Starbucks Coffee Company is the largest retailer and roaster of specialty coffee in the world. Apart from specialty coffee, the company owns other two premium brands, namely, Tazo Tea and Seattle’s Best Coffee. The company was established in 1971 by three partners in the US, and has since then spread its operations in over 60 countries globally. The company distributes its products in terms of stores, rather than using the franchising model that is adopted by most expanding firms in its industry. Starbucks expanded tremendously and tripled its stores between 2002 and 2007 from 5,886 to 15,011 respectively (Seaford & Brooks, 2012). However, its rapid expansion was altered by the recent economic crisis that peaked in 2008. Despite this, the company continued focusing on its expansion goal into the international market. Recently, Starbucks has been considering opening stores in emerging economies with rapidly expanding economies, such as Brazil, China, India and Mexico. In fact, the company has already started venturing in the strategy, although is has not yet achieved significant success (Simmons, 2013). Among other steps, Starbucks should modify its leadership structure, style and culture to reflect the needs of the targeted markets. This paper explores various aspects of the current lead that may be needed as well as the resources that may be needed in order to succeed in the strategy of expanding into new foreign markets.

2.0 Governance Structure and how it meets Stakeholder’s Needs

The management structure of Starbucks comprises of leaders who are in charge of different departments and regions. The following figure presents a summary of the company’s governance structure:

Figure 1.0 Governance Structure of Starbucks

In addition to the top leadership team, Starbucks has other leaders and supervisors who carry out management and leadership activities at lower levels. The leaders focus on meeting need and interests of stakeholders. Stakeholders are individual and groups who have an interest in an organization’s practices and activities (Johnson et al., 2014). Starbucks’ key stakeholders include customers, shareholders employees, suppliers, subcontractors, activist groups, government authorities and communities. Different customer groups expect the company to make products that suit their needs and that are affordable to. Starbucks is committed to providing customers with healthy food with low level of calories such as reduced fats breads (Wrenn & Mansfield, 2014). Starbucks’ employees expect to be treated well, as partners of the organization, and to provide them with career development opportunities. The company offers employees with attractive salary, rewards for good performance and training opportunities (Wrenn & Mansfield, 2014).

Starbuck’s shareholders expect the leaders and managers of the organization to manage resources in a way that will maximize returns for their investments. Currently, Starbucks leaders and managers work hard to organize resources in a way that maximizes the returns to shareholders. The company pays shareholders’ dividends on its common stock at specific set rates on quarterly basis. The company also allows shareholders to purchase and sell shares of Starbucks common stock Dividends (Harrison, 2014). The suppliers and subcontractors expect Starbucks to engage in fair trade with them and to fulfil their part of bargain. They expect the company to pay them all dues for supplies and/or services. The company has a good reputation of fulfilling the needs and expectations of the suppliers and subcontractors.

The government agencies expect Starbucks to adhere to all the requirements of rules and regulations of national and local agencies and pay taxes. Starbucks has been, for a long time, adhering to the requirements of the government agencies in different nations. However, the company has in the past been evading paying corporate taxes in various countries in Europe and this issue has an adverse effect on its reputation in the European market (Wrenn & Mansfield, 2014). The communities surrounding the stores of the Starbucks expect it to be socially responsible and make positive contributions to their lives. Starbucks offers jobs to people from surrounding communities, acts as a team player with them and engages in volunteer activities (Wrenn & Mansfield, 2014).

Although the current governance structure at Starbucks contributes immensely in enabling the organization meet interests and needs of stakeholders, it require a small improvement that would allow it to meet expansion goal effectively. The governance structure should be enhanced through appointing people from the targeted regions to the top leadership team. For instance, the company should add people from Asia to the top leadership.

