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-1167130-8750300025146006350Starbucks Report 0Starbucks Report Maastricht UniversitySchool of Business & EconomicsPlace & date:Maastricht, 04.12.2015Name, initials:Gray, C.Nemeth, L.Langbein, AID number:612070461204336097390Study:International BusinessCourse code:EBC2021Group number:22Tutor name:Bart de VochtWriting assignment:Reportc.gray@student.maastrichtuniversity.nll.nemeth@student.maastrichtuniversity.nla.langbein@student.maastrichtuniversity.nlStarbucks is the classic tale of how a small American company developed into a prosperous global giant, currently ranked at 187 on the Fortune 500 (Starbucks, 2015b). In 1971, an English teacher, history teacher, and writer came together in Seattle, Washington and Starbucks was born. Their vision was to sell high-quality roasted coffee beans and from the start, the owners were passionate about using premium resources and green coffee beans. Starbucks subsequently branched out to specialize in handcrafted beverages, coffee, brand merchandise, and fresh food. The company’s current mission is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Starbucks, 2015a). They strive to be the most recognized and respected brand in the world. To accomplish this mission, they rely on ethically sourcing high-quality resources and focus on the expansion of their global store base to developed markets and new higher growth markets. After being ranked in the top 5 of world’s most admired companies, providing jobs to over 191,000 people worldwide, and has net revenue of (in millions) $16,447,8, Starbucks is the ideal multinational corporation (MNC) to examine (Starbucks, 2015).The purpose of this report is to elaborate on the question, “How does Starbucks manage their transnational corporation while pursuing a rapid expansion strategy?” This report will first analyze how Starbucks is characterized as a multinational company. After applying the learning model of internationalization to Starbucks’ operations, the process of global expansion and entry models will be explained. The company’s worldwide competitive advantage with regard to global efficiency, multinational flexibility and worldwide learning will follow and afterwards, Starbucks’ commitment to the environment with its foundation will be examined. The report concludes with recommendations for Starbucks’ future strategy. ??Starbucks has substantial direct investments in foreign countries, which enter by company-owned stores, licensing, and joint ventures. Starbucks currently operates stores located in 67 countries, for example Canada, Brazil, Netherlands, and China (Starbucks, 2015a). Properties, such as manufacturing, warehouse and distribution, and roasting and distribution centers are?strategically located in these foreign countries. One of the five roasting and distribution centers is located in Amsterdam. All of Starbucks’ roasting facilities are company-owned, however the majority of the warehouses and distribution locations are leased (Starbucks, 2015a). In order to control these foreign subsidiaries, active management has been established in these foreign subsidiaries. The European Head Office is located in London and oversees the European, Middle Eastern, and African subsidiaries. John Culver, group president, oversees the China and Asia Pacific and Channel Development and Emerging Brands (Starbucks, 2015a). Due to Starbucks’ direct investments and active management in foreign markets, Starbucks can be defined as a MNC (Bartlett and Beamish, 2013, Chapter 1, p. 2).???????Originally founded as a whole bean coffee roaster in Seattle, Washington in 1971, Starbucks began experimenting with the coffeehouse concept in 1984. In 1987, Starbucks initiated their expansion of developing company-owned stores into nearby markets, such as Chicago and Vancouver, Canada, because of their knowledge of the North American markets and had more control over their resources (Starbucks, 2015a). Through Starbucks’ initial commitment of resources to the Canadian market, local market knowledge about customers, competitors, and regulatory conditions were gained. Due to this market knowledge, the company was able to evaluate its current activities, the extent of its commitment to the market, and its opportunities for additional investment (Bartlett and Beamish, 2013, Chapter 1, p. 11). By 1996, Starbucks gained enough experience and acquired better resources to expand to the more distant market of Japan, and their first store outside of North America (Starbucks, 2015a).???????Three entering models are pursued to further internationalize Starbucks’ global network. To establish the Starbucks brand in new foreign markets, Starbucks uses licensing, company-owned subsidiaries, and joint ventures (Starbucks, 2015a). The majority of Starbucks’ stores are company-owned, however, the company chooses to enter into a licensing agreement in order to gain access to desirable locations such as airports, university campuses, and retail centers (Starbucks, 2015). Company-owned subsidiaries offer the highest degree of control for Starbucks’ current strategy of rapid expansion in many new markets. This entering model is suboptimal, because Starbucks will need to absorb the entire risk and costs of entering a new foreign market (Starbucks, 2015a). The third entering model involves joint ventures, which