Coffee and Starbucks Essay

Transnational corporations have had a tremendous impact on the interconnectivity that between countries, corporations, and people on a global landscape. Fueled by capitalistic ideals of increasing profits numerous corporations have expanded there operations into the global marketplace, some with much more success than others. One such transnational corporation that has embodied this pursuit of expansion in domestic and foreign markets for profit is the Starbucks Coffee Company. This company, which finds its roots in the opening of a single retail location in Pike place Market of Downtown Seattle in 1971, has been able to infiltrate into countless foreign domains and grow into a global powerhouse of the food and beverage industry with over nine thousand stores across the globe today in thirty-four countries outside of the Unites States. (Business Wire, 2005) Starbucks serves is an excellent specimen of a company that follows continual patterns of expansion directly correlating to increased access to foreign markets, and also the ability to nurture growth within these markets as well as gain access to new markets through the Market merging. In my research of this company and its path to globalization, I found that information about certain aspects of the company were more readily available than others. For example, I found that I had more difficulty finding scholarly articles that dealt with the distinct business strategies that Starbuck’s employed in order to globalize, in that it became apparent that much of the information about the terms of their mergers and acquisitions were not released or that the companies and business groups that they did so with had websites that contained no information in English. Interestingly enough, I found more of an abundance of scholarly material on the homogeneous cultural impacts that Starbucks has had and how the spread of the company’s locations worldwide has been received by some cultures as the spread of American values. A bulk of my research findings came from business reports and releases about the company, which were useful in keeping accounts of how the company was able to infiltrate global markets and expand. The Website was a good starting point for my research in that it provided points of interest about the company that I could research into greater detail in order to root out the bigger picture. In order for one to have a more complete understanding of how this company operates and how it has come to succeed at a global level, I will outline the company’s geographic expansion in terms of its operations and production; second, I will explain the company’s main motivation for global expansion as well as factors that had an effect on the expansion; lastly I will detail the methods of expansion and production employed by the company. These will all be discussed within the time frame from present day back to 1996, when Starbucks first became a global corporation. (Starbucks. com) Of the nine thousand locations Starbucks has worldwide, over two thousand of those are outside of the United States in thirty four different countries. (Sowa, June 2004) The expansion of retail stores into foreign countries began with a joint venture with Sazabay Inc. in Japan in 1995, and then the eventual opening of retail locations within the country during the following year. (starbucks. com) This was the first time Starbucks ever set up operations outside of the US, and it was in the form of construction of the Starbuck brand retail store locations operated by a foreign company. Starbucks entered the East Asian Market first, in countries such as Japan, Korea, Taiwan, the Philippines, and China, and concentrated on growth in these markets mainly for the first few years of entering the foreign market. Eventually, Starbucks was able to break into other markets as well, such as Australia, London, and New Zealand amongst others year after year until its present standing of 34 countries in North America, Latin America, Europe, the Middle East and the Pacific Rim with retail locations that exists today in 2005. (Business Wire, Feb 2005) Within these countries, retail operations were set up at first just primarily in areas with the densest population. (Ramsey, Mar. 1997) However, as the market for the Starbuck’s Brand continually increased, the locations throughout the countries would increase and fan out from the city centers. This can be seen in the example of Japan, whom after 5 years operations had opened 300 stores by the year 2000. (starbucks.com) The primary raw material that Starbucks purchases and uses in terms of production is coffee beans. Coffee beans grow in regions near the equator, where the climate is suitable to sustain their growth. It follows that Starbucks purchases all of its beans from countries in South America, Africa, and Asia. Coffee beans that Starbucks import come from regions near the equator, such as South America, Africa, and Asia (Starbucks. com). Basically, the beans that are grown in these countries are purchased by the company to be roasted or packaged in all of its 9000 locations worldwide. However, Starbucks is not the only buyer when it comes to the bean supply as numerous other coffee retail companies rely on these farms as well, which places Starbucks as part a modular model commodity chain. The production of a generic commodity such as coffee beans allows for that commodity to be purchased by numerous companies without any affiliation or necessary interconnectivity between them. Starbucks reasoning for their initial expansion domestically in the United States as well as into the foreign Market place was centered on the basic capitalistic need for increase in profits, as well as the promotion of free trade from a neo-liberalist standpoint. Looking back to Starbuck’s early domestic expansion, it can be noted that just prior to addition of retail operations in Japan in 1996, there had been signs of a retraction of sales and growth, even with the addition of new retail locations domestically in the United States. There were signs of slowing in the US, one such being that comparable store sales, up 9 percent in 1995, were up 7 percent in 1996 and 5 percent approaching the following year. (Ramsey, Mar. 1997) These numbers indicate that it was becoming evident that in order to further sustain growth and high profit margins; Starbucks could achieve gains and benefit from free trade by setting