Starbucks

After becoming the leading coffeehouse in America, Schultz took Starbucks into international markets. Starbucks had three objectives: to prevent competitors from getting a head start, to build upon the growing desire for Western brands, and to take advantage of higher coffee consumption rates in different countries (7). In opening coffeehouses abroad, Starbucks established joint ventures, selecting local business partners to help recruit talented individuals, set up supplier relationships, and understand market conditions. Attributes of each partner include shared values and corporate culture, strong retail experience, dedicated human resources, commitment to customer service, creativity, local knowledge, brand building skills, and strong financial resources (8). The chosen partner is granted the right to develop and operate coffeehouses throughout a defined region.

Asia was targeted first. By choosing a region in which there was not a strong base of coffee drinkers, Starbucks had a first-mover advantage and the opportunity to create a new perception of coffee, as it had in the United States. Schultz explained, “The maturity of the coffee market in Europe was very strong and was not going to change much over the years. The Asian market was in its developmental stage and we had an opportunity to position Starbucks as a leader in a new industry, and in a sense, educate a market about the quality of coffee, the experience, and the idea of Starbucks becoming the third place between home and work in those countries (9).”

Starbucks chose President Group as its local partner to expand into the vast Chinese region, splitting it into four markets: Taiwan, Shanghai, Beijing, and Southern China. The people of Taiwan enjoyed their first cup of Starbucks coffee on the island in 1998. Two years later, the people of mainland China shared in this experience with the opening in Shanghai (10).

Well-known to multinational corporations (MNCs) is the �One Face to China’ principle in which foreign companies reconcile their company goals with the goals of their host country. Since Deng Xiaoping’s Open Door Policy began in the early 1980s, China has experienced a foreign growth average increase of 15% annually. In 2002, China surpassed the United States to become the largest recipient of foreign direct investments in the world, attracting $53.2 billion in investments. Commensurate with China’s goal of incorporating capitalism into its economy and garnering massive investments in its resources is Starbucks’ desire to expand into the Chinese market. Starbucks’ goal of establishing a firm presence as the premier coffee business in China has the company pouring millions into Chinese companies, resources, real-estate, and taxes.

There are three phases involved when a foreign company begins to execute its long- or short-term presence in international markets. The first phase begins with Entry, during which MNCs determine the right business model to use and establish a presence in the foreign country. The second phase is Country Development, and MNCs develop their market by expanding to several localities, and build brand awareness with customers based on knowledge and research conducted during the Entry period. The final phase, Global Integration, seeks to align the foreign companies with the management and goals of the parent company. By expanding into China in these three phases, Starbucks has successfully presented �One Face to China.’

Phase One вЂ" Entry

In 1994, to first establish its presence in China during Entry, Starbucks’ then- executive Lawrence Maltz distributed free cups of Starbucks coffee to Beijing hotel guests. Seeing there was significant interest from both foreigners familiar with the Starbucks brand and Chinese eager to participate in this element of Western culture, Starbucks began to research the Chinese environment. Finding it amenable to the coffee business, Starbucks pursued the China market.

Building the brand in the host environment is also a significant aspect of the Entry phase. Without a positive reputation, a company cannot be certain it will develop loyal customers in the host country. When Starbucks entered China, President Maltz launched the company’s China goal to “build the Starbucks brand, to establish Starbucks as the standard for good coffee (11).”

In addition to establishing a presence and building the brand, the Entry phase also consists of important research and development aspects. Starbucks partnered with the local Chinese President Group to create new joint venture companies. All its stores are company owned вЂ" franchising was one business structure Starbucks refused to use. Schultz saw franchisees as middlemen who would stand between Starbucks and their customers; franchising would make them lose the common culture that made them strong (12).

In Hong Kong, Starbucks created a company with Maxim’s Caterer, a food and beverage business with 46 years of experience in Hong Kong (13). Maxim’s Caterer provided Starbucks with valuable insight about Chinese preferences, and also proved to be knowledgeable business partners who were well-informed about establishing and running businesses in China. Maxim’s Caterer advised Starbucks to add traditional Chinese items, such as festival moon cakes, curry puffs, and sausage rolls, to its Western menu. An additional advantage, discovered through relationship mapping, was that Maxim’s Caterer was also business partners with the lucrative Hong Kong Land Company, a group of businessmen who had cornered much of Hong Kong’s real-estate market. By carefully choosing its joint venture partners through extensive relationship mapping, a process by which a company’s network of adversaries, friends, and government allies may be revealed, Starbucks was able to successfully penetrate the Hong Kong market.

Phase Two вЂ" Country Development

Starbucks’ decision to implement its Chinese expansion strategy was not only based on its initial success in mainland China, but also by the overall development of the coffee market. Chris Mackreth, the general manager of Coffee Concepts (Hong Kong) Ltd., the joint venture between Starbucks Corp and Maxim’s Caterer, said, “We’ve seen over the time of our expansion that other chains have been expanding too, so it’s a very positive sign that the whole market is growing and that people are ready to accept this new kind of lifestyle (14).”

The increased competition in the coffee business, enhanced by China’s 2001