are more optimal for Starbucks’ aggressive expansion strategy. Joint Ventures are used to enter new foreign markets with their existing products and adaptation of its global product portfolio to the local needs and demands with the help of the partner (Starbucks, 2015a). Partnering with a local company enables access to their existing market, knowledge about the political situation, consumer preferences, and established relationships to suppliers within the new market. An additional motivation can be the sharing of research and development and general costs of starting a new business. Risk diversification is also one of the main motivations of joint ventures. Based on the liability of being a foreign company expansion into new markets is especially risky and includes many uncertainties. The relatively high level of control over operations makes joint ventures the preferred entering model for Starbucks when entering new foreign markets (Bartlett and Beamish, 2013, Reading 6-1, p. 518-523).On January 30, 2012, Starbucks made a step towards entering India, an emerging market, and therefore, especially difficult to enter. In entering into a joint venture with the second largest branded tea company in the world, Tata Global Beverages, Starbucks seeks to overcome these difficulties. Tata Starbucks Limited will own and operate Starbucks cafes, which will be branded as Starbucks Coffee “A Tata Alliance” within India. This joint venture opens up new business and profit opportunities, because of the growing middle-class in emerging markets (Bartlett and Beamish, 2013, Reading 3-3, p. 267- 268). Due to Starbucks’ reputation of providing high-class products, the company considers the bottom of the economic pyramid (BOP) not a suitable costumer base (Bartlett and Beamish, 2013, Reading 8-2, p. 686 - 692). However, India is currently achieving very high growth rates, which may potentially rise income levels, therefore the BOP represents a potential future consumer base. This alliance is structured to leverage the local expertise of Tata Global Beverages and the global expertise of Starbucks (Starbucks, 2015a). Apart from the global product portfolio, Starbucks is adding Indian style products to its local product portfolio such as Elaichi Mawa Croissant suit Indian customers. Since July 2015, Tata Starbucks Ltd. is already operating 76 stores located throughout the whole country (Starbucks, 2015a).The strategic alliance with PepsiCo is another example of Starbucks pursuing this aggressive expansion model. On July 23, 2015, Starbucks entered into a strategic alliance in the form of a marketing and sales agreement with PepsiCo to jointly distribute Starbucks and PepsiCo drinks within Latin America. In Latin America, the ready-to-drink (RTD) coffee and energy beverage industry is estimated to be an $4 billion business and is expected to grow by 22% over the next five years, which makes this opportunity profitable for both companies (Starbucks, 2015a). The strategic alliance leverages the strengths of Starbucks and PepsiCo to bring a portfolio of Starbucks RTD coffee and energy beverages to this market, aiming to unlock new market opportunities for each company. (Bartlett and Beamish, 2013, Chapter 6, p. 461 - 464, 470) Starbucks will provide coffee expertise and PepsiCo will sell and distribute Starbucks RTD coffee and energy beverages using its network and experience across the region (Starbucks, 2015a).Operations in emerging markets, such as India and Latin America, are subject to additional inherent risks and challenges. These risks are caused by changes or uncertainties in the economic, legal, social, and political conditions. ?For example, fluctuations in exchange rates or the interpretation and application of local laws and regulations. Furthermore, the presence of governmental market protection through import and other business licenses is a common technique to strengthen the entry barriers against U.S. companies and to protect the domestic market (Starbucks, 2014). New challenges and risks arise not only from geographic distance, but also from cultural, administrative, and economic distance (Bartlett and Beamish, 2013, Reading 1-2, p. 81-87). When Starbucks entered the Asian market in China, the cultural distance in terms of different languages, social norms, and traditions had to be overcome. Starbucks approached this cultural distance by adapting the store design by offering a spacious layout and more of a sit-down coffeehouse experience by serving several types of teas and Chinese cakes (Peterson, 2014). Historical and political associations can further create or reduce administrative distance. The United Kingdom may lead to a reduced administrative distance with Starbucks because of past colonization of the United States. However, very few foreign countries use the U.S. dollar, which creates an administrative distance. After recognizing that these challenges created threats to Starbucks’ success and vision of becoming one of the world’s most well known and respected brands, the company made structural changes early in 2011?