Starbucks Fdi
Starbuck’s FDI
1. Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why?
When Starbucks started its international expansion in Japan, it initially decided to license. As it is known licensing is "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor"[1]. Advantages of licensing are obvious: it is less expensive, less risky as the risk is held by licensee and it ensures additional profitability with less initial investment. However, licensing has disadvantages and for Starbucks the main disadvantages of licensing in Japan are: • This strategy did not give Starbucks the control needed to ensure that the licensees closely followed Starbucks’ successful formula. “Starbucks successful formula” refers to its basic strategy: To sell the company’s own premium roasted coffee, along with freshly brewed espresso-style beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting and also providing superior customer service[2]. Starbucks found it necessary to successfully replicate the look, feel, and experience of an American Starbucks that is why Starbucks transferred American employees to the Japanese stores to help train workers in the Starbucks way.
• With licensing Starbucks had limited control of expansion rate. Simultaneously with entering the market in Japan, in US Starbucks developed new cold beverage (Frappuchino) with Pepsi, signed contract with Dreyer’s for making ice cream. However, the expansion rate in Japan was not controlled under licensing agreement as could be done in US and the realization of new products was slow in Japan.
2. Why do you think Starbucks has now elected to expand internationally primarily through local joint
1. Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why?
When Starbucks started its international expansion in Japan, it initially decided to license. As it is known licensing is "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor"[1]. Advantages of licensing are obvious: it is less expensive, less risky as the risk is held by licensee and it ensures additional profitability with less initial investment. However, licensing has disadvantages and for Starbucks the main disadvantages of licensing in Japan are: • This strategy did not give Starbucks the control needed to ensure that the licensees closely followed Starbucks’ successful formula. “Starbucks successful formula” refers to its basic strategy: To sell the company’s own premium roasted coffee, along with freshly brewed espresso-style beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting and also providing superior customer service[2]. Starbucks found it necessary to successfully replicate the look, feel, and experience of an American Starbucks that is why Starbucks transferred American employees to the Japanese stores to help train workers in the Starbucks way.
• With licensing Starbucks had limited control of expansion rate. Simultaneously with entering the market in Japan, in US Starbucks developed new cold beverage (Frappuchino) with Pepsi, signed contract with Dreyer’s for making ice cream. However, the expansion rate in Japan was not controlled under licensing agreement as could be done in US and the realization of new products was slow in Japan.
2. Why do you think Starbucks has now elected to expand internationally primarily through local joint