Abstract
Firms, in the era of globalization, are under competitive pressure to innovate and grow. An important growth strategy is to expand into foreign markets. International expansion must be grounded in strategic decisions on the product or brand, the best country for starting overseas operations, and the appropriate entry approach and timing (Lee, Madanoglu, & Ko, 2013). Country market selection is a complex decision that involves multiple criteria, including the macro-economic landscape. This paper involves a multi-attribute country evaluation to identify three candidates for the entry, further penetration, and future divestment of an American specialty coffee brand, Starbucks.
Selection Criteria
Preliminary screening based on four attributes – operational risk, political risk, and competitive risk will give the ‘distance’ between overseas markets and the US to inform future entry, penetration, or exit.
Future Market Development
The analysis focuses on three alternatives/countries without Starbuck’s operations, namely, Cuba, Italy, and the Dominican Republic.
Table 1: Multi-attribute Evaluation of Countries for Future Market Development
Based on the comparative analysis, the selected country for future market development in Italy. Although the cultural distance is large, an established coffee culture makes Cuba is not attractive for Starbucks’ espresso coffee due to political and operational risks. The Dominican Republic market size is less than that of Italy.
Further Market Penetration
Starbucks already has operations in several countries. The foreign markets that provide opportunities for the brand to grow its market share include China, India, and South Korea.
Table 2: Multi-attribute Evaluation of Countries for Further Market Penetration
From the analysis, the selected country for further market penetration in India. The demand is high (younger working population), resource availability (coffee and labor), and Starbucks already has an established supplier (Tata). Further, the cultural distance is small due to common language and westernized youth. Therefore, there is profitability potential in India. In Singapore, industry competition is intense, while in China the quality of demand is low since most people prefer tea to coffee.
Future Divestment
Political, economic, and competitive risks may reduce coffee industry opportunities in some markets where Starbucks has operations. The three countries considered in this analysis include Australia, Spain, and New Zealand.
Table 3: Multi-attribute Evaluation of Countries for Future Divestment
Based on the analysis, the selected country for future divestment is Spain. It lacks the American coffee culture and is predominantly a Spanish speaking country. Further, recent secession campaigns have increased political intolerance in some regions. It is also a mature market with many players. Starbucks, with local adaptation of its espresso coffee, can do well in Australia and New Zealand.
Appropriate Market-entry Strategy
Firms use three major strategies to enter new markets: “licensing, strategic alliances, and investment” (Keegan & Green, 2015, p. 285). Starbucks should use the investment option (joint venture) as an entry mode into the Italian market. The selection of this strategy over other international expansion approaches – licensing and exporting – is due to the following reasons. First, the firm does not an extensive understanding of the Italian market. Thus, shared ownership through a joint venture will help spread risks related to financial and political uncertainties (Lee et al., 2013). Further, pursuing a joint venture with a local partner will help Starbucks to learn more about the Italian market. A wholly owned subsidiary may not be appropriate given the huge risks involved in new markets.
Starbucks will also benefit from established value chains – access to raw materials, labor, and distributors – if it forms joint ventures with local players (Keegan & Green, 2015). Further, the competitive intensity in the Italian market requires an entry mode that guarantees a high degree of operational control. Licensing or franchising may not give Starbucks adequate control of its Italian operations. Italy is a mature market; it has a number of specialty tea (cappuccino) providers. Starbucks requires an entry strategy that gives a higher level of control to contend with high competition. This mode is the joint venture approach.
Global Product-planning Strategic Alternatives
Starbucks must develop and adopt effective marketing programs to strengthen its competitive position of its coffee brand internationally. It can utilize any of the four generic global product planning strategic alternatives: “dual extension, product extension-communication adaptation, dual adaptation, and product adaptation-communication extension” (Keegan & Green, 2015, p. 334). The chosen strategic alternative for Starbucks is the dual adaptation option. It entails adopting the “product and one or more promotional elements” to local condition or preferences (Keegan & Green, 2015, p. 338). The American coffee culture and consumer preferences differ from those of the Italians.
Regular espresso coffee is different from the cappuccino served in Italian bars and outlets. Therefore, Starbucks should employ dual adaptation strategies by developing a new formulation with cappuccino-like taste and flavor for this market. In addition, product packaging, outlet design, coffee mugs, and media ads should reflect Italian preferences.
Degree of Standardization
Positioning
A differentiated marketing strategy is critical in market penetration. Positioning entails brand differentiation to address a full-range of market needs (Lee et al., 2013). It may involve attribute-benefit or quality-price positions. Starbucks can position itself as premium-priced, high-quality espresso coffee, relative to other brands, to appeal to the global consumer culture, as shown in Figure 1 below. In this regard, no local adaptations will be necessary, as the firm will differentiate its offering as standardized (global), premium, and trendy coffee.
Brand Name
Branding helps create positive impressions (brand image and equity) in the minds of customers. Associated benefits include improved consumer loyalty, greater margins, inelastic demand change when prices are hiked, etc. (Keegan & Green, 2015). Starbucks, being a global brand, should retain its name, but adapt visual aesthetics – product color and shape – to local tastes. In addition, product labels should be in the national language.
Packaging/Product Design and Features
Packaging and associated features not only protect the product, but also communicate the brand’s value proposition to influence consumer purchase choices (Keegan & Green, 2015). Therefore, standardized distinctive features will enable coffee drinkers to distinguish Starbucks from other espressos. However, the design of the coffee mug can vary by country. The local adaptations will be necessary to meet regional or national labeling requirements. The visual aesthetics, such as color or shape, should reflect known national consumer preferences. Table 2 below shows the degree of standardization of aspects of packaging.
Advertising Strategy
Starbucks, given its global brand status, should use an international advertising strategy to market its brands. According to Keegan and Green (2015), global advertising refers to “messages whose art, copy, headlines, photographs, and taglines” are suitable for a worldwide audience (p. 420). Standardized ads that appeal to consumers globally will enable Starbucks cut costs related to the development of new adverts for each country.
References
Keegan, W. J., & Green, M. C. (2015). Global marketing (8th ed.). Upper Saddle River, NJ: Pearson Education.
Lee, K., Madanoglu, M., & Ko, J. (2013). Developing a competitive international service strategy: A case of international joint venture in the global service industry. Journal of Services Marketing, 27(3), 245-255. Web.