Starbucks Expansion to China

Starbucks Expansion to mainland chinawareOur group would standardised to present Starbucks story in China. Starbucks is one of the largest drinking chocolate chains in the World, ranked 631 in globular 2000 list of Forbes. The familiarity has a unique style and atmosphere in their java houses. We chose China because it is the worlds most populous country with everywhere 1.3 one thousand million mess live there and second-largest country by land area. by and by 1978, the countrys economy were underwent dramatic changes which entangled such relief as authorization for entrepreneurs to show up up their own pedigree and col the country for opposed investment. It is obviously that Starbucks managers decided to take advantage of such opportunity to nail their demarcation into new region. To evaluate Chinese market the come with utilise several steps of analyses.The initial screening process helped the company function the question who might be interested in buying ja va in China? To introduce the Starbucks brand the company begun to distribute hot chocolate for free to guests in several Beijings hotels in 1994. This initiative indicated that there was a strong demand for their products, particularly among foreigners in China. Local people, who strived to imitate the westbound lifestyle, excessively showed interest for coffee drinking. In addition young genesis were enchantment by brands and products from the West. These factors led Starbucks managers to learn and understand more or so business climate in that Asia country.Next step for Starbucks was to determine monetary and economic conditions of China. Companys managers were aware that Chinese Gross Domestic Product (GDP) perpetually grew approximately 9 % on an average and a GDP per capita was US$3.800. All these factors led to rising income of middle class. That was undoubted advantage for entering Chinese market for Starbucks.At the third level of screening Starbucks faced with gove rnmental restrictions. China is highly bureaucratic country with difficult processes of getting permissions and sanctions to start and run business. In order to avoid these challenges the company built and carry firm relationship with Chinese local partners as well as government officials. In addition, Starbucks Soong Ching-Ling Foundation received $5 million gratuity from Starbucks to support education in countrys poorest regions.The fourth level of screening involved socio-cultural forces. It showed the biggest challenges for Starbucks, because of the old tradition of tea drinking in China. At the antecedent managers didnt know how to given over Chinese to drink and appreciate coffee. To acquaint employees and Chinese executives with coffee drinking experience Starbucks rund various training programs for them in which they well-educated more round coffee and Starbucks culture. The same focussing the company taught customers roughly unalike flavors and types of coffee. A nonher aspect was Chinese shopping behaviour which was different from the US market. People in China spent main patch of their monthly budget on foods. This as well led to success for the company.The ordinal level of China screening was focused on competitive forces. As we mentioned before China is a tea country and the share of coffee was low. Little or no competition for Starbucks was considered as an advantage. Chinese people were familiar only with one international brand which was Nestls Nescafe. However, Nescafe is not a coffee house like Starbucks. As regards local competitions, it was a well-known Chinese brand Li Shen and Japanese brand Zhen Gou Coffee.Having interpreted into account all the factors of international market assessment which was done by Starbucks we think that it was right decision to enter that market. Despite of all the risks of Chinese economy and vacillating attitudes toward The West culture, there is no doubt that role of coffee in China will prolo ng to grow. As a result Starbucks will benefit from it.Question 2Although Starbucks encountered several challenges in the process of entering into Chinese market. Starbucks had successfully expanded its business in over 20 large or medium sized cities of China, and undefended nigh 560 storefronts in these cities by 2012. The astonishing achievement owes to its careful merc tip overising assessment and various marketing strategies in different periods. These strategies mainly suggest to 2 different modes of entering foreign markets licenced system and colligation endanger.Licensed agreementIn 1998, Starbucks follow the mode of licensing agreement to license its Chinese partner (Beijing Mei Da), a wholesale distribution company to supply coffee beans to whatever selected hotels and restaurants. Starbucks realized that local partners open fire take up the best understanding of local cultures customers and nigh(a) related laws. and they have already established practiced r elationship with local government, so it was easy to scram the permissions and sanctions required to start and operate business in a bureaucratic country like China. Moreover, Starbucks could also maintain a high cadence on the control of production, and achieve a ideal revenue in Chinese market. So licensed agreement was a pick outimal natural selection for Starbucks to enter into a booming Chinas market in the mid-1990s.Joint stakeA joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new asset by contributing equity. Starbucks formed a joint venture with different partners at different times when it entered into Chinese market. Starbucks achieved considerable knowledge about the Chinese market conditions and then began to open Starbucks stores in China. The company adopted a strategy of having three different partners to enter different regions in Chinese market. In September 1998, Starbucks entered China under a licen sing agreement with Beijing Mei Da Coffee Co.Ltd, which was as their first partner. In 1999, Starbucks formed a joint venture with the Taiwan based Uni-President host and overt stores in Shanghai. In 2000, Starbucks entered into a joint venture with Mei-Xin internationalistic Ltd, it also called Coffee Concepts Ltd. It managed the operations in the region of Hong Kong, Shenzhen, Macau, Guangzhou, and other split of southern China.Based on our market assessment, there are some advantages for Starbucks with joint venture to enter Chinese market. First of all, Starbucks choose a good local partner to form a joint venture which mass help it bankrupt understand the local laws and negotiate better with the authorities. It is beneficial for Starbucks to obtain required permissions and sanctions so that it can be opened easily. Secondly, local partners know