Introduction
Starbucks Corporation is a leading coffee company in North America. The company‘s history dates back to 1971 when it started as a tiny sole coffee house with Gordon Bowker, Jerry Baldwin, and Zev Siegl as the pioneers. Within the first twenty five years of its operation, the company had only managed to expand internationally.
During this period, Starbucks opened several outlets for example in Chicago and also started producing other products for example Frappuccino beverages and Starbucks Ice Cream. It was not until the year 1996 that the company began oversees expansion with Japan being the first country where they set up their operations, followed by Hawaii and Singapore in the same year. In this paper, the foreign direct investment as a method of expansion adopted by Starbucks is going to be tackled.
Starbucks foreign direct investment
Starbucks prepares products like coffee and supplies it to user across the globe. According to Aswathappa (p. g 100), the company has made huge investments all over the world.
The company started as a single store in Seattle over 30 years ago but today, Starbucks is a global roaster and retailer of coffee. The company currently operates in about 40 countries outside US having 13,000 stores in total. According to Aswathappa, “the investments made by starbucks in 40 countries outside US are typically of Foreign Direct Investment (FDI)” (Aswathappa pg. 100).
When Starbucks began its ventures abroad, the strategy used was licensing the format of the company to foreign operators. With time, they were disappointed because they lacked the full control over such a company and hence were not able to achieve their intended aim of producing the best quality coffee and its products and customer satisfaction.
Starbucks therefore adopted another method of venturing into international market: The foreign direct investment. Using this method, two patterns are involved. New operations investment method involves the setting up of business that was non existent in the foreign country. The other method is the fusing or purchasing of an already existing company in the country.
Starbucks has used both methods to expand internationally but has majorly used the second method. Joint venture with another company abroad gives it several advantages over the first method: the new operations investment method. This is because the second method is relatively cheap as there is no much cost involved in the setting up of factories but they use the already existing equipment of the company they are merging with.
The other advantage is that Starbucks shares responsibilities with the foreign company. The benefit from such a venture is mutual. Starbucks benefits from the foreign company’s familiarity with the local culture, language and other important factors like the political situation of the host country (Aswathappa p.g 101). On the other hand, the company benefits from Starbuck’s expertise and other important skills needed in the success of the business that both parties would not come up with on their own.
Starbucks has also ventured into oversees market through purchase of foreign companies. This also solves the problems of cultural disparity that could be a factor if they set up new operations in the country. Other problems like the high cost of purchasing and setting up of equipment are reduced.
Japan is an example of a country where foreign direct investment has worked for Starbucks. When Starbucks started its operations in Japan using the licensing method, they were disillusioned because they did not have the control they wanted over the company.
They later corrected this by having a joint venture whereby both companies had equal and shared responsibilities. Starbucks also offered to train the people working in the company by sending some of their employees there. The training would include customer service and other core values held by Starbucks.
Works Cited
Aswathappa, Kalupally. International Business 4E, chapter 4. India: Tata McGraw-Hill Education, 2010. Web.