International strategy –> Approaching Spanish Market
Joint venture is the strategy of Starbucks to enter Spanish market. In order to adapt to different markets, satisfy needs and requirements, but still respect the old cultures and traditions.
The international expansion, Starbucks strategy is to focus on the partnership. The local company has a connection to get everything work, who can also share values, culture, and goals about community development. Starbucks looked for the partner that has following characteristics
- similar business philosophy in terms of sharing values, corporate citizenship, and commitment to be in the business for the long term
- multi-unit restaurant experience
- Firms with a strong financial resource to expand the Starbucks concept rapidly in order to prevent imitators
- Strong real-estate experience with knowledge about how to pick prime shop locations, where the shop can attract the huge amount of customers each day. Meanwhile, the stores are the source of their marketing process or advertising.
- knowledge of the retail market
- the availability of the people to commit to the project
Finally in 2001, Starbucks have reached an agreement with VIPS and El Moli Vell, both are the leading local food service and retailer in Spain.
- VIPS – They are a leading Spanish multi-brand, multi-restaurant and retail operator. Currently, 16 brands are operated under VIPS including Starbucks. They operate in 16 Spanish provinces and Portugal.
- El Moli vell – It has an expertise and skills in bakery products, also being mainly well-known in the Barcelona area. El Moli Vell was the retail component of the Europastry group. The Europastry group owned one of the most important European businesses in pastries.
Starbucks had chosen these two companies, because they fully understand the market, have experience and reputation in the market, sharing knowledge and help them operate locally in Spain. And definitely these two companies have exactly the same characteristics that Starbucks was looking for. The key factors that influenced Starbucks in choosing this strategy were the market potential and competitive intensity. Spanish had already been a mature market which means the market has high potential because the huge consumption of Spanish people; also there were a lot of coffee stores which would be their main competitors. So, Starbucks needed the strategy that allows them to expand their stores rapidly. Meanwhile, what Starbucks also considered the other factors such as knowledge, creative ability, capability to create and introduce brand with a strong in financial resource and has a high concerned about the quality in the products and services.
In Spain, Starbucks did not use any co-branding strategy. By the time Starbucks entered to the market, they are a large company with a very strong experience, technology, reputation, management and production skills. As a consequence they used their brand power and took advantage in negotiation with the local companies. As a part of Starbucks’ international strategy, they tried to minimize their holding and investment, so the company invested only 18% of share with their alliances. Because they had invested a huge amount of their financial resources in its internationalization process, so they had a limited available financial budget.
Nevertheless, prior to fiscal 2003, Starbucks started to invest more in joint venture by increasing their ownership from 18% to 50% with VIPS. Finally on September 30, 2009, Starbucks simultaneously sold its 50% ownership interests to VIPS, and converted them to licensed markets. The reasons that Starbucks changed to licensing are as follows;
- In term of profitability – Starbucks could be able fcto generate more profit from their license fee for the right to use the licensed property and from selling/supplying their products, brewing machines to VIPS.
- In term of operation and quality – All licensees’ stores have to follow Starbucks’s detail operating procedures; all the managers and employees who worked in these stores received the same training given to Starbucks managers and employees. So, by changing to licensing, Starbucks could organize the overall operation and control the quality of their product properly.
As we have mentioned before they choose joint venture as their entry mode, because of the market knowledge, financial support, local operation, commitment and responsibility. Also, they have an experience from Japan when Starbucks decided to enter, they had chosen licensing and later on they realized that licensing was not a good decision for them as an entry mode strategy, because there was a limited authority to control and lack of cooperation and royalty from the licensee.
Relevant factors to be concerned before international expansion
External factors
The external factors related to environment of the market such as economic, politic and social/demographic factors. They are affected to business indirectly, because they are uncontrollable. The main external factors that Starbucks always take into account are
- Cultural distance – It refers to the difference between the individuals from difference countries about their thought in one certain behavior. Since Starbucks is originally American company. Therefore, the cultural differences between American and European must be taken into consideration before entering to the market.
- Market barriers – It can be referred to the difficulty to enter the difference markets such as government regulation, legal, tariff barriers, start-up cost, customer transportation or distribution process and etc.
- Market potential – It mainly concerned with the size and growth of the market. Spanish market was already mature and people consume a massive amount of coffee. Starbucks considered primarily the market that has high potential prior to decide to entry.
- Competition intensity – It is the degree of competitors in the market. Since Spanish market for coffee was already mature, so there was many of the local coffee shops have been operating in the market.
Internal factors
The internal factors related to the characteristics, policies, strategies and managerial those affect the company’s activities. It is contrast with the external factors, because these factors are the dependent and more controllable factors.
- Characteristic of foreign business environment – It is an information about the overall business specific to the company such as behavior, language, culture and how the market functioning. It is also concerned with volatility, infrastructure of the business.
- Firm size – The size of the firm influences the selection of entry mode strategy. The larger the firms, the larger that they can afford to invest in starting, advertising and quick expanding the business.
- Speed & Time – In order to prevent the imitation, they need to make a quick expansion to create loyal customer and profitability, so the speed and time would definitely be concerned.
- Global management efficiency – It is focused on the internationalization. When the firm has a high international involvement, the company resource will become limited. Then, it would be necessary to reconsider their international strategy.
- Management risk attitudes – It refers to the risk that the company will have to take in entering to the foreign market. Also, depend on the financial situation of the company, the competitiveness of the market.
Licensing
Why they changed?
In term of profitability,
Earn more profit from selling their products
Starbucks received a license fee and a royalty on sales at these locations and supplied the coffee for resale in the licensed locations.
In term of operation, more tighter control over their partners
All licensed stores had to follow Starbucks' detailed operating procedures, and all managers and employees who worked in these stores received the same training given to Starbucks managers and store employees.
In term of brand image and quality,
Why not licensing at the beginning?
It is one of the most important Starbucks’ strategies: to license its format to foreign operators, and also establishing local joint ventures with them. This fact gives Starbucks the control to be sure that licensees are following its success formula; “licensed to the venture” means that both joint owners have the responsibility for growing the business (Starbucks) presence where it has established. At the beginning Starbucks decided to enter to Japan by licensing its format to foreign operators, but later it become a bad decision because Starbucks did not have the authority to control this new business was still following Starbucks successful formula. It is when Starbucks improved this situation adding to the license a joint venture, so both companies which participated as joint owners had the commitment and responsibility to work together in order to get the best result of sales.
References:
(case study)
(Starbucks entry to spain)
(page 72 strabucks strategy in spain case)
(same case)
(newsletter Starbucks)
(internalization of starbucks - Spain case 3)
(financial insight - Reuters 2010 fiscal)
(growth strategy - Higher rev and lower costs)
(interview with CEO - Quote)
volunteer iniciative in spain
>> environmental responsibility
>> perceptual map