International Business: Context and Strategies – Team 2 July 1 st, 2009 Nethra Murali, Nina Wagner & Nikhil Sharma Starbucks Presented by : Foreign Direct Investment Strategy

International Business: Context and Strategies – Team 2 July 1 st, 2009 Presentation Overview  Introduction to Starbucks  Case Overview  Case Analysis  Recent Trends  Q & A

International Business: Context and Strategies – Team 2 July 1 st, 2009 Introduction to Starbucks  Company started in 1971 in Seattle, Washington  Grew from 55 stores in 1989 to over 16,680 stores today  Products sold include: -Beverages -Pastries -whole coffee beans -coffee-related retail items & accessories Source: 2008, Starbucks Corporation

International Business: Context and Strategies – Team 2 July 1 st, 2009 Case Overview First foreign market entry: JAPAN 1) JV with local Sazaby Inc 50/50 stake 2) Transferred US employees to Japan 3) All Japanese managers & employees attended training classes 4) By 2006 – over 600 stores In Japan

International Business: Context and Strategies – Team 2 July 1 st, 2009 Case Overview 1998: Purchased Britain's “Seattle Coffee” 2000: Opened stores throughout Asia-Pacific 2002: Aggressive Expansion in Europe Important Events :

International Business: Context and Strategies – Team 2 July 1 st, 2009 Case Overview As of 2006:  Saw potential for up to 15,000 stores outside the US  New focus was on China

International Business: Context and Strategies – Team 2 July 1 st, 2009 Greenfield versus Acquisitions Greenfield Strategy: –Mostly in developing nations Acquisitions: –Quicker to execute. –Foreign firms have valuable strategic assets –Believe they can increase the efficiency of the acquired firm –More prevalent in developed nations Starbucks uses a combination of both strategies.  Acquisition when first entering a new market  Greenfield once presence is established

International Business: Context and Strategies – Team 2 July 1 st, 2009 Why Foreign Direct Investment Why does Starbucks prefer FDI to licensing? Licensing does not give Starbucks the tight control over manufacturing, marketing, and strategy in the foreign countries that it requires to maximize its profitability. People visit Starbucks for the experience and familiarity – they expect unison across all stores internationally.

International Business: Context and Strategies – Team 2 July 1 st, 2009 Impact of FDI on Host Country Benefits:  Resource Transfer  Employment –Direct –Indirect  Increased Competition Costs:  Adverse effects on Competition

International Business: Context and Strategies – Team 2 July 1 st, 2009 Impact of FDI on Home Country Benefits: –Stream of income from foreign earnings –MNEs may learn skills from exposure to foreign countries Costs: –Employment effects –Potential loss of jobs domestically

International Business: Context and Strategies – Team 2 July 1 st, 2009 Global Economic Crisis and Starbucks? …“When it rains, it pours. While it appears that Seattle may weather the Global Financial storm better than some, we are still going to get wet”…  Starbucks suffered a 77% drop in its fiscal second quarter net income  Since July, 2008 Starbucks has shut 507 stores in US and 64 Shops in other countries  Starbucks has announced to close 960 stores globally as part of cost cutting plan  Comparable store sales of negative 8% compared to negative 9% in Q1, 2009 Source: Apr 2009, BBC News

International Business: Context and Strategies – Team 2 July 1 st, 2009 Global Economic Crisis and Starbucks? Continued… Source: FDImagazine.com Shares have been generally rising since March, for two years it has outperformed Dow Jones.

International Business: Context and Strategies – Team 2 July 1 st, 2009 The Future for Starbucks Fiscal 2009 Targets  Expects to add approx 20 new stores to its global store base in fiscal  Focusing on disciplined global store expansion in key markets  Focusing more on customers satisfaction and high quality of coffee

International Business: Context and Strategies – Team 2 July 1 st, 2009 Questions? ~ Nikhil, Nina & Nethra ~