MGT205 Report: Starbucks' Failure in Australia - Reasons and Analysis

This report provides a comprehensive analysis of Starbucks' failure in the Australian market. It begins with an executive summary outlining the report's objective: to identify the reasons behind Starbucks' struggle to gain a foothold in the Australian coffee market. The report details the key challenges faced by Starbucks, including the failure to adapt to local tastes and cultural differences. The report highlights the importance of understanding cultural dimensions using Hofstede's model to analyze the differences between the United States and Australia. The report identifies specific issues, such as the introduction of sweeter coffee varieties and a lack of understanding of the existing coffee culture. The report includes recommendations for Starbucks, drawing lessons from its failures and suggesting future strategies for international expansion. The report also delves into the importance of understanding cultural differences and the need for a tailored marketing approach, emphasizing the importance of adapting to local preferences and building a strong brand presence through various marketing channels. The report concludes by emphasizing the importance of cultural sensitivity and strategic market planning for international business success.

Running head: MANAGEMENT
MGT205
Name of the Student:
Name of the University:
Author Note:

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Executive Summary:
The objective of this report lies in providing an overview of the reasons that led to failure of
Starbucks in the Australian market. The report showed through discussion how the Seattle based
coffee shop help in capturing a market share in the already established caffeine market in the
Australian subcontinent. The report also pin pointed things that went wrong for Starbucks in
Australia along a mention of its failure in capturing the cultural differences between Australia
and United States. The report provides an analysis on the cultural difference between the two
countries through Hofstede’s cultural dimension. The report further mentions the lessons learnt
by Starbucks as a part of the recommendations along with a mention of the future
recommendations.

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Table of Contents
1. Introduction:................................................................................................................................2
2. Key Challenge Faced By Management: Identification of Problems and Symptoms..................2
a. Things that Went Wrong..............................................................................................................2
b. Cultural Differences between the Two Countries.......................................................................4
3. Analysis through Hofstede’s Cultural Dimension.......................................................................5
4. Recommendations:......................................................................................................................8
a. Lessons for Starbucks:.................................................................................................................8
b. Future Recommendations:...........................................................................................................9
References:....................................................................................................................................11

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1. Introduction:
The objective of the report is to provide an analysis on the slow expansion of Starbucks
in Australia along with identification of reasons for its market failure in Australia. Market
failures has mostly been associated with information asymmetries, non-competitive market,
problems related to principal agent and public (Weeden & Grusky, 2014). The case study
portrays how it is easier in finding Starbucks Café across the world except for Australia. In fact,
in the year 2008, Starbucks closed almost 70 percent of the underperforming locations leaving
aside only 23 cafés across the whole continent. In spite of the intense love for coffee of the
Australians, Starbucks was unable to find a foothold in the continent. The case study, portrayed
that the reasons could have been the rapid launch that did provide the Australians with an
opportunity for developing an appetite for Starbucks. In reality, Starbucks Corporation of Seattle
did not match the taste of the Australians as it offered sweeter coffee varieties which could also
be considered a reason for its failure.
This report focuses at providing a detailed analysis of the reasons for Starbucks’ failure
through analysing the cultural differences between the two countries. The report also tries to
provide necessary recommendations that helps in capturing a better market share.
2. Key Challenge Faced By Management: Identification of Problems and Symptoms
a. Things that Went Wrong
There are two reasons that can be cited for the failure of Starbucks in the Australian
market. The first reason can be focused at the fact that the Starbucks café did not consider paying
attention to optimization of its products. They tried to implement things that were preferred in
the United States without trying and adapting to the preferences of the Australians (Mescall,