3.0 Starbucks Culture and Leadership Style

Culture and leadership styles have a direct implication on how an organization performs and its relationships with different stakeholders. Starbucks is well known for propagating a culture that is meant to enhance the quality of products and services that it offers to customers and to enhance their experience. The company offers premium products and services. In order to achieve this, the company employs skilled workers and works hard to motivate them (Wrenn & Mansfield, 2014. As mentioned earlier, the company provides the workers with training in order to improve the quality of services they offer to customers. Also, Starbucks always strives to understand the needs and preferences of customers. However, the company sometimes implements changes without consulting customers in order to understand their views. For instance, customers have recently complained against the company’s move to remove some items from the menu (Wrenn & Mansfield, 2014). Despite this, the company responded well to the customer request by putting back the products in the menu. When venturing in the new markets, Starbucks should strive to always understand the views of customers before making any changes to their products and services.

Also, Starbucks has a culture of developing unique stores that are all similar in all regions (Wrenn & Mansfield, 2014). Although the approach helps to give a unique design for the company, people in some of the new markets may not like the new designs. In order to fit well in the new markets, the company should adopt designs that reflect the local cultures or the designs that are likeable to the targeted consumers. However, the company should first do a research on the interests and preferences of the targeted consumers in the new markets. The same should apply to the products and services offered to customers. Starbucks has a culture of offering similar products and services to customers. People from different cultural backgrounds may not have similar tastes and preferences. While Americans like the specialty coffee sold by Starbucks, people from China and other parts may not like it. They may have preference for substitutes. Starbucks should modify the menu to include products that customers in the new regions like.

Howard Schultz, the current CEO of the company adopts democratic leadership style. Other leaders in the company are also required to adopt that leadership style (Wrenn & Mansfield, 2014). Democratic leaders invite their subjects to make contributions in the process of decision making, though they make the final decisions. As such, it leads to motivation and job satisfaction among the subjects. It also motivates workers to work hard and helps them in developing essential skills (Johnson, Scholes & Whittington, 2011).

However, democratic leadership can only be effective when applied in situations where workers are able to make their goo decisions. The approach can be effective when applied to workers from western nations such as the US and UK, but it may not be effective when applied to workers in Asian countries (Gooderham & ?Grøogaard, 2013). In most western countries, there is usually a culture of distribution of power, meaning that power to make decisions is distributed to many people. Thus, workers from those countries are able and have confidence needed to make and implement small and less complex decisions. On the other hand, the local culture of Asian countries such as China supports power distance, meaning that power to make decisions is usually distributed to few people (Gooderham & ?Grøogaard, 2013). As such, workers from those countries may not be able or have confidence to make and implement decisions. When expanding to those countries, Starbucks will need to hire local workers. The company should apply a leadership style that suits those workers. For instance, the best leadership style to be applied on Chinese workers is one that gives power of making decisions to the leaders, such as bureaucratic leadership style.

4.0 Changes required in Core Capabilities and Resources

The success of the expansion process for Starbucks will be influenced by its current core capabilities, which include resources and competencies. However, the extent to which the company’s core capabilities will apply will be determined by the approach for expansion that it will take. One of the key strategies that Starbucks can adopt is direct exporting. In direct exportation, a firm sells its products or services to the targeted foreign market through, agents or distributors (McFarlin & Sweeney, 2014). An organization can also have wholly-owned subsidiaries or stores, as Starbucks does. Another option Starbucks is licensing, an arrangement in which the exporting firm gives another firm operating in the target market the right to produce or market a product or service. The firm penetrating into the foreign market receives some financial benefits from the sales made in the foreign market, depending on agreement (McFarlin & Sweeney, 2014).

Franchising is also a common mode that firms use to enter the foreign markets. This involves selling products and services via franchises established in the foreign markets (McFarlin & Sweeney, 2014). Starbucks can also use partnering approach, which involves forming partnerships with companies that operate in the target markets. As well, Starbucks can use joint venture, a process in which two firms come together and join their assets in order to penetrate effectively into as certain foreign market (McFarlin & Sweeney, 2014). The expected returns vary depending on the approach used. For instance, the expected return in direct investment is usually higher than in licensing and franchising. Further, approaches such as buying a company and direct investment require commitment of more resources than approaches such as licensing, franchising and partnering (McFarlin & Sweeney, 2014). The risks associated with each strategy are also different. The following diagram shows risks associated with different expansion models and degree of ownership:

Figure 2.0 Risks associated with different expansion models and degree of ownership

Source: Lecture notes

Starbucks will need to determine the most suitable strategy by considering risks involved, core capabilities and how they influence the expansion process and expected returns. Given that Starbucks has been operating its own stores, it can still continue with the same model, unless it faces restrictions in the new markets.

