Although Starbucks has become an important part of America's coffee culture heritage, the idea for the company came from outside its country of origin. While on a business trip in Milan, Italy, in 1983, Starbucks founder and CEO Howard Schultz noticed the popularity of coffee shops as a community gathering place. He realized that, for Italians, coffee was not so much a beverage as it was a social experience. Schultz decided to replicate this coffee culture in the United States, turning Starbucks into the "third place" consumers would frequent after home and work.
Starbucks opened up its first international store in Vancouver, British Columbia, in 1987. Today, the company is a multinational powerhouse with more than 15,000 stores in 50 countries. Globalization offers many advantages to Starbucks. As the coffee industry becomes increasingly saturated in the United States, international expansion allows Starbucks to take advantage of untapped opportunities in other countries.
However, global expansion has not always been so easy. Starbucks has learned that while it must ensure consistency of quality, it must also customize to adapt to local tastes. For example, in the United Kingdom, Starbucks was not initially popular with British consumers. In response, Starbucks began to renovate its stores to create a unique look so that each store fit into the local neighborhood environment. The company rebounded, and today it has approximately 700 stores in the UK with plans to begin opening franchises in the country.
Starbucks also faces sociocultural barriers in China. The company entered China in 1999 and has since grown to about 550 stores, but what has been particularly challenging for Starbucks is to find a way to get past cultural barriers. In 2007, the company closed its store in the Forbidden City after criticism from the Chinese media.
Due to the backlash from Chinese citizens, Starbucks once again customized its offerings, with more Chinese-inspired food products and coffee-free beverages (Chinese consumers drink an average of three cups of coffee annually). To show support for Chinese business operations, the company opened a coffee farm and processing facilities within the country and reorganized to form a new China and Asia Pacific division.
Starbucks must work to ensure that its Western roots and expansion plans do not clash with Chinese values, since the country offers a highly lucrative market. Sales in the coffee market grew 20 percent in 2011 from the year before. However, while the coffee market is booming, Starbucks has also come across economic barriers. Because operating costs are higher in China, and labor costs are increasing, the price of Starbucks drinks in China is 50 to 75 percent higher than in the United States. This makes it harder for Starbucks to attract China's large population of lower-income consumers, and plans to increase prices to keep up with rising costs have angered middle-income customers.
Starbucks must additionally find a way to overcome these barriers to increase its reach among the Chinese population.
Perhaps one of Starbucks most celebrated successes is its entry into the Indian market. This success is particularly significant due to political barriers for foreign multinationals in India. Until recently, the Indian government mandated that foreign firms could only operate in the country if they created 50,50 joint ventures with domestic firms. The Indian government changed the law to allow companies that only sell one brand of products to develop wholly owned subsidiaries in the country. However, Starbucks opted to create a 50,50 joint venture with Indian firm Tata Global Beverages. Such a joint venture has many advantages, including an easier transition into the Indian market (Tata Global Beverages is part of the largest business group in the country). On the other hand, Starbucks must still contend with socioeconomic and economic barriers. Not only is India more of a tea-driven society, but most domestic coffee companies sell their beverages at a fraction of Starbucks prices in the United States. Becoming affordable enough to attract the average Indian consumer will require changes in Starbucks marketing strategies.
Interestingly, there is one notable country in which Starbucks is absent: Italy. While Starbucks modeled itself after Italian-style coffee shops, major differences between the two coffee cultures might hinder Starbucks acceptance. For instance, the amount of espresso and the proper times to offer cappuccinos (never for breakfast or after heavy meals in Italy) are very different from American coffee-drinking habits. To succeed in Italy may require Starbucks to significantly customize its shops and beverages to appeal to Italian tastes.Questions for Discussion
a. Describe Starbucks global strategy. Is it engaging in more of a globalization or customization approach?
b. What appear to be some of the most significant barriers Starbucks is facing when expanding into foreign countries?
c. What are some of the most significant obstacles to expansion in Italy, and how can Starbucks overcome them?