Term Paper on "Starbucks Corporation Competing in a Global Market"

Quoted Instructions for "Starbucks Corporation Competing in a Global Market" Assignment:

You are to write a 14-page paper. A Word Count Totaling 4,200 Words for this Paper. The Paper Format Must Be Times New Roman and Doubled-Spaced. Read the Case Study and at the end of the case study, are questions, Answer the Discussion Questions.'State the Question First', and then continue to answer.***** Be Sure to Properly Cite Sources Using APA Format. **For Outside Sources, Use Internet Only.**

Starbucks Corporation: Competing in a Global Market

Starbucks Corp. in a Seattle, Washington-based coffee company. It buys, roasts, and sells whole bean specialties coffee and coffee drinks through an international chain of retail outlets. Is beginning as a seller of packaged, premium specialty coffees, Starbucks has even fall into a firm known for its coffee houses, where people can purchase beverages and food items as well as package whole bean and ground coffee. Starbucks is credited with changing the way Americans and people around the world view and consume coffee, and its success has attracted global attention. Starbucks has consistently been one of the fastest-growing companies in the United States. Over a 10-year period starting in 1992, the company*****s net revenues increased at a compounded annual growth rate of 20 percent, to $3.3 billion in fiscal 2002. Net earnings have grown at an annual compound growth rate of 30 percent to $218 million in fiscal 2002, which is the highest reported net earnings figure in the company*****s history. As Business Week tells it: On Wall St, Starbuck is as great growth story. Its stock, including four splits, has soared more than 2,200 percent over the last decade, surpassing Wal-Mart, GE, Pepsi-Cola, Coca-Cola, Microsoft, and IBM in total return. Now at $21 {September 2002}, it is hovering near its all-time high of $23in July {2002}, before the overall market drop.

To continue this rapid pace of growth, the firm*****s senior executives are looking to expand internationally. Specifically, they are interested in further expansion in Europe (including the Middle East), Asia-Pacific (including Australia and New Zealand), and Latin America. Expanding in these three Continents presents both a challenge and an opportunity to Starbucks. While the opportunity of increased revenues from the further expansion is readily apparent to the company*****s top management, what is not clear is how to deal with the growing *****anti-globalization***** sentiment around the world. This case looks at issues that are rising as Starbucks seeks to dominate specialty coffee markets around the world and explore what changes in strategy might be required.

Background

In 1971, 3 Seattle entrepreneurs Jerry Baldwin, Zev Siegl, Gordon Bowker started selling whole bean coffee in Seattle*****s Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick. By 1982, the business had grown to five stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of US operations or Hammarplast, a Swedish housewares company in New York, marketing coffee makers to a number of retailers, including Starbucks. Selling Starbucks, Schultz was introduced to the three founders, who have been recruited him to bring marketing savvy to their company. Schultz, 29 and recently married, was eager to leave New York. He joined Starbucks as manager of retail sales and marketing. A year later, Schultz visited Italy for the first time on a buying trip. He noticed that coffee is an integral part of the culture in Italy; Italians start their day at an espresso bar and later in the day return with their friends. There are 200,000 coffee bars in Italy and about 1,500 in Milan alone. Schultz believed that, given the chance, Americans would pay good money for a premium cup of coffee and a stylish place to enjoy it. Enthusiastic about his idea, Schultz returned to tell Starbuck*****s owners of his plan for a national chain of Cafés styled on Italian coffee bar. The owners, however, did not want to be in the restaurant business. Undaunted, Schultz wrote a business plan and begin looking for investors. By April 1985 he had opened his first coffee bar, I1 Giornale*****s (named after the Italian newspaper), where he served Starbucks coffee. Following I1 Gionale*****s immediate success, he expanded to three stores. In 1987, the owners of Starbucks agreed to sell the firm to Schultz for $4 million. The I1 Gionale coffee bar to the name of Starbucks. Convinced that Starbuck would one day be in every neighborhood in America, Schultz focused on growth. At first, the company*****s loses almost doubled (to $1.2 million in fiscal 1990), as overhead and operating expenses ballooned with the expansion. Starbucks lost money or three years running, and the stress was hard on Schultz, but he stuck to his conviction not to *****sacrifice long-term integrity in values for short-term profits.***** In 1991 sales shot up 84 percent, and the company turned profitable. In 1992 Schultz took the firm public at$17 a share. Believing that the market share and name recognition are critical to the company*****s success, Schultz continued to expand the business aggressively. Schultz observes, *****There is no secret sauce here. Anyone can do it.***** From the beginning, Schultz has professed a strict growth policy. Although many other coffeehouses or espresso bars are franchised, Starbucks owns all of its North American stores out right, with the exception of license agreement in airports. Further, rather than trying to capture all the potential markets and still is possible, Starbucks goes into a geographic market and tries to complete the dominate it before setting its sights on further expansion. Using this strategy, Starbucks has grown from 17 coffee shops in 1987 to 5,688 outlets in 28 countries by the end of the fiscal 2002. It also employed over 60,000 individuals, including approximately 50,000 in retail stores at the end of 2002. Starbucks Corp. is organized into two business units that correspond to the company*****s operating segments: North American and International. In 1995, Starbucks Coffee International, a wholly owned subsidiary of Starbucks coffee Co., was set up to the build Starbucks***** business outside North America, including opening company owned, licensed, and joint venture based retail stores worldwide. A recent article in Business Week notes: Starbucks also has a well seasoned management team. Schultz, 49, step down as chief executive in 2000 to become chairman and chief global strategist. Orin Smith, 60, the company*****s number cruncher, is now CEO and in charge of day-to-day operations. The head of North American operations is Howard Behar, 57, a retailing expert who returned last September, after retiring. The management trio is known as H2O, for Howard, Howard, and Orin.

