BUAD 420 Homework 2 International Business Maria Rodriguez Starbucks Case April 20th 2011 Dr. Ali A. Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why? It did expand internationally by licensing format to foreign operators because this strategy did not give Starbucks the control needed to ensure that the licensees closely followed Starbucks’ successful formula. This lead starbucks to believe that a clear agreement would not give the company the power to guarantee the international license they were looking forward to get.
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B. Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures to whom it licenses its format, as opposed to a pure licensing strategy? Starbucks has now selected to expand internationally primarily through local joint ventures rather than using the licensing format because it definitely gives starbucks the control of its success principle they keep following and includes that both owners having the responsibility of increasing the business they created.
It is clear that Starbucks strategies had been innovated, in the way that it doesn’t want to upset directly new companies coming up in other countries, Starbucks has been operating in foreign markets by sharing the costs of being international, working on the advantages the foreign joint owner may provide, and also preparing the foreign working party by some trainings given by American employees.
Example: In Japan, Starbucks decided to train the foreign working party by transferring some employees from the USA, so they could teach them the way to deal with customers and to follow the “Starbucks essence” in their behavior. C. What are the advantages of a joint-venture entry mode for Starbucks over entering through wholly owned subsidiaries? Some of the advantages of a joint-venture entry mode for starbucks is the lower risk associated with the government when opening new stores and studying the different and new culture in the host-country.
The benefit of the knowledge coming from local partners in the countries the new stores are going to open taking its competitive conditions, language and culture as a major advantage for the company. One last important advantage starbucks has is that they always save expenses to have the best strategy to create an excellent combined venture and compete with the other companies that do not have this approach on them. On occasion, Starbucks has chosen a wholly owned subsidiary to control its foreign expansion (e. g. , in Britain and Thailand).
Why? Starbucks has chosen a wholly owned subsidiary to control their foreign expansions because they have always been interested into common business understanding when they get both of the owners to invest in the business and be able to reach the planned goal that was opening 20 stores in Thailand within 5 year range and get a total control of the foreign expansion strategy and at the same time reducing al the financial risks and complete the expansion and prove to themselves that choosing wholly owned subsidiary was a great and success idea.
D. Which theory of FDI best explains the international expansion strategy adopted by Starbucks? Internalization Theory is the best FDI theory that explains perfectly the international expansion strategy adopted by starbucks because it does not refers to commerce barriers payments that is the main reason for not letting starbucks export its products and in the knowledge fact giving the customers the service that just starbucks can provide.
It is also important to describe the relation between location advantages and strategic behavior that provides to the store important benefits on its international expansion. This international expansion strategy adopted by Starbucks is mainly managed to have presence in as many countries as possible, of course it will give Starbucks enough revenues and a better value brand. Starbucks has entered to many countries by analyzing the possibilities to create long-term value; taking advantage of the opportunities this service (coffee stores) might have if the joint owners worked together to improve the results.