Starbucks: Expansion in China, Essay Example

Since its foundation in 1971, Starbucks Coffee Company has gradually saturated the market of the USA with their products. Constantly increasing number of coffee shops made Starbucks the world’s chief coffee shop chain with representations in about 50 countries.

In the end of the 90’s the company aimed at the Chinese market. The most populous country, possessing enormous potential, promised space for further development and growth. On the other hand, extension in China had to be planned thoroughly due to the peculiarities of Chinese predominantly tea-drinking culture.

The expansion initially occurred through the entry strategy of arousing interest in foreign buyer products of predominantly young, belonging to a middle class consumer.  The first steps of converting new coffee drinkers in China were successful. Creation of Chinese concept of coffee shops began in 1999, when the first shop was opened in Beijing. Presently hundreds of them are selling drinks in China.

The way to “prestigious brand” was done by adjusting to the demands of local authorities to meet the needs of local consumers. Michelli (2007) dwells on this adjustment and asserts that “Starbucks management… expanded the size of the stores in China to provide the space that customers desired” and apply to “to stay” service ratio” (p.121).

In 2009, the sales rates of coffee drinks in China augmented twice. It stimulated further expansion. The growing was the result of new outlets opening but also by brewing and introducing new blends (for example, “South of the Clouds”).

Since 2009 and few previous year business in the USA experienced a great impact of economic slowdown, numerous coffee shops in this country were closed; many workers were laid off. Still, Starbucks counts on the competitive ability of drinks sales in China brewed from beans grown in Yunnan province.

Chinese government intends to make Yunnan coffee known in the world, due to the cooperation with Starbucks. Many international coffee producers like Nestle purchase the beans from the province Yunnan.  Yang Shiji, vice-director of the development research center of the Yunnan government, blames “poor marketing” of the situation. According to Yang’s words, the “local government has signed a strategic agreement with Starbucks to help coffee growers improve yield and quality” in hope to obtain from the company “new management and marketing method” (Haoting, 2009).

Marting Coles, president of Starbucks Coffee International, claimed the significance of China as investment and denied the connection of sourcing coffee beans in Yunnan and cost-cutting strategy of Starbucks for fiscal year 2009. Nevertheless, experts make reference to unfavorable results of previous fiscal years to cast doubt on his statements. They appeal to the of downsizing  of unbeneficial stores in the US,  downscaling plan for international outlets, among which two-thirds will be licensed, more economic that self-owned ones, and finally  substantial decrease in company’s net profit within last years. The advancement on Asian market is a logical way of surpassing the consequences of economic crisis.

To accelerate the growth in China Starbucks launches instant coffee product Via Ready Brew, available presently in the USA, the UK and Canada. Howard Schultz, Starbucks CEO informed that “the company expects to sell more than $ 1 billion of its instant coffee, called Via Coffee Essence, worldwide” (Tianyu, 2010).

Longing to enlist the support of Chinese government, Starbucks executives “committed $ 5 million to support educational efforts in China” in order “to encourage community engagement”. Michelli (2007) emphasizes the interconnectivity of notice the company gives to needs of people relevant to the market and company’s advancement into it (p.122). Starbucks pursuits the strategy based on well-considered decisions leading to success.

References

Haoting L. (2009). Starbucks Pushes Chins Sales with Local Brew. Retrieved July 18, 2010 from http://www.chinadaily.com.cn/cndy/2009-02/05/content_7446631.htm

Michelli J. A. (2007). The Starbucks Experience. N.Y.: Mc Graw-Hill. Print.

Tianyu Y. (2010). Starbucks to Take China by Storm with Instant Coffee. Retrieved July 18, 2010 from http://www.chinadaily.com.cn/bizchina/2010-04/29/content_9791093.htm