Indicative Assessment Requirements for the Module;-
A business report (with an executive summary), as opposed to an essay style is preferable. The analysis undertaken should be relevant to the question under consideration. Marks will be added for originality in research and approach to the question
The assignment should include a title page, a table of contents and an executive summary. Single spacing is acceptable. The Harvard referencing system should be adhered to throughout. Endnotes are unacceptable. The bibliography should be based on primary sources (where applicable) and secondary sources and should be very comprehensive
Maximum Word Limit and Assessment weighting for each aspect within the assessment:
40% ASSESSMENT WEIGHTING
Description of Assessment Requirements
The assignment should make an informed analysis of the correct choices of entry for the firm and provide a critical analysis of their adopted strategies and the factors which assist/hinder its successful execution should be undertaken. Importantly exploration should be made of the product or service to be internationalised, the appropriate choice of market, the nature of the market especially any regulatory issues that may help or hinder the sales or marketing and explore the effectiveness of the market entry strategy used to enter the country. The report should also focus on the competitive pressures from local entrants and new potential foreign entrants. Ideally the report’s focus should be on an HR strategy of the organisation and how it attempted to support the culture and implementation of the Starbucks strategy.
Module Learning Outcomes to be assessed:
• describe international business practices and discuss how they are being shaped by economic theories, financial, socio-cultural and political forces; with particular emphasis on the business practices of UK’s major trading partners;
• identify general, and special problems, issues facing managers of international business operations;
• discuss the appropriate criteria for the form and location of international operations;
• discuss the strategies, tactics and manoeuvres of international marketing as they relate to managing an international business enterprise;
• demonstrate an understanding of UK’s international performance, position, and problems, as well as opportunities and alternatives;
recognise trends and reactions in worldwide companies based in industrial or less developed countries.
. Read the following case study and answer ALL questions:
Starbucks’ Foreign Direct Investment
Thirty years ago, Starbucks was a single store in Seattle’s Pike Place Market selling premium-roasted coffee. Today it is a global roaster and retailer of coffee with some 13,000 stores, more than 3,750 of which are to be found in 38 foreign countries. Starbucks Corporation set out on its current course in 1980s when the company’s director of marketing, Howard Schultz, came back from a trip to Italy enchanted with the Italian coffeehouse experience. Schultz, who later became C.E.O., persuaded the company’s owners to experiment with the coffeehouse format- and the Starbucks experience was born.
The strategy was to sell to the company’s 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. The company also focused on providing superior customer service. Reasoning that motivated employees provide the best customer service, Starbucks’ executive’s devoted a lot of attention to employee hiring and training programs and progressive compensation policies that gave even part-time employees stock option grants and medical benefits. The formula led to the spectacular success in the United States, where Starbucks went from obscurity to one of the best-known brands in the country in a decade.
In 1995, with 700 stores the United States, Starbucks began exploring foreign opportunities. Its first target market was Japan. Although Starbucks had resisted a franchising strategy in North America, where its stores are company owned, Starbucks initially decided to license its format in Japan. However, the company also realised that a pure licensing agreement would not give it the control needed to ensure that the Japanese licences’ closely followed Starbucks’ successful formula.
So the company established a joint venture with a local retailer, Sazaby Inc. Each company held a 50% 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 in the “Starbucks experience” in North America, Starbucks transferred some employees to the Japanese operation. The licensing agreement required all Japanese store managers and employees to the Japanese 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 the first company in Japan to do so. Sceptics doubted that Starbucks would be able to replicate its North American success overseas, but by the end of 2007 Starbucks had over 700 stores in Japan and planned to continue opening them at a brisk pace.
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. In the late 1990s, Starbucks opened stores in Taiwan, China, Singapore, Thailand, New Zealand, South Korea and Malaysia.
In Asia, Starbucks’ most common strategy was to licence its format to a local operator 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. However, Starbucks became disenchanted with some of the straight licensing arrangements and converted several into joint-venture arrangements or wholly owned subsidiaries.
In Thailand, for example, Starbucks initially entered into a licensing agreement with Coffee Partners, a local Thai company. Under the terms of the licensing agreement, Coffee Partners was required to open at least 20 Starbucks coffee stores in Thailand within five years. However, Coffee Partners found it difficult to raise funds from Thai banks to finance this expansion. In July 2000, Starbucks acquired Coffee Partners for about $12 million. It goal was to gain tighter control over the expansion strategy in Thailand. By the end of 2007 the company had 103 stores in Thailand.
By 2002, Starbucks was pursuing an aggressive expansion in mainland Europe. As its first entry point, Starbucks chose Switzerland. Drawing on its experience in Asia, the company entered into a joint venture with a Swiss company, Bon Appétit Group, Switzerland’s largest food service company. Bon Appétit was to hold a majority stake in the venture, and Starbucks would licence its format to the Swiss company using a similar agreement to those it had used successfully in Asia. This was followed by a joint venture in other countries. In 2006, Starbucks announced that it believed there was the potential for up to 15, 000 stores outside of the United States, with major opportunities in China, which the company now views as the largest single market opportunity outside of the United States. Currently the company only has 350 stores in China. (Hill, 2011)
Answer all questions:
1. Initially Starbucks expanded internationally by licensing its format to foreign operators. Critically evaluate why Starbucks became disenchanted with this strategy. 25%
2. Critically evaluate the strategic role played by the Human Resources Management of Starbucks during the process of internationalisation. Assess the suitability of the staffing approach that Starbucks employed in Japan in relation to their corporate strategy. 25%
3. Critically analyse why Starbucks has now elected to expand internationally primarily through local joint ventures, to whom it licenses its format, as opposed using to a pure licensing strategy. 25%
4. In some markets such as Britain and Thailand, Starbucks has chosen to enter through wholly owned subsidiary. How different are these countries from Japan? 25%