There are several core capabilities of Starbucks that will influence its ability to succeed in the expansion process when using the direct exporting method, through opening of new stores in the targeted markets. To start with, Starbucks is a well recognized brand globally and has a strong market position. By 2014, the company had a market share of 37% in the US and still maintains leadership in that market. As mentioned earlier, the company has stores in more than 60 countries in different countries across the globe (Wrenn & Mansfield, 2014). The company is the most recognized brand that sells coffee globally. The high level of recognition of the company around the globe implies that it has a high chance of acquiring a strong market position in new markets. However, recognition alone is not enough to enable Starbucks succeed in the new markets. In addition to recognition, a firm needs to have a good reputation. Starbucks should enhance its reputation through avoiding engaging in wrong practices, such as evading of taxes. The operations of the company may be restricted in the new markets it stern measures may be taken against it by government authorities due to failure to adhere to the set rules and regulations.

Secondly, Starbucks is well known for offering high quality products. However, the company tends to concentrate on coffee, although it has recently been offering tea products as well (Wrenn & Mansfield, 2014). Although the best approach for product development can be determined after carrying out research in the targeted markets, it is apparent that the company can benefit more through further product diversification since customers will have more choices for products. For instance, adding products such as cocoa, fruit juices and a variety of snacks can increase the choices for the consumers in the targeted markets. Further, Starbucks is well known for having workers who are skilled motivated and who offer quality services to both the company and customers. The presence of such workers has contributed immensely to the growth and good performance of Starbucks in different regions (Wrenn & Mansfield, 2014). Starbucks treats the workers as its main asset and has established ways of enhancing their career development. Although the current leadership approaches undertaken by leaders at Starbucks has played a big role in motivating workers, the company will need to consider the suitability of the strategy in the targeted markets. The company will need to recruit more workers, managers, supervisors and expatriates to work in the new stores and if need be, provide them with training.

Starbucks has also been taking advantage of technological advancement through installing technological systems that enhance the quality of services offered to clients. A good example is the company’s use of mobile applications and loyalty cards (Wrenn & Mansfield, 2014). Starbucks will need to install such technological systems in the new markets. Starbucks adopts an American culture that is welcomed in countries in America and Europe. However, the same culture may not be accepted in other countries, such as Asian countries (Wrenn & Mansfield, 2014). To avoid culture crash, Starbuck should adopt cultures of the local people in the targeted markets. Although Starbucks sells premium products and differentiates them, they are highly priced compared to similar products (Wrenn & Mansfield, 2014). Most people in developing countries such as China and India may view the products as being expensive and thus, may not be attracted to them. Thus, Starbucks should consider changing its pricing strategy in such markets and adopt a strategy that would give customers choices for lower prices.

5.0 How the Recommended Changes will be consolidated by the New Structures, Systems and Configurations

In order to succeed in the expansion strategy, Starbucks will need to implement the changes recommended in sections 2, 3 and 4 and consolidate then them using new structures, systems and configurations. The company should adopt a world area division structure as shown in the following figure:

Figure 2.0 World area division structure

Source: Lecture notes

Each of the different regions where Starbucks operates should have a regional leader who understands the local cultures well. Starbucks should recruit regional leaders from the targeted markets. For instance, the company should recruit a regional leader for Asia from the Asian countries. This is also important since the local people will perceive the company as their own. Further, Starbucks will need to adopt a multi-domestic strategy, which involves understanding and responding to different needs of different foreign markets. For instance, Starbucks should asses the cultural values, interests, needs, tastes and preferences of consumers in each of the targeted markets and modify products and services to meet them. The decentralized world area division structure will enable Starbucks achieve this goal (Johnson et al., 2014). In adopting the approach, the Starbucks will not need to integrate its production activities. Further, learning across boundaries will be easy. As well, the company will be able to develop national responsiveness in all countries where it operates. The company will be in a netter position to understand and adhere to rules and regulations established in different countries and regions.

