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Expansion into Asia -Pacific and Greater China

In 1996 the firm invested $1.5 million and established a subsidiary called Starbucks Coffee
InternationalInc. The focus of this subsidiary was on penetrating the Asia -Pacific region.
According to Kathie Lindemann, the director of international operati ons at Starbucks at that
time said ³We are not overlooking Europe and South America as areas for future expansion.
But, we feel thatexpanding into these regions is more risky than Asia. The Asia -Pacific
region we feel has muchmore potential for us. It is full of emerging markets. Also consumers¶
disposable income isincreasing as their countries¶ economies grow. Most important of all,
people in these countries areopen to Western lifestyles. ´
Starbucks does not like the concept of franchising. They prefer to work with partners in
Japan and other Asian countries. Their approach to international expansion is to focus on
³Partnership first, Country second´ i.e. relying on local expertise to establish the marketing
infrastructure. This is one of the keys to Starbucks¶ business strategy for international
expansion.

Criteria for choosing partners in Asia

 Similar philosophy in terms of shared values, corporate citizenship, and commitment
to be in the business for the long haul
 Multi-unit restaurant experience
 Financial resources to expand the Starbucks¶ concept rapidly to prevent imitators
 Strong real-estate experience with knowledge about how to pick prime real estate
locations
 Knowledge of the retail market
 Availability of the people committed to the project.
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Starbucks has offered the highest quality Arabica coffee, handcrafted beverages, and
legendary service that combine to provide the unique Starbucks Experience to custom ers in
nine countries in the Asia Pacific region and in China. The countries in Asia Pacific include
Australia, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea
and Thailand.

Recognizing the growing importance of Asia Pacific t o Starbucks Coffee International

operations and to ensure that customers receive a consistent Starbucks Experience, in 1999
the company invested in the region¶s infrastructure by establishing the Starbucks Asia
Pacific Support Center in Hong Kong.

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Entry into Japan

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Japan is an essential part of Starbucks¶ international exp ansion plan because the nation i s
the third largest coffee consuming country in the world, behi nd the U.S. and Germany. Japan
is also an ideal country because it has the largest economy i n the Pacific Rim.

In October 1995, Starbucks entered into a joint venture with a Tokyo -based Sazaby Inc.to
help Starbucks open 12 new stores in Japan by the end of 1997. This jointventure, called
Starbucks Coffee Japan, Ltd. amounted to 250 million yen ($2.33 million) in capitalization,
was equally owned by StarbucksCoffee International and Sazaby. The Tokyo -based Sazaby,
often recognized as a leader in bringing uniquegoods to the people of Japan, operated
upscale retail and restaurant chains throughout Japan. With Sazaby¶s assistance the firm
opened two stores in Tokyo in September of 1996. The first outlet was inTokyo¶ s posh Ginza
shopping district. The Ginza store was planne d so that Japanese customers could havethe
same ³Starbucks experience´ offered in U.S. stores. The firm¶s second store was located
inOchanomizu, a student area cluttered with colleges, bookstores and fast -food restaurants.
Since then, the number h as grown to nearly 8 72 stores in Japan as on 2010.The stores offer
the same menu as it does in its U.S. stores, although portions are smaller. The na mes of
items, such as µtall¶ and µgrande¶ are also the same as the ones used in the U.S. All of the
stores also feature the company¶s trademark decor and logo. In addition, Japanese
customers are able to purchase Starbucks coffee beans, packaged food, coffee -making
equipment as well as fresh pastries and sandwiches .
However, profits from the Japanese venture are still negligibly small . Operating costs, like
rent and labour, in Japan are ext remely high, and Starbucks also has to pay for coffee
shipment from its roasting facility in Kent to Japan. Retail space in downtown Tokyo is also
more than double that of Seattle¶s rent.Starbucks plans to eventually open a roasting plant in
Japan to help keep co sts down. However, this is contingent if the stores in Japan prove to be
a success.

Entry into Singapore

The first Starbucks coffee outlet in Singapore opened on December 14, 1996, in Liat
Towers, with the help of BonStarPte.Ltd., a subsidiary of Bonvests Holding Ltd., a
Singaporean company with food services and real estate interests. The store in Liat Towers
is located in Singapore¶s main shopping district on Orchard Road, which is a very trendy
shopping center where the French department store, Gallery Lafayette, and Planet

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Hollywood reside. Starb ucks¶ expansion into Singapore wa s its first expansion into
Southeast Asia.

