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International Business Cup by cup, Starbucks Corp. caffeinated the world, its green-and-white emblem beckoning to consumers on three continents. In 1999, Starbucks had 281 stores abroad. Today, it has about 1, 200 - and it is still in the early stages of a plan to colonize the globe.
Starbucks has grown from 17 coffee shops in Seattle 15 years ago to 5, 689 outlets in 28 countries. Sales have climbed an average of 20 % annually since the company went public 10 years ago, to $ 2. 6 billion in 2001, while profits bounded ahead an average of 30 % per year, hitting $ 181. 2 million last year. The Starbucks name and image connect with millions of consumers around the globe. To duplicate the staggering returns of its first decade, Starbucks has no choice but to export its concept aggressively. Some analysts give Starbucks only two years at most before it saturates the U. S.
market. The chain now operates 1, 200 international outlets, from Beijing to Bristol. That leaves plenty of room to grow. Indeed, about 400 of its planned 1, 200 new stores this year will be built overseas, representing a 35 % increase in its foreign base.
Starbucks expects to double the number of its stores worldwide, to 10, 000 in three years. During the past 12 months, the chain has opened stores in Vienna, Zurich, Madrid, Berlin, and even in far-off Jakarta. Basic entry decisions of Starbucks include identifying which markets to enter, when to enter those markets, and on what scale. From practical point of view, the optimal choice of every entry mode depends on the firms strategy. Initially strategic management of Starbucks decided to operate under the scheme of wholly owned subsidiaries, which constitutes greater practical and strategic advantages for the company, oppose to franchising entry mode. The advantages of wholly owned subsidiaries include tight control over technological know-how, and it becomes extremely important factor to consider in the Starbucks example.
Creating the perfect cup of coffee is stressed and has been vital for the companys success. Brewing the Perfect Cup is one of the 5 classes that all partners must complete during their first six weeks with the company (Reese, 192). The milk must be steamed to at least 150 degrees but never more than 170 degrees. Every espresso shot must be pulled within 23 seconds or tossed (Reese, 192).
The drink making technicalities are dispensed within Retail Skills, an eight hour marathon of lectures, demonstrations and hands on practice. They demonstrate how to wipe oil from the coffee bin, open a giant bag of beans, and clean the milk wand on the espresso machine (Reese, 192). The employees are showed the proper way to fill one pound sacks with coffee and how to affix a sticker exactly one half inch over the Starbucks logo (Reese, 192). All these factors seem to contribute to the quality of the coffee. From the practical point of view, since the technological know-how represents the companys core competence, the entry mode through wholly owned subsidiaries is the most efficient one.
Another important dilemma lies in the ability of companys expansion strategy through wholly owned subsidiaries to cope with dynamics of such expansion. Probably the biggest concern about the future of Starbucks is that it wont be able to keep it up (Reese, 200). There is also some doubt whether the company can maintain its rigorous standards. Starbucks aggressive real estate stratagem allows it to accumulate prime properties and cluster its stores, especially internationally. By locating two or more outlets near one another, the company can attract spillover from its own stores during busy hours. The method also serves to neutralize competitors by giving customers more chances to bump into a Starbucks (Simons, 44).
Even the company admits that while its practice of blanketing an area with stores helps achieve market dominance, it can cut sales at existing outlets. Starbuck is capable of designing and opening a store in 16 weeks or less and recouping the initial investment in three years. The stores may be oases of tranquility, but managements expansion tactics are something else. Moreover, predatory real estate strategy - paying more than market-rate rents to keep competitors out of a location should be reconsidered. Starbucks innovation strategy, incorporated into its international expansion strategy, deserves particular attention.
On Aug. 21 2002, it announced expansion of a high-speed wireless Internet service to about 400 Starbucks locations Europe and Asia. Partners in the project - which Starbucks calls the worlds largest Wi-Fi network - include Mobile International, a wireless subsidiary of Deutsche Telekom, and Hewlett-Packard. Customers sit in a store and check e-mail, surf the Web, or download multimedia presentations without looking for connections or tripping over cords. They start with 24 hours of free wireless broadband before choosing from a variety of monthly subscription plans.
