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Star bucks_FDI

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  • 1. Foreign Direct Investment Star Bucks Group 10: Grey Matter SPJIMR, Mumbai Naveen Kumar Roohi Mittal Swati Suri Sreecharan
  • 2. Case at a glance… • Starbucks was born as a single store in Seattle selling premium roasted coffee • Howard Shultz’s vision saw the brand grow up rapidly: 17,009 stores in 55 countries as of today • Transformed product lines and product depth, superior customer service and marketing strategy • Expansion Mode/Global Market entry: Initially Licensing and Company Owned stores, Later Joint Ventures depending on the type of market, the competition, logistics and operational costs. • Starbuck’s strategy: Horizontal FDI (not buy plantations (sources of inputs), but creates or buys companies in its own industry).
  • 3. Global Market Entry Target Market Goals Of Target Markets Mode of Entry DecisionCriteria for Modeof Entry Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure OtherFactorsInclude: •Company Objectives •Need for Control •Internal Resources, Assets and Capabilities •Flexibility
  • 4. Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why? • With licensing, Starbucks had limited control of their expansion rate • Key to Starbuck’s strategy is quick expansion to build consumer habits while Starbuck’s is trendy • Their licensees did not have the capability to expand as rapidly as Starbucks wanted
  • 5. Which theory of FDI best explains the international expansion strategy adopted by Starbucks? • Imperfections theory (internalization) best explains Starbucks approach • Starbucks wants to maintain product quality and brand identity (the Starbucks experience) across a wide range of cultures, taste preferences, work habits and ways of doing business
  • 6. Joint Venture vs. Wholly Owned Subsidiary Joint Venture: Higher rate of return and more control over the operations( newly created part total control) Sharing of resources and knowledge of local market Reduce risks of failure Contact with local suppliers and government officials Lack of trust Conflicts arising Licensing/Wholly Owned Subsidiary: Appealing to small companies that lack resources Faster access to the market Rapid penetration of the global markets Risk of opportunism Licensee may become a future competitor
  • 7. Occasional Wholly OwnedSubsidiary… Britain: Buyout of Seattle Coffee Co: Enter UK market, remove competition, already established chain Thailand: Buyout of Coffee Partners: Reluctant for JV, would have taken time, effort and Cost.
  • 8. Starbucks’ foreign investments Japan: Starbucks JV with Sazaby Inc. , local retailor with 50% stake it started with $ 10 Mio FDI in 1995.  By 2007, it had 700 stores in Japan  US Success story replicated Britain: Starbucks fuelled its initial expansion in UK with  Buyout of Seattle Coffee Co & then used its capital , influence to obtain prime locations ( some operated in financial loss)  Starbucks in 2000s greatly increased its “licensed store” franchise system, which permits Starbucks franchise only if they contribute to less than 20% of the franchisees gross income, are inside other stores or in limited or restricted access spaces, as to not dilute the brand image.  1998, Starbucks entered UK market with $84 Mio acquisition of 60 outlet Seattle Coffee Co, rebranding all the stores as Starbucks. Thailand: Starbucks started with a licensing agreement with Coffee Partners, a local Thai company.  As per licensing agreement terms – Coffee partners had to open 20 stores in 5 years – incompetent to raise funds from Thai Banks.  July 2000 : Starbucks acquired Coffee partners for $ 12 Mio.  Now, strong control on expansion strategy, Starbucks had 103 stores by 2007.
  • 9. Forthe Indian coffee lovers…  Partnership with Pantaloons Retail India and New Horizons  May 2011 : Signed a non-binding agreement with Tata Coffee Ltd., Asia's largest publicly trade coffee grower, to collaborate on sourcing and roasting green coffee beans in Tata’s facilities throughout India, as well as exploring the development of Starbucks retail stores in associated retail outlets and hotels  Partnership may form into a JV within which Starbucks will hold 51 percent equity share within a year  Entering India would mean Starbucks could triple its stores to 40,000 worldwide by expanding into emerging markets  Competition includes Barista Coffee and Café Coffee Day
  • 10. THANK YOU