The Starbuck Model

Schultz*****s goal is to: *****establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining uncompromising principles as we go.***** The company*****s 25 year goal is to *****become an enduring, great company with the most recognized and respected brand in the world, known for inspiring and nurturing the human *****.***** The company*****s mission statement articulates several guiding principles to measure the appropriateness of the firms decisions. In describing Starbucks unique approach to competition, Fortune notes *****the strategy is simple: blanket an area completely, even if the stores cannibalize one another*****s business. A new store while often capture about 30 percent of the sales of a nearby Starbucks, but the company considers that a good thing. The Starbucks everywhere approach cuts down on delivery and management costs, shortens customers***** line at individual stores, and increases foot traffic brought all the stores in an area. Last week 20 million people bought a couple copy at a Starbucks. A typical customer stopped by 18 times a month; no American retailer has a higher frequency of customer visits. Sales have climbed an average of 20 percent a year since the company went public. Even in a down economy, when other retailers have taken a beating, Starbucks store traffic has arisen between six percent and eight percent a year. Perhaps even more notable is the fact that Starbucks has managed to generate those kinds of numbers with virtually no marketing, spending just 1 percent of its annual revenues on advertising. Retailers usually spend 10% or so of their revenues on ads.***** Business Week adds: clustering stores increases total revenue and market share CEO Orin Smith argues, even when individual stores poach on each other sales. The strategy works, he says, because of Starbucks size. It is large enough doors or office at existing stores as new ones open up, and so the overall sales grow beyond what they would have with just one store. Meanwhile, it*****s cheaper to deliver to and manage doors located close together. And by clustering, Starbucks can quickly dominate a local market. And Schultz points out: market is much larger than we originally thought*****¦ in most cases local competitors benefit from our arrival because of the expansion of the marketplace. Our strategy is never to eliminate or hurt the competition. We never underpriced our coffee and it*****s clear that we position ourselves so not to undercut the pricing structure in the marketplace. Schultz observes that the company is still and its early days of growth worldwide. We are opening three or four stores everyday, he notes. We go strongly that the driver of the equity of the brand is directly linked to the retail experience we create in our stores. Our commitment to growth of the company is significant and will continue to be based on the long-term growth potential of our retail format.

Securing the Finest Raw Materials

Starbucks coffee quality begins with the purchase of high-quality Arabica coffee beans. Although many Americans were arranged on a commodity like coffee made from more quality robusta beans (or Arabic beans mixed with less expensive filler beans), Starbucks coffee is strictly Arabic, and the company ensures that only the highest quality beans are used. ***** Olsen, the company*****s then senior vice president and then chief coffee procurer, scoured mountain trails in Indonesia, Kenya, Guatemala, and elsewhere in search of Starbucks premium beans. His standards were demanding, and he conducted exacting experiments in order to get the proper balance of flavor, body, and acidity. From the company*****s inception, it has worked on developing relationships with the country should from which it buys coffee Bean*****s. Traditionally, Europeans and Japanese bought most of the premium coffee beans. Olsen sometimes had to convince coffee growers to sell to Starbucks especially since American coffee buyers are notorious purchasers of the *****dregs***** of the coffee beans. In 1992 Starbucks in a new precedent by outbidding European buyers for the exclusive Narino Supremo Bean crop. Starbucks collaborated with a mill in that tiny town of Pasto, located on the side of the volcano Galero. There they set up a special operation to single out a particular Narino Supremo coffee bean, and Starbucks guaranteed to purchase the entire yield. This enabled Starbucks to be the exclusive purveyor of Narino Supremo, purportedly one of the best coffees in the world.

Vertical Integration

Roasting the coffee bean is close to an art form at Starbucks. Starbucks currently operates multiple roasting and distribution facilities. Roasters are promoted from within the company and trained for over a year, and it is considered quite an honor to be chosen. The coffee is roasted in a powerful gas-fired drum roaster for 12 to 15 minutes while roasters use sight, smell, hearing, and computers to judge when beans are perfectly done. The color of the beans is even tested in an Agtron blood cell analyzer, with the whole batch being discarded if the sample is not deemed perfect.

The Starbucks Experience

According to Schultz, we are not just selling a cup of coffee, we are providing an experience. In order to create American coffee enthusiasts put the dedication of their Italian counterparts, Starbucks provides a seductive atmosphere in which to imbibe. Its stores are distinctive and sleek, yet comfortable. Though the sizes of the stores and their formats vary, most are modeled after the Italian coffee bars where regulars sit and drink espresso with their friends. Starbucks stores tend to be located in high traffic locations such as malls, busy street corners, and even grocery stores. They are all well lighted and feature plenty of light cherry wood and artwork. The people who prepare the coffee are referred to as baristas, Italian for bartenders. Jazz or Opera music plays in the background. The storage to range from 200 to 4000 square feet, with new units tending to range from 1500 to 1700 square feet. In 2003, the average cost of opening a new store including equipment, inventory and leasehold improvements is in the neighborhood of $350,000;a flagship store cost much more.

