maanantai 20. helmikuuta 2012

Best of the both worlds – also in Finland

I have been watching Starbucks enjoying tremendous growth and expansion to foreign countries for years now. Previously I thought that the expansion can’t be so hard for Starbucks, the worldwide known giant. Just choose a country and go there! Or not ‘there’, here, Finland! However, the expansion isn’t as simple as just going to the foreign market and painting parts of the world map with your company color - obviously, when entering a new market, the company needs to choose the most appropriate entry mode. At the moment Starbucks uses only three different entry modes: joint ventures, licenses and wholly-owned subsidiaries (1). So which one would be best for the Finnish market?

Starbucks’ locations

Starbucks Corporation is organized into two business units that correspond to the company's operating segments: North America and Starbucks Coffee International. In the Unites States, the stores are largely company-owned with no partnerships. However, Starbucks Coffee International has adopted quite an opposite strategy, in which it forms joint ventures or licenses with local companies. The idea is that an experienced local partner can help identify locations, sift through tax issues and give Starbucks stores more community appeal (2). This being said and because of Starbucks’ lack of experience and know-how in Finland, I think the company should enter the market on a joint venture or licensing basis.

Licensing & Joint Ventures
Initially Starbucks expanded internationally by licensing its format to capable and reputable foreign operators to develop and operate new Starbucks stores. Licensing is an effective strategy given that Starbucks needs to uphold its service and product quality. When entering into licensing arrangements Starbucks can provide the Starbucks Experience in locations including local department stores, hotels, college and university campuses, hospitals, airports and grocery stores (3). Actually, Starbucks is already having a licensing agreement in Finland with SSP, the leading operator of food and beverage brands in travel locations worldwide (4). However, Starbucks hasn’t been totally happy with their pure licensing strategies because they do not give Starbucks the control they need in ensuring that the licensees closely follow Starbucks’ successful formula.

Due to this, nowadays Starbucks has elected to expand internationally primarily through local joint ventures to whom it licenses its format, as opposed to a pure licensing strategy (6). Having elements of joint ventures can provide Starbucks with an increased ease of entry into the foreign market.  The three main potential benefits of joint ventures are that Starbucks can protect their sustainable competitive advantage, reduce their financial risk and get the benefit of knowing how well the US product will do in the foreign market through local adaptation (5).

Entry Mode to Finland
My recommendation is that Starbucks should continue to use the “joint venture meets licensing business” strategy also in Finland in order to mitigate the possible effects of risks. This structure has been very effective for Starbucks so far, and it minimizes business vulnerabilities. The combination gives Starbucks the best of the both worlds: the control to be sure the licensees are following its rules and both joint owners have the responsibility for growing Starbucks’ presence. An excellent example of this combination strategy is when Starbucks entered Japan. At the beginning Starbucks only licensed their format to Japanese operators, but later this became a bad decision because Starbucks did not have the authority to control the new businesses. Starbucks improved this situation adding to the license a joint venture, so both companies which participated as joint owners had the commitment and responsibility to work together in order to get the best results (i.e. sales) (6).

2. Coffee in a time of conflict: Starbucks' growth risks backlash,

3 kommenttia:

  1. I agree with you, the licensing/joint venture sound like the right way for Starbucks to enter a market yet rather unfamiliar to them. Although I'm sure the company has conducted some pretty extensive market analysis of Finland before decising to open a coffee shop here :) I would like to know about the location choice inside Finland? Do you have any insights on why they decided to open two shops but both in the airport?

  2. I'm interested to hear that has Starbucks used this entry strategy in other markets before (opening the first store at the airport) and then possibly opening more stores in other locations? Or is Finland an exception? What could be the reasoning behind this?

  3. Thanks to you both for your comments!

    Isa, I think that by first opening the coffee shops to the airport Starbucks wants to first try out their demand in an international environment and thus minimize their risks. However, in my opinion, although airport as a location provides Starbucks with many international customers, there are still also loads of Finns and thus airport is a good location for Starbucks to get a save first touch of the Finnish market. Still, the question is pretty hard to aswer as there are undoubtedly many strategy related reasons which only Starbucks knows. The other locations would likely be in the biggest cities, Helsinki, Tampere and Turku, because Finnish population is pretty centralized in big cities and give Starbucks a larger customer base.

    JenniV, Starbucks has used the same strategy (to first open stores to the airports) also in other Nordic countries: Denmark, Norway and Sweden. I believe that the reasoning is the same as explained above (to minimize risks and first try out the demand in an international environment). Also Starbucks is a pretty new player in the Nordic countries and the first store was opened in 2007 to Denmark. Their startegy in the Danish market has been so successful that they have wanted to copy their operations in other Nordic countries.