Bonvests was an ideal partner f or several reasons. Bonvests had acquired expertise in
running food businesses, like the local Burger King chain. They also knew and understoo d
the local consumer market, government regulations, and the local real estate market.

Starbucks chose Singapore for its entry in the Southeast Asian market because of the highly
³westernised´ ideas and lif estyles it had adopted. It was estimated that Singaporeans dra nk
more than 10,000 gourmet cups a day in 1996. Starbucks packaged a coffee-drinking
experience that the Singaporeans want ed, both trendy and American. In addition, the market
in Singapore had tremendous growth potential. Final ly, the Singaporean market had no clear
leader in the speci alty coffee industry. This meant that Starbucks had a good chance to
become one of the top contenders in that market.

Starbucks had 32 stores in Singapore as on October 2005.

Entry into Indonesia

In 2002, Starbucks launched its first coffee store in Jakarta, Indonesia, after signing a
licensing agreement with PT Sari Coffee Indonesia. It is housed on the ground floor of the
Plaza Indonesia, an upscale fashion shopping center and boasts of the famil iar Starbucks
atmosphere of coffee, conversation and more. Since then the company has opened 32
stores in Indonesia as on October 2005.
Entry into China

China was predominantly a tea consuming nation and one of the smallest coffee markets in
the world. Hence it was a challenge for Starbucks to penetrate this niche market.Starbucks
inaugurated its first outlet in the World Trade Center in Beijing, China in January 1999
through a licensing agreement with Mei Da Coffee Co. Ltd. The company has collaborated
with different partners for its operations in China. In Shanghai and Hangzhou, Starbucks has
partnered with a unit of the President group. The President group is Starbucks¶ partner in
Taiwan, whereas in North China, the company has partnered with H&Q Asia Pac ific and
Beijing Mei Da Coffee. Starbucks has formed a Joint Venture with Maxim¶s Caterers for
Hong Kong, Macau and South China.

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As of the end of Q4 fiscal year 2010, there are more than 750 Starbucks locations
throughout Greater China, a region including the People¶s Republic of China, Hong Kong,
Macau and Taiwan.

In addition to offering the Starbucks Experience to customers in major metropolitan cities in

Greater China, the company has also opened stores in cities such as Changzhou, Chengdu,
Chongqing, Dalian, Dongguan, Foshan, Hangzhou, Kunshan, Nanjing, Ningbo, Q ingdao,
Shaoxin, Shenyang, Shenzhen, Suzhou, Tianjin, Wuxi, Wuhan, Xi¶an, Zhuhai, Changsha
and Fuzhou. To support the accelerated expansion into mainland China and achieve greater
penetration throughout the region, the Starbucks Greater China Support Cente r was
established in Shanghai in 2005.

In May 2010, Starbucks entered Zhu Hai market, expanding i ts reach to 27 mainland cities.
In September 2010, Starbucks opened two stores in Changsha, making it the 30th mainland
market. In the same month, Starbucks e ntered Fuzhou market, now expanding to 31
mainland cities.

A replication of its stores concept worldwide, Starbucks in China caters mainly to urban
working people and thus its outlets are located in commercial areas. As regards advertising
for the Chinese market, Starbucks depends less on domestic advertising and more on
promotion through coupons and visits, which draw first time consumers.

Entry into India

The organized coffee market in India is around 600 crore , or 20% of the total domestic
coffee consumption of 3,000 crore.

The major players in India include two franchisees of overseas coffee retailers. These are
Barista owned by Italian chain Lavazza that bought a controlling stake in the coffee retailer
from C Sivasankaran, the Chennai -based entrepreneur and UK -based Costa Coffee for
which RJ Corp, owned by Pepsi bottler Ravi Jaipuria, is the exclusive licensee.

India allows foreign investors to own 51% in single -brand retail which would encompass
coffee chains such as Barista. Lavazza's exact equity holding in Barista is not in the public
domain.

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Cafe Coffee Day, owned by entrepreneur VG Siddhartha and which has PE firms among its
shareholders, is another major player in this segment.

