Well recognized as the most respected brand of coffee houses in North America, when Starbucks stepped out of the U.S. market to gain increased market share, they were presented by a state of quandary. The domestic chain of Starbuck proved to be lucrative, but the international operations were going in loss. Analysts felt that the company should rethink its entry strategy for international markets. The problems behind the deteriorating sales and growth of Starbucks and the views of analysts are reviewed and discussed under.
Starbucks International Operations Strategy
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The first international venture of Starbucks in 1995 was initiated in Japan. The spell was casted and then the magic of Starbucks started spreading through out the globe. The stores were increasing exponentially from Asia Pacific to Europe, South Asia to Middle East, and so on. Starbucks relied primarily on joint ventures, licensing, and wholly owned subsidiaries to step in international market. It provided them the benefit of local partner’s experience and low cost and risks. Before entering the particular market, they used to gain a complete insight of the market condition and prospects of their product as well as the customer behavior and culture.
This allowed them to comprehend the taste, needs and habits of local people so well, that it refuted many of analysts anticipated lapses. Starbucks was doing pretty well but as it was observed, all the glory rested upon business conducting in U.S. It started to become visible that Starbucks is losing their bucks in international market. So where lay the Achilles heel?
The Obstacles in Success of Starbucks International
Starbucks international chains had certainly gained the attention but they fell prey to the environmental and political risks. The instable political state of Middle East and European countries posed serious threats to Starbucks. In 2002, Arab students boycotted from all U.S. based companies due to the involvement of U.S. with Israel. Later on, they were reproached by New Zealand advocates for demanding increased prices of coffee from the farmers. The Lebanese protesting against war also boycotted Starbucks in the midst of other U.S. products and services. The terrorism activities in Israel made Starbucks to retreat from the particular area.
Russia and Italy, on the other hand, presented rigorous regulations in business affairs and quality standards. Germany, Switzerland and Japan entered into economic recession aroused more complications.
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That made a great difference; the tumult resulted in the expansion of Starbucks appearing to some as capitalist exploitation, an American company as an American reign. All the mounting factors i.e. city regulations, political upheavals and economic downturn and recession wrung out Starbucks International efforts. Working in unpredictable political and economic conditions presented them with ultimate threat.
Analysis on the Starbucks Strategy
Analyst felt that with gradually saturating U.S. market, it’d be hard for Starbucks to surmount the competition just on the glory of their domestic earnings. The international market demanded more concentration and better planning. They also held the high pricing of Starbucks responsible for the diminishing profits. Italy, for example, has remarkable history of coffee brewing and well accustomed to finest tastes and natives are wonted to pay less than a dollar for it. European countries started to pose local competition due to this reason. In such circumstances, high prices proved to be irrefutable and inflexible challenge. But this remains Starbucks flaw in their pricing strategy. There was more to it.
Starbucks expansion went so far that it watered down the essence of Starbuck- the “Starbuck experience” and consequently lost customers. The joint and licensing agreements complicated furthermore and the operational cost went out of control. The external environment webbed up things even more.
There was an imperative need of sorting things out. Starbucks should take bold step in these circumstances. Unprofitable branches should be cut out; however it will not guarantee future success. The expansion rate should be slowed down. Environmental factors can sag down ultimately but the internal complications must be untwined.
Reasoning out, it was more than their entry strategy; it was the extensive growth that brought Starbucks down. Eventually, Starbucks shut down hundreds of stores and decelerate their growth. Starbucks- a star brand struggling to resurface amidst the dark clouds; time will tell if Starbucks conquers the heightened skies.
Starbucks’ International (2003). Starbucks’ International Operations. Retrieved Jul 11, 2009
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