Starbucks Internationalization, Essay Example for You to Check

Published: 2022-04-20
Starbucks Internationalization, Essay Example for You to Check
Type of paper:  Essay
Categories:  Starbucks International business
Pages: 7
Wordcount: 1701 words
15 min read

Starbucks international company today enjoys markets in over nineteen thousand stores in sixty-one countries producing and selling coffee products. Starbucks' major markets include the United States, Europe, and Japan, even though sales dropped significantly in the early twenty-first century due to an economic recession, reports in the media about the negative effects of coffee on people's health and unfavorable demand and supply systems (Knight & Liesch, 2016, p.95). The company has encountered many challenges and barriers in its internationalization processes but has skillfully thrived through identifying its drivers and utilizing them to survive market barriers. The global organization accrues its success from relating to internationalization theories.

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Starbucks Internationalization Process

Starbucks increases the involvement of its global operations through exports, franchising, licensing agreements with other companies, exports, manufacturing, contracts, joint ventures and numerous subsidiaries. In many occasions, Starbucks Company also expands its services and operations through its many stores like the ones in the UK. Starbucks rapid expansion into the coffee industry also attributes to the network of profitable relationships with local partners in the many host countries than the company has a branch and chain stores (Rask, 2014, p.152). Starbucks strategically selects reliable partners with sufficient market presence and an upper hand in the field of expertise. Factors such as successful diffusion of the products and favorable local economic incentives are part of the process too.

America, Asia, and the Middle East countries are the primary licensed regions for Starbucks and contribute to trillions of US dollars' worth of revenue. Advantages of international licensing for the business include relatively low financial risks for Starbucks and the opportunity to study sales potentials of new markets without using financial and managerial inputs (Bouncken, Schuessler & Kraus, 2015, p.40). However, the process limits market opportunities for the two parties bound by the license agreement depending on the wording and memorandum of understanding signed. The licensor may lose control of assets and know-how to competitors since the licensee gains much power.

Franchising as another internationalization process of the Starbucks Company involves payment of royalty rights and fees by the franchise to the franchiser. Patents and trademarks are usually the primary concerns of the business know-how in the entry mode. Starbucks enjoys the advantage of not bearing developmental costs or any financial risks related to foreign markets (Hansen, Jensen, & Petersen, 2016, p.223). Thus, the company explores the coffee market as it deems fit due to low operational costs and few or no threats. Abiding by the strict rules and control of the franchise acts as the only disadvantage of the process.

Joint ventures agree on modes of operation before conquering new markets. For instance, the two companies decide to deal with only high-quality products for their consumers, together they exploit developments and trends in the business, and accept total commitments and responsibilities to the values of the business. Most joint ventures operate on equal capacities and to deal with stiff competitors in the market like nestle and Nescafe (Rask, 2014, p.151). The primary focus of joint ventures is to increase coffee-sourcing transactions and stores in a bid to penetrate further into international markets. Firms involved in a joint venture share costs of production, benefits and any arising risks.

Subsidiary processes allow Starbucks Company to own more significant shares of the overseas entities. For instance, wholly-owned-subsidiaries imply that the company enjoys one hundred percent of the foreign entity. Starbucks manages its subsidiaries through either Greenfield venture or acquisition of another firm in an international market. The company enjoys full rights to know-how and control, which in return helps Starbuck to maintain its competitive advantages. Additionally, the globalized firm enjoys large profit margins if not all as well as understanding the local economy in controlling marketing, demand and supplies curves (Rua, Franca & Ortiz, 2018, p. 20). Disadvantages of the process include high operational and investment costs while bearing all the risks associated with the foreign culture alone.

Drivers of Internationalization and Barriers It Overcame

As a fast-growing global company, Starbucks draws its strength from various market drivers to achieve such success as far as the coffee industry is concerned. The company works under general principles in their daily operations, well-established procedures for global expansion and trade, resource, and institution-based view motives. Starbuck maximizes on the use of technological innovations for sustainability in the competitive market (Knight & Liesch, 2016, p.96). Relying on local partners in foreign markets as well as successful diffusion of Starbucks brand into local economic incentives.

Starbucks global company adheres to its laid down procedures to expand its markets. Such methods include carrying out rigorous quantitate studies about the market they identify opportunities. The local partners in the host countries also act as the business leaders in that region so that they can give the company first-hand information regarding the state of the market, risks involved and legal frameworks (Hansen, et all, 2016, p.223). Lastly, the company works together with the local partners in adapting culture, language, political and environmental requirements of the local markets.