Building a Unique Culture

While Starbucks enforces almost fanatical spenders about coffee quality and service, a policy of Starbucks reward employees is laid-back and supportive. They are encouraged to think of themselves as partners in the business. Schultz believes that had the employees are the key to competitiveness and growth. *****We can achieve our strategic objectives without workforce of people who are emerged in the same commitment as management. Our only sustainable advantage is the quality of our workforce. We are building a national retail company by creating pride in and stake in the outcome of our labor.***** On a practical level, Brooks promotes and in court employee cloture through generous benefits programs, an employee stock ownership plan, and thoroughly employee training, each employee must admit me 24 hours of training. Classes cover everything from off the huge tree to a seven hour workshop called Brewing the Perfect Cup at Home. This workshop is one of five classes and all employees must take during their first six weeks with the company. Reports Fortune: it*****s silly, softheaded stuff, though basically, of course, it*****s true. Maybe some of it sinks in. Starbuck is a smashing success, thanks in large part to the people who come out of these therapy-like training programs. Annual barista turnover at the company is 60 percent compared with 140 percent for hourly workers in the fast food business. Starbucks offer its benefits package to both part-time and full-time employee. The package includes medical, dental, vision, and short-term disability insurance, as well as a paid vacation, paid holidays, mental health/chemical dependency benefits, and employee assistance program, a 401(k) plan and a stock option plan. They also offer dependent coverage and same-sex partners. Schultz believes that without these benefits, people do not deal financially or spiritually tied to their jobs. He argues that stock options and the complete benefits package increased employee loyalty and encourage attentive service to customer. Employee turnover is also discouraged by Starbucks Stock option plan known as the Bean Stock Plan. Implemented in August of 1991, the plan made Starbucks and the only private company to offer stock options unilaterally to all employees. Starbucks***** concern for all employee welfare expands beyond its retail outlets coffee producers. The company*****s guidelines call for overseas suppliers to pay wages and benefits that *****address the basic needs of workers and their families***** and to allow a child labor only when it does not interrupt required education. This move has set a precedent for other importers of agricultural commodities.

Leveraging the Brand

Multiple Channels of Distribution. Besides its stand-alone stores, Starbucks has set up cafés and carts in hospitals, banks, office buildings, supermarkets, and shopping centers. And other distribution agreements have included office coffee suppliers, hotels, and airlines. All this coffee is a large segment of the coffee market. Associated services (an office coffee supplier) provides Starbucks coffee exclusively to thousands of businesses around the United States. Starbucks has deals with airlines, such as an agreement with United Airlines to provide Starbucks coffee to United*****s nearly 75 million passengers a year. Starbucks, through a licensing agreement with Kraft Foods Inc., offers its coffee in grocery stores across United States.

Brand Extension

In 1995, Starbucks launched a line of packaged and prepared tea in response to growing demand for teahouses and packaged tea. Tea is a highly profitable beverage for restaurants to sell, costing only 2 cents to 4 cents a cop to produce. As its tea became increasingly popular, in January 1999 it acquired Tazo, a Portland, Oregon based to a company. Starbucks coffee is also making its way onto grocery shelves via a carefully planned series of joint ventures. An agreement with Pepsi-Cola brought a bottle version of Starbucks Frappuccino (a cold, sweetened coffee drink) to store shelves in August of 1996. In another 50-50 partnership, Dreyer*****s Grand Ice Cream Inc., distributes seven quart products and two bar- products of Starbucks coffee ice cream. Other partnerships by the Company are designed to form a new product association with coffee. For instance, the company*****s music subsidiary, Heart Music, regularly releases CDs, some in collaboration with major record labels that are then sold to Starbucks retail stores. While Starbucks is the largest and best-known of the coffeehouse chain and its presence is very apparent in metropolitan areas, the firm*****s estimates indicate that only a small percentage (about 7 percent) of the US population has tried its products. Distribution agreement and the new product partnerships, Starbucks hopes to capture more of the US market.

International Expansion

For many years analysts have absurd that the US coffee bar market may be reaching saturation. They point to market consolidation, as bigger players snapped up some of the smaller coffee bar competitors. Further, they note that Starbucks is also maturing, leading to a slowdown in growth of unit by them and firm profitability. In response, some argue, Starbucks has turned its attention to foreign markets for continued growth. For instance, Business Week notes: To duplicate the staggering returns of its first decade, Starbucks has no choice but to export its concept aggressively. Indeed, some analysts give Starbucks only two years at the most before it exaggerates the US market. The chain now (in August 2002) operates 1,200 international outlets, from Beijing to Bristol. That leaves plenty of room to grow. Indeed, about 400 of its planned 1200 new stores this year will be built overseas, representing a 35 percent increase in its foreign base. Starbucks expects to double the number of its stores worldwide, to 10,000 in three years. However, of the predicted three of four stores that will open each day, the majority will continue to be in the United States.

