A fourth foundational element is the strength of the Starbucks brand itself and is ubiquity globally. As a result of rapid and well-defined strategies for opening up retail stores, Starbucks is now considered one of the most preeminent and strongest brands globally.
Starbucks has generated the strength of their brand through combining high-quality coffee and tea beverages with the third-place concept to generate customer loyalty and world-of-mouth among customers and their friends. It is common to hear students mention they will have a team meeting at the local Starbucks, for studying or completing projects.
In summary the Starbucks model is strengthened by the company's coffee expertise, impressive new product development record, and the development of Starbucks locations as "third places" where friends can meet and enjoy coffee and pastries. Underscoring all these points is the strength of the Starbucks brand.
What were the key issues and the decision by Starbucks to go international?
The key issues and decision by Starbucks to go international centered first on market growth and expansion, followed by the opportunity to grow their retail presence close to their suppliers. Starbucks deserves much credit for their ethical approach to managing their supply chain, a point that will be described later in this section. There is also the developing strength the company has at managing joint ventures to gain entrance into new markets, a skill set shown in the series of acquisitions made in 2006.
Starbucks has shown innate ability to expand both into Canada and the UK as well, with the majority of their global locations in these countries (Deutsche Bank 2006). Figure 1 shows a graphical breakdown of non-U.S. co-operated stores for Starbucks as of 2005, the most recent publicly available data through investment analysts Deutsche Bank securities.
Figure 1: 2005 non-U.S. co-operated store breakdown
Source: (Deutsche Bank 2006).
As is evidenced by this growth, Starbucks' innate strength at global expansion, while discussed in the case, is supported with research that indicates the four targeted growth markets of China, India, Russia and Brazil are all a key focus (Harrison, Chang, Gauthier, Joerchel 2005). Of these, the case concentrates on the challenges of expanding into China, with the move to open a location next to the Forbidden City blocked by media, not citizens. Despite the media's objectives, the Chinese government continues to cooperate with Starbucks and continues to be supportive of their development efforts in this nation. Investment analysts predict that China could within ten years account for 30% of the company's store growth of company-owned stories ((Harrison, Chang, (Gauthier, Joerchel 2005).
It is widely believed within Starbucks that China will grow to be larger than the U.K. As a percentage of total stores by the year 2015, with the estimated China store count of 1,500 or more locations, generated well over $700M in revenue. Table 2, from a series of investment reports (Deutsche Bank 2006) show the extent of how aggressive the growth plans Starbucks has in China.
Figure 2: Starbucks Strategic Plan Targets for China through 2015 (Deutsche Bank 2006).
There will be logistics and affordability challenges with penetrating China and accomplishing the level of performance has shown in Figure 2, yet there are three economic drivers that will make the growth of the Chinese market attract8ive and worth the investment for Starbucks going forward.
First, the consumption of premium coffee, specifically from Starbucks, is seen as a symbol of wealth and leisure (Deutsche Bank 2006), (Fowler 2003). Chinese are making more money and living better lifestyles than ever. Along with a higher quality life, the Chinese have developed a love for many things associated with more affluent, westernized nations including the public consumption of premium coffees. This is especially prevalent in the larger, more industrialized cities including Beijing and Shanghai. Second, the "third place" concept is catching on due to the growth of working class Chinese wanting to enjoy time off with friends. The trendiness of a third-place, in addition to the strength of the Starbucks brand globally, is making China's growth for Starbucks significant to the point of being predicted to be second behind the UK in revenue by the year 2015.
A second issue that is enabling Starbucks to grow globally is the depth and expertise in its supply chain. The case study only mentions it from a sourcing standpoint, yet the supply chain management systems within Starbucks are a major competitive advantage and also were designed from the very beginning to be measured for social responsibility in addition to financial benchmarks. While quite costly from a pure operations standpoint, the ethical policies and processes the company has put into place on "fair trade" coffee for example, where market rates are paid to growers, is a practice the company adheres to globally. While this strategy is costly vs. taking a price reduction approach, it sets the quality standard. The commitments of Starbucks to operate an ethical supply chain and enforce "good neighbor" business practices does more than just reinforce the brand - it makes good business sense and sustains the supply chain in the process. Higher employee wage costs are consistent with the higher level of service Starbucks expects from its workforce. The "CAFe" code for dealing ethically with suppliers leads to above-market costs paid for some raw materials, but ensures long-term access to high-quality coffee and other inputs, and sustainability of farmers. Overall, although the company has significant exposure to potentially volatile commodity inputs (coffee, dairy, sugar, paper) and engages in little hedging, long-term strategic relationships with suppliers and excellent supply chain management insulate this risk somewhat and the reliance on a higher level of ethical conduct is more costly in the short-run but a wise decision in the long-run as globalization of the brand is inevitable and benefits from the stance on ethics the company takes.
Figure 3 shows an example of the Starbucks supply chain, as defined by (Deutsche Bank 2006).
Figure 4: Starbucks Supply Chain (Deutsche Bank 2006).
As can be seen from the above graphic, because farmers are often not acting as the growers, processors, and exporters, Starbucks demands financial transparency throughout their supply chain to make sure growers are receiving proper compensation for their labor. This is one requirement to become a verified C.A.F.E. Practices supplier, a critical element of the ethical supply chain practices of Starbucks.
Within the Starbucks supply chain, coffee processors are required to show proof of payments both upstream and downstream within the su0pply chain, reporting that farmers have been paid and that exporters have not been priced to market values. According to (Deutsche Bank 2006) the Preferred Supplier Program/Coffee and Farmer's Equity Practices (CAFe) was defined in 2001 as a means for ensuring ethical transactions in coffee supply chains, so the growers would be able to financial survive. This program also resulted in the development of the Preferred Supplier Program in 2002 in Starbucks, specifically to align with CAFe.. The guidelines set forth in the P.S.P. gave preference to suppliers who adhered to certain requirements of employee treatment, financial transparency, environmental consciousness, and premium quality coffee beans. This program later expanded to become the Coffee and Farmers Equity Practices (C.A.F.E.) in 2004. This helps guarantee that Starbucks will continue to have reliable sources from which to purchase quality coffee without fear of their suppliers being financially unable to maintain their farms. Starbucks continues to be one of the most active in this program, working to ensure that their supply chains are as ethically run as possible. This is quite a departure from their competitors and also from other industries that focus entirely on cost and don't pay attention to ensuring the foundation of their supply chains, in this case the growers, have the ability to sustain themselves financially.
Identify and discuss some of the negative elements of globalization focused by Starbucks.
Globalization is seen as evil because people assume it negates or somehow wipes out a native culture. The concerns in the UK regarding the history district where Starbucks somehow robbing a specific historic district of its cultural value, or the reaction of Chinese media to the Starbucks location just outside the Forbidden City all underscore how native people react when their culture appears to be about to change or become more, in their minds, homogenized. Starbucks as a symbol of globalization is seen as obtrusive and not wanted, and even evil by anti-globalization activists who see profits generated by companies like Starbucks being taken directly out of their nations' economies.
All of these perceptions are of course based on ignorance and a strong sense of ethnocentrism and a protecting of their cultures. In fact no single person can either change or protect a culture; it must be gradually accomplished over years.
Over and above the efforts to gain access into premium locations in the UK and China as discussed in the case, the retailing expansion strategy of Starbucks in European cities including Amsterdam (Burnson, 2002) has faced opposition as it is seen as…