456 Part 5   The Strategy and Structure of International Business

C LO S I N G C A S E
Starbucks’ Foreign Entry Strategy
Forty years ago, Starbucks was a single store in Seattle’s making it the first company in Japan to do so. Skeptics
Pike Place Market selling premium-roasted coffee. Today, doubted that Starbucks would be able to replicate its
it is a global roaster and retailer of coffee with some North American success overseas, but now in 2018 Star-
24,464 stores, 47 percent of which are in 63 countries bucks has 1,160 stores and a profitable business in Japan.
outside the United States. China (2,204 stores), Canada After Japan, the company embarked on an aggressive
(1,418 stores), Japan (1,160 stores), South Korea (872 foreign investment program. In 1998, it purchased Seattle
stores), and the United Kingdom (898 stores) are large Coffee, a British coffee chain with 60 retail stores, for
markets internationally for Starbucks. $84 million. An American couple, originally from Seattle,
Starbucks set out on its current course in the 1980s had started Seattle Coffee with the intention of establishing
when the company’s director of marketing, Howard a Starbucks-like chain in Britain. In the late 1990s, Star-
Schultz, came back from a trip to Italy enchanted with bucks opened stores in Taiwan, Singapore, Thailand, New
the Italian coffeehouse experience. Schultz, who later be- Zealand, South Korea, Malaysia, and—most significantly—
came CEO, persuaded the company’s owners to experi- China. In Asia, Starbucks’ most common strategy was to
ment with the coffeehouse format—and the Starbucks license its format to a local operator in return for initial
experience was born. The strategy was to sell the compa- licensing fees and royalties on store revenues. As in Japan,
ny’s own premium roasted coffee and freshly brewed Starbucks insisted on an intensive employee-training pro-
espresso-style coffee beverages, along with a variety of gram and strict specifications regarding the format and lay-
pastries, coffee accessories, teas, and other products, in a out of the store.
tastefully designed coffeehouse setting. From the outset, By 2002, Starbucks was pursuing an aggressive expan-
the company focused on selling “a third place experi- sion in mainland Europe. As its first entry point, Star-
ence,” rather than just the coffee. The formula led to bucks chose Switzerland. Drawing on its experience in
spectacular success in the United States, where Starbucks Asia, the company entered into a joint venture with a
went from obscurity to one of the best-known brands in Swiss company, Bon Appetit Group, Switzerland’s largest
the country in a decade. Thanks to Starbucks, coffee food service company. Bon Appetit was to hold a major-
stores became places for relaxation, chatting with friends, ity stake in the venture, and Starbucks would license its
reading the newspaper, holding business meetings, or format to the Swiss company using a similar agreement to
(more recently) browsing the web. those it had used successfully in Asia. This was followed
In 1995, with 700 stores across the United States, Star- by a joint venture in other countries. United Kingdom
bucks began exploring foreign market opportunities. The leads the charge in Europe with 898 Starbucks stores.
first target market was Japan. The company established a By 2014, Starbucks emphasized the rapid growth of its
joint venture with a local retailer, Sazaby Inc. Each com- operations in China, where it now has 2,204 stores and
pany held a 50 percent stake in the venture, Starbucks plans to roll out another 500 stores within three years,
Coffee of Japan. Starbucks initially invested $10 million making China by far the second largest market for Star-
in this venture, its first foreign direct investment. The bucks behind the U.S. The success of Starbucks in China
Starbucks format was then licensed to the venture, which has been attributed to a smart partnering strategy. China
was charged with taking over responsibility for growing is not one homogeneous market; the culture of northern
Starbucks’ presence in Japan. China is very different from that of the east, consumer
To make sure the Japanese operations replicated the spending power inland is not on par with that of the big
“Starbucks experience” in North America, Starbucks coastal cities. To deal with this complexity, Starbucks en-
transferred some employees to the Japanese operation. tered into three different joint ventures: in the north with
The licensing agreement required all Japanese store man- Beijong Mei Da coffee, in the east with Taiwan-based Uni-
agers and employees to attend training classes similar to President, and in the south with Hong Kong–based Maxim’s
those given to U.S. employees. The agreement also re- Caterers. Each partner bought different strengths and
quired that stores adhere to the design parameters estab- local expertise that helped the company gain insights into
lished in the United States. In 2001, the company the tastes and preferences of local Chinese customers,
introduced a stock option plan for all Japanese employees, and to adapt accordingly.
 Entry Strategy and Strategic Alliances   Chapter 15 457

