1. Foreign Direct Investment
Star Bucks
Group 10: Grey Matter
SPJIMR, Mumbai
Naveen Kumar
Roohi Mittal
Swati Suri
Sreecharan

2. Case at a glance…
• Starbucks was born as a single store in Seattle selling premium roasted
coffee
• Howard Shultz’s vision saw the brand grow up rapidly: 17,009 stores in 55
countries as of today
• Transformed product lines and product depth, superior customer service
and marketing strategy
• Expansion Mode/Global Market entry:
Initially Licensing and Company Owned stores, Later Joint Ventures
depending on the type of market, the competition, logistics and
operational costs.
• Starbuck’s strategy:
Horizontal FDI (not buy plantations (sources of inputs), but creates or buys
companies in its own industry).

3. Global Market Entry
Target Market Goals Of Target Markets Mode of Entry
DecisionCriteria for Modeof Entry
Market Size
and Growth
Risk
Government
Regulations
Competitive
Environment
Local
Infrastructure
OtherFactorsInclude:
•Company Objectives
•Need for Control
•Internal Resources, Assets and Capabilities
•Flexibility

4. Initially Starbucks expanded
internationally by licensing its
format to foreign operators. It
soon became disenchanted
with this strategy. Why?
• With licensing, Starbucks had limited control
of their expansion rate
• Key to Starbuck’s strategy is quick expansion
to build consumer habits while Starbuck’s is
trendy
• Their licensees did not have the capability to
expand as rapidly as Starbucks wanted

5. Which theory of FDI best
explains the international
expansion strategy adopted by
Starbucks?
• Imperfections theory (internalization) best
explains Starbucks approach
• Starbucks wants to maintain product quality
and brand identity (the Starbucks experience)
across a wide range of cultures, taste
preferences, work habits and ways of doing
business

6. Joint Venture vs. Wholly Owned Subsidiary
Joint Venture:
Higher rate of return and more control over the
operations( newly created part total control)
Sharing of resources and knowledge of local market
Reduce risks of failure
Contact with local suppliers and government officials
Lack of trust
Conflicts arising
Licensing/Wholly Owned Subsidiary:
Appealing to small companies that lack resources
Faster access to the market
Rapid penetration of the global markets
Risk of opportunism
Licensee may become a future competitor

7. Occasional Wholly OwnedSubsidiary…
Britain: Buyout of Seattle Coffee Co: Enter UK market,
remove competition, already established chain
Thailand: Buyout of Coffee Partners: Reluctant for JV,
would have taken time, effort and Cost.

8. Starbucks’ foreign investments
Japan: Starbucks JV with Sazaby Inc. , local retailor with 50% stake it started
with $ 10 Mio FDI in 1995.
 By 2007, it had 700 stores in Japan
 US Success story replicated
Britain: Starbucks fuelled its initial expansion in UK with
 Buyout of Seattle Coffee Co & then used its capital , influence to obtain
prime locations ( some operated in financial loss)
 Starbucks in 2000s greatly increased its “licensed store” franchise system,
which permits Starbucks franchise only if they contribute to less than 20% of
the franchisees gross income, are inside other stores or in limited or
restricted access spaces, as to not dilute the brand image.
 1998, Starbucks entered UK market with $84 Mio acquisition of 60 outlet
Seattle Coffee Co, rebranding all the stores as Starbucks.
Thailand: Starbucks started with a licensing agreement with Coffee Partners, a
local Thai company.
 As per licensing agreement terms – Coffee partners had to open 20 stores in
5 years – incompetent to raise funds from Thai Banks.
 July 2000 : Starbucks acquired Coffee partners for $ 12 Mio.
 Now, strong control on expansion strategy, Starbucks had 103 stores by 2007.

9. Forthe Indian coffee lovers…
 Partnership with Pantaloons Retail India and New
Horizons
 May 2011 : Signed a non-binding agreement with Tata
Coffee Ltd., Asia's largest publicly trade coffee grower,
to collaborate on sourcing and roasting green coffee
beans in Tata’s facilities throughout India, as well as
exploring the development of Starbucks retail stores in
associated retail outlets and hotels
 Partnership may form into a JV within which Starbucks
will hold 51 percent equity share within a year
 Entering India would mean Starbucks could triple its
stores to 40,000 worldwide by expanding into
emerging markets
 Competition includes Barista Coffee and Café Coffee
Day

10. THANK YOU