Starbucks Globalisation Strategy

About Starbucks

Starbuck is a coffee company started in 1971 and has been ethically committed to sourcing as well as boasting excellent quality Arabica coffee (Bussing-Burks, 2009). It currently has at least 23,000 stores all over the world. The company is a retailer and specialty coffee premier roaster worldwide. Through their commitment to excellence and guiding principles, they offer a unique Starbuck life experience to all customers through a cup of coffee (Bussing-Burks, 2009). The firm is currently venturing into the South African market using globalization and global expansion strategies. This report is going to present Starbucks’ globalization and global expansion strategies concerning their entry into the South African market.

Additionally, the methods used by Starbucks to maintain growth in this country when other popular international brands are struggling will get critically analysed. Lastly, the challenges the company is likely to experience in the long-run regarding conquering the African continent will be appraised (Bussing-Burks, 2009).

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Global Expansion and Globalization Expansion Strategies for Starbucks in South Africa

The process of internationalization of Starbucks demonstrates a prominent characteristic that depends upon a host of states and local partners. Additionally, Starbucks’ global expansion is often influenced by various factors like successful diffusion of their brand and incentives from local economies. Starbucks globalization process uses multiple theoretical model elements particularly elements of a revised model known as Uppsala (Vahlne & Johanson, 2013). These elements are such as dynamic capabilities, uncertainty, building trust, company networking configuration, and learning.

Starbucks does its businesses in America, Africa, Europe, Asia, and Australia. The firm itself has divided its operations into at least three regional areas (Axinn and Matthyssen, 2002). The first one is the USA, Latin America, Canada, and Mexico. The second cluster is Asia-Pacific and China. The last category is the UK, Europe, Middle East, Africa, and Russia. The company started its internationalization to the UK, Russia, Africa, and the Middle East in 1998 (Griffin and Pustay, 2015). It ventured in fully-owned stores which granted it full control of the firm’s business within these regions as well as the chance to expand. The company knows the needs of some foreign markets, and they have market-knowledge from these specific countries.

The company also understands benefits of local partnership as illustrated by dominant globalization strategies like the Uppsala Model (Vahlne and Johanson, 2013). The company’s unusual habit of venturing into new countries is often associated with partnering with locals as can be seen when they entered the South African market and partnered with Taste Holdings (Griffin and Pustay, 2015). Many indicators participate in Starbucks’ internationalization or globalization. For instance, favourable or appropriate demographic conditions within host countries, favourable legal and political environment, institutional advantages, existing market saturation and sensitive consumers to Starbucks’ sustainability practices (Griffin and Pustay, 2015).

Starbucks’ main global expansion driver is their reliance on various local partners. The basic aspect of commitment and trust which are inherent in a model called the Uppsala paradigm are common throughout the company’s internationalization practices. Once the firm identifies a relevant business partner, it often sticks with that partner while showing commitment and building trust to the country and partner. The relationship thus gets stronger and the company benefits by conquering the new state and market with the associate.

The Uppsala Model

This model was created in 1977 by Johanson and Vahlne. The concept of the Uppsala model is based on the notion that firms operate within networks which influence a company’s internationalization or globalization (Vahlne and Johanson, 2013). In this model, the authors included a dynamic capabilities concept, uncertainty management, and entrepreneurship theories. Furthermore, knowledge opportunities got extended through compelling capabilities aspects regarded as having knowledge aspect. The second variable in the model gets illustrated as network positioning described as outcomes of prior learning and commitment, creating and building trust (Vahlne and Johanson, 2013).

These authors went ahead to demonstrate how commitment decision are likely to result in the development of unexpected knowledge and future obligations. The model’s last quadrant includes inter-organization processes which involve learning, trust creation, and building. In this model, trust is viewed as a commitment and learning prerequisite where they co-occur. The process of learning itself comprises of learned expertise and cumulative nature and can become transferred to other company members’ network through tacit knowledge (Vahlne and Johanson, 2013).

Starbucks’ Market Entry Strategy for South Africa

While entering sub-Saharan Africa, it watered down prices in its South African debuts. For instance, on the first day, Starbucks Company supplied umbrella, blankets, and samples of free coffee to new Starbucks customers in Johannesburg. It has taken the company many years to enter the South African market. However, this coffee giant conquering the local market is a reaffirmation to the country that it is outstanding (Mason, Cole and Goza, 2017).

