Business Expansion Through Joint Ventures
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Business Expansion Through Joint Ventures
3) Expansion through Joint Ventures
- Does the alternative allow Starbucks to control the store and customer
experience? – This alternative provides the most flexibility for Starbucks to
control the store and customer experience. Through a joint venture its stores will
be fully integrated into the corporation, similar to how Starbucks operates
domestically. Starbucks will be able to control and tailor the products and
services that are sold and furthermore will be able to ensure employees are
trained to corporate standards. Because this alternative is a joint venture,
Starbucks utilizes a key lesson learned of employing a management, staff, and
marketing that better understands business operations, real estate, and
customer preferences in the target market.
- Does the alternative add significant financial risk? – This alternative can add
significant financial risk as Starbucks Corporation will still need to finance the
purchase or rental of store locations.
- Does the alternative address long term competitiveness? – This alternative is
effective in allowing Starbucks to address long term competitiveness because it
will allow Starbuck to make the decisions on store opening and control rate of
growth. This option gives Starbucks the flexibility to rapidly enter a market to
combat emerging competition. With long term vision in mind it may help to
favor quick expansion by opening store locations and establishing a strong
presence to combat competition early.
Market Selection:
1) Mature, wealthy markets
- Does the alternative allow Starbucks to control the store and customer
experience? – This alternative may be slightly impacted by the market location. If
there is an established coffee culture in a mature market there may be more of
an expectation to conform to the existing culture, thus restricting how Starbuck’s
may choose to operate and develop its store and customer experience.
- Does the alternative add significant financial risk? – For this decision criteria this
alternative is partially favorable as there may be a customer base that can more
easily afford the Starbucks products. Alternatively the established markets also
have the issues associated with higher real estate costs which can reduce the
profitability of entering those markets.
- Does the alternative address long term competitiveness? – This alternative may
have more challenges with respect to long term competitiveness. These markets
may attract or have already attracted competition due to the customer base
having higher incomes or because of an existing café culture. Because of this,
Starbuck’s may have more challenges and risk with respect to growing and having
a strong position in the market.
2) Emerging, growing markets
- Does the alternative allow Starbucks to control the store and customer
experience? – In an emerging market Starbucks may have a greater opportunity
to excel, primarily if there is a small or no café culture already present. In those
cases, Starbucks will have the opportunity to establish the café culture and a
dominant position.
- Does the alternative add significant financial risk? – Because this alternative
focuses on emerging markets with growing middle and upper classes there is not
a significant risk as store locations can be focused towards wealthier areas of
cities and grow outward over the long term. The potential for lower real estate
costs also make this alternative attractive.
- Does the alternative address long term competitiveness? – This alternative
provides a significant advantage to competitiveness as it allows Starbucks to
establish early market dominance and become the major café culture of the
areas it is entering.
Preferred Alternatives
When evaluating the alternatives against decision criteria there are several which would
be worthwhile for international expansion. These select preferred alternatives would be used in
combination with each other.
Regarding the expansion approach, the preferred alternative would be to expand
through the use of Joint Ventures. The licensing and franchising alternatives provided less risk
financially which may have helped reduce Starbucks existing exposure to financial losses
however the ability to address long term competitive that is more possible through joint
ventures and control of store locations is a more critical decision criteria. As identified in the
article there are large markets such as China and other populous Asian countries that present a
significant opportunity. Starbucks should have a long term vision where becoming the early
dominant leader can leader significant growth and profitability. The ability to control the
customer experiences in their expansion and the rate of opening of opening new stores will
allow them to be more competitive.
For Market selection, the preferred alternative is to enter emerging markets. The more
mature markets with café cultures and higher incomes may appear more attractive but the
intense existing competition can prove to more risky. Because of existing price pressures
already experienced in markets such as the UK and the existing culture and established
competitors either from traditional cafes or new competitors similar to Starbucks entering into
emerging markets is the more preferable alternative. As was mentioned in the expansion
approach, the alternatively that support larger growth long term and flexibility is more
attractive. Selecting a market that has a growing middle class that can afford Starbucks
products, has a nascent café culture, and lower cost real estate option in major areas will allow
Starbucks to grow and be dominant in markets with potential for growth.
In summary the recommendation is for Starbucks to identify emerging market countries
that do not have a significant café culture and existing competition and to own and operate
Starbucks cafes through partnership in a joint venture.
Implementation Plan
The recommendation for Starbucks to approach international expansion includes the following
steps.
Note: I included estimates for demographics and costs because I did not readily find figures
when researching Starbucks (demographic information, costs of opening stores internationally,
etc.) in documents such as their Annual Reportiv.
1) Select new country and cities for expansion based on demographics.
- Countries that have large cities with at least 20,000 people earning greater than
$10,000 per year.
- Countries that have underserved or highly fragmented café industry (no
competitor with more than 10% market share).
- Country has at least 2 midsized food service industry corporations that can be
partnered with or acquired.
- Timeline: Research and Determine 1 city in 1 country during Month 1.
2) Evaluate potential joint venture partners
- Evaluate based on experience and reputation
- Evaluate option to partner or acquire controlling stake
- Timeline: Evaluate and form partnership by Month 3.
3) Prepare localized strategy and tailored training plan
- Evaluate potential store opening locations
- Develop product and store tailoring plan
- Develop tailored training program
- Timeline: Develop plan and programs, select location by Month 6
4) Construct initial locations and train staff
- Construction of initial 5 store locations
- Training of store opening staff and training locations
- Timeline: Construction and training complete by Month 9.
5) Store opening
- Focus on initial foot traffic as staff gains experience
- Plan promotional events and advertising
- Timeline: Store opened by month 10
6) Evaluate operating performance
- Determine if store location should be moved
- Begin planning expansion to 20 stores
- Timeline: Evaluate perform by month 12
7) Expansion Year 2
- Expand to 20 stores by month 24, 2 large cities
- Revenue per year
b.i. 20,000 potential customer*20% market share per city
b.ii. Customers purchase 2 product average price $3 per day
b.iii. Customers visit stores 5 days a week, 52 weeks per year
b.iv. Expected revenue = 10000 x 20% x 2 x $3 x 5 x 52 x 2 cities = $12.48M per
year
8) Expansion Year 3
- Expand to 60 stores by month 36, 6 large cities
- Revenue per year
b.i. 20,000 potential customer*40% market share per city
b.ii. Customers purchase 2 product average price $3 per day
b.iii. Customers visit stores 5 days a week, 52 weeks per year
b.iv. Expected revenue = 20000 x 40% x 2 x $3 x 5 x 52 x 6 cities = $74.88M per
year
In summary the implementation plan provides for revenue generation in year 2 with significant
growth starting in year 3 as Starbucks becomes more established and popular, gaining increased
Business Expansion Through Joint Ventures
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