Strategic Management: Starbucks' Global Expansion into New Markets

This report provides a comprehensive analysis of Starbucks' global business strategy, focusing on its potential expansion into Italy and Pakistan. It begins with a company background, detailing Starbucks' products, global presence, and business model, which primarily relies on wholly-owned subsidiaries. The report then examines Starbucks' organizational structure, including functional, geographic, product-based divisions, and teams. It analyzes the company's initial location strategy and discusses the economic profiles of Italy and Pakistan, including key data such as GDP, unemployment rates, and inflation. The core of the report evaluates different modes of entry, such as franchising, joint venturing, and wholly-owned subsidiaries, considering their advantages and disadvantages in the context of Starbucks' expansion plans. The report recommends a suitable mode of entry and concludes with strategic insights for successful market entry, considering cultural and economic factors. It also addresses political and legal risks, HRM, and labor relations to offer a holistic understanding of Starbucks' global expansion opportunities.

Running head: STARBUCKS
Strategic Management in the Global Context
[Starbucks]
Name of the student:
Name of the university:
Author note:

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Table of Contents
Company background:.....................................................................................................................2
The global business strategy of Starbucks:......................................................................................3
Initial location strategy:...................................................................................................................5
Economic profile:............................................................................................................................6
Mode of entry:.................................................................................................................................7
Cultural profiles:............................................................................................................................11
Political risk:..................................................................................................................................12
Legal issues:...................................................................................................................................13
HRM/labor relations:.....................................................................................................................14
Recommendation:..........................................................................................................................17
Conclusion:....................................................................................................................................18
Bibliography:.................................................................................................................................19

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Company background:
Starbucks Corporation is an American based company which had come into existence in
1971 in Seattle, Washington in the United States1. They have their coffee shops in many
countries across the globe; however, there are still a few potential countries that are still
untouched. They had a unique image in their home country which other coffee shops do not
have. They are unique in offering darkly roasted coffee which is tasteful and also high in quality.
They have been able to create a very good customer response as well. The list of products
includes the follows2:
- Whole-bean coffee
- Hot and cold drinks
- Micro ground instant coffee that is also known as VIA
- Full- and loose-leaf teas that also includes tea products of Teavana
- Espresso and caffe latte
- Frappuccino beverages
- Evolution Fresh juices
- La Boulange pastries
- Snacks that include crackers & chips, Pumpkin Spice Latte
1 Thompson, Craig J., and Zeynep Arsel. "The Starbucks brandscape and consumers'(anticorporate) experiences of
glocalization." Journal of consumer research 31.3 (2014): 631-642.
2 MacDonald, Kate. "Globalising justice within coffee supply chains? Fair Trade, Starbucks and the transformation
of supply chain governance." Third World Quarterly 28.4 (2012): 793-812.

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Many stores do also sell the pre-packaged products like the varied range of food items such as
cold & hot sandwiches, and drinkware. Starbucks branded items like coffee, ice cream and cold
coffee drinks in bottle format are also being sold at the various grocery stores.
At present, Starbucks operates in many locations in the different continent such as Africa,
Europe, Asia, North America, Oceania and South America3. They have their presence in most
parts of the world but still, they are yet to enter a few potential locations. Such locations include
but are not limited to like Italy and Pakistan. This particular study is also aimed at understanding
the possibilities of operation of Starbucks in both Italy and Pakistan.
The business model of Starbucks is majorly the wholly-owned subsidiaries. Unlike
McDonald and Burger King, they mostly rely on incorporating the concept of wholly owned
business when there is a plan for business expansion in different parts of the world4.
The study in specific analyzes the possibility of business expansions of Starbucks in Italy
and Pakistan. In course of the action, the study analyzes the existing business model of Starbucks
to the company in finding the scope for business expansion. In doing so, the study examined the
various challenging factors which might disrupt the plan. It also recommends a few import points
which are necessary for avoiding any business failure in Italy and Pakistan.
The global business strategy of Starbucks:
Starbucks is the world most renowned coffee chains. The organizational structure that the
company has had helped it in past. The organizational structure motivates its leaders and
3 Venkatraman, Meera, and Teresa Nelson. "From servicescape to consumptionscape: A photo-elicitation study of
Starbucks in the New China." Journal of International Business Studies39.6 (2013): 1010-1026.
4 Venkatraman, Meera, and Teresa Nelson. "From servicescape to consumptionscape: A photo-elicitation study of
Starbucks in the New China." Journal of International Business Studies39.6 (2013): 1010-1026.

