MBA-IB, SEM -1

INTERNATIONAL
TRADE,
INVESTMENT AND
POLICY
FRAMEWORK

GROUP PRESENTATION
GROUP -1 :
ALOK RANJAN
ANAMIKA JHA
LAKSHITA UPPAL
PRAWAR JAGNANI
Starbucks Journey
Thirty years ago, Starbucks was a single store in Seattle’s Pike Place Market selling premium roasted
coffee. Today it is a global roaster and retailer of coffee with some 16,000 stores, more than 40 percent of
which are to be found in 50 foreign countries. Starbucks Corporation set out on its current course in 1980s
when the company’s director of marketing, Howard Schultz, came back from a trip to Italy enchanted with
the Italian coffeehouse experience. Schultz, who later became C.E.O., persuaded the company’s owners to
experiment with the coffeehouse format- and the Starbucks experience was born.
The strategy was to sell to the company’s own premium roasted coffee and freshly brewed espresso-style
coffee beverages, along with a variety of pastries, coffee accessories, teas and other products, in a tastefully
designed coffeehouse setting. The company also focused on providing superior customer service. Reasoning
that motivated employees provide the best customer service, Starbucks’ executive’s devoted a lot of attention
to employee hiring and training programs and progressive compensation policies that gave even part-time
employees stock option grants and medical benefits. The formula led to the spectacular success in the United
States, where Starbucks went from obscurity to one of the best known brands in the country in a decade.
In 1995, with 700 stores the United States, Starbucks began exploring foreign opportunities. Its first target
market was Japan. So the company established a joint venture with a local retailer, Sazaby Inc. Each
company held a 50% stake in the venture, Starbucks Coffee of Japan. Starbucks initially invested $10
million in this venture, its first foreign direct investment. The Starbucks format was then licensed to the
venture, which was charged with taking over responsibility for growing Starbucks’ presence in Japan.
To make sure the Japanese operations replicated in the “Starbucks experience” in North America, Starbucks transferred some
employees to the Japanese operation. The licensing agreement required all Japanese store managers and employees to the Japanese
to attend training classes similar to those given to U.S employees. The agreement also required that stores adhere to the design
parameters established in the United States. In 2001, the company introduced a stock option plan for all Japanese employees,
making the first company in Japan to do so. Sceptics doubted that Starbucks would be able to replicate its North American success
overseas, but by the end of 2007 Starbucks had over 700 stores in Japan and planned to continue opening them at a brisk pace.
After Japan, the company embarked on an aggressive foreign investment program. In 1998, it purchased Seattle Coffee, a British
coffee chain with 60 retail stores, for $84 million. An American couple, originally from Seattle, had started Seattle Coffee with the
intention of establishing a Starbucks-like chain in Britain. In the late 1990s, Starbucks opened stores in Taiwan, China, Singapore,
Thailand, New Zealand, South Korea and Malaysia.
In Asia, Starbucks’ most common strategy was to licence its format to a local operator in return for initial licensing fees and
royalties on store revenues. As in Japan, Starbucks insisted on an intensive employee training program and strict specifications
regarding the format and layout of the store.
By 2002, Starbucks was pursuing an aggressive expansion in mainland Europe. As its first entry point, Starbucks chose Switzerland.
Drawing on its experience in Asia, the company entered into a joint venture with a Swiss company, Bon Appétit Group,
Switzerland’s largest food service company. Bon Appétit was to hold a majority stake in the venture, and Starbucks would licence
its format to the Swiss company using a similar agreement to those it had used successfully in Asia. This was followed by a joint
venture in other countries.
As it has increased its global footprint, Starbucks has also embraced ethical sourcing policies as an environment responsibility. Now
one of the largest buyers of coffee, in 2000 Starbucks started to purchase Fair Trade Certified coffee. The goal was to empower
small scale farmers organisations in cooperatives to invest in their farms and communities, to protect the environment, and to
develop business skills necessary to compete in the global market. In short, Starbucks was trying to influence to change not only the
way people consumed coffee around the world but also the way was produced in manner that benefited the farmers and
environment. By 2010,some 75 percent of coffee that Starbucks purchased was Fair Trade Certified, and the company has a goal of
increasing that to 100 percent by 2015.
1. Where did the original idea for the Starbucks format
come from? What lessons from international business can be
drawn from this?

Howard Schultz’s visit to Milan, Italy in the 1980’s while he was the marketing director of
the company is where he experienced the warm and pleasant atmosphere of Italy’s cozy
Italian coffeehouse. Schultz’s positive experience with the personalization and warmth of
the coffee house is where his inspiration to create the same atmosphere for the Starbucks
Corporation was originated Schultz was able to persuade the owners of the company to
implement the process and cultural experience from Italy’s coffeehouses into their store.