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2010). Thus, the coffee prepared and offered by Starbucks in Australia was a sweetened bitter
coffee which was very much unlike the taste of the espresso lovers of Australia who loved the
‘flat white’ espresso. This can be one of the reasons as to why Starbucks found it difficult to
capture the market of Australia.
During earlier part of the 1950s, it was the Italian and the Greek immigrants that
encouraged the Australians to adopt the skill of drinking espresso as a means of social lubricant.
Starbucks has really arrived late in Australia and tried to introduce a much lighter version of
sweetened espresso preferred by the Americans (starbucks.com.au 2019). Besides, Australia also
already had established espresso serving cafés and therefore to get a foothold in the Australian
market Starbucks needed to compete with these cafes that served similar or better quality of the
products.
Starbucks also made a crucial error in failing to deliver an organic experience to the
Australian consumer (sbs.com.au, 2014). This could be considered as the second mistake on part
of the coffee connoisseur. The corporation tried to impose means on Australians asking them to
place the orders by mentioning the sizes. Starbucks, in fact, tried preaching the Australians about
the means of drinking coffee which they have not been comfortable with.
In addition to the above mistakes, it should also be noted that although Starbucks planned
an international expansion in the Australian continent, it however did not have an appropriate
strategy for marketing. The company also did not define a proper and accurate marketing
program on a global scale. Thus, Starbucks failed to decide the following:
 Decide on the objectives, strategies and the plans of its implementation for expansion.
 To establish the standards of performance for marketing

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 In locating responsibility
 To evaluate profitability of existing stores before expansion
 Absence of any supportive and corrective action whenever necessary
Starbucks Corporation’s management thought that the brand name of the company was
sufficient for capturing the market share of Australia. But they failed to realize that it was first
important to relate to the country’s culture thereby adopting creative marketing tactics.
Nevertheless, to capture the attention of people they could have done things differently by
adopting a strategy of promotion through online, print and radio along with delivering message
across e commerce, word of mouth and the social media.
b. Cultural Differences between the Two Countries
Every challenge experienced by a company that plans for international expansion seems
to be tangible. While undertaking the route to negotiation via the new and the unfamiliar market,
most firms has been found to sweep the cultural component under the carpet. However,
considering the cultural implications for international expansion acts as the non-negotiable
ingredient for determining the success. It has been found that companies that gripped cross
cultural communication has been able to enhance its competitive position not only at home but
also abroad. Such organizations has also been found to remain in better position for sharing the
information and the experience (Forsgren & Johanson, 2014).
In this context, it can be said that Starbucks lacked understanding of the culture of
Australia that is considered a key factor for a company making an entry into a foreign land.
Despite, understanding the nitty-gritty of culture, Starbucks Corporation made an entry in
Australia during the year 2000 with huge attempt. They built cafes across major cities of Sydney

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and Melbourne as well as the coastal regions. The end of 2008 witnessed close to 85 stores
across Australia. What played the hitch in capturing the market share has been the fact that
almost all the stores has been internally structured and operated in same manner as United States.
Starbucks infiltrated the caffeine market of Australia by establishing its presence similar to that
of the United States (Turnner, 2018).
3. Analysis through Hofstede’s Cultural Dimension
It is to be noted that, Starbucks could be found in every corner of world except for
Australia (Mourdoukoutas, 2019). This has mostly been due to closure of Starbucks in close to
70 percent of the locations that has been underperforming thereby leaving aside only 23 stores
across the whole continent. Despite, the Australian’s intense love for coffee, Starbucks was not
able to achieve enough success in Australia as it did in other countries. The coffee shop was first
introduced in Australia in 2000. The launch was so fast that it did not allow the Australians in
developing a craving for the new brand. Besides, the newly launched coffee shop also faced
challenges from the existing Australian coffee shop to get hold of market share. Further, the taste
of the coffee also did not seem to impress the Australians who seemed to prefer the flat white
variety of espresso instead of the sweetened variety put forward by Starbucks (starbucks.com.au
2019)
Starbucks was able to accumulate $105 million loss in its first seven years of operation in
Australia which led to the closer of Starbucks stores in close to sixty locations. In fact, Australia
has been one of the toughest market for Starbucks to break through. However, the key reasons
has been the cultural differences between the two countries that Starbucks Corporation did not
take into account. This has been explained with the help of Hofstede’s cultural dimension. The

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cultural dimension of Hofstede between the two countries of Australia and United States is based
on six dimensions which are mentioned as follows:
Figure 1: Hofstede’s Cultural Dimension between Australia and United States
Source: (Dartey-Baah, 2013).
Power Distance: This particular dimension measures the degree to which less powerful
members within an organization in a particular country either expects or accepts the existence of
unequal power distribution (Winterich, Karen & Yinlong, 2014). United States stands at a score
of 40 where it has been established to seek convenience. Here the superiors remains accessible
and the managers relies on the individual teams and employees for expertise. The
communication is direct, participative and informal to certain degree. Australia has a lower
score of 36. Here the hierarchy is developed for convenience and the superiors remain accessible.
The managers depends on individual team and employees for expertise. Communication seems
to be informal, direct and participative.