Starbucks executives hope such innovations will help surmount their toughest challenge in the international market: attracting the next generation of customers. Younger coffee drinkers already feel uncomfortable in the stores (Rice, 27). Considering the current situation in the market of multinationals and China, it becomes vitally to incorporate and apply the HR function from the beginning. Most Chinese companies underestimate Human Resources as a strategically important aspect and thus, underestimate the value its successful application can bring to companys international strategy. Proper HR strategy can eliminate the possibility of hidden costs and other problems emerging later when much expenditure has already been incurred. In addition, HR establishes channels of communication, and it becomes even more valuable in the light of overseas operations.
Considering the particular example of China, HR functioning and possible contributions can be reviewed in several aspects, namely due diligence, planning, negotiation, decision-making, implementation and shared services concept. On the other hand, shared services concept exists under assumptions that the shared services facility operates separately from the parent organizations corporate group, whether as a separate business unit, a joint venture or as a legally independent business operation competitively in the open market. Being legally independent business, a shared services center would be very similar to full-scale outsourcing. Planning contribution of HR emerges in situations when the location is considered to be ideal from an operational and marketing perspective, however extremely challenging from an HR perspective. HR professionals can play an important role by training and coaching senior leadership about the cultural nuances involved. They can also develop strategies and help the negotiating team take advantage of the cultural differences.
During negotiation stage HR can play an important role in terms of training and coaching senior leadership about the cultural nuances involved as well as developing strategies that can help to take advantage of the cultural differences. Moreover, HR assuages the feelings of foreign employees and in developing processes that will overcome the initial mistrust and worries. From the practical point of view, this concept is extremely importance since the reputation of Chinese companies as employers is not necessarily positive in all countries (in regard to management staffing). One way to dramatically improve the performance of the HR function - particularly for large, geographically dispersed organizations with multiple lines of business-is through shared services. Consolidating administrative and transactional processing activities within a dedicated administrative facility is not a new concept. Regional shared services supporting finance, IT, travel and expatriate management exist throughout the world.
When done correctly, shared services can deliver significant cost savings and result in better, more efficient services while freeing up resources for activities that enhance human capital. Some pioneering organizations have successfully implemented multi-country shared services for HR and have achieved the sought-after savings and efficiencies. Although a regional approach to shared services introduces additional challenges, the HR function owes it to its business leadership to explore the potential benefits available from shared services. An emerging model for regional HR shared service centers features both of the following elements: - HR centers of expertise provide specialist design and consulting to all businesses, with a primary objective of improved performance and consistency through a focus on and concentration of expertise.
This approach supports geographic and business units and local HR administrators; - HR centers of scale serve as transactional and administrative hubs, with a primary objective of achieving cost savings by leveraging consistent processes, consolidation and integrated technology. From the practical point of view, those services that will require a unique local knowledge or close partnership with the local operations would remain with a local HR function, and the configuration of those local HR services should be evaluated in every separate case. Moreover, while implementing this particular concept of shared services, HR should make sure that consolidated service center will provide better services to multiple customers at a reduced. However, this notion is peculiar only when service delivery is the core competency of shared services, resulting in better management, better service quality, lower costs and, ultimately, higher levels of client satisfaction. The more integrated the existing business is, the easier it will be to implement shared services. But although implementation might be more difficult in a decentralized business (where central leadership exerts less authority), the benefits of shared services might be greater because of the extra duplication that can be removed.
An HR function within an integrated business already has both a high level of process consistency and the management commitment without which shared services will not succeed. Practically, the financial savings obtained from shared services implementation concept are significant. Most surveys suggest that the potential savings from shared services are between 15 % and 40 % of labor costs. Obviously, the savings will depend on the size of the labor cost and the volume of HR services that are consolidated. Consequently, the arguments in favor of shared services are much more compelling in geographies with large populations and consistent local requirements, which is extremely peculiar to China region.
The increased consistency in HR programs and their articulation in a service-level agreement typically result in substantially improved quality and consistency of service, leading to greater employee satisfaction. The greater consistency also allows the benefits of economy of scale to be leveraged by investments in technology. Bibliography Reese, E. Coffee with a cause. Natural Foods Merchandiser, 2000. Simons, Christopher.
Heating Up the Marketplace with Coffee. Foods Magazine, 2001. Rice, R. and Ward J. Coffee, Conservation and Commerce in the Western Hemisphere. Smithsonian Center, 2003
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