Entering foreign markets

Running head: PRINCIPLES OF INTERNATIONAL BUSINESS 1
Principles of International Business
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PRINCIPLES OF INTERNATIONAL BUSINESS 2
Entering foreign markets
There are several modes of entry in international markets, and each mode depends on the
situation in the domestic market and also the availability of resources ( Hill, et al., 2016). Some
of the modes of entry include exporting, importing, franchising and foreign direct investment,
among others. The benefits and drawbacks associated with each mode of entry depend on the
costs of transport and the level of trade barriers, political and economic risks, firm strategy and
the level of risks in a particular country.
Franchising is primarily a specialized type of licensing where the franchisor not only sells
intangible products to the franchise but also ensures that the franchisee agrees to adhere to the
strict principles of how the business gets conducted. An excellent example of franchises includes
McDonald’s in Australia and has made the company become one of the successful ventures in
Australia.
Some of the advantages associated with franchising are that a firm is better positioned to
eliminate costs and risks associated with establishing new premises in a foreign market ( Hill, et
al., 2016). Starbucks would have saved significant amounts of money through franchising.
However, it went on losing huge sums through the premises that it had established following its
decisions to have such premises closed due to poor performance in the Australian market. The
other advantage associated with franchising is that it enables a company to expand globally at a
faster rate. Thus, in the case of Starbucks, it would have grown faster in the Australian market
using franchise strategy as it would have learnt the culture of Australians regarding beverages
such as coffee that are highly valued in such a highly competitive market.

PRINCIPLES OF INTERNATIONAL BUSINESS 3
Starbucks corporation began its fiscal year in 2016 on high gear as the company recorded
significant sales growth compared to its other years based on reporting segments (Team, 2016).
It is such an outline that has seen Starbucks a specialty coffee enterprise to establish its
development success and prospects in the Asian markets. Some of the strategies responsible for
the success of the company entail
The increasing number of stores
Starbucks is not only focusing on increasing its customer base but also transforming its
blending with regards to its stores. Starbucks is now focusing on drive-thrus specifically in the
exterior parts of urban and suburban regions as opposed to increasing more dine-in restaurants.
Moreover, Starbucks established it express stores that were operated as walk-thrus in cities such
as New York, Boston and Seattle. Such a technique focuses at boosting Starbucks store
penetration. However, Starbucks expressed its concerns regarding the increasing growth of new
store openings due to cannibalization. However, the company is optimistic that it will experience
the 5% minimum relative sales growth in the US market.
What went wrong with Starbucks Australia
One is that during launching, Starbucks launched rapidly failing to give the Australian the
chance to develop the appetite for the company’s brand (Turner, 2018). The other thing is that
the Australian culture deemed to be already thriving became a problem for the American brand.
The Australians also compete in areas of barista competitions and thus enrol for coffee making
classes; hence they consider their coffee seriously. It was also reported that Starbucks failed to
align with the Australian’s tastes and preferences. Starbucks offered sweeter coffee varieties
compared to the Australian’s preferred and also Starbucks charged more than what local cafes
charged. Starbucks failed to have its business model localized, and this led to huge problems for