Starbucks' Coffee Expansion: Italy Market Analysis and Strategy

This report provides an in-depth analysis of Starbucks' international expansion strategy, specifically focusing on entering the Italian coffee market. It begins with an executive summary and introduction, followed by an overview of Starbucks and an analysis of the Italian market, including political, economic, financial, legal, and cultural factors. The report evaluates the Italian coffee market, providing recommendations for a business strategy, specifically a transnational strategy, and suggests a joint venture as the most suitable mode of entry. The analysis considers the benefits of a joint venture, such as access to new markets, and concludes with a summary of the key findings and recommendations. The report aims to provide a comprehensive understanding of the challenges and opportunities Starbucks faces when expanding into the Italian market.

Running Head: International Business
International Business

International Business 1
Executive summary
The report is all about the identification of the business and a product of the business that the
company can expand in the potential market. The company is Starbucks and its product coffee is
selected for expansion in the potential market. Starbucks is one of those companies who
comprise of the international trade services and the investments. Each and every business wants
to expand their operations internationally. The paper shows the coffee market of Italy and the
factors that can affect the working of the company. The report consist of the strategy that the
business should use to ensure the growth of the business along with this the company need to
select the mode of entry for proceeding with the international business.

International Business 2
Contents
Executive summary.........................................................................................................................1
Introduction......................................................................................................................................3
Overview of the company................................................................................................................3
Market analysis of Italy...................................................................................................................4
Political factors............................................................................................................................4
Economic factors.........................................................................................................................4
Financial factors...........................................................................................................................5
Legal factors................................................................................................................................5
Cultural factors............................................................................................................................5
Coffee market of Italy......................................................................................................................6
Recommendation for the business strategy.....................................................................................6
Transnational strategy..................................................................................................................7
Mode of entry..................................................................................................................................8
Joint venture.................................................................................................................................8
Benefits of selecting joint venture...............................................................................................9
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

International Business 3
Introduction
The report talks about the international expansion of the company's one product. The paper
shows the evaluation of the expansion of the business in the potential market. The organization
selected for the international expansion is Starbucks and the product of the company selected is
coffee. The emerging markets of the business include Mexico, Brazil, India, South Africa, and
China. These are the emerging potential market for the business. The company is already inroad
into the Chinese market but definitely, there is still a need for the expansion in these markets.
The potential market for this report selected is Italy. Italy market is the best potential market for
the Starbucks expansion (Forbes, 2015).
The report includes the evaluation of the coffee of the Starbucks in Italy. The Italy market
analysis is considered to figure out the strategy that is going to help the company for the
expansion. The company needs to think of the mode of entry, for entering into the chosen
market.

International Business 4
Overview of the company
Starbucks Corporation is an American coffee company, who was established in the year 1971 in
Seattle, WA. The company consists of the 182,000 employees across 19,676 company-operated
and consist of the licensed stores in 62 countries. The main product of the company comprises of
the tea, coffee, fresh food and other beverages. The company sells a different variety of coffee
and tea products and the company licensed their trademarks. The company sells these products
through licensed stores, grocery and the national food service (Geereddy, 2013). The company
operates and competes in the retail snacks and the coffee store industry. Currently, Starbucks is
dominating this industry with the market share of 36.7% as compared to other like dunking
brands with 24.6%. In the dynamic world, every company is willing to expand the business in
the global market. The company believes in expanding the business internationally because they
want to establish a good brand value and position internationally. The international growth helps
the company to earn more of the revenue (Forbes, 2016). The company will be able to register
the growth of the business.
Market analysis of Italy
The market analysis is a quantitative and qualitative assessment of the market. It considers the
factors that affect the expansion of the business or the segment and the buying patterns of the
customers (Susanty, and Kenny, 2015). It includes the analysis of the economic environment that
became the barrios to entry for the Starbucks.

International Business 5
Political factors
The government of the company welcomes the companies like Starbucks. The company starts up
in Italy brings the development of the infrastructure in the Italy market. This development of the
market attract the suppliers towards the market this will be beneficial for the government of the
Italy (Cohen, and Leventis, 2013). The country will be able to attract the FDI (foreign direct
investment) towards the Italy.
Economic factors
The economic factors consist of the inflation, employment, purchasing power of the country etc.
the economy of the Italy is the 3rd largest national economy in the Eurozone and it is 8th largest
by the nominal GDP. The GDP per capita of Italy is $30,507 is shows that the purchasing power
of the company is high. The purchasing power of the people is high which shows that the
Starbucks will be able to earn the profit even If the company sell the products at the high prices.
The unemployment rate of the Italy is 11.2% that is the government of the country welcomes the
expansion of Starbucks. Starbucks expansion will help in enhancing the employment
opportunities in Italy.
Financial factors
The start-up of the Starbucks in Italy needs a huge amount of investment because the company is
willing to open 500 stores in Italy. The investment of the Starbucks in the Italy brings the rural
economic development for the company. The company will invest in the rural areas to get the
best quality of the coffee beans because the population of the Italy is specific for the coffee
flavors. Though it will be difficult for the company to set the new flavor for the crowd of the
Italy, the company can try to offer the best from their end (Rabanal, and Taheri Sanjani, 2015).

International Business 6
The investment of the Starbucks in Italy is a beneficial deal or the company as the company will
be able to earn more profit.
Legal factors
The Starbucks has the opportunity to improve its performance by providing the maximum
satisfaction to the customers of the company. This is possible by implementing the product
safety regulations on the ingredients which are used by the company (Fishman, Washington,
Haworth, and Watson, 2015). In Italy market, the company might face the threat of the access to
the labor market.
Cultural factors
Starbucks has the opportunity to enhance the revenue of the company because of the increase in
the demand for the coffee by the people of the Italy. The coffee industry is in boom nowadays
coffee culture is growing. The demand for the healthy products increasing and the people are
becoming more health conscious. The Starbucks can easily attract the customers who are health
conscious (Castano, Mendez, and Galindo, 2015). Starbucks can face the problems in the cultural
factors the reason being there are very less international chain cafes. The international chain
coffee café available in Italy holds a very low share in the market of the Italy.
The above factors show the Italy market condition that can impact the Starbucks. The company
knows very well how to deal with the factors as the company has operations in many other
countries. Though, the factors show the positive role in the expansion of the business.

International Business 7
Coffee market of Italy
Italy is the second largest importer of the green coffee beans in Europe. Coffee is most important
part of the Italian culture. Italians tend to value a high quality of the coffee and they are loyal
towards the flavors of the coffee. This is the reason most of the coffee companies like to enter
into the market of the Italy. Italian espresso is the famous across the world and this is the reason
many brands are exported worldwide (Blouin, and Macchiavello, 2017). Italy has the second
largest consumption of coffee in Europe, the country consumes approximately 5.7 million 60 kg
bags of the green bags in the year 2015, that is approximately 14% of the total European union
consumption. This is the reason why the company’s potential market will be Italy (Mordor
Intelligence, 2017). Though, it is very difficult for the company to set the business in the Italy
market because of strong Italian tradition and customs in foods.
In the Italy coffee market, there is a coffee sales dominance by Lavazza (an Italian brand) with
approximately 36.9% market share. The international chain coffee makers are not able to survive
in the Italian market because the Italian follows their tradition.
Recommendation for the business strategy
There are different business strategies that can be implemented by the business such as
transnational strategy, global standardization strategy, localized strategy and international
strategy. Out of these strategies, the Starbucks should implement the transnational strategy.
These are a general strategy that the company should adopt. Considering the Italy market it is
recommended to Starbucks to implement the transnational strategy.

International Business 8
Transnational strategy
The transnational strategy is the strategy that combines the global configuration and the
coordination of business activities with the local responsiveness (Chung, 2014). If the company
is looking to expand the business across the international market then the company understands
the market where the company is expanding the business and according to that, they bring the
changes in the process. Similarly, Starbucks is expanding the business in Italy so a company
should understand the demand of the customer and accordingly they should bring the changes in
the products and services that the company provide to their customers. Transnational strategy
changes with the change in the customer behaviour and the external factors of the country. The
business will get the benefit of adopting a transnational strategy (Rothaermel, 2015).
 To maintain the tradition: - The Starbucks need to bring the Changes in the product they
are manufacturing so that they will be able to make the customer consume their products.
The investment in the coffee beans production will help the company in maintaining the
tradition of Italy in their coffee. The Italian people will be able to pay high prices for the
quality of the product. So, Starbucks should invest in getting the quality coffee beans.
This is the only way to attract the customer towards the Starbucks.
 Lower labor cost: - The Company can easily appoint the labor at the low cost because the
unemployment rate shows that there is the need of jobs. The development of the
Starbucks in Italy will enhance the job opportunities and the company will be able to hire
the specialized workers at the low cost.
 To enhance the customer satisfaction: - The customer satisfaction plays a vital role in the
business. The customer satisfaction comes when customers attract towards the product of
the Starbucks. To attract the customer's company need to bring the changes in the product

International Business 9
according to the expectations (Reiner, Gold, and Hahn, 2015). Meeting the expectations
of the customers is must for the company. After meeting the expectations company will
be able to enhance the customer satisfaction.
Mode of entry
Foreign market entry modes differ in degree of risk that they present, the control and
commitment of resources that they require and the return on investment that they promise. There
are different modes of the entry into the foreign market such as exporting, licensing, joint
venture, mergers, and acquisitions, franchising, turnkey project, strategic alliance and wholly –
owned subsidiary (Basic, Vlajcic, and Kiessling, 2016). The best mode of entry that the company
can use to enter into the Italy market can be a joint venture.
Joint venture
A joint venture is a business arrangement in which two or more parties agree to pool their
resources for the purpose of accomplishing a specific task (Li, and Parboteeah, 2015). The
Starbucks can do the arrangement with the Italian coffee company to enter into the Italy coffee
market. This is recommended to the Starbucks because in the Italy market the individual
international chain might not be able to survive, make position, and earn a profit.
Benefits of selecting joint venture
There are numerous benefits to the company if the company select joint venture as the mode of
the entry into the Italy market (Yan, and Luo, 2016). Some of the benefits are discussed below:-
 Access to the new markets: - The Starbucks will be able to access the market of the
Italian coffee that helps the company in entering the market (Axelsson, and Easton,

International Business 10
2016). If Starbucks will enter into the joint venture with the Italian coffee company then
it will be a beneficial deal for the company.
 Awareness about the distribution network: - being in the joint venture with the Italian
coffee café company will get to know about the distribution network that the traditional
Italian coffee café follows (Amini, Nabi, and Haghifam, 2013). The company will get the
support of the tie-up company in forming the connections with the distributors.
 Access to resources: - Company will get the details related to the resources and
collectively they can access more of the resources that will help the company in making a
huge profit out of the project.
 Awareness about the secrets of the traditional coffee flavors: - The Company will get the
details related to the secrets of the traditional coffee beans and the flavors that are used by
the traditional coffee places. This will help the company to bring the flavors in their
product (Schapira, Schapira, and Schapira, 2016). So that it will easier for the company to
provide the traditional flavors to the Italian people because these people stick to their
traditions and customers.
 A better understanding of the traditions and customs: - Starbucks gets to know more
about the traditions and customs of the Italy that helps the company in transforming
themselves and bringing the traditions. These changes of the company will help them in
attracting more and more customers. The needs of the customers will be fulfilled that
help in enhancing the customer satisfaction which results in a hike in the share value of
the company (Pocock, 2016). This how the company will be able to make a profit.
 Increase capital: - In the joint venture both the parties will get the advantage of the
capital. The burden of the finance will be divided among the two of the parties. The

International Business 11
capital is must for the expansion of the outlets. If in case the company will not be able to
succeed in the investment done by the company then both the parties will bear the risk
together.
The benefits of the joint venture show that it is going to be a beneficial deal for the company like
Starbucks. The company will be able to make the position and the brand value in the Italian
market. Definitely while doing the joint venture agreement with the other company will make the
Starbucks think that which company they should select for the joint venture. It is difficult for the
company to search and identify the coffee maker company who is agreeing to for the joint
venture with the Starbucks. Apart from the identification, it is required for the Starbucks to check
the working and positioning of the other party in Italy. The joint venture helps the company in
the successful expansion of the business.

International Business 12
Conclusion
The report talks about the expansion of the Starbucks Company in Italy. Coffee is the main
product of the company and this is the only product which company is willing to establish in
Italy. The report shows the market analysis of the Italy that talk about the culture of the people of
the Italy. The market analysis of the Italy shows that they are a dominance of the traditional
coffee café who provide the traditional and customs in the food. This tradition is the only thing
that attracts the customer towards the coffee.
The transnational strategy helps the company to bring the changes in the product that the
company is going to follow. This strategy helps the company to maintain the space and position
in the Italy market. Apart from this, the company can use joint venture to enter into the Italy
market. The joint venture will be the best mode because the company is unaware of the market of
the Italy. So it is best for the company to make the agreement with the company who is already
established in the market of the Italy.

International Business 13
References
Amini, M.H., Nabi, B. and Haghifam, M.R., 2013, July. Load management using multi-agent
systems in smart distribution network. In Power and Energy Society General Meeting (PES),
2013 IEEE (pp. 1-5). IEEE.
Axelsson, B. and Easton, G. eds., 2016, Industrial networks: a new view of reality.
Routledge.
Basic, M., Vlajcic, D. and Kiessling, T.S., 2016, April. How Does The Change In Foreign
Market Knowledge Influence International Mode Of Entry And International Performance: A
Study Of Croatian Smes. In International OFEL Conference on Governance, Management
and Entrepreneurship (p. 970). Centar za istrazivanje i razvoj upravljanja doo.
Blouin, A. and Macchiavello, R., 2017, Strategic default in the international coffee market
(No. 12307). CEPR Discussion Papers.
Castano, M.S., Mendez, M.T. and Galindo, M.Á., 2015, The effect of social, cultural, and
economic factors on entrepreneurship. Journal of Business Research, 68(7), pp.1496-1500.
Chung, B.H., 2014, Penetrant Transnational Strategies of North Korean Migrants in South
Korea and Beyond. In 7th World Congress of Korean Studies. University of Hawaii,
Honolulu, November (Vol. 7).
Cohen, S. and Leventis, S., 2013, March. Effects of municipal, auditing and political factors
on audit delay. In Accounting Forum (Vol. 37, No. 1, pp. 40-53). Elsevier.

International Business 14
Fishman, E., Washington, S., Haworth, N. and Watson, A., 2015, Factors influencing bike
share membership: An analysis of Melbourne and Brisbane. Transportation research part A:
policy and practice, 71, pp.17-30.
Forbes, 2015, What Are The Key Factors Driving Growth For Starbucks? , viewed on 29th
September 2017, https://www.forbes.com/sites/greatspeculations/2015/11/09/what-are-the-
key-factors-driving-growth-for-starbucks/#7c65911a4fd5
Forbes, 2016, Let's Look At Starbucks' Growth Strategy, viewed on 29th September 2017,
https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-look-at-starbucks-growth-
strategy/#121dd4233d71
Geereddy, N., 2013, Strategic analysis of Starbucks corporation. Harward, viewed on 29th
September 2017,
https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf
Li, C. and Parboteeah, K.P., 2015,The effect of culture on the responsiveness of firms to
mimetic forces: Imitative foreign joint venture entries into China, 1985–2003. Journal of
World Business, 50(3), pp.465-476.
Mordor Intelligence, 2017, Italy Coffee Market - Growth,Trends and Forecasts (2017 -
2022), viewed on 29th September 2017, https://www.mordorintelligence.com/industry-
reports/italy-coffee-market
Pocock, J.G.A., 2016, The Machiavellian moment: Florentine political thought and the
Atlantic republican tradition. Princeton University Press.
Rabanal, P. and Taheri Sanjani, M., 2015, Financial factors: implications for output gaps.

International Business 15
Reiner, G., Gold, S. and Hahn, R., 2015, Wealth and health at the Base of the Pyramid:
Modelling trade-offs and complementarities for fast moving dairy product case. International
Journal of Production Economics, 170, pp.413-421.
Rothaermel, F.T., 2015, Strategic management. McGraw-Hill Education.
Schapira, J., Schapira, K. and Schapira, D., 2016, The Book of Coffee and Tea. St. Martin's
Griffin.
Susanty, A. and Kenny, E., 2015, The Relationship between Brand Equity, Customer
Satisfaction, and Brand Loyalty on Coffee Shop: Study of Excelso and Starbucks. ASEAN
Marketing Journal, pp.14-27.
Yan, A. and Luo, Y., 2016, International joint ventures: Theory and practice. Routledge.