Chinese market condition better than Starbucks therefore, it is good and efficient method for Starbucks to adopt a few localizati on strategies to carry through different regions of customers. Last but not least, joint venture is a good way for Starbucks to reduce operation expenditure, and it also helps to reduce risks in Chinese market.Question 3In many ways Starbucks has changed their business strategies while operating in China. We could simply identify those changes from the case study, program library sources and other sources.We have happen upond those changes in the following paragraphs.We want our customers to fuck that were not approach shot to China comely to make money, we are coming to China to get on an enduring company that they can trust and they can view as one of their own. (Howard Schultz)Starbucks modified their board and tried to go under its brand name by change some food items agree to the choice of the Chinese people and selling different kind of tea. They also changed their marketing and pricing strategies based on needs for the Chinese market.Our approach into Beijing is about serving people, building global relationships, and celebrating local cultures over a great cup of coffee. That is the heart and soul of the Starbucks Experience. We are provoke to be working with our partners, Beijing Mei DA Coffee Co. Ltd., who shares our value and business philosophy. said Howard Behar of SCIWhen Starbucks started in China, one of the biggest challenges it faced was to make the consumers accustomed to drink and appreciating coffee. Arrocding to analysts, compared to other countries in which Starbucks operated this task was more difficult in China because of the age old tradition of tea drinking in the country, where coffee was seen as nothing less than a kind of western sandwich invasion.Starbucks, like any other multinational company, had to go through the dilemma of choosing whether to follow Chinese traditional tea or take a big risk of following Starbucks culture of promoting premium coffee. The company chose to opt for its own culture and sell the ide a of the Coffee drinking experience.Starbucks started by projecting the stores as a place for social gathering. The stores were also big in area than the ones in the US, as the idea was to make the customers odor at home, relax and spend more time there.Similarly the company took initiatives to teach the customers about the different types of coffees and how to distinguish between flavors. The customers were given some samples to smell as well as sip and then describe their experience. At times if the customers did not enjoy the sample, the store employees asked them to come choke off again later for another tasting session or they offered them some other drink that they enjoyed. They also spoke to the customers about the positive effects drinking coffee. For example, they spoke about how drinking coffee helped to change their wittiness and how it was good to have coffee in the morning.On the other hand as Chinese people were accustomed with tea drinking, Starbucks other busine ss strategy was to promote the benefit of coffee drinking to its customers and distributed free samples of coffees. The company also changed its normal store size to project itself as a place for social gathering.Localization StrategiesNormally Starbucks follows a high ensample technique to maintain its stores worldwide. But in the case of China it fit some strategies influenced by local culture and market conditions to gain Chinese peoples trust and confidence.Small changes were made in the texture, menu and store layout just to match with Chinese culture and food preferences. Within few months of opening the coffee stores, the company started observing that coffee culture is different for Chinese people than US, where people are very busy in their perfunctory lives and they just grab their coffee and leave, but in China coffee stores were more like a place for social gathering where they can sit and talk for hours with their friends and families. Therefore, according to the mar ket needs they had to square bigger stores. In the US a normal size of Starbcks store is about 1,200 to 1,500 square feet whereas in China they started opening stores bigger than 2,000 square feet.It was spy that the Chinese also liked to have some food on with their drink. 5 In response to that Starbucks started offering some popular Chinese foods like, curry puffs, moon cakes, and traditional cookies.Starbucks incorporates another localize strategy in every country they go, by modifying the name of Starbucks to suit the local language, like in China they Changed the name to Xing Bake where Xing represents Star and Bake was marked as bucks.Starbucks accepted the reality that maximum people in China like tea more than coffee though young multiplication is more likely to go for coffee. So they decided different menu for different stores in China. In Shanghai and westernized, the stores a standard menu where they served coffee. And in Beijing stores they introduced different tea-b ased drinks like coffee-flavored milk tea, green tea-flavored frappuccino etcetera to attract more people.Promotional and Pricing StrategiesTo promote themselves in China the company chose a different way. It was mostly depended on the people to spread head goodwill through word of mouth than commercial advertisements and media products. Their knowledge, organized way of business left a good impression on customers mind. The customers were volition to pay a higher price for the brand name. As a result young, urban Chinese, who solely started to associate visiting Starbucks or world seen with a Starbucks cup, as a symbol of social status. They tried to build their personality in terms of, product quality, customer service, employee relationship, etc.To produce the name of Starbucks they had different strategies. From professional to students they had different ways to attract them. They started selling latest DVDs, free access of internet and also use to provide different wirel ess services so people can disembodied spirit it like their 3rd home.Starbucks uses the highest quality coffee beans from ideal coffee producing climates. They helped Chinese farmers, made good relationships with their workers and they also made a good reputation in the supply market .As a result of good reputation, good quality and high price they were able to attract people and also maintain their luxury appeal. The company priced its coffees at around US$ 6 for a cup, which was considered by analysts as too costly , even though it was too costly by Chinese standards but they decided to continue with it because in China, high price was directly associated with quality.