The international business strategy of starbucks from 2013 to 2023

Under the influence of various factors such as globalization, the development of technology, trade and military wars, etc., the international marketplace has experienced significant changes in all of its dimensions, which requires multinational corporations to implement an appropriate competitive strategy to survive and prevail in the global market. It is necessary for transnational organizations to lower the pressure for cost reduction and customize its products to serve customers with a diversity of cultures, preferences and lifestyles. Reality has shown that thousands of businesses had to exit the market due to their failure in defining a suitable strategy, but there are also a large number of companies that have successfully made a strong impression on the minds and hearts of their customers, producing huge revenues and benefits for the firms. One of such companies is Starbucks, an American multinational chain of coffeehouses and roastery reserves. After more than 50 years of formation and development, despite countless significant challenges, Starbucks still manages to maintain its reputation and continuously develop in the FB competitive industry. With a desire to gain profound insights into the international business strategy, our group decided to choose the topic “The international business strategy of Starbucks from 2013 to 2023”. The report is structured as follows:

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS MID-TERM REPORT THE INTERNATIONAL BUSINESS STRATEGY OF STARBUCKS FROM 2000 TO 2023 Lecturer: Ph.D Nguyen Hong Hanh Class: KDOE307 Group: Ha Noi, June 2023 TABLE OF CONTENT INTRODUCTION CHAPTER 1: OVERVIEW OF STARBUCKS 1.1 The origin and development of Starbucks .4 1.2 Missions, visions and goals of Starbucks 1.3 Product portfolio CHAPTER 2: THE INTERNATIONAL BUSINESS STRATEGY OF STARBUCKS .6 2.1 The international business strategy of Starbucks according to value chain theory 2.2 Reasons for choosing the transnational strategy of Starbucks .12 2.2.1 The characteristics of the business - VRIO model 12 2.2.2 The characteristics of the market 15 2.3 Evaluation of the implementation of the transnational strategy of Starbucks 17 CHAPTER 3: THE IMPLEMENTATION OF THE BUSINESS STRATEGY OF STARBUCKS IN SOME NATIONS 21 3.1 The business strategy Starbucks adapting in China .21 3.2 The business strategy Starbucks adapting in Italy .22 CONCLUSTION 23 REFERENCE 24 INTRODUCTION Under the influence of various factors such as globalization, the development of technology, trade and military wars, etc., the international marketplace has experienced significant changes in all of its dimensions, which requires multinational corporations to implement an appropriate competitive strategy to survive and prevail in the global market It is necessary for transnational organizations to lower the pressure for cost reduction and customize its products to serve customers with a diversity of cultures, preferences and lifestyles Reality has shown that thousands of businesses had to exit the market due to their failure in defining a suitable strategy, but there are also a large number of companies that have successfully made a strong impression on the minds and hearts of their customers, producing huge revenues and benefits for the firms One of such companies is Starbucks, an American multinational chain of coffeehouses and roastery reserves After more than 50 years of formation and development, despite countless significant challenges, Starbucks still manages to maintain its reputation and continuously develop in the F&B competitive industry With a desire to gain profound insights into the international business strategy, our group decided to choose the topic “The international business strategy of Starbucks from 2013 to 2023” The report is structured as follows: Chapter 1: Overview of Starbucks Chapter 2: The international business strategy of Starbucks Chapter 3: The implementation of the international business strategy of Starbucks in other nations CHAPTER 1: OVERVIEW OF STARBUCKS 1.1 The origin and development of Starbucks Starbucks opened its first store in 1971 on the site of Seattle’s historic Pike Place Market In the early days, Starbucks simply provided fresh-roasted coffee beans, tea and spices from around the world to its customers By 1983, Starbucks’ decisions to change into a coffee house marked a huge success for this company From a humble beginning, Starbucks rapidly grew to a total of six stores in the Seattle area by 1986 Starbucks quickly expanded to Chicago and Vancouver, Canada and then on to California, Washington D.C and New York Merely years later, in 1989, there were 46 Starbucks locations across the Western of the United States and Canada The figures steadily rose every year which emphasized Starbucks' rise to prominence The introduction of Starbucks to the global coffee market in 1996 is seen as a memorable milestone In that year, Starbucks launched its first location in Japan, and soon after that it penetrated the European and the Chinese market in 1998 and 1999, respectively In the early 2000s, Starbucks started acquiring other coffee businesses to expand its market and means of production By April 2003, Peet's