Starbucks Case Study

Starbucks Case Study (NasdaqGS: SBUX )

Questions

1. Many of the same environmental factors, such as cultural factors, that operate in the domestic market also exist internationally. Discuss the key cultural factors Starbucks had to consider as it expanded into China

Two factors are very present in Starbucks choices on how to structure the businesses in China. First, the Chinese look to a gathering place outside of home and work, a 'third space'. Creating a gathering place was important to gain the walk-in business they SBUX depends on. They needed to be a destination that accommodated a longer stay than is characteristic in the US. The case study cites that only 20% of Americas stay, whereas 90% of Chinese stay in the store.

It was also important to include Chinese cuisine as the longer stays gave more opportunity to sell food items in addition to exotic coffees. Coffee was a new addition to the Chinese palette. Positioning SBUX the experience against NESCAFÉ appealed to the rising middle class, and created justification for the higher cost.

The Chinese wanted the Western experience. Ultimately SBUX is positioning itself as a destination dining establishment, with good service, and a latte.

2. Discuss the key political and legal factors Starbucks had to consider in the Chinese marketplace. What are the risks of entering a country with these factors? What changes have occurred in China's political and legal structure to the advantage of foreign companies?

China's current leadership has adjusted to a global economy, realizing it has a competitive advantage in cheap labor. It also realized that it was a rich market for imported goods and services. The takeover of capitalistic Hong Kong ended up proving their commitment to a new economy that gained the confidence of foreign investors. A dictatorship provides one advantage attractive to businesses: quick decisions. Once they had had approval to do business in China, SBUX was able to move quickly, although cautiously. Experienced in licensed concepts, they found partners and authorized the use of their brand.

It must be noted that while quick change has advantages, it carries risk as well. If China made moves similar to Hugo Chavez in Venezuela, they could be nationalized by the stroke of pen held by one hand.

3. What demographic factors were important for Starbucks to understand in China? What were the demographics they decided to target?

A new generation has risen and they have disposable income. 'Little Emperors'