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managers and encourages them to explore the best in them. Starbucks follows a matrix
organizational structure which consists of several other basic types of structure5. Following are
the features of organizational culture that Starbucks follows6:
1. Functional structure: The structure means an alienation of works based on different kinds of
functions. They follow a hierarchy where corporate headquarter controls the functions of major
departments like the managing human resource activities, the marketing activities, and the
financial activities. This means they follow a wholly owned service concept in most cases.
2. Geographic divisions: They are geographically dispersed in different locations and controls
the varied activities assigned to such locations by aligning a senior vice president in the different
geographical location. They are geographically based in China and Asia-Pacific, Europe,
Americas, Middle East, Russia, and Africa. There are further divisions in the United States like
the Western, Southeast, Northwest and Northeast. In those regions also, senior vice presidents
are aligned to different regions. It means the Starbucks manager need to report to two senior
heads such as the senior vice president in their geographical area and the corporate HR Manager.
3. Product-based divisions: They also make division based on products such as they have one
division looking into the coffee and the related products. Product based division has been done to
concentrate on particular product and take necessary actions if needed.
4. Teams: It means setting up a team at every café center of Starbucks. The strategy behind such
division is the development o a unit at the every coffee house, so that, best customer service
could be delivered.
5 Moon, Youngme, and John Quelch. Starbucks: delivering customer service. Harvard Business School, 2013.
6 Chang, Chia Yu. Visualizing brand personality and personal branding: case analysis on Starbucks and Nike's
brand value co-creation on Instagram. The University of Iowa, 2014.

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Initial location strategy:
The existing global strategy of Starbucks is based on the wholly owned service model.
Unlike many multinational giants such as McDonalds and Burger King, the company follows a
different approach to their global entry. They have been able to manage it efficiently with its
effective organizational structure that provides the corporate headquarter a firm control of its
various coffee houses. They are able to manage it by following a matrix organizational structure
which is a mixture of functional, geographical, product-based divisions and teams7.
It is bit surprising to some that the company has not yet considered entering Italy which is
popularly known as the ‘home of coffee’. There may be several reasons why Starbucks did not
yet enter Italy where they could have found an excellent customer base. Italy is a home to world-
renowned coffee like the espresso, the latte, and the cappuccino. The other products like coffee,
milk coffee, foamy coffee, and others may not sound as big as it needs to be in Italy8. Italy is
indeed a globally renowned name in coffee culture. The few Italians had also objected strongly
in past for seeking a ‘no entry’ for Starbucks in Italy. This is undeniable that the coffee offered
from Starbucks may be inferior in quality than even the coffee being sold on the street side in
Italy. However, Starbucks do not just provide a vivid range of coffee but, they also offer an
engaging ambiance at their shops which may sound a really good thing for the Italians9.
7 MacDonald, Kate. "Globalising justice within coffee supply chains? Fair Trade, Starbucks and the transformation
of supply chain governance." Third World Quarterly 28.4 (2012): 793-812.
8 Venkatraman, Meera, and Teresa Nelson. "From servicescape to consumptionscape: A photo-elicitation study of
Starbucks in the New China." Journal of International Business Studies39.6 (2013): 1010-1026.
9 Venkatraman, Meera, and Teresa Nelson. "From servicescape to consumptionscape: A photo-elicitation study of
Starbucks in the New China." Journal of International Business Studies39.6 (2013): 1010-1026.