Sources: Demitrios Kalogeropoulos, “What Investors Can Expect from markets), but how can Starbucks’ success be
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Kell, “Starbucks Is the Latest Restaurant to Post Soft Sales,” Fortune,
January 26, 2017; Trefis Team, “How Starbucks Plans to Grow Its Interna-
developed and emerging markets?
tional Operations,” Forbes, January 18, 2016; Ron Lieber, “Uber and 2. Do you expect that the growth of the number of
Starbucks Protests Show Boycotts Need More Than a Hashtag,” The New Starbucks stores worldwide will continue into
York Times, February 3, 2017; Andrew Ross Sorkin, “Starbucks Set to Add more countries, or do you expect Starbucks to
Three to Board, Making It More Diverse,” The New York Times, January focus on more stores in the foreign markets in
24, 2017; C. McLean, “Starbucks Set to Invade Coffee-Loving Continent,”
Seattle Times, October 4, 2000; H H. Wang, “Five Things Starbucks Did to
which the company already has at least some
Get China Right,” Forbes, July 10, 2012. stores already established?
3. With the CEO and driver of the company—Howard
Cas e Di scussion Questions Schultz—stepping down as the company’s unques-
1. Starbucks has become a phenomenon worldwide, tioned leader, do you expect Starbucks to change
with more than 24,000 stores in more than its foreign market entry strategy in any way?
60 countries. Sales are great even at relatively Design Elements: Implications (idea): ©ARTQU/Getty Images;
high prices for its products. This can perhaps Problem (jigsaw): ©ALMAGAMI/Shutterstock; All Others:
be explained in the United States (and other wealthy ©McGraw-Hill Education.

E n dn o t e s
1. For interesting empirical studies that deal with the issues of 5. J. M. Shaver, W. Mitchell, and B. Yeung, “The Effect of Own
timing and resource commitments, see T. Isobe, S. Makino, and Firm and Other Firm Experience on Foreign Direct Investment
D. B. Montgomery, “Resource Commitment, Entry Timing, and Survival in the United States, 1987–92,” Strategic Management
Market Performance of Foreign Direct Investments in Emerg- Journal 18 (1997), pp. 811–24.
ing Economies,” Academy of Management Journal 43, no. 3 6. S. Zaheer and E. Mosakowski, “The Dynamics of the Liability of
(2000), pp. 468–84; Y. Pan and P. S. K. Chi, “Financial Perfor- Foreignness: A Global Study of Survival in the Financial Services
mance and Survival of Multinational Corporations in China,” Industry,” Strategic Management Journal 18 (1997), pp. 439–64.
Strategic Management Journal 20, no. 4 (1999), pp. 359–74. A
7. Shaver et al., “The Effect of Own Firm and Other Firm
complementary theoretical perspective on this issue can be
Experience.”
found in V. Govindarjan and A. K. Gupta, The Quest for Global
Dominance (San Francisco: Jossey-Bass, 2001). Also see F. Ver- 8. P. Ghemawat, Commitment: The Dynamics of Strategy (New
meulen and H. Barkeme, “Pace, Rhythm and Scope: Process York: Free Press, 1991).
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tion,” Strategic Management Journal 23 (2002), pp. 637–54. University Press, 1994).
2. Infoplease, www.infoplease.com/world/world-statistics/ 10. Isobe et al., “Resource Commitment, Entry Timing, and Market
how-many-countries, accessed June 3, 2017. Performance”; Pan and Chi, “Financial Performance and Survival
3. This can be reconceptualized as the resource base of the of Multinational Corporations in China”; Govindarjan and
entrant, relative to indigenous competitors. For work that focuses Gupta, The Quest for Global Dominance.
on this issue, see W. C. Bogner, H. Thomas, and J. McGee, “A 11. Christopher Bartlett and Sumantra Ghoshal, “Going Global:
Longitudinal Study of the Competitive Positions and Entry Lessons from Late Movers,” Harvard Business Review, March–
Paths of European Firms in the U.S. Pharmaceutical Market,” April 2000, pp. 132–45.
Strategic Management Journal 17 (1996), pp. 85–107; D. Collis, 12. This section draws on numerous studies, including C. W. L.
“A Resource-Based Analysis of Global Competition,” Strategic Hill, P. Hwang, and W. C. Kim, “An Eclectic Theory of the
Management Journal 12 (1991), pp. 49–68; S. Tallman, “Strate- Choice of International Entry Mode,” Strategic Management
gic Management Models and Resource-Based Strategies among Journal 11 (1990), pp. 117–28; C. W. L. Hill and W. C. Kim,
MNEs in a Host Market,” Strategic Management Journal 12 “Searching for a Dynamic Theory of the Multinational Enter-
(1991), pp. 69–82. prise: A Transaction Cost Model,” Strategic Management Jour-
4. For a discussion of first-mover advantages, see M. Lieberman nal 9 (Special Issue on Strategy Content, 1988), pp. 93–104;
and D. Montgomery, “First-Mover Advantages,” Strategic Man- E. Anderson and H. Gatignon, “Modes of Foreign Entry:
agement Journal 9 (Summer Special Issue, 1988), pp. 41–58. A Transaction Cost Analysis and Propositions,” Journal of