Global operations management and strategic implementation

Global Operations

One of the largest sources of competitive advantage for a global corporation is the ability to optimize operations on a world-wide scale by minimizing costs and maximizing revenues. This is accomplished by leveraging technology, manufacturing efficiencies, brand names, and/or capital across countries. The major thrust of Starbuck Corporation's global strategy has been to build a global brand to target customers in all major markets throughout the world. However, even with instant name recognition, the company has faced enormous challenges in applying its domestic business model to work in many foreign markets.

Starbucks was founded in 1971 as a gourmet coffee bean roaster and distributor and began to dominate the North American market over the following two decades. To continue its rapid growth and to combat the threat of future market saturation in its own domestic market, Starbucks turned its eye to international expansion in 1996 (Starbucks outlines international growth strategy; focus on retail expansion and profitability, 2004). By the end of that year, Starbucks had opened 127 international stores. At the end of 2000 the company had reached 792 stores in sixteen countries outside the United States and has just ended fiscal year 2004 with 2,437 stores in 33 countries outside of the United States.

Despite its rapid expansion, Starbucks is going full force ahead with plans announced in 2004 to open an additional 15,000 locations beyond the United States (Starbucks outlines international growth strategy; focus on retail expansion and profitability, 2004) . In Latin America, Starbucks forecasts that it will grow store count from 95 to 1,500 stores. In Europe, the Middle East and Africa, the Company has 670 stores, and sees a future opportunity for approximately 6,000 stores. In Asia Pacific, Starbucks now has 1,234 stores and plans to have 6,500 stores in that region. In Canada, the company currently has 438 stores and sees a potential for adding 562 new ones. Additionally, Starbucks is exploring several new countries for future locations, including Brazil, India, and Russia and is keeping its eye on China for future growth.

Results to date for Starbuck's international operations are poor. For the first time since the company began its international expansion it posted a profit in its 2004 fiscal year, citing an operation profit of 8.8% (Wolverton, 2004). Even for this year, critics charged that the numbers were artificially inflated by the decline of the dollar vs. other major currencies and the inclusion of Canadian, Hawaiian and Puerto Rican stores in its international operations. A variety of factors explain Starbuck's less than stellar results in international markets.

To reduce risks, Starbuck's international entry has been based on join ventures and licenses, unlike its domestic strategy where the stores are largely owned by the company. Starbucks has relied on experienced partners abroad to help identify locations, sift through local tax and legal issues and to give Starbuck stores more community appeal (Coffee in a time of conflict: Starbucks' growth risks backlash, 2003). While Starbucks has received revenues and profits as well as licensing fees for supplying its coffee, it has been harder than in the United States to control expenses such as real estate and labor costs (Holmes, Kunii, Ewing, and Capell, 2003). These have contributed to a major drain on profits.

Unlike in the United States where there is limited competition, Starbucks faces big rivals in Europe and Asia that often charge lower prices (Holmes, Kunii, Ewing, and Capell, 2003). Yet, Starbucks clings to its strategy of charging prices similar to those in the United States. For example, in London, a Starbucks tall latte sells for $2.93, while the same drink goes for $2.12 at the rival Caffe Nero Group PLC. In Germany, imitators have saturated Frankfurt and Berlin with lower cost Starbucks-like coffee bars.

The international political environment has also presented a huge challenge for Starbucks as illustrated by the following examples (Coffee in a time of conflict: Starbucks' growth risks backlash, 2003). Fear of terrorist attacks forced the closing of six stores in Tel Aviv, Israel. And, Starbucks stores in Lebanon are being boycotted by those who oppose the U.S.-led war on Iraq. Activists in New Zealand and other parts of the world are urging Starbucks to buy more coffee beans certified by the nonprofit organization TransFair USA as part of their "fair trade" agenda. The certification would require the beans to be grown and marketed under specified economic and social conditions.