OPENING CASE: Starbucks’ Foreign Entry Strategy
Summary
The opening case describes the strategy used by Starbucks to expand into markets throughout
Europe and Asia. Founded in 1971, Starbucks is based in Seattle. The company began its
aggressive international expansion in 1995, when CEO Howard Schultz decided to open a joint
venture with Japanese retailer Sazaby Inc. In order to replicate the North American Starbucks
experience, several Starbucks employees from the United States were sent to work in Japanese
stores, and all Japanese employees went through an extensive training process. The process
proved enormously successful, and the company soon pursued similar joint ventures throughout
Asia and Europe, with the Chinese market in particular showing impressive growth. Discussion
of the case can revolve around the following questions:
QUESTION 1: Why did Starbucks decide to expand into Japan in 1995? What were the benefits
of making a significant investment in the country?
ANSWER 1: By 1995, Starbucks had 700 stores in the United States and began seeking foreign
2. Which entry mode did Starbucks use to enter Japan and other foreign countries? What
advantages did this entry mode have over other ways to expand into the market?
QUESTION 3: Considering its joint-venture strategy for entering foreign markets, how did
Starbucks ensure a similar experience for customers across all of its international locations?
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CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Review the Management Focus on Tesco. Then answer the following questions:
a. Why did Tesco’s initial international expansion strategy focus on developing nations?
b. How does Tesco create value in its international operations?
c. In Asia, Tesco has a history of entering into joint venture agreements with local partners. What
are the benefits of doing this for Tesco? What are the risks? How are those risks mitigated?
d. In March 2006 Tesco announced that it would enter the United States. This represented a
departure from its historic strategy of focusing on developing nations. Why do you think Tesco
made this decision? How is the U.S. market different from others Tesco has entered? What are
the risks here?
ANSWER 1:
QUESTION 2: Licensing propriety technology to foreign competitors is the best way to give up
a firm’s competitive advantage. Discuss.
ANSWER 2: The statement is basically correct—licensing proprietary technology to foreign
competitors does significantly increase the risk of losing the technology. Therefore licensing
should generally be avoided in these situations. Yet licensing still may be a good choice in some
QUESTION 3: Discuss how the need for control over foreign operations varies with firms’
strategies and core competencies. What are the implications of the choice of entry mode?
ANSWER 3: If a firm’s competitive advantage (its core competence) is based on control over
proprietary technological know-how, licensing and joint venture arrangements should be avoided
QUESTION 4: A small Canadian firm that has developed some valuable new medical products
using its unique biotechnology know-how is trying to decide how best to serve the European
Union. Its choices are given below. The cost of investment in manufacturing facilities will be a
major one for the Canadian firm, but it is not outside its reach. If these are the firm’s only
options, which one would you advise it to choose? Why?
Manufacture the product at home and let foreign sales agents handle marketing.
Manufacture the products at home and set up a wholly owned subsidiary in Europe to
handle marketing.
Enter into a strategic alliance with a large European pharmaceutical firm. The product
would be manufactured in Europe by the 50–50 joint venture and marketed by the
European firm.
ANSWER 4: If there were no significant barriers to exporting, then the third option would seem
unnecessarily risky and expensive. After all, the transportation costs required to ship drugs are
small relative to the value of the product. The first two options would expose the firm to less risk
CLOSING CASE: General Motors Corporation
Summary
The closing case describes the recent success of General Motors in China. General Motors
initially entered China in 1997 via a joint venture with Chinese automaker Shanghai Automotive
Industry Corporation (SAIC). General Motors believed that China would become an important
market in the near future. So far, the company’s hunch appears to be on the mark. China’s auto
market was strong even during the recent global recession giving General Motors something to
cheer about even as sales in the United States continued to fall. Today, the company sells more
cars in China than it does in the United States, and experts predict that demand in China will
continue to grow, reaching 35 million vehicles per year by 2022 (up from 9 million in 2008).