Early Expansion

In 1995, the firm established a subsidiary called Starbucks coffee international. At that time, the subsidiary consisted of 12 managers located in Seattle. Today, the subsidiary is led by Australian expatriate Peter Maslen and is staffed with about 180 experienced multinational and multilingual managers located in Seattle and three regional offices around the world. This group is responsible for all Starbucks business development outside North America, including developing new businesses, financing and planning stores, managing operations and logistics, merchandising, and training and developing Starbucks international managers. Starbucks first non-North American store was opened in 1996 in Tokyo. In reflecting on this early step in internationalizing the chain, Schultz notes: Two years prior to opening up in Japan, we hired its blue-chip consulting firm to guide us to succeed here. Basically, they said we would not succeed in Japan. There were a number of things they told us to change. They said we had to have smoking, but that was non-starter for us. They also said no Japanese would ever lose face by drinking from a cup in the street. And third, they said that given the high rent, stores could not be larger than 500 square feet*****¦ well, our no smoking policy made us an oasis Japan. As for our to go business, you cannot walk down a street in Tokyo today and not see someone holding a cup of Starbucks coffee. And our store size and Japan is identical to our store size and United States, about 1200 to 1500 square feet. It just shows the power of believing in what you do. And also that Starbucks is as relevant in Tokyo, Madrid, or Berlin as it is in Seattle.

The Starbucks Way

According to US News & World Report

When venturing overseas, there is a Starbucks way. The company finds local business partners in most foreign markets*****¦ it tests each country with a handful of stores in trendy districts, using experienced Starbucks managers. It sends local baristas to Seattle for 13 weeks of training. Then it starts opening stores by the dozen. It*****s called the lineup does not vary, but Starbucks does adapt its food to local tastes. In Britain, it won an award for its mince pies. In Asia, Starbucks offers curry puffs and meat buns. The company also fits its interior décor to the local architecture, especially in historical buildings. *****We do not stamp these things out cookie cutters style,***** says Peter Malsen, president of the Starbucks coffee international. Although Starbucks is committed to owning its North American stores, it has sought partners for much of its overseas expansion. As Catherine Lindemann, SVP of operations for Starbucks international describes it: Our approach to international expansion is to focus on the partnership first, country second. We rely on the local connection to get everything up and working. The key is finding the right local partners to negotiate local regulations and other issues. We look for partners who share our values, culture, and goals about community development. We are primarily interested in partners who can guide us through the process of starting up in a foreign location. We look for firms with (1) similar philosophy two hours in terms of shared values, corporate edition should, and commitment to be in the business for long-haul, (2) multi-unit restaurant experience, (3) financial resources to expand the star Bob confab rapidly to prevent imitators, (4) a strong real estate experience with knowledge about how to pick prime real estate locations, (5) knowledge of retail market, and (6) the availability of people to commit to our project.

In an international joint venture, it is a partner that used to store sites. Each are submitted for approval to Starbucks, but the partner does all of the preparatory and selection work. Cydnie Horwat, VP for international assets development systems & infrastructure, explains how Starbucks market entry plan starts with brand building, which then facilitates rapid further expansion in a country: when first entering a market, we are looking for different things in the first one to three years that later on. During these early years, we are building our brand. Our stores and the biggest source of advertising, since we do not do a lot of separate advertising. So we have higher investment in stores in the first three years. About 60 to 70 percent of the stores opened in the first three years are or high brand builders. Adds Horwat: First, we looked for a dreamy visible site in well trafficked areas and focus on three major factors: demographics, branding potential, and financials. Second, we categorize sites on an A to D scale. *****A***** sites are *****signature***** sites that are qualitatively superior to all other sites within the trade area [an area within Starbucks chooses to locate one store]. We rarely take a *****C***** or *****D***** store. Third, we ask our international market business unit (MBU) to send in the *****site***** submittal package with quantitative and qualitative measures, such as how the site meets Starbucks established criteria and the partners agreed upon criteria. This package is reviewed by a number of functional units operations, finance, and real estate within the international group. Fourth, we moved into the design phase, which is done in Seattle using information provided by the partner. Negotiate the least with the landlord and the initiate the construction when the appropriate permits are obtained. Finally, we turned over the store to operations. The whole process takes about 13 to 16 weeks from start to finish.