Coffee, Torrefazione Italia, and Seattle's Best Coffee were all acquired by Starbucks Today, Starbucks is the largest coffeehouse chain in the world As of September 2020, there were 32,660 Starbucks locations around the globe and it reached a tremendous revenue of roughly 2.3 billion US dollars Starbucks’ growth over time indicates how powerful they are in the coffee industry In the next decade, Starbucks is targeting 55,000 locations worldwide, which is believed to be feasible 1.2 Missions, visions and goals of Starbucks During the 1970s, as a coffee bean roaster, Starbucks initially identified its mission as becoming “the premier purveyor of the finest coffee in the world” However, after Howard Schultz bought the company in 1987, Starbucks changed into a coffee shop as today Since then, the company has focused on making Starbucks be the “third place” where customers can visit on the way to work or back home Starbucks aimed to make itself a “third place” where people can come to savor the best coffee and temporarily forget their work and life pressures It was the idea of “third place” that created a new mission statement for Starbucks today: “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Starbucks’ mission does not lie solely on providing a cup of exceptional drink but creating a warm atmosphere and high-quality service for the customers Through practical experience and careful market research, Starbucks believes that constantly improving the quality of customer service will be the right way to fulfill their mission 1.3 Product portfolio Initially, Starbucks provided coffee as its main product Starbucks stated that their coffee is selected from ethical resources and at the best quality Coffee at Starbuck is divided into different categories, ensuring it can satisfy the diverse tastes of coffee lovers around the world ● Based on coffee beans: whole coffee, ground coffee ● Based on the caffeine level: regular coffee (caffein), and decaffeinated coffee ● Based on the roasting: Blonde roasts, medium roasts, dark roasts To increase its competitiveness, Starbucks continuously introduced new product lines over the years Today, Starbucks offers a wide range of products including coffee, tea, pastries, Frappuccino drinks, smoothies and even some types of food Besides drinks that are made in-store, Starbucks also provides ready-to-drink products as well as coffee capsules for those who want to enjoy a good cup of coffee at home In addition to the products sold throughout the year, Starbucks continues to refresh its products and product lines with seasonal products, limited edition products and festive products CHAPTER 2: THE INTERNATIONAL BUSINESS STRATEGY OF STARBUCKS 2.1 The international business strategy of Starbucks according to value chain theory Primary activities Inbound logistics: Starbucks inbound logistics are standardized as a single, global logistics system It involves sourcing coffee bean products directly from diverse producers in Latin America, Africa and Asia (Lee et al., 2007) To ensure consistency in taste, Starbucks tries to be quite selective of its suppliers, and follows Coffee and Farmer Equity (C.A.F.E.) Practices as a set of standards to select their suppliers and high-grade coffee beans (Macdonald, 2007) They also develop strategic relationships with producers and build up an efficient supply chain management system The green or unroasted beans are generally transported by ships to six storage sites (roasting plants) in the United States and Europe (Starbucks, 2020) Simultaneously, the organization utilizes a localization strategy by obtaining some components from nearby suppliers to appeal to local tastes and preferences, such as in China, Starbucks sources Zen Rhythm Oolong Tea which is highly revered By optimizing its inbound logistics in this manner, Starbucks maintains consistency and superiority while adjusting for specific markets Figure 1: The logistics of Starbucks (Source: Sourcemap) Operations: When it comes to processing and manufacturing of coffee Starbucks developed a highly centralized system that enables them to streamline logistic operations across continents Starbucks has six roasting centers where the beans are prepared, manufactured, and packaged in the exact same way and quickly through a series of well-designed manufacturing processes (Boyer, 2013) Outbound logistics: The outbound logistics of Starbucks follows an uniform procedure The finished products are trucked to regional distribution centers or smaller warehouses located in the United States, Canada, Europe and Asia/ Pacific The distribution centers combine the coffee with the other items, such as dairy products, baked goods, cups and napkins, to make frequent deliveries via dedicated truck fleets to Starbucks' own retail stores and to retail outlets that sell Starbucks-branded products (Cooke, 2020) Besides physical stores, Starbucks also takes advantage of E-commerce by selling a small number of products online at starbucksstore.com to customers all around the world (Turban et al., 2015) There is very little or no presence of intermediaries in product selling as the majority of the products are sold in their own or licensed stores Marketing and Sales: Starbucks invests more in superior