QUESTION 1: GM entered the Chinese market at a time when demand was very limited. Why?
What was the strategic rationale?
ANSWER 1: GM was attracted to China by the enormous business potential of a country of
QUESTION 2: Why did GM enter through a joint venture with SAIC? What are the benefits of
this approach? What are the potential risks here?
ANSWER 2: GM executives believed that it was crucial to establish a beachhead in China and
team up with SAIC (one of the early leaders in China’s emerging automobile industry) before its
QUESTION 3: Why did GM not simply license its technology to SAIC? Why did it not export
cars from the United States?
ANSWER 3: GM did not want to license its technology because it wanted to retain control of the
QUESTION 4: Why has the joint venture been so successful to date?
ANSWER 4: GM achieved success by tailoring its Chinese automobiles to the local needs and
QUESTION 5: As of 2015 GM appears to be increasing its strategic commitments to China,
building more factories and opening more dealers. Why is the company making these bets? Do
you think it is doing the right thing? What are the potential risks here?
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
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INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:
Exercise 1
The Entrepreneur annually publishes a ranking of the top global franchises. Provide a list of the
top 25 companies that pursue franchising as their preferred mode of international expansion.
Study one of these companies in detail, and provide a description of its business model, its
international expansion pattern, desirable qualifications in possible franchisees, and the support
and training the company typically provides.
Exercise 1 Answer
Search phrase: Top Global Franchises
Resource Name: Entrepreneur Magazine: Top Global Franchises
Website: http://www.entrepreneur.com/franchises/topglobal/index.html
globalEDGE Category: Rankings
Additional Info:
Entrepreneur Magazine publishes two rankings of Franchises, one for the United States and one
for International. The International one lists the top ranking 200 Franchise 500 companies that
are seeking international franchisees. Each company listing includes an overview of the
company, as well as how much investment is required to open up a franchise, what type of
support is provided, and the type of financing available.
Exercise 2
The U.S. Commercial Service prepares reports known as the Country Commercial Guide for
countries of interest to U.S. investors. Utilize the Country Commercial Guide for Russia to
gather information on this country’s energy and mining industry. Considering that your company
has plans to enter Russia in the foreseeable future, select the most appropriate entry method. Be
sure to support your decision with the information collected.
Exercise 2 Answer
Search phrase: Country Commercial Guide
Resource Name: Country Commercial Guides for U.S. Investors
Website: http://www.buyusainfo.net/adsearch.cfm?search_type=int&loadnav=no
globalEDGE Category: Multi-Country
Additional Info:
The Country Commercial Guides are detailed reports about each country in the world drafted by
U.S. Commercial Service specialists and commercial attachés responsible for each of these
markets. Each report is several hundred pages long and provides a detailed economic overview
of each market, as well as analysis of attractive sectors for U.S. exporters, trade barriers they will
face, appropriate market entry modes and successful marketing and advertising strategies they
can consider utilizing in those markets.
End of Part Case Notes
Part Five
The Evolving Strategy of IBM
1. In the 1970s and 1980s Palmisano states that IBM was organized as a classic multinational
enterprise. What does this mean? Why do you think IBM was organized that way? What were
the advantages of this kind of strategic orientation?
Answer: In 1972, IBM moved away from its international strategy where most activities were
2. By the 1990s the classic multinational strategic orientation was no longer working well for
IBM. Why not?
Answer: Over time, IBM’s multinational approach to strategy began to lose its effectiveness
3. What are the strategic advantages to IBM of its globally integrated enterprise strategy? What
kind of organizational changes do you think had to be made at IBM to make this strategy a
reality?
Answer: IBM refers to its new strategy as a global integration approach. Under this strategy,
IBM has integrated operations both vertically and horizontally, located operations in the optimal
4. In terms of the strategic choice framework introduced in this part of the text, what strategy do
you think IBM is pursuing today?