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Pakistan is the other country which is being selected for the business expansion of
Starbucks. It is being selected because it is one of the booming nations in terms of economic
growth. Additionally, Cafe Coffee Day (CCD) which is the biggest chain of coffee shops in India
has already entered the country in Karachi which is known as the commercial capital of Pakistan.
According to CCD, coffee should be a successful concept in Pakistan considering the fact that it
is an Islamic country and also that they would love anything which is non-alcoholic10.
Economic profile:
Italy:
Key Data (Source: Ec.europa.eu)-
Population (millions) - 60.5
Unemployment rate- 11.4%
GDP (USD billions) - 2,221
Per capita GDP (USD) – 36.3
Real growth in GDP- 0.8%
Inflation (CPI) – (-0`2%)
Current Account (GDP) – (-2.6)
The driving industries in Italy are the manufacturing sectors, in particular, the SMEs
companies. This actually accounts for 90% of the total Italy exports. The economic condition
10 Moon, Youngme, and John Quelch. Starbucks: delivering customer service. Harvard Business School, 2013.

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was not that flourishing in Italy which also opened up doors to Canadian companies for
exporting goods to Italy and also making significant investments (Ec.europa.eu).
Pakistan:
Following are the key data (adb.org)–
GDP growth- 5.3% as of 2017
GDP per capita- $1,629 (nominal)
GDP growth - 5.28%
Inflation (CPI) - (-3.8%)
Unemployment rate- 5.9% as per 2015
Mode of entry:
There are various modes of entry which are used during a global expansion of the
business. In this study, Starbucks has been assumed as moving to a global expansion in countries
that are not yet being touched. The target countries for the business expansion are Italy and
Pakistan. Following is the discussion on the modes of entry to identify better options for
Starbucks:
Franchising: This is one of the modes to enter a foreign market. McDonalds and Burger King
had followed the same procedure during their entry into foreign locations. McDonalds, in

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particular, had preferred buying a franchise in most cases11. It has the following advantages and
the disadvantages12:
Advantages-
The risk of failure is minimal as companies approach those firms only which have proven
identity in the target country. The franchise firms have their own set of the proven idea and
occupied spaces which the common people know. Moreover, any foreign company will be able
to get a less risky and also cost-effective launch in the foreign market. However, it then depends
on the franchising party about how they decide terms in relation to branding. It is beneficial
because it provides an established market share and hence, there will be no such requirement for
market testing. The recognized brand name can also be utilized as this will create no such
necessity for added advertisement. The advertisement from the chosen established name is
sufficient only. However, it again depends on the deal between the franchising firm and the
foreign company about what it decides like carrying the chosen brand name or giving preference
to its own brand name. This also reduces the burden of investments as banks lend loans to
franchises. Notably, franchising firms do already have a set of established suppliers. Hence, there
is no burden of identifying and approaching suppliers.
Disadvantage-
11 Stoian, Maria‐Cristina, Josep Rialp, and Pavlos Dimitratos. "SME networks and international performance:
Unveiling the significance of foreign market entry mode." Journal of Small Business Management 55.1 (2017): 128-
148.
12 Stoian, Maria‐Cristina, Josep Rialp, and Pavlos Dimitratos. "SME networks and international performance:
Unveiling the significance of foreign market entry mode." Journal of Small Business Management 55.1 (2017): 128-
148.

