Opening Case Starbucks: The Internationalization of Coffee House Chains
In 1987, Howard Schultz bought Starbucks with the help of a few investors. The company then consisted of six stores and one roasting plant in Seattle, WA. Today, Starbucks is not only a global brand but also an internationalization success story. Four years after going public, the company began their expansion to Asia. Once Starbucks started internationalizing, it expanded rapidly to many different regions. Starbucks currently operates about 21,000 stores in over 60 countries. The company divides its operations into three regional clusters the Americas; China and Asia-Pacific (CAP); and EMEA (Europe, Middle East, and Africa.) Starbucks entered the neighboring country Canada (Vancouver) as a first step. The motivation to expand to Canada can be explained based on cultural (psychic distance), as well as geographical closeness, using the Uppsala Model and Hofstedes cultural dimensions. Canada is also one of few countries Starbucks entered by wholly-owned stores instead of licensed or franchised stores. Wholly-owned subsidiaries (or stores) have given Starbucks the opportunity to retain full control and full revenues of its business in Canada. After the success in Canada, Starbucks focused expansion in the CAP region, followed by the EMEA region. Starbucks only continued the expansion in the Americas in 2003. In the CAP region, Starbucks started operations in Japan, Singapore, the Philippines, Malaysia, New Zealand, Taiwan and Thailand. A common question raised when looking at Starbucks internationalization process is why the company expanded to Asian countries first instead of staying within the Americas or expanding to other Western countries. At that time, Japan had already been a major importer of coffee. In addition, Japan, was the second largest economy in the world, which benefitted the companys entry. Finally, the Starbucks brand had a status symbol for Japanese youth interested in the American lifestyle. However, since Starbucks had no prior experience in Asian markets, the company entered the majority of the countries in the region via licensing agreements with joint venture (JV) partners. The Asian expansions between 1996 and 1998 can be explained by the Eclectic paradigm or OLI model. Moreover, by utilizing joint venture partners Starbucks built a reliable network of business relationships. While Starbucks successfully extended operations in the CAP region, it also started to expand to the EMEA region. In Europe, the company acquired 65 stores in the UK. Soon after, Starbucks began to internationalize in the Middle East, a culturally and geographically distant region from the U.S. There, Starbucks partnered with Alshaya Retail, a family-owned business from Kuwait. 15 years after the Canadian expansion, Starbucks entered more countries in the Americas region, namely Mexico and Puerto Rico in 2002. (Source: https:// www.starbucks.com/about-us/company-information)
1. How can the OLI paradigm explain the expansion process of Starbucks to the EMEA region? Elaborate.
2. Why did Starbucks wait so long to expand in the Americas? Explain your reasoning.
3. Examine how Starbucks managed Covid19 challenges for its business.
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