What Is Starbucks' Approach to Entering International Markets? What Are the Pros and Cons of This Approach?

What is Starbucks' approach to entering international markets? What are the pros and cons of this approach?

Joint ventures

In general Starbucks has been using joint ventures as a way of entering new international markets. The beauty of joint ventures is that it allows for technology sharing and joint product development. Another main advantage of joint ventures is to get proper political connections that will allow for favours to be achieved. Joint ventures also are suitable for Starbucks since it allows the company to use its financial resources to eject in the partners and develop stores which are suitable, standardized ensuring that quality and brand is not compromised. This gives Starbucks the much required control of the stores in terms of product development and management. Through keeping each one of the stores corporately owned by the company, Starbucks can easily control and also monitor all locations ad operations thus make sure that high employee relations and good customer service is consistent all through. (Hollensen, 2004)

Disadvantages

The disadvantage of this market entry strategy is that it shifts the financial risk from the individual to the corporation. Thus holding up more financial resources the Starbucks would have used to open up more stores, not forgetting that the financial risk is squarely placed on the corporation. Another shortcoming is that joint ventures require a lot of market research and development expenses since Starbucks do not have enough information of the new markets. But supposing the company use market strategy such as franchising such cost could be saved. (Kamm, et al, 2004)

Joint ventures typically entail forming a new corporate entity owned by the partners, whereas strategic partnerships represent a collaborative arrangement that usually can terminated whenever any one of the partners so chooses. In recent years, strategic alliances have replaced joint ventures as the favoured mechanism for joining forces to pursue strategically important diversification opportunities because they can readily accommodate multiple partners and more flexible and adaptable to rapidly changing technological and market conditions than a formal joint venture. (Thompson and Strickland 2003, 311). Obviously, that's the reason why Starbucks only had two joint ventures and a number of alliances. I will go to evaluate the strategies in the following paragraph.

Till now Starbucks had two non-retail domestic 50-50 joint ventures. One is the North American Coffee Partnership, a joint venture with the Pepsi-Cola Company in 1994, a division of PepsiCo, Inc., develops and distributes ready-to-drink coffee-based products. By the end of fiscal 2001, the joint venture was distributing bottled Frappuccino coffee drink to approximately 200,000 supermarkets, convenience and drug stores and other locations throughout the United States and Canada. Howard Schultz who is the CEO of Starbuck saw this as a major paradigm shift with the potential to cause Starbucks business to evolve in heretofore unimaginable directions; he thought it was time to look for ways to move Starbucks out into more mainstream markets (Starbucks 2000, 122). In this case Starbucks is using Pepsi-cola company's exist distribution channels to sell ready-to-go coffee drink in the U.S market, that's a advantage for Starbucks entry into a foreign market with low cost and reduced the risk in operation.

The other one is the joint venture with Dreyer's Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. By the end of fiscal 2001, the joint venture was distributing a variety of ice cream and novelty products to over 20,000 supermarkets throughout the United States. With the effort to cooperate with Dreyer, by July in 2000, Starbucks coffee-flavoured ice cream was the top-selling super premium brand in the coffee segment.

Joint venture is one kind of favourite and potentially fruitful means for entering a foreign market. But if a company decides to have joint venture they need to pick good partner, being sensitive to culture differences and recognize that the joint venture must benefit both sides. Starbucks had the fail experience,

The joint venture with the Pepsi-Cola Company, the first new product, Mazagran, a lightly flavoured carbonated coffee drink, was a failure; when test- marketed in southern California, some consumers liked it and some hated it. While people were willing to try it the first time, partly because the Starbucks name was on the label repeat sales proved disappointing.

But after that, two partners held together develop a bottled version of Frappuccino which is proved to be a big hot-weather seller. After months of experimentation, the joint venture product research team came up with a shelf-stable version of Frappuccino that tasted quite good. It was tested in West Coast supermarkets in the summer of 1996; the response was overwhelming, with sales running 10 times over projections and 70 percent repeat business. In September 1996, the partnership invested in three bottling facilities to make Frappuccino, with plans to begin wider distribution. Sales of Frappuccino reached $125 million in 1997 and achieved national supermarket penetration of 80 percent. Sales were projected to reach $500 million in 1998; Starbucks management believed that the market for Frappuccino would ultimately exceed $1 billion. This is a example that joint venture need to cooperate and do best for each other in order to make huge success.

Strategic alliances:

Starbucks also use the strategic alliances compete in the global market. For instance, the company had