The institution, industry and resource views also form some of the drivers of Starbucks firm to expand their market. The institution follows its objectives to maximize the value of shares by finding and utilizing avenues that may increase the company's profitability and rate of growth. On the other hand, the industry targets nations with real potentials with regards to the population and their financial capability, particularly those with disposable incomes (Rask, 2014, p.150). When it comes to resources, Starbucks only deals with high-quality products achieved through the efforts of efficient farmers, workers, and communities who ensure constant upgrading on supply chains to meet consumer needs and expectations.

The company's success is driven by some basic principles that guide the market behavior and operations of the company. For example, the company is always dedicated to producing the best coffee products made from the best coffee beans, roasted carefully and ethically to improve the well-being of both the consumers and producers (AlAali & Teece, 2014, p.99). The company also values its partners and customers as their critical assets by maintaining close connections. Standardization and adaptation to all other issues is never an option for the company. Lastly, Starbucks rewards both its neighbors and shareholders by abiding by the environmental regulations and increasing dividends respectively.

Starbucks international business firm suffers both external factors and internal factors that surmount into barriers the firm overcomes from time to time. The external aspects include cultural distance, low market potential, the intensity of competitors and market barriers. Problems of managing risk attitudes, speed, firm size and mastering the trends and characteristics of new business environments form the internal barriers (Rua, et all, 2018, p. 25). Complex legal, political and environmental factors form some of the barriers the company deals with every time especially when venturing into new markets overseas.

Market barriers mostly include tariffs, international government regulations, access to distribution and natural obstacles among others. Sometimes Starbucks brand faces a lot of competition in foreign markets which leads to even changing the entry mode or completely closing down a store. Starbuck studies the market potentials and cultural practices of new entries carefully before deciding on the internationalization process to best tap the potential (Rask, 2014, p.148). The company works closely with the fair-trade movements within every country they have branches to receive accreditation which boosts their brand image and protects it from issues like product boycotts, criticism from non-governmental organizations, economic recessions and possible resistance from consumers to international firms.

Managing risk attitudes is always a constant concern that the company takes time to evaluate its options before settling on the precise internationalization process. The organization maximizes its involvement in all processes and operations to beat any barriers the company may face, including the use of technology and innovations in meeting customer satisfaction. Speed factor works as the advantage of Starbucks for it seizes market opportunities as soon as they arise before the entrance of competitors (Knight & Liesch, 2016, p.97). The firm overcomes obstacles by investing correctly on the necessary resources with regards to the size of the business and its environment in new countries.

Starbucks Relation to Internationalization Theories

The company's mode of operation is always in line with the internationalization theories of transaction cost theory, network model and Uppsala model. Starbucks in its expansion processes critically analyzes the impacts of resources, strategies, and structure to help them in conquering and adapting to foreign environments despite barriers such as culture and language. The company integrates many activities to identify multinationalism business ideas. Theories of internationalization assist global firms like Starbucks in dealing with the complications involved in attaining new markets in other countries (Hansen, et all, 2016, p.223). The approaches help firms to understand market risks and the value of investments and have competitive advantages.

Starbucks firms use the Uppsala model theory to learn evolutionary viewpoints of the coffee market across the globe. The company understands its behavior, the market and consumer behaviors towards the brand. Local partners in host countries play an essential role in informing the company of the customers' behavior and attitude, the environmental, political and social aspects and attitude surrounding the coffee brands (AlAali & Teece, 2014, p.968). It is always from the knowledge and information of the local partners, loyal customers, farmers and research conducted by the company's employees that Starbucks establishes the behavioral theory. Once the Uppsala theory is applied to other factors too, the company grabs the opportunity to conduct business in foreign markets.

The application of the Uppsala theory grants success to the establishment of new markets by eliminating possible barriers to business practices and industrial development. Such barriers tend to hinder the smooth flow of information between markets. Starbucks Company relates to the Uppsala theory in the way that it plans on establishing various strategies to use in conquering new markets (Rask, 2014, p.149). For instance, the company employs three language patterns where the language barrier is a significant hindrance to quick penetration into new entities. The strategies and plans are always carefully selected to suit the country's sensitive aspects of religion.

The use of Uppsala model helps the global company to gain both the general and experimental knowledge of the coffee industry. General knowledge is achieved through intensive research the company conducts before venturing into new markets outside the U...

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