Question

Global Marketing

From modest beginnings 45 years ago in Seattle's Pike Street Market, Starbucks Corporation has become a global marketing phenomenon. Today, Starbucks is the world's leading specialty coffee retailer, with 2019 revenues of $26.51 billion. In the United States, nearly two-thirds of Starbucks outlets are company owned; the remaining one-third are operated by licensees. Outside the United States, the proportions are reversed: about two-thirds are run by licensees or partnerships in which Starbucks has equity stakes. Starbucks founder and chairman, Howard Schultz, and his management team have used a variety of market-entry approaches—direct ownership, licensing, and franchising—to create an empire of more than 21,000 coffee cafés in 65 countries. In addition, Schultz has licensed the Starbucks brand name to marketers of noncoffee products such as ice cream. The company has even made forays into movies and recorded music. (Source: Nasdaq, 2014)

Discuss the advantages and disadvantages of the modes of entry (direct ownership, licensing, partnership, and franchising) employed by Starbucks in different countries. For discussion purpose, select one country for each mode of entry. Please include the references with your answer.

Answer 1

Direct Ownership - Like Starbucks in the USA, direct ownership has a few advantages and disadvantages-

Advantages - The control is with the owner over the functions and operations of the business. It also provides access to local markets and better control over the marketing mix of the brand.

Disadvantages - Responsibilities of the profit and sale of the business lies in the owners' hands. Operations and personnel management to be regularly tracked.

Licensing - The entry of Starbucks in China after Thailand in 1999, was a case of agreement of licensing with Beijing Mei Da coffee co. ltd.

Advantages - It saves a lot of distribution and marketing costs. It does not involve equity and therefore, licensor makes a profit in a faster manner. It also reduces the exposure of instability of economic and political scenario in the foreign country.

Disadvantages - The licensee may use the technology and approach the customers and become a competitor to the licensor. In order to decrease the royalty payments, the licensee may under-report the business.

Franchising - Starbucks used the franchisee model in Tokyo, Japan in the year 1996.

Advantages - It reduces a lot of distribution and marketing costs. The franchisor can increase its local knowledge of the international market.

Disadvantages - In order to decrease the royalty payments, the franchisee may under-report the business. Franchisee requires more capital in beginning and hence not suitable for small firms

Partnership - Starbucks partnered with Tata Global Beverages in India in 2016.

Advantages - Both can leverage each other's expertise and grow together. It helps in the transfer of technology, IPs, and exchange knowledge of the overseas market.

Disadvantages - There may be cultural clashes between the two as they are of different geographies. The disputes take a lengthy and complicated route for settlements.