When operating in China, for instance, the company is required to adhere to the Chinese labor laws such as Regulations on the Control of Resident Offices of Foreign Enterprises and Regulations on Labor Management of Foreign Funded Enterprises. By focusing on needs of each market, Starbucks will be able to adhere to such laws (Wrenn & Mansfield, 2014).

Moreover, Starbucks will be able to cope with cultural diversity in that international organizations encounter. Firstly, the company will be able to adopt a unique leadership style in China that is different from the leadership style that the company uses in the US and other western countries. Rather than adopting democratic leadership style throughout the organization, the leaders will be able to easily apply other more suitable strategies to different markets without encountering problems or conflicts (Johnson et al., 2014). Recognizing cultural diversity implies that the company will also be in a good position to add other brands to its menu, which may be more appealing than specialty coffee and other products to consumers in those markets. Importantly, the company will be in a better position to involve the views of consumers in decision-making processes, which will play a great role in minimizing instances in which the company make changes that have a negative impact on the customers (Johnson et al., 2014).

Further, the world area market structure and multi-domestic strategy will enable Starbucks to develop unique systems for different markets, with the consideration of the needs and demands of each market. A communication system that is suitable in China, for instance, may not be very suitable for communication in the US. Focusing on the most suitable elements of a communication system in a given country will enable Starbucks meet system demands of each market. The channels of command for each market will also be different, depending on the needs of each market (Johnson et al., 2014). Lastly, world area market structure and multi-domestic strategy will enable Starbuck implement suitable configurations for target each market. For instance, the company may need to focus on responsiveness in the Chinese market, yet efficiency is what is required in the US market (Volberda et al., 2011). In that case, Starbucks will need to focus on achieving the goal of responsiveness in China.

6.0 Conclusion

Overall, Starbucks has a management structure that is not quite responsive to the local markets. Also, its culture and leadership style are not quite responsive to cultural diversity in the different countries where it operates. When implementing the strategy of expanding its operations to the emerging foreign markets, the company should make some changes to enhance its core capabilities. Among other changes, the company should adopt a word area market structure and select regional leaders from different regions. Further, the company should adopt a multi-domestic strategy. In doing so, it will be able to develop unique systems and come up with unique configurations that suit each market.

7.0 References

Gooderham, P. N. & ?Grøogaard, B. (2013). International Management: Theory and Practice.

Berlin: Edward Elgar Publishing

Harrison, R. (2014). Security Leader Insights for Effective Management Lessons and Strategies

from Leading Security Professionals.. Burlington: Elsevier Science.

Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regnér, P. (2014), Exploring Strategy

Text & Cases 10th Edition, Harlow: Pearson Education Limited

Johnson, G., Scholes, K. & Whittington, R. (2011). Exploring Corporate Strategy. 9th Edition,

Harlow: Prentice Hall

McFarlin, D. & Sweeney, P. D. (2014). International Management: Strategic Opportunities &

Cultural Challenges. New York, NY: Routledge

Simmons, J. (2013). The Starbucks Story: How the brand changed the world. New York:

Marshall Cavendish International Asia Pte Ltd

Seaford, B. C. & Brooks, R. W. (2012). “Starbucks: Maintaining a clear position.” Journal of

the International Academy for Case Studies, Vol. 18, No. 3, pp. 39-57

Volberda, H. W., Morgan, R. E., Reinmoeller, P., Hitt, M. A., Ireland, R. D. & Hoskisson,

E. (2011). Strategic Management: Competitiveness and Globalization. Concepts andCases. 1^st Edition. Hampshire: Cengage Learning EMEA

Wrenn, B., & Mansfield, P. M. (2014). Marketing Planning Guide, Third Edition (3rd ed.).

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