Starbucks - Going Global Fast

CASE: Starbucks- Going Global Fast

Summery

Starbucks is one of the largest chains of coffee shops in the world. They started their business in the early 80s as a tiny chain of Seattle coffee shops, grew rapidly in the 90s and now own 5,689 coffee shops in 28 countries. This chain of coffee shops is very well managed by a well seasoned management team popularly known as H2O, because of Howard Schultz (Chairman and Chief Global Strategist), Howard Behar ( Head of North American Operations), and Orion Smith (CEO).

Although, the company has expanded enormously, since it went public in 1991 but has also encountered a number of problems. The problem it faced had it mounted in home and abroad. The company had its success through the baby boomers in the 90s, but now the Generation X is not liking the environment of the shop and the young generation feel out of place in the coffee shop, above all the price of coffee seems to be little expensive to them.

The starbucks did not have much competition like Mc Donald's and the likes in the initial days but now they have competitors such as Tully's coffee shop. They also had problems of employees' discontentment. The expensive and aggressive marketing strategy has given starbucks market dominancy. They earn $181.2 million in the year 2000, sales were still growing but it started growing in a decreasing rate, because their aggressive strategy and attitude towards competitors not only they grew rivalry with local business people but they lost customer. It was difficult for them to maintain their growth of 20% only on domestic market. So, they opted for going overseas. They maintain some aggressive attitude in other countries also. The largest overseas market of starbucks was in Japan when they had 368 shops, UK was their second largest overseas market, and by the end of 2001 they started operation in the Middle East. They want to have 10,000 outlets abroad by next three years. In the domestic market they repositioned themselves adding internet service, fast food etc. to maintain their profit. In Japan their profit started declining during 2001.

The starbucks need readjust their strategies and reposition them to rise from the fall.

Answer of the Question

Question No.1. Identify the controllable and uncontrollable elements that starbucks has encountered in entering global market.

Answer: The controllable and uncontrollable elements that starbucks has encountered in different markets are described and given in tabular form below:

Name of the country

Elements

Controllable Uncontrollable

(Foreign Environment)

Japan i. Competition among rival shops in Japan.

ii. Economic depression.

France i. Political and legal bindings. (France's arcane regulations and generous labor benefits).

Italy Price (Italian coffee bars prosper by serving food as well as coffee, an area where starbucks still struggles. Also Italian coffee is cheaper than US java say, Italian purists, much better. Americans pay about &1.5 for an espresso, on the other hand northern Italy the price is 67 cents, in the south just 55 cents.

Vienna Culture (young are always enthusiastic about new and they embrace the new. So, starbucks will get positive advantages in expanding their business in Vienna compared to existing coffee shops there).

Question No.2. What are the major sources of risk facing the company and discuss the potential solutions?

Answer: Basically Starbucks faced three major risks at domestic region. On of which was saturated market condition (USA). Fifteen years ago they initially started with 17 coffee shops in Seattle and 5,689 outlets in 28 countries. Now, amazingly 4,247 stores scattered across the United State and Canada. In Seattle there is outlet for every 9,400 people. And the company considers that the upper limit of coffee shop saturation.

Another risk is loosing customers, because fewer options are available for the customer.

And third risk is less but not the least the young generation (Generation X) feels comfortable.

Global expansion poses huge risks for