Through its strong global brand representing the American culture, Starbucks appeared in many countries around the world through the company’s aggressive expansion strategy. While the company has proven its resilience amidst the challenges it faced in different locales, it also felt the strong pressure from the global economic crisis. Now, Starbucks needs to heighten its global expansion strategy amidst the impact of the downsizing in the United States on its global expansion especially in China.
Starbucks considers a number of factors in deciding its expansion. One factor is the size of the potential market (Clark, 2008). As an aggressive player, Starbucks seeks not only to enter new markets but also to dominate these markets. Starbucks first expanded into huge markets such as the UK and France in Western Europe to India and Indonesia in Asia. Just recently, Starbucks also expanded into China because of its large potential market. Another factor is barriers to entry relative to the expected returns (Clark, 2008).
As a strong American brand, Starbucks considers how it can introduce and integrate this brand into the local culture. The company is flexible in its ownership or operating structures for different markets to achieve acceptance by consumers (Haoting, 2009). Starbucks needs to provide products and services as served in the United States and patronized by the local culture while at the same time accommodating cultural norms.
In China, expansion into the country also necessitated consideration of the means to introduce a high-end or premium American brand into this culturally solid country that is just starting to learn about other cultures. Starbucks established a coffeehouse in Beijing in 1999 and since then the number of branches in main cities is increasing (Haoting, 2009) mainly due to the company’s efforts to integrate its brand into the local culture.
In the expansion of Starbucks into China, the Chinese government plays an important role. Government regulation is strong (Adamy, 2006; “Starbucks and China”, 2007) that Starbucks needs to obtain government approval in implementing an in-store payment card or in importing certain flavoring such as white-chocolate or flavoring.
These restrictions limit the flexibility of Starbucks in operating in China. To mediate this problem, Starbucks hired locals as executives for its operations in China to help the company navigate through the intricacies of the Chinese bureaucracy (Adamy, 2006). By doing so, Starbucks can focus on the market. Read about Starbucks HR strategy
Starbucks engages in a number of entry strategies to suit the market. In China, Starbucks needed to be creative. One of its entry strategies is to introduce Starbucks as a premium brand (Clark, 2008) to differentiate it from direct competitors in the coffee industry and local competitors. As such, Starbucks has drawn young people as its primary market in China. Another strategy is to adapt to the local culture to an extent that does not significantly alter the brand that Starbucks maintains globally.
Instead of focusing on the coffee, the thrust of Starbucks marketing in China is to highlight the coffeehouse as a location for gatherings since food and beverage shops in China address this purpose (Adamy, 2006). Still another strategy is the engagement in local causes to gain the acceptance of the local communities such as by sponsoring educational programs as part of its corporate social responsibility (Starbucks, 2009). Overall, the entry strategy to Starbucks in China is to negotiate the acceptance of its brand by winning the local community and coming in strong by distinguishing its brand.
The strategic choice of Starbucks has always been balancing the integrity of its global brand and accommodating local contexts. In China, Starbucks succeeded in gaining government approval to establish a branch in the Forbidden City and in the great wall.
However, Starbucks closed its branch in the Forbidden City following a change in policy requiring all shops within the city to fall under the management of city administrators (“Starbucks and China”, 2007). Starbucks objected because the company wants direct management of its branches in China, in recognition of the growth potential of the market and its key role in global expansion.
Following the downsizing in the United States (Waite, 2008) Starbucks is relying on global expansion more than ever to offset this setback. With the market saturation in the United States and the recession, Starbucks needs to boost its international growth, which means it has to develop its foreign markets. Moreover, Starbucks also needs to continue finding cost-effective sources of coffee beans and other raw products.
Now, Starbucks is building China not only as a market but also as a source of coffee beans. The company is working to find locations and means of expanding branches in China as well as overseeing the production of raw coffee beans in China to ensure that this can meet a volume needed for its international operations (‘Starbucks in China”, 2007). Many executives from the United States moved to China to manage its expansion.
The global economic crisis and the downsizing of the company in the United States heightened the importance of its global expansion, especially in China. Starbucks has concentrated its efforts in developing China not only as a market but also as a source of raw products needed in its global operations. With too much at stake, Starbucks needs to master or perfect its expansion strategy in China to achieve its goal of making the market possibly a new base for its global operations.
Adamy, J. (2006). Starbucks bets on China’s new social mobility. Pittsburgh Post-Gazette. Retrieved August 4, 2009, from http://www.post-gazette.com/pg/06333/742121-82.stm#ixzz0NCRqpiGO
Clark, T. (2008). How Starbucks colonized the world. Times Online. Retrieved August 4, 2009, from http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article3381092.ece.
Haoting, L. (2009). Starbucks pushes China sales with local brew. China Daily. Retrieved August 4, 2009, from http://www.chinadaily.com.cn/bizchina/2009-02/05/content_7447136.htm.
Starbucks. (2009) China education project. Retrieved August 4, 2009, from http://www.starbucks.com/aboutus/chinaeducationproject.asp.
Starbucks and China. (2007). Economist.com. Retrieved August 4, 2009, from http://www.economist.com/displaystory.cfm?story_id=9498776.
Starbucks in China. (2007). New York Post. Retrieved August 4, 2009, from http://www.nypost.com/seven/09052007/business/starbucks_in_china.htm.
Waite, A. (2008). Starbucks to lay off 12,000 workers. Retrieved August 4, 2009, from http://www.internalcommshub.com/open/news/starbucks08.us.shtml.