BUSM 3311 - International Business Assignment

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RMIT International University VietnamBUSM 3311 – International BusinessA11Subject Code:BUSM3311Subject Name:International BusinessLocation & CampusRMIT Vietnam , HCMCClass Group Number:02Student name:Dang Hong Thu ThaoStudent Number:3778772Your Teacher:Tzach RonenWord Count:1300
THE FAILURE OF STARBUCKS IN ISRAEL1.Introduction:Nowadays, the term "globalization and internationalization” is no longer strange to everyone because of therapid development of many multinational firms. However, not all corporations succeed when investingabroad and Starbucks is no exception (Internationalbusinessguide 2013)Meticulously, April 2003, Starbucks, the largest coffeehouse company in the world, with 21.000 stores in65 countries, had to close its 6 stores in Israel after almost 2 years of experiencing a harsh struggle tosurvive (ThetimesofIsrael 2014). This essay will clarify and investigate the problems using internationalbusiness theories to present recommendations what should be done to deal efficaciously with the failure ofStarbucks.2.Analysis:a.Background:Starbucks first started to participate in the coffee market in 1971, however, at that time, the CEO ofStarbucks did not have any intention of expanding its operations internationally. In 1987, Starbucks beganto internationalize by opening its first chain in Canada, a neighbor country of America. And the firstCanadian store was located nearby the Starbucks’ headquarter within 200km. The reason could beresponsible for this internationalization was the geographical closeness. Moreover, psychic distance isfrequently linked to geographical distance. Therefore, with the entrance of Starbucks to Canada can bemainly understood of the psychic distance approaching from the Uppsala Model theory of Johanson (Cabral.J, 2015).In addition, according to RMIT materials, the level of success in foreign countries of a firm mainly dependson the 3 factors are ownership advantages, location advantages and internationalization advantages, which iscalled ownership location internationalization model (OLI Model). Particularly, the success of Starbucks'internationalization in Japan, Singapore, New Zealand, Taiwan and the Philippines was the root of takingadvantage of not onlyownership advantages(growing GDP per capita, brand value and increasingAmericanisation) but also several locations (Cabral, J. 2015). For this reason, the application of theOLIparadigmof Starbucks in those countries between 1996 and 1998 could be seen as a praiseworthyachievement.2
After making some marketing campaigns and public relations activities,Starbucks opened its first store inTel Aviv in May 2001. According to Avner Barnea, Tel Aviv customers were known to be the leaders incatching up with new trends. Due to their high wages, they frequently went on a trip to foreign countries orvisited new coffee brands. Consequently, Tel Aviv could be seen as an influence on other parts of Israel.Therefore, senior managers assumed that the success in Tel Aviv could lead to its expansion in other partsof Israel. However, things didn't go well as Starbucks had analyzed Israel's market before and there aresome vital reasons responsible for this severe failure of one of the most well-known coffee brands.b.Problems:a)Cultural failure:First and foremost, according to Sagejournals, Starbucks had not thoroughly researched Israel's culturebefore investing in Israel. For the cultural norm of Israel, Israelis have a preference for sitting with a glasscup of coffee and chatting with friends until the coffee turns cold. Nevertheless, based on Twoheads, thenotion of “grab and go” is the standard of Starbucks chains everywhere and thus, it didn't provide Israeliswith enough seats which led to only one option was getting a to-go cup and leaves. As a result, it madeIsraelis feel “rushed” and it led to the downward trend of those who come to Starbucks for a second time.Therefore, a factor made Starbucks struggle in Israel was the culture of one particular nation. According toRMIT material, culture is how firms and managers govern and operate in society relied on the rulesdetermined by the cultural's society.b)Overconfidence:Another reason is that Starbucks was overconfident (Kalnins & Stroock). Moreover, overconfidence canhave some severe consequences. Researchers have suggested that overconfidence as a justification for war,strikes, lawsuit and entrepreneurial failures (Moore & Healy) .Specifically, Starbucks supposed that Israelconsumers would be willing to pay money for its specific reputation such as sourced brews, named drinksand hipster coffeehouse (Twoheads 2018). However, for Israelis, the most attractive thing is the flavor ofthe coffee. In contrast, the standard American coffee as Starbucks makes Israelis taste likeweaklyflavored hot water while Italian coffee chains in Israel could provide them withstrong and flavorful taste as a cup of macchiato or espresso (Haaretz 2015).Moreover, theventi iced mochaccino of Starbucks did not taste as well as the one they could get on thestreet while its price was double in comparison with the street's price (Barnea 2011).3
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