quality products and a high level of customer service and in-store experience than in aggressive marketing Marketing strategies are generally localized and differ from country to country, which generally rely on customer loyalty and word of mouth or the ethical considerations of the company along with involvement in the community In terms of product, Starbucks adapted its products to work for each market rather than simply transplanting the American model For instance, in China, it served local brews like green tea, soy along with green tea tiramisu and Chinese moon cakes (Svensson, 2001) Limited edition themed cups are also launched every year, such as the Constellation Mug, Cat Paw Mug, Mid-Autumn Rabbit Mug, etc., which integrated Starbucks into the Chinese style (Liu, 2022) Turkish coffee was served in Turkey while the freshly prepared orange juice in Spain In India, products of this brand were Indianized quite a lot like Alphonso Frappuccino, which one would not find in the USA In India, they served foods like “Murg Kathi wrap,” “Chicken Makhani” and “Teavana” line of tea beverages including mocha, espresso fusion Black tea with ruby grapefruit and honey was on the menu as also the iced green tea with aloe and prickly pear flavors (Gupta et al., 2018) Though there are differences in products offered in various countries, customers around the world can also order rare and exquisite coffee that is only available in some certain markets (Turban et al., 2015) Not only making adjustments in main products, Starbucks also makes adaptations in its store design Generally, their stores are positioned in high-visibility and hightraffic locations This approach is evident in the Shanghai Lippo Plaza Store and Piazza Montecitorio branch of Starbucks, both situated in bustling areas of China and Italy respectively By leveraging these prime spots, Starbucks maximizes its value proposition to customers worldwide However, the corporation executes a localization tactic by diversifying its store's size and structure to position them in various environments including urban and suburban commercial hubs, university premises, office complexes as well as selectively situated rural or off high way areas For example, the high roofs, local courtyard style layout and sliding doors were unique to Chinese outlets Inside the Qianmen store of Starbucks in Beijing, a strong Chinese culture is conveyed, such as traditional and elegant window panes, dark Chinese tables and chairs, antique mugs and postcards While in China or Mexico, people tend to visit Starbucks in groups and expect a group kind of seating; therefore, Starbucks’ store designers preferred to offer individual seats or stools which could be dragged around near the table It created a lounge kind of feel by sitting in closer groups Regarding the price, Starbucks uses strategic pricing to differentiate itself and strengthen its premium reputation It also applies price discrimination, given the fact that the prices of Starbucks products vary in different countries Research has found out about the different price of a tall latte in countries Per their findings, the most expensive Tall Latte (12 oz) in the world can be found in Switzerland for $7.17 On the other hand, the same drink can be bought for a little over a dollar in Turkey (Bonnie, 2022) The factors affecting the pricing of Starbucks can depend on various factors such as the brand positioning in a market, production cost, etc Figure 2: The price of Starbucks tall latte in every country About the promotion, with more than 32,000 stores globally, promotion does not happen through television or radio, but rather through word of mouth, location in various parts of the city, and their online presence Looking at promotion on social media, on a global scale, Starbucks is active on the Web and is keen on building up its online community, as evidenced by accounts on Twitter, Facebook, and YouTube It also built up its own online communities like My Starbucks Idea (mystarbucksidea.force.com) for collecting ideas to improve their products and service, and Starbucks V2V (www.v2v.net/starbucks) for getting people together to volunteer for community work Starbucks boosts several marketing communications on Twitter (Taecharungroj, 2016) An effective social media marketing campaign can include the campaign: "Tweet-a-coffee" for customers to send the thoughtful gift of Starbucks coffee by tweeting to @tweetacoffee and the Twitter handle of the gift recipient, which has increased the brand awareness of this famous coffee company (Starbucks, 2013) However, digital marketing is also distinctive in some markets For example, in China, Starbucks entered the WeChat platform and launched the WeChat mini program in 2016 (Starbucks, 2016) enabling users to view the digital menu, place orders for delivery, search for the nearest Starbucks stores and get rewards In 2017, Starbucks launched “Say it with Starbucks” on WeChat allowing users to choose from a wide range of Starbucks gifts to express friendship and love instantly These gifts and wishes will be stored in each other’s WeChat accounts and can be redeemed at any time in Starbucks stores to enjoy a warm and unique Starbucks experience (Starbucks, 2017) In markets where coffee