Starbucks is thus entering the South African market despite the presence of other competitors like Burger King and Krispy Kreme. Starbucks is also producing local flavours to seek international recognition. The company has carefully considered their South African tastes in developing their customer’s menu particularly for demanded local products such as Rooibos tea and Gonzaga (Mason, Cole and Goza, 2017). Another of Starbucks entry strategy into South Africa is partnering with other local firms. For instance, it partnered with Taste Holdings on an exclusive 25-year partnership. Taste Holdings firm shares rose by 20% after the partnership.
The shares however declined due to South Africa’s struggling economy. Starbucks arrived in Johannesburg in 2016 April 21st establishing its first store (Mason, Cole and Goza, 2017). Taste Holdings and Starbucks store are situated at the corner of Tyrwhitt and Cradock Heights. Their outlet wears a unique label and sells a variety of food and Starbucks beverages like the ethically sourced Starbucks Arabica coffee. With this partnership, they are still able to deliver their unique experience to South African customers, where the community can connect and gather over sweet coffee. Their partnership offers Lanes programs which are for development and training.
These development and training programs enable them to recruit locals from the community as well as offer retail opportunities to the unemployed youth (Mason, Cole and Goza, 2017). Additionally, the company uses the cost of their cup of coffee as an entry strategy. Many people are wondering if South Africans shall spend on the Starbucks brand which is quite expensive. As compared to the price of their coffee in some of its outlets within Johannesburg, it is 23% more expensive. These proportionally expensive coffee has made some people believe that the company is only aiming at the Upper-middle-class individuals in this country (Mason, Cole and Goza, 2017).

However, as compared to the United States prices, the Johannesburg prices have been surprisingly crushed. The company offers its coffee thirty percent cheaper as compared to the US prices. Moreover, the company has announced its plans of starting other coffee outlets in Cape Town. Starbucks’ plan to launch other outlets in Cape Town is regardless of the presence of other specialty coffee firms boasting hand roasted, single origin coffee (Oviatt and McDougall, 2005). This move relies upon the fact that South Africans love foreign or international brands as has been demonstrated by a massive launch done by H&M as well as Burger King. Starbucks also supports South African local craftsmen, artisans and artists as an entry strategy into the country.

This firm has reserved its coffee outlet designs to show its commitment to giving support to the local craftsmen, artisans, and artists (Piercy and Giles, 1989). Other than offering fantastic coffee and first-class services to its customers, it is inspired by South Africa’s rich local designs and colour, with artworks and materials made by the locals. For instance, they have woven ceiling panes out of leather inspired through basket weaving. Additionally, there are mugs embedded with Johannesburg skyline (Buckley and Casson, 2009). The company also celebrates a major aesthetic feature, a copper mural used to remind its customers a Pike Place atmosphere, a market found in Seattle and made parallel to some areas in Johannesburg. They also have embedded their famous Siren logo on woods. Therefore, Starbucks is creating new opportunities in their outlets and strengthening their local supply (Griffin and Pustay, 2015).

How Starbucks has maintained its Growth in South Africa despite Stiff Competition

The company has some significant strengths such as a robust brand image, a vast chain of global supply and sufficient diversification by subsidiaries (Coehn, 2002). Furthermore, the firm celebrates being among the world most famous and most influential brands (Griffin and Pustay, 2015).

The company has a rising population of customers loyal to them. This loyalty results to the stability of their business houses or coffeehouses. Because of their vast chain of supply, Starbucks is strengthened as this supports the firm’s operations despite stiff competition (Helms and Nixon, 2010). For instance, Starbucks has a worldwide supply network which is selected carefully based on quality criteria like the Arabica coffee. Moreover, Starbucks has slowly diversified their business through development or acquisition of subsidiaries. Through diversification, they have been able to minimize impacts that can emerge from industry or market risks. These internal strategies or strategic factors have demonstrated the corporation is strong enough to promote resilience through the world supply chain and diversification, allowing it to overcome competition (Helms and Nixon, 2010).

Opportunities in South Africa for Starbucks

First, the South African market is poised to function as a passage or gateway through which the company can expand to other parts of Africa like Nigeria and other states holding massive growth potential (Hill and Westbrook, 1997). Additionally, Africa is experiencing increased tourism, and most governments are relaxing their visa restrictions. Therefore, it is most likely that more tourists will visit African countries. These tourists are also more likely to go for their usual coffee joints like Starbucks (Jackson, Joshi, Erhardt, 2003).