Establishing Starbucks as a Global Brand

Based on the success in Japan and other locations, Schultz*****s goal is for Starbucks to have a ubiquitous image as one of the most respected brands in the world. He notes: Whenever we see the reception we are getting in the marketplace such as in China, the Philippines, Malaysia, the UK, and most recently Spain and Germany, we recognize that the growth potential for the company [overseas] is very significant. We want to accelerate the growth, maintain our leadership position, and, ultimately, be calm one of the most respected brands in the world. Since its early foray into the Japanese market, the pace of international expansion has picked up significantly. In 1998, Starbucks acquired Seattle coffee company in the United Kingdom, a chain within more than 38 retail locations. That same year, it opens doors and Taiwan, Thailand, New Zealand, and Malaysia. In 1989, Starbucks opened in China (Beijing), Kuwait, South Korea and Lebanon. In 2000, it entered another seven markets (China-Hong Kong and Shanghai, Dubai, Australia, Qatar, Saudi Arabia, and Bahrain). It added three markets 2001 (Switzerland, Israel, and Austria). Last year another nine markets were opened (Oman, Spain, Indonesia, Germany, South China-Macau and Shenzhen, Mexico, Puerto Rico, in Greece). Schultz said that this expansion is only beginning and confidently predict more to come: Ten years ago, we had 125 stores and 2000 employees. Today we have 62,000 people working in 30 countries outside of the North America, serving approximately 22 million customers all week. Our core customer is coming in about 18 times a month. With the majority of adults all round the world drinking 2 cups of coffee a day and with Starbucks having less than seven percent share of total coffee consumption in the US and less than 1 percent worldwide, these are the early days for growth and development of the company. We have got a model that has been well tested from market to market.

Starbucks is well on its way to becoming a global brand. According to Business Week: The Starbucks name and image content with millions of consumers around the globe. It was one of the fast-growing brands in a Business Week survey of the top 100 global brands published August 5, 2002. At a time when one corporate start after another has crashed to earth, brought down by revelations earnings misstatements, executive greed, or worse, Starbucks has not faltered.

But becoming a global company is not without risk. As Business Week point out, Global expansion poses huge risks for Starbucks. The one thing, it makes less money on each overseas store because most of them are operated with local partners. While that makes it easier to start up on foreign turf, it reduces the company*****s share of the profits to only 20 percent to 50 percent. In addition, the firm is becoming a target for anti-globalization activists around the world.

Perils of Globalization

As Starbuck establishes a global presence, its growing ubiquity has not gone unnoticed by anti-globalization activists. A clear manifestation of this game in November 1999, and tens of thousands of protesters took to the streets of downtown Seattle when the World Trade Organization (WTO) held its third Ministerial conference there. Although nongovernmental organizations (NGOs) and activists had gathered to oppose the WTO, some activists deliberately targeted multinationals like Starbucks, Nike, and McDonald*****s. A small, but vocal, percentage of these protesters garnered international press coverage by committing acts of vandalism against carefully chosen targets. As a report in Business Week recalls: Protesters flooded Seattle*****s streets, and among their targets with Starbucks, a symbol, Madame, a free market capitalism run amok, another multinational out to blanket the earth. Amid the crowds***** protesters and riot police were black masked anarchists who trashed the store, leaving its windows smashed and its tasteful green and white or smelling of teargas instead of espresso.

Recalling the incident against the firm Schultz says: *****It*****s hurtful. I think people are ill-informed. It*****s very difficult to protest against a can of Coke, a bottle of Pepsi-Cola, or a can of Folgers coffee. Starbucks is both a ubiquitous brand and a place where you can go and break a window. You cannot break a can of Coke.***** Anti-globalization protesters target recognizable global brands because they are convenient symbols. The following excerpt from *****The Ruckus Society*****s Action Planning Manual and Media Manual***** illustration to close ties between global brands and the principles of direct actions against them: First [we] use direct action to reduce the issue to symbols. The symbols must be carefully chosen for their utility in illustrating a conflict: an oil company versus an indigenous community, a government policy versus public interest. Then we worked to place these symbols and the public eye, in order to identify the evil doer, detailed the wrongdoing and, if possible, point to a more responsible option.

The message that activists want to communicate focuses on the overseas activities corporations. They accuse multinational paying less than living wage workers in the Third World, of engaging in labor and environmental practices that would be outlawed in their home countries, of driving local competitors out of business and of furthering *****cultural imperialism.***** As one Global Trade Watch Field organizer described it: The rules by which trade is governed need to have more to do with the interests of citizens and with the back pockets and cash wads of a couple corporate CEOs. And we want to make sure that there is a balanced consideration. Obviously people are always going to be concerned with their profits; it*****s business, and we understand that, we accept that. But we think that needs to be balanced with concern for the rights of workers, basic human rights, [and] protecting the environment.

Critics further accused international organizations like the WTO, World Bank, and IMF of promoting corporate globalization by supporting trade liberation, by promoting export based economic development, and by facilitating foreign direct investment. According to an organization that bills itself as Mobilization for Global Justice: Most of the world*****s most impoverished country have suffered under IMF/World Bank programs for two decades: may have seen debt levels rise, unemployment skyrocketed, property increased, and environment devastated. Urged to export, they focus on cash crops like coffee instead of food for their own people, and allow foreign governments to build sweatshops, which also puts pressure on jobs in the US.

When Starbucks opened its first store in Mexico in September 2002, it shows a night in the Sheraton Hotel on Reforma Boulevard in Mexico City. This was Starbucks first store in Latin America and its first in an *****origin country,***** i.e., a coffee producing countries. An article on the Organic Consumers Association Web site describes Starbucks Mexican flagship store: The new Starbucks on Reforma features soft lighting and an aromatic ambience*****¦ Behind the counter, will roam employees without his signature Frappuccino and lattes. Indeed, the only jarring note is the 36 pesos ($3.60) the young woman at the register wants for a double latte, 10 times the price Indian farmers are getting for a pound of their product in Chiapas Oaxaca, and other coffee Rich state of southern Mexico*****¦ There is no starker contrast in the economics of coffee these days than between the cushy comforts and gourmet blends of the Starbucks *****Experiencia***** and the grim, daily existence of 360,000mostly Indian coffee farmers will work small plots carved from the Jungle Mountains of southern Mexico.