These chains have been thriving on rising demand from India's increasing upwardly mobile
middle class and youth, for whom hanging around in a coffee shop is still aspirational.

Starbucks India

Based on the GE/McKinsey Business Assessment Array shown below, the business unit
positioning of Starbucks India would be medium whereas the industry attractiveness is high.
Thus Starbucks would be in ³Build´ stage where it has to invest in order to develop
capabilities in order to serve the Indian Consumer.

Based on the strategy that we have seen Starbucks has been following in other Asian
countries, it is predicted that Starbucks would collaborate with a local partner in order to
develop the marketing infrastructure.

Starbucks had tried to enter India by striking an alliance with Kishore Biyani's Future Group
three years ago, but these plans were rejected by the Foreign Investment Promotion Board,
or FIPB, the government body that regulates inflow of foreign money into Ind ia's factories,
shops and mines, on the grounds that the eq uity structure was ambiguous. New Horizons, a
51:49 JV between Starbucks¶ Indonesian franchisee VP Sharma and Future Group CEO
Kishore Biyani, was to be the licensee for Starbucks¶ operations in India. New Horizons was
to set up, operate and manage Starbuc ks stores in India. But the alliance never saw light of
the day after the Indian government asked Starbucks to amend its application
twice.Seemingly irked by this, Starbucks withdrew its proposal and decided against coming
to India, at least for some time.

According to ET Bureau (Jan 29,2010), Starbucks has revived its plans for India and has
begun talks with Shyam and HariBhartia -controlled Jubilant Group for a possible alliance.

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Jubilant Foodworks, part of Delhi -based Jubilant Group, is the India franchis ee for Domino's,
the pizza chain. The group's flagship is Jubilant Organosys, a leading contract manufacturer
of pharmaceutical products.

The launch of Starbucks into India could be divided into 3 timelines.

1) The entrant phase i.e. the first year - This phase would be a pilot project in which
Starbucks would open multiple outlets only in New Delhi and Mumbai (biggest Metropolitan
cities of India) in prime locations to check out the initial response of the brand among the
people. This would give an idea about any change in the future expansion process as well. It
can also increase awareness of the people about its advent in the Indian marke t by selling
merchandise so that the masses become aware of the presence of Starbucks in the Indian
market.

2) The second timeline would be for the next two years where it would target the
Metropolitan cities namely Bangalore, Hyderabad, Chennai, Kolkata, Lucknow, Goa,
Chandigarh etc. along with opening multiple outlets in various cities rather than just opening
one outlet in each city. This would be apt as the resource channel in a particular city to cater
to its outlet would already have been established; hence the overhead of catering to other
outlets would not be very high. Setting up multiple outlets would help the company in market
penetration as the customers today look for convenience and having a Starbucks at their
neighborhood would definitely be a n added advantage in the brand establishment process.

3) The third timeline could be for the next two years wherein it would target various
companies (Business houses, Conglomerates, Multiplexes, and Airlines etc.) to cater to
their in house needs as all these entities cater to the educated middle class and the upper
middle class category which would lead to further strengthening of the brand as Starbucks
does not believe in promotion of its brand but it believes in selling its brand by word of
mouth.

Simultaneously in each stage, they would be entering into other arenas other than just Food
& Beverages. This would chiefly involve the sale of Music of various mobile operators,
Internet Surfing Stations, branded merchandise etc. This would give the custome rs an added
advantage of visiting Starbucks and would further strengthen the Starbucks Brand.

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Starbucks would seek to follow a translational strategy in India. Starbucks always pays a lot
of attention to local needs and customs and always tries to adopt a strategy which is line
with the prevailing scenario of the respective country. This can be understood by the
following statement given by the Chairman of Starbucks Howard Schultz: ³We remain highly
respectful of the culture and traditions of the countries in which we do business. We
recognize that our success is not an entitlement, and we must continue to earn the trust and
respect of customers every day.´

On the other hand, S tarbucks emphasizes that the best practices are adopted in each
country by sharing resources and facilitating co -ordination and co -operation across country
boundaries. For instance, Starbucks has strict quality checks and ensures that the coffee
beans used in USA are exactly similar to the ones used in China or any other region . In fact
the beans are specifically shipped to various countries under the supervision of the
headquarters.

Transnational strategies are challenging to implement, but are increasingly critical for the
success of the organisations in international markets.