Jessica P INT 4363 Oct 14, 2008 Case Write-Up Starbucks International Operations-2006 Part 1: Problem identification In several

international operations, Starbucks faced problems dealing with mode of entry, pricing, political environments and business environments which inhibited the success of operations in those countries. External growth strategies (mode of entry) used by Starbucks include joint ventures, licensees, and wholly owned subsidiaries. Amongst these, the widely used entry for Starbucks was the joint venture. An already dominant chain in its domestic country, Starbucks began its international expansion by focusing on the Asia-Pacific rim markets. The process for deciding entry into a country began with studying the foreign markets conditions followed by deciding what local partner to enter with, if in fact required. Starbucks first international operation began in Japan in a joint venture with Sazaby Inc. This partnership proved a good mode of entry for Starbucks, initially, that was until high losses after a couple of years. In the European Market, Starbucks faced problems which included competition from wellestablished coffee shops, imitation, high prices, high real estate costs and labor costs, customs, economic recession. Competition largely inhibited growth within the European Market, as well as failing to adopt customs in France. Perception from the European market also had a large impact on Starbucks, for it was generally perceived too expensive and as a form of overpriced imitation coffee. Middle Eastern markets posed to be very politically volatile. Country risk within those countries was rather high. Starbucks was forced to close six stores in Israel because of this. Part 2: Information from the text/supplemental reading In an attempt to identify why Starbucks faced problems in their international operations, it is essential to understand the procedures on deciding what country to enter. Further, understanding the potential risks to vie for is another very important step to analyze. Environmental assessment includes monitoring for contingency within the environment. Its a process of gathering info based on political, environmental, legal, cultural, social, demographic, and competitive factors that can affect your firm. Within the grasp of environmental scanning, companies must analysis variables such as political instability, as it notes in the textbook, particularly in the Middle East, because of the probable loss of profits and even ownership. Another factor, currency instability, is the fluctuation of the countrys currency. Nationalism often influences foreign companies. The home government participates heavily in business functions, as well as imposes several policies that can adversely affect a firm, such as excessive taxation, import controls, limitations, repatriation of profits. International Competition is one of the most important factors to analyze. This is done to indentify which are your companys relevant competitors in that country/industry. In order to

understand the game, you need to understand your enemies, great advice from a great strategic management professor. Finding weakness and strengths within them can provide either for opportunities or threats for your organization. Risks within a country that are increasingly important include strategic risk, operational risk, political risk, country risk, amongst others. Strategic risk include qualitative analysis of the industry, which include the use of the Porter 5 diamond, which analyzes the industry under the following five forces; threat of new entrants, threat of substitution, threat of competitors, bargaining power of supplies and bargaining power of customers. Operational risk includes internal factors that affect the efficiency of the organization. Political risk, which encompasses risk from political actions within a country that can affect a firms operations, is another important factor. Country risk, which is the risk acquired within a country, includes and is not limited to economic, government, political, security factors inherited when entering a country. Part 3: Problem resolution Well, it seems as though Starbucks failed to properly analyze the probably risks that would occur in the countries they entered. It is important for firms to perform external assessments in order to avoid such situations.