Multinational corporations and their supporters respond that the effects all and solutions for globalization are more complicated than the critics contend. They note that multinationals create jobs, pay better prices and wages and domestic firms, and conform to a local labor and environmental regulations. The skeptics are right to be disturbed by sweatshops, child labor, bonded labor, and other gross abuses that go on many poor countries (and in the dar***** corners of rich ones, too). But what makes people vulnerable to these practices is poverty*****¦ the more thoroughly these companies (multinational) penetrate the market*****s of the Third World, the fastest today introduced their capital and working practices, the sooner poverty will retreat and the harder it will be for such abuses to persist.

Moreover, multinationals argue, they have responded to the criticism of profit driven behavior by developing corporate codes of conduct, corporate social responsibility programs, and partnerships with nongovernmental organizations. They point out, however, that they are in a no-win situation, vis-à-vis their critics, because today can always be criticized for not doing enough. Starbucks has found that global concerns of thing get mixed up with and intertwined with local issues. Even the mere act of opening a Starbucks retail store in a neighborhood can be solved and local activism and community push back against the Starbucks brand. For example, when Starbucks opened a store in Cambridge, Massachusetts in 1998, picketers carrying signs that read *****Don*****t Let Corporate Greed Destroy Our Neighborhood,***** greeted it. A lawyer who helps community keep national chains out, says: *****It*****s part of the growing tension in the world between the mass market economy and people*****s desire to retain self-control and some local culture*****¦ if you have got a beef with Starbucks, you have got a beat with capitalism.***** Starbucks has stationed a variety of community pushback situations around the world. Soon Beng Yeap, one of Starbucks international brand reputation manager notes: *****This community push back is a live issue and Starbucks manage each pushback incident case by case. In some markets we have gone in and in some we have pulled out.***** He cites two recent examples, one in London, where Starbucks decided to withdraw its efforts to open a store after local activists actively campaigned against the firm, and the other in Beijing, where the firm opened a store in a historic district, and, following subsequent and significant adverse comment reported in local and international media, decided to stay put.

Primrose Hill and Starbucks***** Decision to Withdraw

In 2002 Starbucks made plans to open a store in Primrose Hill, a London suburb. Located in northwest London, Primrose Hill is a well-known historical and picturesque area comprised of a public park, shopping village area, and attractive Victorian residential housing. Residents of Primrose Hill many of whom are *****s, photographers, actors, and musicians take great pride in the area and are protective of their local environment, acting to ensure that no change stores operate in the area. In early 2002, Starbucks selected Primrose Hill as a potential site for a store, and in April 2002 cemented an application to the local council. When this information was published in the local papers, it received considerable negative feed back from the residence, in particular from the Primrose Hill Conservation Area Advisory Committee. This committee claimed that litter, noise, and disruption from deliveries to Starbucks store in Primrose Hill what real in the village ambience and contribute to the *****homogenization of the high streets.***** The opposition surprised Starbucks because Primrose Hill residents, associations (including the Primrose Hill Conservation Area Advisory Committee), and businesses had been contacted as part of calls location. What the potential site. Although the objections of Starbucks entry focused on local planning issues, there was an anti-globalization element as well. One critic was quoted as saying that Starbucks was *****renowned for not paying proper money to coffee growers.***** In response to the grid ticks, Starbucks offered to arrange meetings between the planning committee, local counselors, and its representatives to discuss the issues and hear their concerns. Despite Starbucks effort, no meeting all for was accepted and minimal responses were received. In the meantime, the Primrose Hill conservation area advisory committee began to campaign strongly against Starbucks. They collected more than 1300 letters of objection, which they then presented to the local council. Many celebrities, such as actor Jude Law, national theater director Nicholas Hytner, broadcaster Joan Bakewell, singer Neneh Cherry, author Jeanette Winterson, and artist Patrick Caulfield, lent their support by opposing that Starbucks application. Media coverage that was initially local became national when celebrities became involved. According to Horwat: Primrose Hill was an *****A***** site. A very affluent neighborhood, little or no competition, and we knew it would be a winner. Everyone [at Starbucks international]loved it. The real estate people, the fans people, and others signed off on the deal. Opposition only came when the city Council was about to approve [our application]. The opposition claimed that our entry would raise rents in the community. So we went back to the city Council to argue our case. But activists brought in movie stars and gather local and national media attention. In early June 2002, when it was apparent that Starbucks was not welcomed in Primrose Hill, the company decided against opening the store. Reflecting on their decision to withdraw, Horwat explains: We care about the abuse of the communities about which we are a part. We tried to have our stores to be part of a community. We had hoped to make a positive contribution to the people to get together in Primrose Hill. If the community does not welcome us, it is not someplace we want to be.