Howard Schultz’s innovated process came form him having the opportunity to experience
a different culture and observing how they do business. Schultz was intrigued and inspired
by how the Italian coffee bars were organized, as well as, their unique characteristics of
having a relationship with their customers.
His decision to re-create the Italian coffee house culture in America, transformed Starbucks into
not only a retail store, but also a place where employees form social relationships and experiences
with the customers, therefore creating that added value of personalization to their stores. In turn
creating a loyal customer base, along with quality and efficiency is what sets Starbucks apart, and
has made it harder for other corporations to replicate.

The lesson of international business has contributed to the overall success of Starbucks. Assessing
Starbucks position in the 1995, they have definitely made a global impact worldwide. Starting
with only 700 stores with their first direct investment in Japan, which generated 850 stores by
2009. In contrast, by the end of fiscal year 2014, Starbucks will have 21,366 stores with 19,767
located in 63 countries.

The remaining stores are located in the United States with 255 stores located in New York City
alone, totaling 11,962 stores. With Schultz’s entrepreneurial leadership in his adaption of Italy’s
coffeehouse practices and process of not only offering a personal experience but the ability to
effectively emulate the Italian baristas process, and skills in making and serving the coffee, as well
as, his direct investment and expansion into other foreign markets has proven to be a positive direct
investment.
2. What drove Starbucks to start expanding
internationally? How is the company creating value for
its shareholders by pursuing an international expansion
strategy?

It started in 1995, when Starbucks began to explore foreign countries and expanding to Japan
first. The main goal is to keep all of the Starbucks similar as in the ones that are here in the
Unites States as the ones in foreign countries. This is why they set up specific training
programs to teach the managers and employees the same things that are being taught in the
United States. In 2001 they introduced a stock option plan because of the successful
expansions, by the end of 2009 they had around 850 stores in Japan alone.
 It is creating more value for its shareholders by expanding and creating more revenue
for the company, and in turn could drive the stock shares up and could increase
dividends.

 These expansions were a great thing for Starbucks to do because it not only helped
them, but their shareholders also. People drink coffee all over the world, so why not
give everyone the Starbucks experience that we get to enjoy here in the United States.

 Starbucks expanded to Japan because it had exhausted its market in the U.S. They had
opened up700 stores already and had very little remaining options for new stores in
the U.S. By opening stores in Japan, they were able to open their company to new
markets and have the potential to increase profit.

 By expanding internationally, they create value for the shareholders by increasing the
value, and profitability of the company. This makes the stock of Starbucks rise and
makes shareholders happy.
3. Why do you think Starbucks decided to enter the
Japanese market via a joint venture with a Japanese
Company? What lesson can you draw from this?

Lesson:

This type of strategy can be very helpful to companies that are just beginning
their international expansion.
This strategy shows that entering into joint venture in international territories
can help facilitate growth and lessen the financial burden in international
venture happen to fail.
Reasons :
 The reasons the company selected Japan as its starting point was that Japan is the third-
largest coffee-consuming nation in the world.
 The Japanese venture was expected to experience an operating loss during that year
because of initial construction costs. But the loss has already been factored into most
analysts' earnings estimates for the company.
 A 50-50 joint venture with Japanese Company “Sazaby Inc.”
 Starbucks want that all its manager and employees across the globe attend the same
training as provided to U.S. managers and develop a uniformity at its each and every
counter/store/outlet.
 As the local Japanese company must be more aware about the consumer behavior of that
country as compare to U.S. based Starbucks, so Starbucks decided to enter in the
Japanese market through the joint venture which will be benefit for the sustainability of
the Starbucks.
 Starbucks want to create uniformity of design and menu across its all outlet so through
joint venture it can do so.
4. Is Starbucks a force for globalization? Explain
your answer.

No! The two main drivers of globalization are decline in trade

barriers and the technological change. Starbucks is more a product
of the globalization than a force. With its presence in over 65
countries Starbucks is good example for a company that benefits
from the process of globalization and cultural exchange.
5. When it comes to purchasing coffee beans, Starbucks
adheres to a “fair trade” program. What do you think is the
difference between fair trade and free trade? How might a
Fairtrade policy benefit Starbucks?

Fair trade is business practice that is meant to be more responsible towards

nature and people. The intention is to create a sustainable economic growth
and trustful business environment. Free trade is situation in which we do not
have any, or very limited, trade barriers.

The difference between fair trade and free trade is that fair trade puts
restrictions on the factors of production of a product. These restrictions may do
things like protect worker’s wages and make sure working conditions are safe
during the production process.
 Free trade, however, reduces barriers between countries creating a more open market where
products can be more easily traded. Starbucks adheres to a fair trade policy, which benefits
them by giving them a more positive and environmentally friendly images a company.

 It also raises the working conditions of those they buy their products from and “empowers
small scale farmers” which helps to ensure future business from those people and
organizations.

 The benefits from following Fair-trade policy are that it helps to create the image of
responsible and trustful company. The business concept behind Starbucks is to impress its
clients with the way the coffee is offered.

 For the company to preserve its image and to be distinguished from its competitors and be
preferred by its customers is very important, coffee is widely available relatively cheap and
does not take a lot of technology to make, coffee market is very competitive.