For instance, in 2016 January, at least one million tourists visited South Africa. This number is 15% more than that seen in 2015 December (Mason, Cole and Goza, 2017). While the company is conquering Africa, there will be loyal customers who are likely to get attracted to their most preferred coffee joints during their travels. However, growth anticipations of Starbucks in Africa is a long-term objective (Mason, Cole and Goza, 2017).

Challenges for Starbucks to Conquer Africa in the Long-run

Expansion in Africa has proven to be quite tricky for various retailers like Walmart and Domino’s Pizza. This growth challenge might also be experienced by Starbuck as many countries in Africa are experiencing uncertain political environments and slow growth of their economy (Johanson and Vahlne, 1977). The company is also experiencing intense competition from many of their international coffee brands. For instance, Starbucks is competing against significant coffee firms which sell low-cost coffee. These external strategic factors are a liability because these competitors might reduce their market share. To compete fairly, they might be forced to lower their coffee prices.

The company also faces the problem of imitation which is a massive problem for many coffee houses (Smith, 1996). This threat involves firms that endeavour to copy other company’s coffee taste, feel and look. Furthermore, the coffee industry environment is controlled by independent movements of coffeehouses. These movements put sociocultural efforts which support operations of independent coffeehouses as well as oppose growth of global coffeehouse chains. These sociocultural trends affect consumer purchasing behaviours and perception. Therefore, the growth of multinational coffeehouses is hampered (Smith, 1996).

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Conclusion

The lessons learned from Starbucks quest to conquer Africa is that it takes careful planning and market entry strategy to do well in a highly competitive environment which is also affected by political uncertainty and slow growth of the economy. Approaches like the Uppsala model are important as they help business firms know how to enter such markets.

For instance, through this model which is commonly applied by the Starbucks Company, partnerships deals are made allowing entry into a foreign market with ease. Furthermore, other approaches like reduction in prices, support to the local people, for instance, their craftsmanship and artists have also been used by the company to enter this new market. However, there are challenges to conquering the African continent. Besides political uncertainty and slow growth of the economy, there are other factors such as stiff competition and local movements. We have seen that rigid competition force companies to reduce their prices while local movements of coffeehouses inhibit the growth of multinational firms.

References

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  • Buckley, P. and Ghauri, P., 2015. The internalisation theory of the multinational enterprise: A review of the progress of a research agenda after 30 years. In International Business Strategy (pp. 99-121). Routledge.
  • Bussing-Burks, M., 2009. Starbucks. ABC-CLIO. Griffin, R.W. and Pustay, M.W., 2015. International business: a managerial perspective, Global ed edn.
  • Helms, M.M. and Nixon, J., 2010. Exploring SWOT analysis–where are we now? A review of academic research from the last decade. Journal of Strategy and Management, 3(3), pp.215-251. Hill, T. and Westbrook, R., 1997. SWOT analysis: it's time for a product recall. Long Range Planning, 30(1), pp.46-52.
  • Jackson, S.E., Joshi, A. and Erhardt, N.L., 2003. Recent research on team and organizational diversity: SWOT analysis and implications. Journal of Management, 29(6), pp.801-830.
  • Johanson, J. and Vahlne, J.E., 1977. The internationalization process of the firm—a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), pp.23-32.
  • Koehn, N.F. and Grundy, W., 2001. Howard Schultz and Starbucks Coffee Company (TN).
  • Mason, A., Cole, T. and Goza, N., 2017. Starbucks: a case study of effective management in the coffee industry. Journal of International Management Studies, 17(1).
  • Oviatt, B.M. and McDougall, P.P., 1994. Toward a theory of international new ventures. Journal of International Business Studies, 25(1), pp.45-64.
  • Piercy, N. and Giles, W., 1989. Making SWOT analysis work. Marketing Intelligence & Planning, 7(5/6), pp.5-7.
  • Smith, M.D., 1996. The empire filters back: consumption, production, and the politics of Starbucks coffee. Urban Geography, 17(6), pp.502-525.
  • Vahlne, J.E. and Johanson, J., 2013. The Uppsala model on evolution of the multinational business enterprise–from internalization to coordination of networks. International Marketing Review, 30(3), pp.189-210.

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