Adds Soon Beng Yeap: You have to understand the bigger picture in the UK to appreciate what was going on locally at the time Starbucks was seen as an American chain coming in to the British market and the British media tend to be very cynical. The specialty coffee market was becoming crowded and extremely competitive with several other chains such as Café Nero, Coffee Republic, and Costa Coffee making a strong push market share. The Starbuck team review all factors involved as well as listened carefully to the community concerns. At the end of the day, we decided to withdraw our application.

Beijing and Starbucks Decision to Stay

Starr Boggs opened its first outlet in Beijing in January 1999 and has over 100 stores and the country today. However, Starbucks touched a nationalist nerve in 2000 when it opened a small coffee shop in Beijing*****s Forbidden City. In highlighting this particular store, the New York Times noted: If ever there was an emblem of the extremes to which globalization has reached, this is it: mass-market American coffee called her and China*****s most hollowed historic place. Even a McDonald*****s in the Kremlin would not come as close. Starbucks opened its Forbidden City shop a month ago [September 2000] with a signature menu board advertising the usual Americano and decaffeinated latte coffee and a glass display case filled with fresh glazed doughnuts, cinnamon rings, and banana ***** muffins.

Starbucks, for its part, had taken extraordinary care to ensure its presence was unobtrusive. To avoid ruining the atmosphere of the big city, assigns and brand images were placed inside for this store. This small store (barely closet size according to some reports) had only two small tables and few chairs. It was located on the edge of the Forbidden City, among 50 other retailers, including some selling souvenirs and trinkets. Despite such a low-key presence, this store ignited controversy. Dozen of Chinese newspapers reported on reactions to the shop. According to one such report and the People*****s Daily: The reason for this uproar is due to the café*****s location: the Forbidden City, the world*****s largest imperial palace*****¦first constructed in 1406, the forbidden city is China*****s best preserved ancient architecture encircled by a rampant 3 km. The café, named Starbucks is situated in the southeastern corner of the Hall of Preserving Harmony (Baohedian), one of the three most impressive buildings on the palace grounds. The hall used to be giving you to hold feasts by Emperor and Noble of ethnic groups on New Year*****s Eve of China*****s lunar calendar*****¦ debates over the mini Café took place first on the Web. A survey by Sina.com showed that over 70 percent of nearly 60,000 people surveyed were opposed to the café entry into the Forbidden City, the main reason being the damaging effects to Chinese culture heritage and its atmosphere.

The administrators of the forbidden Palace and other government officials took note of the controversy but were supportive of Starbucks. Chen , a spokesperson for the forbidden city Museum, maintained that allowing Starbucks into the big city was part of their effort to improve service in the area. Moreover, Chen added: *****The reaction has been very intense. Some people say this is a gem of Chinese culture and that foreign brands and should not be allowed in*****¦ we cannot give up eating for the fear of choking.*****

According to Horwat: The Forbidden City location was a *****C***** site at best. But not definitely a *****D***** site, because there was still the benefit of brand presence. But the government said, *****We think you should come in,***** and it was difficult to say no. there was no local community, only tourist. Following the flurry of articles and the Chinese media CNN began to run news clips of the story in the United States. Watching this unfold in the US media, some senior managers at Starbucks became alarmed at the negative publicity. According to Soon Beng Yeap: The immediate reaction was to close the store! Due to the relentless negative coverage generated by the international media. After serious discussion among the senior executives, we felt as guest in a foreign country, we should be respectful of our host; the Forbidden City officials-who invited us to be there in the first place. We decided to not to pull out because it was the international media that stirred up the whole controversy. Unlike the Primrose Hill case, there was no real local community *****pushback.***** It was all media driven. A few reporters got hold of the story and ran with it, all citing the same survey by Sina.com we were very disappointed by the negative media coverage, which created a false sense of cultural imperialism about our intentions and opening the store, especially when we worked very hard to be culturally sensitive and listen to the local community.

The controversy has since died down, as a recent report (February 2003) in The Straits Times (Singapore) indicates: Today if anything, the tourists were more upset than the Beijing residents about the presence of Starbucks in the forbidden city, complaining that it was out of place in a historical site*****¦ ask what were the hottest issues of the day ordinary citizens, taxi driver Liu Zhiming said: Cars, apartments, and making money. What else?

