Q1: Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures to whom it licenses its format, as opposed to using a pure licensing strategy?First of all, the main point of this topic is that local joint venture gives control to Starbucks. In fact, the company can be really sure that licensees are following its success formula. For example, it allowed the company to the liberty to train the foreign working party by transferring some employees from the USA, so they could teach them the way to deal with the customers and to follow the “Starbucks essence” in their behavior. Before, Starbucks did not have this control on the foreign business and this business still was far behind the Starbucks success formula.
Then, Starbucks got some other advantages expanding through local ventures.* First, it has a better facility into foreign markets. * Second, Starbucks shared fixed costs of developing this service in new markets. * Finally, this alliance was a way to bring together complementary skills and assets that neither could easily develop on its own. In fact, Starbucks gives away it valuable technological knowhow to the foreign country so that it can follow the Starbucks success formula and the host country can give to Starbucks some advices and cultural knowledge in order to make the customers feel comfortable with the service.
Q2: What are the advantages of a joint-venture entry mode for Starbucks over entering through wholly owned subsidiaries through a pure licensing strategy?There are several important benefits for a joint-venture entry mode.The first is the reduction in a financial risk. In fact, a joint venture relationship does offer a moderate reduction in the financial risk Starbucks must incur. As a great example, when Starbucks developed it 50/50 partnership with Japanese based Sazaby, Inc, they cut their financial risk in half.The second is the protection of the sustainable competitive advantage. In fact, in a company where coffee is a way of life, Starbucks had to mainly 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, 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.
The third is the benefit of knowing how well the US product will do in the foreign market through local adaptation. Initially, 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.Local adaption is one of the main points that Starbucks has to face. In fact, in it financial report, the company clearly says that one of the biggest problem resides in the “difficulty in staffing, developing and managing foreign operations, including ensuring the consistency of product quality and service, due to distance, language and cultural differences”.
Q3: Choose one country where Starbucks has chosen a wholly owned subsidiary to control its foreign expansion. Explain why.I choose Thailand. Starbucks is established now in Thailand as a wholly owned subsidiary.
In fact, it bought Coffee Partners instead of doing a joint venture or a licensing strategy with the company. Why? Because it was probably motivated by multiple factors. Firstly, Coffee Partners may have been unwilling to form a joint venture company: they invested much money, and now the contract was to be totally renegotiated, so they feared losing much of their profits by starting to run its operations under a new strategy (which they may not have fully espoused). Forming a joint venture with another company was not an option either - it would have taken time and effort.
Hence, buying Coffee Partners was the fastest way to establish a strong market position.In fact, it gave to Starbucks the entire control on it business and it strategy as well. And it strategy was in fact, to expand as much possible as it can in this growing coffee market, as it was the case in Great Britain where there wasn’t any coffee shops. Furthermore, buying the company was once again removing a market competitor. Coffee Partners most likely gained at least some know-how from licensing Starbucks’ model, which made it a potential rival of Starbucks in the future.