(Starbucks Announces, 2011). Reorganizing a company’s structure and recognizing the company’s faults is the best way to minimize administrative heritage. Starbucks realized that their administrative heritage, being from the United States and representing the American way of life, does not work for its strategy of expanding all over the world. Starbucks had the mentality of only two separate locations, the United States and the rest of the world. The restructure introduced more regional organizations, and Starbucks referred back to their original values and began to focus again on customer service, which was neglected during its rapid expansion (Starbucks, 2015a).Multiple demands need to be taken into consideration and top management has to be willing to reassess its organizational structure when needed. Starbucks announced a new leadership structure to accelerate global growth by establishing three regional organizations: EMEA, China/Pacific, and Americas ?(Starbucks Announces, 2011). Starbucks’ foreign subsidiaries represent a large portion of their total net revenue. The Americas had total net revenue, in millions, of $11,980.50. While EMEA had $1,294.8, China/Asia Pacific $1,129.6, Channel Development $1,546.0, and All Other Segments $496.9 (Starbucks, 2014). Due to the high volume of foreign sales and foreign product diversity, Starbucks organizes around a global matrix. The global matrix balances between centralized efficiency and local responsiveness and must have multiple channels of communication and control. ?(Bartlett and Beamish, 2013, Chapter 4, p. 275-279). The new structure views the foreign subsidiaries uniquely and adapts to their culture as in the example of the joint venture with Tata Global Beverages. The main headquarters in Seattle oversees the foreign subsidiaries as well as the regional headquarter in London. Starbucks’ resources and capabilities are distributed and specialized and can be harnessed for the benefit of the total organization (Bartlett and Beamish, 2013, Chapter 4, p. 285). Starbucks operates in six farmer support centers that are staffed with agronomists and sustainability experts who promote the current best coffee production design and improve both coffee quality and yields (Starbucks, 2014). Relationships are built with the coffee producers and dairy suppliers, which in return, makes the risk of non-delivery remote. The manufacturing, warehouse and distribution, and roasting and distribution locations are also part of the integrated network and have shared decision-making within the company. Starbucks has a large complex process with large flows of products, resources, people, and information, creating an integrated network (Bartlett and Beamish, 2013, Chapter 4, p. 283-286). However, Starbucks still has some centralized hub qualities by trying to maintain and protect the company’s name and ensure that each store has consistent quality (Shreiner, n.d.). A tight, formal system is used to ensure that quality is maintained throughout the organization. Although, the structure also has some characteristics of a coordinated federation model (Bartlett and Beamish, 2013, Chapter 4, p. 280), by allowing some cultural adaptations, all the stores are dependent on the parent company for new ideas and resources. The foundation of Starbucks’ success lies in the company’s use of global efficiency, multinational flexibility, and worldwide learning through innovation. These key aspects result in Starbucks’ transnational strategy, creating a worldwide competitive advantage and are the key drivers of Starbucks success (Bartlett and Beamish, 2013, Chapter 2, p. 114-116). The transnational strategy enhances performance and uses innovation as a way to reduce costs and increase revenues. The European Regional office in London reduces logistical and coordination costs but also works interdependently with the Headquarters in Seattle, Washington. The first goal is to achieve global efficiency. Starbucks’ sourcing of resources and distribution processes are worldwide and efficient, which achieves global efficiency. Raw materials are sourced from multiple locations, such as Ethiopia, Sumatra, and Indonesia (Starbucks, 2015a). Since Starbucks outsources, this enables the company to reduce costs and increase revenue. Cost efficiency is enhanced by the global integration of economies of scale and economies of scope. (Bartlett and Beamish, 2013, Chapter 3, p. 192-194) Economies of scale is accomplished by selling its basic products, whole coffee beans, in stores and online in large quantities, which distributes the fixed cost and lowers the cost per unit. Starbucks also sells a variety of products, where economies of scope are beneficial. Among others, these diverse products include equipment such as coffee presses, brewers and infusers and multiple collections of drinkware, such as travel mugs and holiday drinkware. Due to the implementation of global integration, Starbucks has increased their revenue and have become nationally responsive.Starbucks’ second aim for its transnational strategy is to incorporate multinational flexibility. (Bartlett and Beamish, 2013, Chapter 2, p. 106-111) It responds to local market needs by paying respect to different cultural and national characteristics and tastes. Starbucks offers different varieties of beverages and food in each country. One can have a Charcoal Walnut Raisin Bun in Thailand, Algarrobina Frappuccino in Peru or Lox on a Bagel in Germany. (Misener, 2014.) Although its stores have the same basic outline cultural adaptations occur. For example, in Starbucks China is not so much of a coffee-to-go place, but