up operations abroad. There are certain social contexts which provide commentary on the manner in which Starbucks was able to globalize. Especially that of the company’s abilities to access markets from cultural and political standpoints. In order to bridge the culture gap between markets, Starbucks must follow three basic steps; first, it must engage in prospecting the local culture and its nuances; second, it must access the market conditions and the potential response to their presence; and lastly they make or don’t make the decision to mobilize (Santos 2004). All this is considered with the fact that they are marketing a product in not only the coffee but in the retail location itself, in that Starbucks attempts to blend an Italian style beverage with a highly European influenced coffee house setting (Santos 2004), which is something that has to be marketed correctly in order to effectively find its niche in a foreign market setting. This marketing schematic sheds light on the purpose in placing global operations in East Asia in the late 90’s before breaking into the European market due to a feared negative response to an American global presence in what had always been a highly saturated European local market. There was also a strong potential that the War in Afghanistan and later Iraq would have a devastating effect on growth and sales in the foreign market. There were some signs of this seen in April of 2003, when Starbucks was being heavily protested and boycotted in Lebanon and New Zealand, and was forced to pull operations out of Israel for fear of terrorist attacks. Despite these setbacks, however, it remained that Starbucks International persevered in revenues, according to Greg Schroeder, a research analyst with Fulcrum Global Partners LLC, who stated â€Å"Starbucks’ popularity persists even in an economic downturn and during the war is an undeniably impressive feat as other retailers are struggling. † (Jung, 2003) Starbucks maintained strong development during this period, and continued to open stores and form partnerships in Turkey, Chile, and Peru (Starbucks.com) despite facing political tensions created by Starbucks national affiliation with the United States. Market access brought Starbucks to the foreign domain but how they were actually able to break into these markets came in the form of some key business strategies. Starbucks used a few basic strategies in order to gain access to a particular foreign market which was joint ventures, acquisitions, and licensing. Two specific examples include Starbucks’ acquisition of the Seattle Coffee Company in the United Kingdom with more than 60 retail locations in 1998(Starbucks.com) , and the joint venture Starbucks formed with Sazaby Inc in 1995. The acquisition of the Seattle Coffee company basically allowed Starbucks to renovate each retail location previously owned by the company and to put the Starbucks name on each location as well. Another different but successful strategy employed in Japan was that of the joint venture with Sazaby Inc. This partnership gave Sazaby Inc. the right to develop and operate coffeehouses throughout a defined region. The rationale behind both of these types of partnerships is explained by Peter Maslen, president of Starbucks Coffee International, who states, â€Å"The idea is that an experienced local partner can help identify locations, sift through tax issues, and give Starbucks stores more community appeal. â€Å"(Jung, Apr. 2003 p. E1) This allows Starbucks to continue to expand into other markets knowing that operations elsewhere are in the hands of carefully chosen partners and business groups who are able effectively read and access the climate of their targeted region’s market. The employees, CEOs, and other workers all have an integral part in this corporation’s ability to globalize. Starting at the level of both full as well as part time employees which facilitate the day-to-day functions of the retail locations in each of the 34 countries that Starbucks operates in, we can see that they receive a fair amount of benefits; including above-average hourly-wages, a comprehensive health benefit plan, and stock options. (Sancovich, 2002) Increased development and growth will fair well for those with stock in the company, including employees at the retail level. If the scope is broadened however, a very large gap exists between employees at the corporate level and those who produce the raw materials(coffee beans) that the company modulates into packaged or roasted coffee sales. It should be noted that Starbucks prides itself on the sale of Fair Trade Coffee in its stores to benefit the farmers that supply their coffee beans, which certifies that growers and farmers would receive a premium price above the prevailing market price for the sale of the coffee beans they produce (Starbucks. com). It should also then be noted that, according to an author in the ecologist, Starbucks advertises the fact that it bought 1. 1 million pounds of coffee last year at fair trade prices ($1. 27 per pound). This represents less than 0. 5 per cent of the coffee Starbucks buys each year. Fair trade is also highly profitable. While Starbucks pays $1. 27 per pound for fair-trade coffee, one pound of that coffee sells for $11. 45. That’s a 90 per cent mark-up (The Ecologist, Vol. 33, p. 22, 2003) The fact that Starbucks buys Fair Trade coffee in actuality does little to benefit the farmers who grow their beans. Another notable feature of the relationship between the owners, employees, and farmers is the overall disparity between employees at the corporate level and those employed to grow coffee beans, Millions of coffee farmers survive on less than $2 a week. Orin C Smith, Starbucks’ president and CEO, was paid $1,088,269 in 2002, and received a bonus of L1,362,500. Exercising share options in the company made him a further $36,321,643. He stands to make around $8. 5m more on share options granted in 2002. (The Ecologist, Vol. 33, p. 22, 2003) The economic disparity between wages is a direct result of the practices Starbucks engages in, such as markups. The farmers, as well as the retail employees would gain from the continued global development of the company, in that higher demand for coffee would increase the price of coffee for farmers and stock options would benefit regular employees, but would do so to an exponentially smaller degree than the employees at the corporate level of operations.