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Individualism: It mostly represents the interdependence that a particular society is able
to maintain within its members. United States has a higher score of 91 in this particular
dimension. Here, the society seems to be loosely knit with a tendency of people to look after
themselves and the immediate family. There is higher level of geographical mobility and people
particularly the men find it difficult in developing deep friendships. Americans also have the
tendency of interacting or doing business with the people they hardly know. In business,
employees are expected to display initiative and are self-reliant. Australia is considered to have
an individualist culture with a score close to 90. Here the society expects people to looking after
themselves as well as the immediate families (Putzke et al., 2014). The employees are found to
be independent. Besides, the hiring and the promotion decisions depends on the merit and
evidence.
Masculinity: As far this dimension is concerned, it deals with an important issue that
motivates people by being masculine (Soh, 2014). United States is highly masculine culture and
has a score of 62. This implies that society is mostly driven by success, achievement and
competition. Australia stands at a score of 61 and is considered as masculine society (Hu, Chand
& Evans, 2013). The behavior of people depends on shared value that contributes towards
extracting the best. Australians however boosts about their achievements and success that also
acts as the basis for the hiring and the promotion decisions at workplace. Here, the conflict is
usually resolved at individual level.
Uncertainty Avoidance: It refers to the degree to which members of the specific culture
feels threatened by unknown situations and created beliefs (Karin Andreassi et al., 2014). United
States has a score of about 46. This implies that the country portrays quite an acceptance
towards innovative products, newer ideas and willingness of trying something different or new

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irrespective of whether it is pertaining to business practice, food or technology. United States
tend to increasingly tolerant towards opinions or ideas from anyone thereby allowing freedom of
expression. Australia is also quite open to accepting new and ground-breaking ideas and hence e
has intermediate score of 51.
Long term Orientation: This dimension allows the society to maintain some links with
past and deal with the challenges of present and future. United States has a score of 26 for this
particular dimension. Americans are keener towards analysis of newer information and keep a
check on its truth. This makes the Americans more pragmatic. Australia reflects more
inclination towards a normative culture where people have a stronger concern towards
establishment of absolute truth. They exhibit higher respect towards the tradition, smaller
propensity of the future savings and focus on achievement for deriving quicker results (Venaik,
Zhun & Brewer, 2013).
Indulgence: It is the degree to which the people try and control the desires and impulses
depending on the manner through which they are being raised (Liu, Meng & Fellows, 2015).
United States represents a highly indulgent country with a higher score of 68. The Americans
therefore believes in working hard and playing harder. Like, United States, Australia too is an
indulgent country with a higher score of 71. The Australians exhibits higher level of willingness
in realizing their impulses and desires as well as having fun and enjoying life (Borker, 2013).
Besides, Australians also possess positive attitude and tendency towards being optimistic. They
consider spending time as per their wish and also give importance to leisure time.

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4. Recommendations:
a. Lessons for Starbucks:
These includes:
1. Failure to understand Australia’s Sophisticated Coffee Culture: Starbucks learned
a hard lesson by ignoring Australia’s already established coffee culture while establishing its
outlets (Hanson, 2016).
2. Failure to transform its Growth Strategy: The greatest lesson for Starbucks has
been that it did not bring about a change in the business model while entering the markets of
Australia that already had a rich coffee culture (Garthwaite et al., 2017).
3. Failure to have Sufficient Knowledge about Market: Starbucks overestimated the
point of difference in Australia and charged a higher price. Australians were not being able to
understand why the coffee shop charged a higher price out of no reason.
b. Future Recommendations:
These includes:
1. Must not totally depend on Reputation: This must be key component before entering
a new market. Before, making an entry into Australia, Starbucks should have resorted to various
advertisements for grabbing people’s attention.
2. Must Demarcate Things Managed Locally and Globally: This implies that global
approach towards marketing do not imply absence of the specific plans and initiatives for the
local market. In fact they should act complementary.

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3. Must Look for Passionate Workforce: Rather than recruiting teenagers who lacks
knowledge, Starbucks should look forward towards recruiting a passionate workforce with little
knowledge. This acts one of the key aspects in determining the success of the corporation in
Australia.