a store where you can have a nice chat with your friends and enjoy the silence after a busy day along with your well deserved tea (Peterson, 2014). When expanding abroad, Starbucks has to reduce macroeconomic, competitive, resource, and political risks. (Bartlett and Beamish, 2013, Chapter 3, p. 194) To reduce macroeconomic risks, Starbucks has different prices in different countries to diminish the effect of changing exchange rates. Environmentally scanning is in place to look for competitive risks and must respond to competitors to secure their customer base. Starbucks’ competitors include quick service restaurants and specialty coffee shops (Starbucks, 2014). McDonald's, for example, opened up McCafe, which offers several types of coffee in a coffee-to-go setting. To reduce competitive risks, innovation is essential. The company can do little to mitigate the political risk, which poses a constant threat to its revenue and market position, but sourcing resources from foreign countries helps diminish the possibility of resource risk. The third key to Starbucks transnational strategy is the process of worldwide learning (Bartlett and Beamish, 2013, Chapter 2,?p. 111-112). Innovation poses a constant challenge for companies, but it is essential to be successful in the 21st century. In 2014, Starbucks created several innovative products that ranged from new specialty beverages to a new mobile payment app. Teavana Oprah Chai Tea was personally developed by Oprah Winfrey. With each purchase, Starbucks makes a 25-cent donation to the Oprah Winfrey Leadership Academy to benefit educational opportunities for young people (Starbucks, 2015a). This innovative product blends a social value into Starbucks’ economic mission. In order to stay competitive, another innovation was developed to retain their position as a mobile space leader. Starbucks introduced digital tipping in 2014, which allows the customer to show their appreciation by tipping through the Starbucks app. A new feature, currently in its experimental stages, released to a few markets, allows customers to place their orders in advance and pick them up at their chosen Starbucks store (Starbucks, 2015a). Starbucks has invented over 40 different types of Frappuccinos for the worldwide market. Some of these innovations were created especially for meeting the needs of emerging markets (Starbucks, 2015a). The company saw potential in these innovative local creations and introduced some of them into their stores in the developed world to stay up-to-date and offer their customers a new experience, for example the Tiramisu Frappuccino was invented for the Chinese market and was a temporary special in the United States (Bartlett and Beamish, 2013, Reading 5-2, p. 441- 445; Govender, 2014). Another type of innovation is open innovation, which seeks external help to develop new products (Makower, 2012). By establishing a platform for open innovation, Starbucks can directly ask their customers what kind of products they want to see at Starbucks in the future. The company has a website called mystarbucksidea., where customers can post what kind of new product they would like to see in Starbucks’ stores. They can also advise the management to change some features in its procedures and suggest technological innovations. Some of the ideas collected this way are already launched. Starbucks now has a delivery system in Seattle, it has Wheat-Free Omega 3 Bistro Box, Reduces-Fat Cinnamon Swirl Coffee Cake, and sells Mocha-Coconut Frappuccino again by popular request (mystarbucksidea, 2015).Due to the extensive global network of Starbucks stores and its transnational strategy, the company sees itself in a leading position to use its platforms and resources to create opportunities for its people, as well as for the communities Starbucks serves (Starbucks, 2015a). The Starbucks Foundation is a charitable organization that is funded by the Starbucks Corporation and private donations. The foundation supports several different projects aiming to create opportunities for employees as well as for suppliers. The Starbucks College Achievement Plan is a collaboration between the foundation and Arizona State University (Starbucks, 2015a). Starbucks offers full tuition coverage each year of college to earn a bachelor’s degree to create the future Starbucks workforce. The basis of the Starbucks mission is the high-quality of its sources, therefore, Starbucks aims at a 100% ethical sourcing strategy to ensure a long-term supply of high quality coffee for its customers and to positively impact the lives and livelihoods of coffee suppliers and their communities (Starbucks, 2015a). In 2004, Starbucks launched Coffee and Farmer Equity (C.A.F.E.) Practices, one of the first set of comprehensive sustainability standards in the coffee industry. New practices that reduce emissions, improve carbon storage through shade and conservation areas, and proactively manage climate risks from pests and disease are further objectives of this project. The first results from 2014 were 96% of the coffee met the Starbucks standard, with 95.5% C.A.F.E. Practices, and 8.6% Fairtrade certification. Starbucks also offers financial aid to coffee and tea farmers, which has grown from $150,000 in 2000 to $12 million in 2014 (Starbucks, 2015a). Starbucks’ partnership with ?