Coffee and Starbucks Essay

1305 Words Sep 28th, 2010 6 Pages
“Starbucks FDI”

Case Study

1. Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why?

Because this strategy did not give Starbucks the control needed to ensure that the licensees closely followed Starbucks’ successful formula.

Note: “Starbucks successful formula” refers to its basic strategy, which was:

To sell the company’s own premium roasted coffee, along with freshly brewed espresso-style beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting also providing superior customer service.

2. Why do you think Starbucks has now elected to expand internationally
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However, the mean characteristics of Horizontal FDI Starbucks practices are in the following points:

Market Imperfections (Internalization Theory)

Impediments to Exporting: in this case, it does not refers to commerce barriers payments, the main reason that causes almost impossible for Starbucks to exporting (talking about products, not knowledge) is the fact that Starbucks competitive advantage is not the product, it is the capacity of having presence in a lot of countries giving to customers a supreme service that only Starbucks can provide.

Impediments to Sale of Know-How: “when tight control over a foreign entity is desirable, horizontal FDI is preferable to licensing”; both facts were attacked by Starbucks strategy based in giving trainings to the foreign employees (also to the other join owner) and creating a joint venture to whom it licenses its format, so that Starbucks has been able to control the activities and the developing of the coffee stores around the world.

Note: Although Starbucks’ skills are embedded in its organizational culture, and culture is something that cannot be licensed… the strategy was the trainings and the creation of the joint venture (to whom it licenses its format).

Location Specific Advantages – Strategic Behavior: in this case, it is important to describe the relation between location specific advantages and

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