is that of a kissaten, coffeehouses with a formal sit down atmosphere. However, the largest and most well known coffee in the Japanese market place is the Doutor Coffee Company, the “McDonald’s of coffee houses” in Japan. These coffeehouses are quite the opposite of the traditional kissaten. At Doutor, seating is scarce, but standing bar room is ample. Starbucks, through their normal structure, struck a common ground. With a more casual atmosphere, Starbucks offer patrons ample seating areas and dine in or carry out services. However, there was originally some worry about the profitability and future growth of the Italian-style coffees in Japan. Japanese had never been exposed to this type of coffee before, so the taste of espresso drinks was as foreign to them as the name Starbucks. However, Starbucks’ managers were confident that Japan was ready to indulge in the fine taste of Italian espresso. All in all, the partnership between Sazaby and Starbucks provided a moderately high benefit for local adaptation.
Starbucks plan of a partnership is the best choice for an entry strategy into the international market. Their increased insight into the market, and the other benefits provided by this relationship, will propel Starbucks International espressoly in the future.