Entering Rio de *****iro, Brazil

Peter Malsen, president of Starbucks international, hurriedly convened a meeting of his key executives and Starbucks international, including Julio Gutierrez, his president for Latin America. Starbucks entry into Brazil was in jeopardy because certain activists opposing Starbucks presence in the country were gaining momentum. Brazil is the largest coffee producing country in the world, and this was Starbucks second foray into Latin America (after Mexico). The company chose not to seek a joint venture partner to enter Brazil. Since many copycat chains had sprung up in Río de *****iro, some imitating Starbucks to the last detail, Malsen felt that his team had to move quickly before any particular group established itself as to permit chain. After several years of working with Julio*****s Latin American team, no suitable joint venture partner had been identified, and Malsen was considering establishing a 100 percent Starbucks owned MBU (as it had already done in the UK, Australia, and Thailand). The business development group, with Julio*****s team, had picked a site in the Ipanema area of Río de *****iro. They proposed that a flagship store be opened on this neighborhood*****s main commercial Street Rua Visconde de Piraja. Many of Rio*****s motion tradition boutiques started in Ipanema, later to be exported to the malls and other parts of town. Many world-renowned brands such as Cartier, Louis Vuitton, and Polo Ralph Lauren had stores on the Rua Visconde de Piraja. It is often said that news in Ipanema makes headlines all over Brazil. Starbucks had also chosen other sites, four to be specific, were the company could open stores immediately following the opening of the flagship Ipanema store. One of the stores was to be located in the posh neighborhood of Barra de Tijuca; another one slated for Leblon, and two others for shopping malls located in affluent residential neighborhoods in the city. The real estate group was ready to sign the lease with the agents of the Ipanema property owners, but was awaiting a formal response from the city Council members. The business development group, led by Troy Alstead, SVP finance and business development at Starbucks international, was confident that the Ipanema location was an *****A***** category site. The demographics of the area are just right for a flagship store. They are affluent, Young, and love of American Brands. The business development group*****s financial projections indicated that the Ipanema Starbucks store would be profitable in a short time, and Alstead believed that this was a conservative figure. Further, he pointed out: Based on the company*****s experiences of opening flagship stores and similar, high-traffic posh neighborhoods in other cities around the world our store in Ginza, Japan, comes to mind we believe the Ipanema store would be viable for Starbucks. We estimate meeting the store ROI targets in aggregate of the first five stores within two years.

But Malsen had some concerns. He was troubled by the reports about rising levels of violence and street crimes in Rio and Sao Paulo. In response to the growing violence, some of the most fashionable retailers were relocating themselves in shopping malls. He also questioned whether the timing for Starbucks was off. Current world events had generated anti-American feeling in many countries. Following the standard practice, Starbucks had been working with the local chamberof commerce since January 2003, and with the local city council for the required permits. The members***** city Council and local chamber of commerce were positive about granting Starbucks permission to begin construction. While the formal voting had yet to be undertaken, it looked certain that, bearing anything unusual, permission would be granted. But nongovernmental organization like the Organic Consumers Association and Global Exchange were mobilizing faster than expected to oppose Starbucks entry into Brazil. They found out about Starbucks intent to enter Brazil when to Ipanema district chamber of commerce newsletter proudly announced that, *****We aren*****t extremely pleased walk of Starbucks into the fashionable district of Ipanema. By opening a store in our neighborhood, they will join other global brands and help enhance further our district image as a place to be in Rio.***** The NGOs was recruiting local activist and had informed Starbucks that they would oppose its entry into Brazil ride petitioning the local council to reject its application. They also threatened to start picketing in front of the store once construction was initiated. The brand group a Starbucks was concerned about the turn of events. Soon Beng elaborated: People in Latin America now the brand because of their proximity to the US. Potential partners are always contacting us about coming in. Before we go into a place like Brazil, what is to due diligence we have to do? It is an origin country for us {i.e., coffee producing country} it is a very vocal place, and there is a love-hate relationship with United States. Advanced people always want to say yes to or when the numbers look good. Today some in Starbucks, at least in our group, say that maintaining and protecting our strong brand reputation is equally important. Others counter: if our brand or strong and why worry about it? This is a discussion we have here everyday and the company. While the pushback is not totally unexpected, it is hard to gauge the severity of the situation and its likely impact what our brand.

Malsen asked Alstead*****s business development group to work with Julio*****s Latin American team to estimate how picketing in front of the store might impact the financial projections and his group had prepared. Their answer: Our financial estimates for the Ipanema store are based on comparables from other flagship stores and locations similar to Rio in other parts of the world. Our financial models are sensitive to the demographics of the area. We project that demand could fall from 5 to 25 percent, because of people picketing in front of the store. We acknowledge it is much harder to guess what the impact on our entire system in Brazil might be as we open new stores. It all depends upon the type of media coverage the activists are able to muster and the issues the media choose to highlight.

Volunteered Soon Beng

The tide of public opinion is unpredictable. We review each pushback incident the best we can, and we can have a reasonable track record of predicting outcomes. But, every time we walked into a potential site somewhere in the world, we potentially face is pushback. It would be great to have a foolproof total system to help us evaluate the sorts of issues and make the appropriate decisions. Malsen had to leave Seattle to attend an important meeting in Europe the following day. He called together his key managers and said, Look, we have experienced a variety of pushback*****s and protests before. What lessons have we learned? We have been deciding whether to go into sites or pulled out on case by case basis. If we are going to grow to 25,000 stores, we cannot keep taking an ad hoc approach. We need a systematic method to respond to push back to this side whether we stay with a site or pull out. I want you to come up with a way to help me decide whether to go into Rio at all. And it*****s got to be a system or decision process that would work equally well in London or Beijing or any place else that we want to open. Let us meet again when I get back to town in a couple of days. The managers of Starbucks international had their work cut out for them. But they look for it to tackling the issues raised.

Discussion Questions

a.Briefly describe the history and evolution of Starbucks.

b.In your view, what are the key events in the history of the company?

c.Using your own words, described the *****Starbucks model.*****

d.What were the key issues and the decision by Starbucks to go international?

e.Identify and discuss some of the negative elements of globalization focused by Starbucks.

f.Based on your analysis, what advice would you provide Starbucks with respect to the next 3-5 year period.