Harvard Case - Starbucks in the Forbidden City
"Starbucks in the Forbidden City" Harvard business case study is written by Michael Netzley. It deals with the challenges in the field of International Business. The case study is 18 page(s) long and it was first published on : Sep 17, 2013
At Fern Fort University, we recommend that Starbucks pursue a cautious yet strategic approach to entering the Chinese market, focusing on a phased expansion strategy that prioritizes brand building, cultural sensitivity, and long-term sustainability. This strategy should leverage Starbucks' existing strengths in global branding, supply chain management, and innovation while adapting to the unique cultural and economic landscape of China.
2. Background
The case study 'Starbucks in the Forbidden City' explores the challenges and opportunities faced by Starbucks as it sought to expand its operations into the Chinese market. The main protagonist is Howard Schultz, the CEO of Starbucks, who is grappling with the decision of how to enter this vast and complex market.
The case highlights the potential of the Chinese market, with its rapidly growing middle class and increasing demand for Western products. However, it also underscores the complexities of navigating cultural differences, government regulations, and competitive pressures.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Porter's Five Forces framework, which helps assess the competitive landscape and identify potential threats and opportunities.
- Threat of New Entrants: The Chinese market is highly competitive, with both domestic and international players vying for market share. Starbucks faces competition from local coffee chains, tea houses, and international competitors like Costa Coffee.
- Bargaining Power of Suppliers: Starbucks has a strong global supply chain, but sourcing coffee beans and other ingredients in China presents challenges. The bargaining power of suppliers in China is relatively high, which could impact Starbucks' cost structure.
- Bargaining Power of Buyers: Chinese consumers are increasingly discerning and price-sensitive. Starbucks needs to offer competitive pricing and a compelling value proposition to attract and retain customers.
- Threat of Substitute Products: Chinese consumers have a wide range of beverage options, including tea, juice, and other local drinks. Starbucks needs to differentiate its offerings and appeal to local tastes to compete effectively.
- Competitive Rivalry: The coffee market in China is intensely competitive, with both established players and new entrants vying for market share. Starbucks needs to differentiate itself through branding, product innovation, and customer experience to stand out.
Additionally, the case study highlights the importance of cross-cultural management, global market entry strategies, and international business ethics in navigating the Chinese market. Starbucks needs to be mindful of cultural nuances, adapt its products and services to local preferences, and ensure ethical business practices to build trust and long-term success.
4. Recommendations
Starbucks should adopt a phased expansion strategy in China, focusing on:
Phase 1: Building Brand Awareness and Trust:
- Strategic Partnerships: Form partnerships with local businesses, such as hotels, airlines, and universities, to gain access to a wider audience and build brand recognition.
- Targeted Marketing: Develop localized marketing campaigns that resonate with Chinese consumers, emphasizing Starbucks' commitment to quality, sustainability, and community engagement.
- Cultural Sensitivity: Adapt menu offerings to cater to local tastes, incorporating traditional Chinese flavors and ingredients.
- Community Engagement: Invest in local communities through initiatives that support education, environmental sustainability, and social causes.
Phase 2: Expanding Operations and Building Scale:
- Strategic Locations: Identify key locations in major cities and target areas with high foot traffic and a growing middle class.
- Franchise Model: Consider a franchise model to accelerate expansion and leverage local expertise.
- Supply Chain Optimization: Develop a robust supply chain that ensures consistent quality and timely delivery of products.
- Innovation and Product Development: Introduce new products and services that cater to local preferences and meet evolving consumer needs.
Phase 3: Deepening Market Penetration and Building Loyalty:
- Customer Relationship Management (CRM): Implement a CRM system to build customer loyalty through personalized offers and rewards programs.
- Digital Marketing: Leverage digital channels, including social media and mobile apps, to engage with customers and build a strong online presence.
- Employee Training and Development: Invest in training programs for employees to ensure high levels of customer service and product knowledge.
- Sustainability Initiatives: Continue to promote environmental sustainability through initiatives like recycling programs and responsible sourcing practices.
5. Basis of Recommendations
This phased expansion strategy aligns with Starbucks' core competencies in branding, supply chain management, and innovation. It also considers the needs of external customers, internal clients, and competitors.
The strategy is attractive from a financial perspective, as it allows Starbucks to gradually build market share and profitability while mitigating risks. The phased approach also allows for flexibility and adaptation to evolving market conditions.
Assumptions underlying these recommendations include:
- The Chinese coffee market will continue to grow at a significant rate.
- Starbucks can effectively adapt its products and services to meet local preferences.
- The company can build strong relationships with local partners and suppliers.
- Starbucks can maintain its commitment to environmental sustainability and social responsibility.
6. Conclusion
Starbucks' entry into the Chinese market presents both significant opportunities and challenges. By adopting a phased expansion strategy that emphasizes brand building, cultural sensitivity, and long-term sustainability, Starbucks can successfully navigate the complexities of this market and achieve sustainable growth.
7. Discussion
Alternative options to the phased expansion strategy include:
- Rapid Expansion: This approach involves a more aggressive expansion strategy, potentially through acquisitions or joint ventures. However, this approach carries higher risks, such as cultural misunderstandings, operational challenges, and potential financial losses.
- Limited Entry: This approach involves a more cautious entry strategy, focusing on a small number of locations and a limited product offering. While this approach minimizes risk, it may also limit growth potential.
Key assumptions underlying the recommended strategy include:
- The Chinese government will continue to support foreign investment in the retail sector.
- Consumer demand for coffee will continue to grow in China.
- Starbucks can effectively manage its supply chain and logistics in China.
8. Next Steps
To implement the recommended strategy, Starbucks should:
- Develop a detailed market entry plan: This plan should outline specific objectives, timelines, and resource requirements.
- Identify and secure strategic partnerships: Partnerships with local businesses can help Starbucks gain access to the market and build brand recognition.
- Conduct thorough market research: Starbucks needs to understand local preferences, cultural nuances, and competitive dynamics.
- Develop a localized marketing strategy: This strategy should target specific consumer segments and leverage appropriate channels.
- Invest in employee training and development: Employees need to be trained on local customs, product knowledge, and customer service.
- Monitor market trends and adapt accordingly: The Chinese market is dynamic and evolving, so Starbucks needs to be agile and responsive.
By taking these steps, Starbucks can position itself for success in the Chinese market and capitalize on the significant growth opportunities available.
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Case Description
On January 12, 2007 a prominent Chinese blogger protested against Starbucks' presence in Beijing's Forbidden City. The blogger stated, "This is not globalisation but an erosion of Chinese culture." The blog post signalled the start of an avalanche of criticism as Starbucks came under attack for operating a café inside China's Forbidden City. The effort to remove the iconic western brand from the centre of the Forbidden City quickly became global news. Initially the story grew only within China's Internet space, but once translated into English it became global front-page news in a matter of days. Starbucks quickly found itself on the receiving end of criticism for inappropriately operating a café in the middle of a cultural and historical centre. What should the company do?
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