Entry Strategies of Starbucks in China and UK Case Study

Entry Strategies of Starbucks in China and UK - Case Study Example This research will begin with the statement that when a firm seeks to enter a foreign market, the company must choose the most appropriate entry mode for that specific market. The decision of entry mode strategy has an important implication in company’s international expansion. The choice of international strategy has long-term implication for MNCs. There are six international entry mode strategies: exporting, licensing, a turnkey project, franchising, joint ventures and wholly-owned subsidiaries. There are different influential factors that determine a company’s international strategy in each situation. The effect of these factors may differ considerably with respect to different countries. Starbucks uses three different entry modes to internationally establish their business such as joint ventures, licensing and wholly owned subsidiaries. Each day nearly 2.5 billion cups of coffee are consumed. It is the 5th most widely traded commodity in the world and millions of pe ople depend directly or indirectly on the production and sale of coffee for their income. The US coffee shop industry includes about 20,000 stores with combined annual revenue of about $11 billion. The industry is highly concentrated: the top 50 companies generate more than 70 percent of industry sales. The profitability of companies in the industry depends on the ability to obtain prime locations, create innovative promotion methods to increase customers, and deliver high-quality products. Big sized firms have advantages beginning from sourcing the beans to marketing their specialty coffee products owing to their easy availability of capital. Small companies can offer competition only by bringing in the local flavor to their restaurants based on their familiarity about the surroundings and also adding that personal touch to customer service. Coffee shops compete with businesses such as convenience stores, fast food restaurants, gourmet restaurants, and donut shops. Target Segment:- When specialty coffee was first being produced, its target consumer segment was the upper income class. This specific customer segment has been nearly fully penetrated. Any additional growth will come from those consumers with middle or lower incomes. These two segments are generally more motivated by discount products over branded products. Buyers are more aware and knowledgeable about specialty coffee and they are also demanding superior quality in the recent times. This results in further consumption of the product based on better information. PEST analysis: Political/Legal:- Rise in tensions between U.S. and rest of the world often results in negative impact on business activities of American brands like Starbucks in Middle East. Starbucks CEO Schultz was assumed to be close to Jewish society and was alleged to be funding their activities. Due to threats following this accusation Starbucks was forced to close down six stores in Israel. Starbucks imports all their coffee beans. So changes in import laws could affect production which can result in price variations of the product and in turn consumption too. Economic:- Starbucks has faced problems due to economic recession in countries such as Switzerland, Germany, and Japan in the early 2000s, where it caused declining sales and revenues for the company. Moreover, huge recession due to the global financial crisis also impacts the company’s results badly. Social:- Starbucks is committed to a role of positive impact on environment in all of their business activities. They understand the environmental issues and share information with their partners and encourage them to participate in this mission. This only adds on to the positive image of the company. Technological:-