PLEASE READ CASE BELOW AND ANSWER FOLLOWING QUESTIONS:

QUESTION 1: Why did Starbucks enter Japan and China via a JV (joint venture) rather than as WOS (wholly owned subsidiaries)? What are the benefits and cost of this approach?

QUESTION 2: Do you think that its model was successfully transferred to Japan? Why was this important to the company?

QUESTION 3: Why did Starbucks change its strategy in China and Japan from a JV to a WOS model? What is the company hoping to achieve with this strategy?

Forty years ago, Starbucks was a single store in Seattles Pike Place Market selling premium-roasted coffee. Today, it is a global roaster and retailer of coffee, with more than 28,000 stores in 76 countries. Starbucks set out on its current course in the 1980s when the companys director of marketing, Howard Schultz, came back from a trip to Italy enchanted with the Italian coffeehouse experience. Schultz, who later became CEO, persuaded the companys owners to experiment with the coffeehouse formatand the Starbucks experience was born. The strategy was to sell the companys own premium roasted coffee and freshly brewed espresso-style coffee beverages, along with a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting. From the outset, the company focused on selling a third-place experience, rather than just the coffee. The formula led to spectacular success in the United States, where Starbucks went from obscurity to one of the best-known brands in the country in a decade. Thanks to Starbucks, coffee stores became places for relaxation, chatting with friends, reading the newspaper, holding business meetings, or (more recently) browsing the web.

In 1995, with 700 stores across the United States, Starbucks began exploring foreign opportunities. The first target market was Japan. The company established a joint venture with a local retailer, Sazaby Inc. Each company held a 50 percent stake in the venture: Starbucks Coffee of Japan. Starbucks initially invested $10 million in this venture, its first foreign direct investment. The Starbucks format was then licensed to the venture, which was charged with taking over responsibility for growing Starbucks presence in Japan.

To make sure the Japanese operations replicated the Starbucks experience in North America, Starbucks transferred some employees to the Japanese operation. The joint venture agreement required all Japanese store managers and employees to attend training classes similar to those given to U.S. employees. The agreement also required that stores adhere to the design parameters established in the United States. In 2001, the company introduced a stock option plan for all Japanese employees, making it the first company in Japan to do so. Skeptics doubted that Starbucks would be able to replicate its North American success overseas, but by the end of 2018 Starbucks had some 1,286 stores and a profitable business in Japan. Along the way, in 2015, Starbucks acquired Starbucks Coffee of Japan, making the stores wholly owned as opposed to licensed.

After Japan, the company embarked on an aggressive foreign investment program. In 1998, it purchased Seattle Coffee, a British coffee chain with 60 retail stores, for $84 million. An American couple, originally from Seattle, had started Seattle Coffee with the intention of establishing a Starbucks-like chain in Britain. By 2018, Starbucks had almost 1,000 stores in the UK.

In the late 1990s, Starbucks also opened stores in Taiwan, China, Singapore, Thailand, New Zealand, South Korea, and Malaysia. In Asia, Starbucks most common strategy was to license its format to a local operator or joint venture partner in return for initial licensing fees and royalties on store revenues. As in Japan, Starbucks insisted on an intensive employee-training program and strict specifications regarding the format and layout of the store.

China has developed into Starbucks fastest-growing market and is now second only to the United States in terms of store count and revenues. Although China has historically been a nation of tea drinkers, the third-place coffee culture pioneered by Starbucks has gained significant traction in the nations large cities where wealthy and middle-class customers will pay $5 for a cup of coffee. As with many other nations, Starbucks originally entered China by setting up a joint venture with a local company and licensing its format to that entity. That changed in 2018 when Starbucks bought out its East China venture partner in order to attain greater control over its growth strategy. According to Belinda Wong, CEO of Starbucks China operations, Full ownership will give us the opportunity to fully leverage the companys robust business infrastructure to deliver an elevated coffee, in-store third place experience and digital innovation to our customers, and further strengthen the career development opportunities for our people.* The company now aims to have 6,000 wholly owned stores in China by the end of 2022, up from 3,500 at the end of fiscal 2018.