is not a culture, Starbucks also devoted substantial time and resources to educating consumers about coffee For example, when the grand  Successful human capital management coupled with great corporate culture translates into supreme customer service Wide range of products with high quality  Offer coffee, handcrafted beverages, merchandise and fresh food Yes Yes Yes Yes Sustainable competitive advantage Yes Temporary competitive advantage Yes Sustainable competitive advantage Yes Temporary competitive advantage  Proprietary recipes with appealing and innovative designs Leveraging Technology and Mobile Outlets  Starbucks Apps on iOS and Android Yes Yes No  Investment in technology Customer Loyalty  Loyalty-based programs like Starbucks Rewards and Starbucks Card drive loyalty  Starbucks Card is a value card program that provides convenience, support gifting, and increases the frequency of store visits by cardholders Yes Yes Yes Good Corporate Social Responsibility Image  Their stores are community friendly, focused on recycling and reducing waste Yes Yes No  They build goodwill among communities they operate in  Strong Social Responsibility Initiatives undertaken: Coffee and Farmer Equity Practices, Starbucks Foundation, By adopting the transnational strategy: ➢ Exploiting Resources and Capabilities: Starbucks can effectively leverage its valuable, rare, and difficult-to-imitate resources across multiple markets It allows the company to capitalize on its global supply chain, brand recognition, and coffee expertise to serve diverse customer preferences and gain a competitive advantage ➢ Global Market Penetration: Enables the company to penetrate and expand in various international markets By leveraging its unique resources and capabilities, Starbucks can adapt its offerings to local preferences while maintaining a consistent brand experience This approach helps Starbucks establish a strong presence in different countries, allowing for global market share growth and revenue diversification ➢ Competitive Advantage Sustenance: Starbucks can maintain its competitive advantage in multiple markets since it possesses resources and capabilities that are not easily replicated by competitors The combination of its valuable resources, rarity, and imitability factors, supported by a strong organizational structure, helps Starbucks sustain its unique position and differentiate itself from local and international competitors ➢ Knowledge and Experience Sharing: Starbucks can facilitate knowledge and experience sharing across its global operations This allows the company to transfer best practices, innovative ideas, and operational efficiencies across different markets By integrating the expertise gained from one location into others, Starbucks can optimize its operations, enhance its product offerings, and improve overall performance 2.2.2 The characteristics of the market While operating in different markets, Starbucks needs to consider two main challenges which are likely similar to those faced by other companies in the coffee industry: Cost Reduction Pressure and Local Responsiveness Pressure ❖ Cost Reduction Pressure ● Cost of ingredients: The cost of coffee beans can vary depending on factors such as origin, quality, and availability Also, seeking for suppliers needs time and even money too If the company chooses to buy raw materials from its previous suppliers, the cost of transportation is incurred ● Local operating expenses: Costs related to rent, labor, utilities, marketing, … can vary widely depending on the country’s economic conditions, labor market dynamics, and local regulations ● Costs associated with environmental regulations and sustainability initiatives: Some countries are very strict about foreign products sold in their local markets, especially Food & Beverage items These types of products need to meet local regulations in terms of environmental sustainability from producing, packaging, distributing and disposing ❖ Local Responsiveness Pressure ● Differences in customer tastes and preferences: Local market preferences, such as preferred flavors, portion sizes, and packaging formats, can vary greatly from country to country Moreover, consumers’ concern about the health quality of the products also needs to be taken into consideration In some countries, customers demand more nutritious items and are more conscious about the quality of the products sold to them ● Differences in infrastructure and distribution channels: Differences in infrastructure can lead to differences in the ways of choosing the location of stores, warehousing, and distributing Limited transportation, unreliable road networks, and insufficient storage facilities can reduce the effectiveness of transferring products to customers Also, differences in the wholesale and retail system of the country can make it difficult for the company to adapt to local markets ● Regulatory compliance: The food and beverage industry is subject to stringent regulatory requirements, including food safety, labeling, packaging, and import-export regulations Navigating these regulations can be complex and time-consuming when operating internationally By using transnational strategy, Starbucks can deal with both pressures faced internationally: