Jessica PINT 4363Oct 14, 2008

Case Write-UpStarbucks’ International Operations-2006

Part 1: Problem identification

In several international operations, Starbucks faced problems dealing with mode of entry,pricing, political environments and business environments which inhibited the success ofoperations in those countries. External growth strategies (mode of entry) used by Starbucksinclude joint ventures, licensees, and wholly owned subsidiaries. Amongst these, the widely usedentry for Starbucks was the joint venture.An already dominant chain in its domestic country, Starbucks began its international expansionby focusing on the Asia-Pacific rim markets. The process for deciding entry into a country beganwith studying the foreign markets conditions followed by deciding what local partner to enterwith, if in fact required. Starbucks first international operation began in Japan in a joint venturewith Sazaby Inc. This partnership proved a good mode of entry for Starbucks, initially, that wasuntil high losses after a couple of years.In the European Market, Starbucks faced problems which included competition from well-established coffee shops, imitation, high prices, high real estate costs and labor costs, customs,economic recession. Competition largely inhibited growth within the European Market, as wellas failing to adopt customs in France. Perception from the European market also had a largeimpact on Starbucks, for it was generally perceived too expensive and as a form of overpricedimitation coffee.Middle Eastern markets posed to be very politically volatile. Country risk within those countrieswas rather high. Starbucks was forced to close six stores in Israel because of this.

Part 2: Information from the text/supplemental readingIn an attempt to identify why Starbucks faced problems in their international operations, it isessential to understand the procedures on deciding what country to enter. Further, understandingthe potential risks to vie for is another very important step to analyze.

Environmental assessment includes monitoring for contingency within the environment. It’s aprocess of gathering info based on political, environmental, legal, cultural, social, demographic,and competitive factors that can affect your firm. Within the grasp of environmental scanning,companies must analysis variables such as political instability, as it notes in the textbook,particularly in the Middle East, because of the probable loss of profits and even ownership.Another factor, currency instability, is the fluctuation of the country’s currency. Nationalismoften influences foreign companies. The home government participates heavily in businessfunctions, as well as imposes several policies that can adversely affect a firm, such as excessivetaxation, import controls, limitations, repatriation of profits.

International Competition is one of the most important factors to analyze. This is done toindentify which are your company’s relevant competitors in that country/industry. In order to

understand the game, you need to understand your enemies, great advice from a great strategicmanagement professor. Finding weakness and strengths within them can provide either foropportunities or threats for your organization.

Risks within a country that are increasingly important include strategic risk, operational risk,political risk, country risk, amongst others. Strategic risk include qualitative analysis of theindustry, which include the use of the Porter 5 diamond, which analyzes the industry under thefollowing five forces; threat of new entrants, threat of substitution, threat of competitors,bargaining power of supplies and bargaining power of customers. Operational risk includesinternal factors that affect the efficiency of the organization. Political risk, which encompassesrisk from political actions within a country that can affect a firm’s operations, is anotherimportant factor. Country risk, which is the risk acquired within a country, includes and is notlimited to economic, government, political, security factors inherited when entering a country.Part 3: Problem resolution

Well, it seems as though Starbucks failed to properly analyze the probably risks that would occurin the countries they entered. It is important for firms to perform external assessments in order toavoid such situations.