(RED) the company raised more than $13 million that will go to the Global Fund to help finance HIV/AIDS prevention, education and treatment programs within Africa, where most of the coffee suppliers are located. Starbucks can be seen as a responsive organization, because it is sensitive and responsive to needs and problems of the environments it operates in (Bartlett and Beamish, 2013, Chapter 8, p. 634 - 636).Starbucks Foundation was created to have a positive impact on the environment they are operating in for their employees and suppliers. However, it has been noticed that the Starbucks Foundation does not address these issues thoroughly in all locations. While providing approximately 191,000 jobs to people worldwide, Starbucks fails to respect the rights of its employees. For example, Starbucks baristas are faced with inferior working conditions, failure to be paid a livable wage, and an insecure work schedule. The wage paid by Starbucks is as little as $6.25 per hour and baristas typically work part-time with work hours fluctuating on a weekly basis depending on weekly store sales (Wiley, 2012). Another criticism concerns exploitation of coffee suppliers. Claiming to support the welfare of coffee farmers in developing countries, in order to be portrayed as an ethical corporation, Starbucks is accused of manipulating and underplaying local workers. Farmers are paid only $0.57 per pound of Ethiopian coffee, which is roughly 2.2% of the projected retail price. These low prices force children to work on their family farms. Many people do not hesitate to spend $3 on a Starbucks’ coffee, while many are unaware that this simple expense is the ‘equivalent to the daily wage of a Starbucks Central American coffee picker (Wiley, 2012). In this paper the authors’ goal is to demonstrate how a successful and widely known company like Starbucks can manage the corporation to achieve rapid global expansion and stick to its core values at the same time. It does so by pursuing a transnational strategy, which allows it to enhance its efficiency on a global level, be responsive on a local level by offering products that are close to the customers’ tastes and to take advantage of innovations. It recognizes its customers’ wishes by creating a channel for open innovation. It expanded internationally leaning mostly on company-owned subsidiaries and joint ventures, which make the high management and quality controls possible. Joint ventures enable Starbucks to share the risks and costs with its partners, and to gain advantage from its partner’s market knowledge. The joint ventures enable the company to minimize the geographic, cultural, economic and administrative distance, which pose risks when entering foreign markets. Flexibility is also a key to success, and Starbucks is willing to alter the company’s structure when it is necessary, as demonstrated by its recent reorganization. Some dispute the accomplishments of the company by arguing that its leadership position, in terms of corporate social responsibility, still needs improvement and that Starbucks does not take its commitments seriously enough. The company has indisputable social and environmental awareness as demonstrated by Starbucks offering tuition coverage, being involved in education programs, founding a charity organization and proactively managing environmental risks. For Starbucks to be able to secure its market position, investing further in social projects and converting its responsive company into a transformative one, would be wise. Starbucks can then demonstrate their commitment to their leadership position in social responsibility, especially in developing nations. Due to the very nature of the product, which aims to satisfy different consumer tastes and preferences all around the world, it is of special importance to respond to the customer needs and demands on a local level, while ensuring global efficiency in as many value chain activities as possible. To keep up with the high competition in this industry worldwide learning becomes a necessity. To be successful and achieve its vision of becoming the world’s best-known brand, Starbucks should further pursue its current transnational strategy.ReferencesBartlett, C., & Beamish, P. (2013). Transnational management: Text, cases, and readings in cross-border management (7th ed.). Chicago: ender, S. (2014). Unusual Starbucks Frappuccino Flavors Around the World. Retrieved December 4, 2015, from Makower, J. (2012). Why Unilever is betting on open innovation for sustainability. Retrieved December 4, 2015, from , J. (2014). 20 Starbucks Items You Can't Get In The U.S. Retrieved November 4, 2015, from Starbucks Idea (2015). Company Information. Retrieved December 3, 2015, from Peterson, H. (2014). 5 Ways Starbucks Is Different In China. Retrieved November 4, 2015, from , E. (n.d.). Starbucks & Its Organizational Design. Retrieved December 3, 2015, from (2014). Fiscal 2014 Annual report. ?Retrieved from Starbucks (2015a). Company Information. Retreieved November 5, 2015, from (2015b). Fortune ?Retrieved November 5, 2015, from ? Starbucks Announces New Leadership Structure to Accelerate Global Growth. (2011). Retrieved December 3, 2015, from phoenix.zhtml?c=99518&p=irol-newsArticle&ID=1584009Wiley, G. (2012). The Truth Behind Starbucks. Retrieved December 3, 2015, from ................
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