As a company with astonishing growth internationally, Starbucks reached the decision to expand in Australia. However, spotlight has shifted to the sudden closure of 70% of the stores in 2008. Two primary factors that led to the failed entry of the company is outlined in this report; decline in customer service quality, and the incorporation of inappropriate marketing strategies. Starbucks entered the competitive coffee industry too quickly, failed to communicate their brand and were unable to adapt to local preferences. Crucial marketing and human resourcing lessons that underlies this expansion are: conduct and take account of market research, glocalize when entering a local market, and undertake continual improvements to sustain the unique selling point.
The company is recommended to base availability of stores off actual demand, adjust coffee taste by sourcing coffee beans from different places and reduce additives, and construct different senses of its ethos in each store.Starbucks is founded by Jerry Baldwin, Zev Siegl, and Gordon Bowker in 1971 (Starbucks, 2018). This American coffee company has started a chain of cafe in Seattle Washington, and has become one of the largest coffee companies in the industry.
With more than 20,000 locations operating worldwide (Starbucks, 2018), the company continues to expand. It has been very successful in America, Canada and countries in Asia, however, encountered a failure in Australia. When Starbucks enter Australia in 2000, the company is well enough to open one new shop everyday in the world (Palmer, 2008), and managed to have 81 stores at its peak, but ended up exiting the market.
This report will be investing the attempt of Starbucks operation in Australia, its strategies and further recommendations.Starbucks serves both cold and hot beverages, whole-bean coffee, instant coffee and loose-leaf teas. The company also serves juice, snacks, and pastries. Yet, unlike the Americans, the Australians prefer stronger coffee without sugar syrups or additives, which is one of the main features of Starbucks drinks. In other words, the company entered a highly competitive market but failed to communicate and express the brand, and were unable to recognise the coffee culture in Australia, “Unfortunately, Starbucks failed to truly understand Australia’s cafe culture and has become an example of the big corporate machine it originally tried to differentiate itself from” (Palmer, 2008). Appendix 1 shows the scores of quantifying political risk model of Australia, the highlighted would be discussed below.But why choose to expand in Australia at first? Economically, the financial status of Australia is very stable, it is one of the well-developed countries in the world with steady GDP growth every year (Trading Economics, 2018).
Thus, the economy is enhancing due to the entrance to Asian market, bonding solid relationship with Japan and United States, and signing Free Trade Agreement with countries around the world (USTR, n.d.). It is the kind of bib and wealthy country with great population which Starbucks focuses on. Moreover, the business model of Australia is quite like the western world, where services play the broadest part, which favours Starbucks as a food service industry.
The country is also well-known by its quality of life, ranking high globally (OECD, 2018). As the atmosphere in Starbucks stores is described as “friendly and welcoming environment” and “a coffee shop being a place to buy a cup of coffee to a place to experience a good cup of coffee” (West, n.d.), which very much suits the lifestyle of the Australians.
Appendix 2 shows some of the pictures of Starbucks Stores around the world.In the aspect of cultural, Australia is sufficiently positioned for foreign businesses to expand in. As a past colonial country of Britain, there are no language barriers. Besides, its relationship with the United States is long and stable, which reinforces its credibility (USTR, n.d.).
The business culture is very open and practical, where negotiation is easily talked through and businesses are done effectively. Moreover, Australia is politically stable with relatively low risk to invest in. Issues such as corruptions and briberies are eliminated in Australia as it owns laws and help from organisations to deal with foreign briberies (The Heritage Foundation, 2017). Therefore, it is proven that Australia is safe and business-friendly to invest in.Starbucks’ rule of expansion underlies the assumption that consumers are more likely to visit when stores are located conveniently, thus stores are often highly concentrated in urban areas.
The company rapidly expands through clustering a small geographical area, and intentionally operates at a loss (The Economist, 2015) to drive out competitors and maintain their position as a market leader. This strategy allows it to “shorten customer lines at individual stores, and increase foot traffic,” (UW Business School, 2003) whilst keeping transportation and management costs to a minimum. Although deemed anti-competitive by critics, Starbucks has benefited from increasing total revenue and market share through this method. However, this strategy proved rather insufficient when faced with saturated markets, as such the Australian coffee industry. As a company entering a mature and sophisticated industry, it lacked the first-mover advantage as a late entrant, hence proved difficult to compete with existing established speciality coffee chains; where coffee suited local preferences and baristas have earned customer loyalty through relationship-building.
The company adopts the strategic approach of a Quality Imperative (Luthans & Doh, 2012), which proposes the implementation of quality improvements a continual process, so as to meet and exceed customer expectations. As opposed to how Starbucks previously entered foreign markets, the company chose to operate in wholly-owned subsidiaries. This grants managers with greater control to monitor products and operation quality, whilst enabling clear communication and a shared vision. Despite the benefits of company-owned retail store formats, there is high risk due to large investment in one entity, Starbucks can easily accumulate debt overtime under the impact of new stores deliberately functioning at a financial loss; thereby reducing its chance of a success in a foreign market.
Not to mention, host countries are often concerned that with this strategy, multinational corporations (MNCs) may drive out local enterprises.