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1. Global Entry Decision
In the United States, about two-thirds of Starbucks outlets are company owned; the
remaining one-third are operated by licensees. Outside the United States, the proportions
are reversed: about two-thirds are run by licensees or partnerships in which Starbucks has
equity stakes. What is the explanation for the two different market expansion strategies?
DOMESTIC STRATEGY INTERNATIONAL STRATEGY
2/3 Acquisition/Equity Stakes (Direct Ownership)
1/3 Licensing/Partnerships 2/3 Licensing/Joint Venture
1/3 Equity Stakes (Full Ownership)
Since Starbucks’s humble start in Seattle in 1985, it has become a massive global
company, with a marketing/brand strategy to match. Howard Schultz, founder and CEO of
Starbucks says he and his management team have used a variety of different market entry
strategies - including direct ownership as well as licensing and franchising-to create an
empire of more than 21,000 stores in over 65 countries.
To answer these questions, we must first understand the nuances of operating in a domestic
versus international market, and what benefits and disadvantages there are to these two
business environments. After this, we can consider why the breakdown of direct ownership
(high involvement, high cost, and most risk) to licensing or joint venture (less
involvement, smaller cost, and less risk than the former) was split in these ways in the
domestic and international markets, using knowledge from class, as well as a recent
Starbucks Fiscal Annual Report.
While in domestic environment, businesses are affected by economic, legal, and cultural
factors specific to that nation. While it can’t necessarily control or change any of them, it
can work to respond to them appropriately. Despite the difficulties that they may bring, it
is far simpler to deal with them in domestic business than international business, because
the domestic environment is familiar to the company:
In terms of market analysis, the need to understand each target markets preferences is
crucial to running a successful business. However, firms operating in an international
market need to invest a considerable amount of resources to figure out what customers
from other countries are most likely to purchase, and how to market products to them. This
could require a significant investment of time in each country, while in a domestic
environment, a firm can predict customer preferences much more easily, since it is familiar
with competitor offerings, thus more easily understanding its own market niche. As we
learned in class when we did the case on Illy, coffee flavor preferences vary very much
based on the country (U.S. prefers lighter roasts, Italy prefers espresso, French prefers dark
