Progress made by Starbucks in China
Starbucks is an American company founded in 1971 in Seattle, Washington that mainly operates and competes in the retail coffee industry as well as in the snacks store. Few years ago, Starbucks started its worldwide expansion into other markets and one of the target markets was the Chinese consumer market. The idea of establishing itself in China began in 1998 when Starbucks opened a coffee store in Taiwan. Since then, Starbucks has been expanding its business into cities in China. Starbucks first entered into China through a joint venture with an individually owned coffee store in Qingdao. Starbuck later bought most of the equity share of Beijing Mei Da Co, Ltd and so it was able to put up its stores in Beijing and Tianjin.
Currently, Starbucks has more than 230 store outlets in the mainland China in addition to other stores in great China including Taiwan, Hong Kong and Macau. Starbucks is trying to attract the Chinese consumers by using their stores as a gathering place where consumers can gather while having coffee and snacks. The company has been building on the appeal of its brand as well as its unique customer experience by drawing Chinese consumers into its stores. The company’s overall growth strategy in china is to add more stores in China’s metropolises so that they attract more customers instead of expanding into new cities. Currently, Starbucks is targeting the new generation in China that has an increasing spending nature and want that high status brand. Starbucks focuses on selling coffee-based beverages together with pastries such as the Chinese moon cake and the green tea flavoured cheesecakes in the Chinese market (Wang, 2012).
Cultural, political, and legal environments in China
China is an emerging market that offers various market opportunities for foreign investment. The country still has a huge potential for economic growth but it is important for investors to first analyse the political, cultural and legal environment that can create risks and uncertainty when it comes to foreign investment. China has the largest population in the word with more than 1 billion people. The tradition and way of life of the Chinese plays a key role in shaping the economy. The most popular social norms in china are Confucianism, Taoism and Buddhism and so in order to have a successful business relationship in China, strong social relationships and networks have to be developed. It is therefore important to analyse these social norms before investing in China. The Chinese constitution states that China is a People’s Republic social state with a people’s democratic dictatorship which is led by the working class. China has a bureaucracy political system that has always been there from history and tradition.
In order to attract foreign investment, the Chinese government has given special preferences to foreign investment through the reduction of tariff rate. Since it joined the World Trade Organization, China has been developing a comprehensive and easier to apply judicial and legal system. It has also put in place institutions that have enhanced intellectual property rights protection, patents, as well as dispute settlement related to business. The political stability of china raises questions especially on how receptive to foreign investors the country is or whether it can expel foreign investors. However, in recent times, China has adopted various criminal and civil laws that safeguards the people and their rights (Fogel, 2010).
Starbucks’ strategies for international entry into foreign markets include joint venture, licencing and company owned operations. Starbucks has expanded its market into foreign countries mainly to increase their market share and presence in these markets. Starbucks first entered into the Chinese market through a joint venture using an individually owned Starbucks outlet in Qingdao. The company was then able to carry out its own operations after purchasing equity stakes in Beijing. This strategy shows that Starbucks chooses partnerships while entering international markets as they believe that local connection is important for the success of their business. While opening outlets in foreign markets, Starbucks uses joint ventures and gain cultural understanding of the new markets and align them with organizational missions and objectives. Starbucks conducts careful research of the new markets while seeking local differentiation and responsiveness. The company also creates new product for different markets and integrates with company mission and this has made it quite successful in the Chinese market.
Starbucks has really invested in its corporate social responsibility and it does so by ensuring that it does not take advantage of coffee farmers. Starbucks upholds its ethical standards and its working hard to become an environmental leader among its competitors. It promotes fair trade coffee which enables coffee farmers to get sustainable prices for their produce. Starbucks coffee prices are higher than those of competitors but consumers know that the company is contributing to the economy of farmers and betterment of people around the world. Another factor that has made the company achieve competitive advantage is its multinational flexibility of managing risks. For instance, in order to ensure the supply of quality coffee beans, the company has a supplier program that attracts farmers of quality coffee and those that practice environmentally safe coffee farming (Blomstermo, A, Sharma, D & Sallis, 2006).
Starbucks has achieved major success in the Chinese market by seizing opportunities and overcoming problems. Starbucks realized that China had a large market with a developing economy and a huge economic potential. The country also has an increasing middle class population who are generous spenders and Starbucks targeted this consumer group. However, China has traditionally been a tea-drinking state and so venturing into the Chinese market was very risky for Starbucks. Being a new market with new political, legal and cultural factors, it was not easy for Starbucks to enter the Chinese market and succeed. However, Starbucks implemented strategies that involved working directly with the people in the country and understanding the customs and traditions of the Chinese. Starbucks has maintained its high quality products and customer service in China by paying attention to the local culture.
Starbucks has managed to use its employees for customer information and new ideas. Employees are able to report to the main outlets on ideas of helping the organization succeed. Another challenge that the company faced is the creation and promotion of innovation and learning for its partners across borders. It addressed this challenge by forming relationships with its suppliers, customers, alliance partners and employees to encourage learning and innovation. By making every individual they deal with partners, the company encourage innovation, learning and sharing of information. Even though the organization has faced numerous challenges in expanding to emerging markets, it still strives to ensure that customers get quality coffee and customer service (Bradsher, 2011).
Progress made by Starbucks in China