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There can be some disadvantages as well like the franchisers might pose some certain
restrictions on how one can run the business. Additionally, franchisers do not guarantee of a
quality workforce. A communication between the parent company and the franchisers is another
reason for an ineffective workforce. The franchisers may sometime prove to be costlier. The
franchisers get a percentage of profit; however, the quality of work may or may not be up to the
expected level. If the deal is not productive, it becomes very difficult to sell the franchising firm.
Joint venturing: This is another way of entering a foreign market. Many multinational
companies do prefer the same process while entering a new foreign market. Following is the list
of advantages and disadvantages of going with the joint venture13:
Advantages-
It helps to get a new insight and range of other experts as well. It is like an exchange of
expertise between the two joint venturing firms. Better resources can be attained like the better
technological advancement, advanced R&D capabilities, and much more. Loss and profits are
shared between the two parties based on the agreement which decides how much shares one
party will hold. Marketing & advertising expenses are shared between the two parties.
Disadvantages-
Flexibility which is a part of joint-venture can be limited and on such occasion, the
individual business will be tested. It is also never guaranteed that both parties will have equal
involvement in the business. There are possibilities for objectives getting hampered as one of the
parties of the joint venture may not be fulfilling the expected benefits. The venture lacks in
13 Stoian, Maria‐Cristina, Josep Rialp, and Pavlos Dimitratos. "SME networks and international performance:
Unveiling the significance of foreign market entry mode." Journal of Small Business Management 55.1 (2017): 128-
148.

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balance and it also attracts a clash of culture. Clash of culture is quite certain with the joint
venture. Partners can prove to be unreliable. It is very difficult to cancel the deal and it requires a
lot of legal formalities and official talks to actually get out of the venture.
Wholly owned subsidiaries: This is also being used by multinational companies and Starbucks
also follows the same strategy. It means opening up the company’s own subsidiaries in the target
market. It offers a lot of benefits like the operation will be in control. Quality performance could
be delivered. The best of professionals can be employed in such subsidiaries14. It has some
disadvantages as well as it will attract huge investments required for setting up a subsidiary
ranch in a target market. This may also face challenges from the political, social and the legal
perspectives of the target country. An effective relation with labors is also required to be
maintained15.
Recommended mode of entry:
It is indeed very difficult to decide the best feasible mode of entry for Starbucks in Italy
and Pakistan. Both the modes of entry have certain advantages and disadvantages. It is bit
confusing and challenging also. It depends on the strategic management team of the Starbucks
Company and their decision on selecting the best entry mode. However, it again looks apparent
that a wholly owned service format will help Starbucks a lot in both Italy and Pakistan. This is
advisable also because the company has certain concerns in regards to business. Starbucks will
never compromise on those concerns like skilled workforce, product quality, dependable labor
14 Stoian, Maria‐Cristina, Josep Rialp, and Pavlos Dimitratos. "SME networks and international performance:
Unveiling the significance of foreign market entry mode." Journal of Small Business Management 55.1 (2017): 128-
148.
15 Stoian, Maria‐Cristina, Josep Rialp, and Pavlos Dimitratos. "SME networks and international performance:
Unveiling the significance of foreign market entry mode." Journal of Small Business Management 55.1 (2017): 128-
148.

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workers, operating cost, product quality and a long-term operational steadiness. Undoubtedly, a
skilled workforce and a quality service may not be assured with the franchising strategy. On the
other hand, sustainability is always in doubts with joint ventures. It looks like as if the business
model which Starbucks follows is suitable for both Italy and Pakistan. The wholly owned service
will probably be the best mode of entry for Starbucks.
Cultural profiles:
Pakistan-
Muslims are in majority in Pakistan. Most of them are against alcoholic beverages.
Hence, they may respond to non-alcoholic drinks like tea and coffee. Caffe Coffee Day (CCD),
the largest coffee chain in India, has already entered the commercial capital of Pakistan. They are
planning for more such chains in Pakistan. Being a Muslim dominated country, most people will
prefer having coffee or tea instead of alcoholic beverages. Hence, the culture is growing in
offices, colleges or many other places of social gatherings. People love being in places where
they can spend a few time and can also have a few snacks & coffee or tea also. The concept as
such of Starbucks will provide the opportunity of being in the attractive ambiance and spent a
few time with some coffee16.
Italy-
The country is known as the home of coffee. The people living here are carrying with
them the historical background for their addiction to coffee. Choices are very limited in this
country like espresso, cappuccino and others. This is indeed good from the perspective of
Starbucks as they will not require much of innovation to perform. The Americans are habituated
16 Rigg, Jonathan. Challenging Southeast Asian development: The shadows of success. Routledge, 2015.