Starbucks Foreign Direct Investment Case Study Example

Published: 2021-06-22 00:32:09
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Category: Education, Company, Strategy

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1. Licensing can be defined as a transaction in the external market, which is based on the sale of intellectual property and technology rights for a fee (Holmes, 2001). It is a non-equity method of international expansion, which is often chosen by the companies due to its relatively low cost and risk for the licensor. However, the main problem of licensing is a lack of control over the operation of licensees. It is especially important for Starbucks, as the right implementation of its “Starbucks Formula”, which is based on delivering premium products, motivating employees and creating a superior customer experience, is the key to internationalization success (Starbucks Corporation, 2011). International expansion of the company into the geographical areas, which were different from the U.S. both in terms of market development and culture, led to Starbuck’s disenchantment with licensing and its limited control. Therefore, the company started to implement other internationalization strategies, such as Joint Ventures (Japan), or even expanded through own subsidiaries (Thailand, UK).
2. The main benefit of joint ventures over pure licensing is the tight control that Starbucks can have over its new operations. Close cooperation with the partner abroad in pursuing common goals helps Starbucks to retain management authority over its overseas operations, while at the same time minimizing risks and gaining quick access to the market. Moreover, joint ventures are helpful in the regions, where there are no players in the market that are able to meet the requirements of developing a Starbucks license. By creating joint ventures Starbucks can help local partners both by providing its expertise and sharing resources.
3. There are several advantages of Joint Ventures over entering through wholly owned subsidiaries that Starbucks considered in selecting their entry mode. Firstly, joint ventures help to minimize financial risks and internationalization expenditures by sharing them with the joint venture partner. Secondly, joint ventures offer access to the unique market knowledge of the partner and its position in the market. Thus, cooperation with Sazaby Inc. gave Starbucks the access to the distribution network of the Japanese retailer. However, there are also several risks that are associated with joint ventures. Thus, it may lead to lower managerial control from the parent company, opportunistic behavior of the local partner or even conflict situations. Joint ventures are also inappropriate in the poorly developed markets, where it is hard to find the right partner. In these cases Starbucks preferred to enter countries through own subsidiaries. This entry mode allowed to achieve maximum control over operations, as well as to eliminate competition and to allow the fastest market entry, if the strategy is based on the acquisition of the local competitor. Moreover, wholly owned subsidiaries help to mitigate the risk of dissemination of company know-how and expertise, thus preventing Starbuck’s diffusion of Starbuck’s unique expertise (Peng, 2010).
4. The international expansion strategy adopted by Starbucks can be based explained through the internationalization theory. This framework offers three drivers for selecting the most appropriate entry mode: need for control, access to know-how and local market knowledge, and the importance of implicit capabilities (Hill, 2011). The first argument explains why Starbucks decided to enter some countries, such as Britain and Thailand, by acquiring local players and establishing own subsidiaries. The second and the third reasons explain why Starbucks used joint ventures for its internationalization strategies. The importance of implicit capabilities, such as employee motivation and the ability to create unique customer experience, made joint ventures more appropriate than other modes that required less commitment in terms of resources and risk. The choice of joint ventures could be also explained by the need to access local market knowledge, which can be acquired and assimilated better through joint ventures than through pure licensing.
References
Hill, C.W.L. (2011). International Business. Competing in the Global Marketplace. 8th ed.
McGraw-Hill
Holmes, (2001). The concept of income: a multi-disciplinary analysis. Amsterdam,
the Netherlands: IBFD Publications.
Peng, M. W. (2010). Global Business 2009 Update. Mason, OH: South-Western Cengage
Learning.
Starbucks Corporation. (2011). Our Starbucks mission statement. Retrieved from
http://www.starbucks.com/about-us/company-information/mission-statement

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