Introduction

Describe about the Case Study Analysis for Starbucks Foreign Direct Investment?

Generally, when global corporations explore entering global markets, they employ entrance methods such as licencing, franchising, joint ventures, and mergers and acquisitions. For instance, ‘Pierre Cardin’ expanded their global business by sheer licencing, while Mcdonald’s leveraged its innovative franchising model becoming the world’s biggest store. As a result, a strategic mix of entrance techniques might be considered a key component for giant enterprises seeking to expand into new regions.

While Starbucks began to increase its customer base outside of the U. S., “cafe culture” didn’t even exist in many nations, especially Countries in Asia. As a consequence, Starbucks needed to promote coffee culture, and the company used a marketing technique known as “Cult-duct” to do so. As a result, Starbucks made the decision that capital investment, joint – venture, and entire businesses, rather than leasing and partnerships, would be more suitable for delivering not only physical assets such as coffee and biscuits but also a perfect coffee culture symbolised by a metropolitan and classy picture (Ivankoe 2015). Starbucks has efficiently managed to handle its efficacy is a key, such as high-quality espresso, monthly training of employees in customer support, and shop managerial know, throughout this approach.

The Coffee Bean & Tea Leaf

In regards to foreign business, several of Starbucks’ rivals have picked a different way. “The Coffee Bean & Tea Leaf” is an amazing illustration (hereafter, The Coffee Bean). For overseas operations, The Coffee Bean has revised its franchising strategy. The Coffee Bean operates around 745 cafés in 20 countries as of 2008. It has approx. 279 cafés under direct control and 444 cafés run by franchisee.

When a business enters into a licencing agreement with a license holder, it has access to the licensor’s copyrights, understand exactly, trademark rights, and technologies. Franchises, on the other hand, permit franchisees to seek support from the licensee in aspects of management and operations, operating mechanisms, and marketing (Ivankoe 2015). In other terms, the franchisor may be intimately engaged in the operations of the franchisor.

1. Licensing can be understood as an external business transaction that involves the acquisition of property rights and technological licenses for a price. It is a non-equity technique of international expansion that is frequently adopted by businesses because of the licensor’s very minimal risk and cost. The fundamental issue with licencing, meanwhile, is limited control on licensee’ processes (Ivankoe et al 2016). It’s particularly necessary for Starbucks, because the successful internationalisation of its “Starbucks Formula,” which is focused on delivering quality goods, empowering staff, and providing a great customer experience, is dependent on the proper application of its “Starbucks Formula”. Starbuck’s concern with licencing and its limited control arose from the firm’s global expansion into geographic regions that were diverse from the US both in terms of market development and improvement (Ivankoe et al 2016). As a result, the business continued to explore different globalization approaches, such as strategic partnerships (Japan) or perhaps even expanding through its own branches.
2. The major benefit of strategic partnerships over mere licencing is that Starbuck can retain strong control throughout its new ventures. Starbucks can preserve ultimate control over its operations worldwide while mitigating risk and getting speedy access to markets by close collaboration with its external partner to achieve joint objectives. In addition, strategic alliances are beneficial in areas where no market players are capable of fulfilling the parameters for developing a Starbuck licence. Starbuck may certainly assist partnerships by giving information and sharing resources by establishing strategic partnerships.
3. Starbucks evaluated the massive benefits of Jvs over integrating via an owned subsidiary while deciding on their entry strategy. First, by pooling investment risk and internationalisation costs with the joint venture company, strategic alliances assist in reducing these. Second, strategic alliances provide leverage to the partner’s specific market expertise and market position. As a result of the collaboration with Sazaby Inc., Starbuck now has exposure to the Japanese company’s distribution system. Strategic alliances, on the other hand, bring with them a range of risks.

As a result, it may lead to the loss of management control by the parent company, exploitative behaviour by the local presence, or even confrontation. Strategic alliances are also inappropriate in underdeveloped markets where selecting the ideal partner is challenging. Starbucks decided to penetrate these nations through its own subsidiaries in such situations (Ivankoe et al 2016). If the approach focuses on the acquisitions of a rival company, this entrance mode provided for the greatest command over processes, as well as the reduction of competitors and the earliest entry into the market. Furthermore, the subsidiary company assist to minimize the chance of firm know-how and expertise being disseminated, protecting Starbuck’s specialist knowledge from being propagated.

4. The internationalisation principle could be used to analyze Starbucks’ approach for overseas operations. The requirement for supervision, accessibility to know-how and local supermarket expertise, and the significance of tacit capacities are all factors to be considered when picking the right entrance strategy. The first reason describes why Starbucks decided to pursue certain countries, such as the UK and Vietnam, by acquiring local players and forming branches. Starbucks leveraged joint ventures for its internationalisation plans for the second and third causes, correspondingly.

Strategic alliances were more acceptable than different forms that needed less engagement in terms of funding and risks because of the relevance of implicit characteristics such as employees ’ motivation and the potential to produce distinctive consumer experiences (Amati 2006). Further, the requirement for local supermarket expertise, which may have been obtained and absorbed faster via strategic partnerships instead of through mere licencing, might probably explain the adoption of JV.

Conclusion

Firstly, should Starbucks confine its FDI to India? As already said, it has suffered from red tape. Finally, they are still unable to access the Market in India, although their rivals have done so.

Secondly, was this a wise decision for Hollys Coffee to explore the franchise market while also pursuing a strategy of offering Korean Traditional coffees? Logically, it would not use the FDI mode of entry because it is unknown and unfamiliar with the local environment. Isn’t it, nevertheless, incompatible with 2 ill-advised techniques?

Each mode of entry has its own blend of upsides and downsides. As a consequence, it is vital to select a mode of entry that is adequate with each corporate structure. Although the business will be the same, this could be risky to access every country with much the same mode of entry. The issue that Starbucks had in India, as well as the problems that Hollys Coffee is expected to encounter, demonstrate how perilous it is.

As a consequence, even if a business intends to spread its same business globally, it is suggested that it use multiple entrance tactics based on every country’s rules, cultural, political, financial, and psychosocial factors.

References

Amati, A. (2006). Ownership and control of foreign direct investments (Order No. 3243325). Available from ProQuest One Business. (305305243). Retrieved from https://www.proquest.com/dissertations-theses/ownership-control-foreign-direct-investments/docview/305305243/se-2?accountid=30552

Ivankoe, J. (2015). Starbucks: In the front row, partner (employee) & digital investments paying off. (). New York: JPMorgan Chase & Company. Retrieved from ProQuest One Business Retrieved from https://www.proquest.com/reports/starbucks/docview/1730617685/se-2?accountid=30552

Ivankoe, J., Barbarula, M. J., & Alex Mergard, C. (2016). Starbucks: Relieving, given all the worry. starbucks offers growth at A reasonable price. (). New York: JPMorgan Chase & Company. Retrieved from ProQuest One Business Retrieved from https://www.proquest.com/reports/starbucks/docview/1837932089/se-2?accountid=30552