Starbucks is the biggest coffee house company in the United States with investments all over the world. The company is based in Seattle Washington and has about nineteen thousand stores in 58 nations. In the United State alone, the company has about 12,781 stores and another 1200 stores in Canada. The company was formed about thirty years ago and its investment into the global stage has been a great success. Its expansion into the European market was marked with success with openings in Germany and the United Kingdom being the hallmark of this success. In the year 1995 the company took the major investment step in investing in the Asian Market. To begin with, the company invested in Japan and later expanded into other Asian nations. However, it was the success in Japan that catapulted Starbucks’ to attempt investing in China . This research reviews Starbuck’s investment in China with particular emphasis on the success and potential risks that company faces in its Chinese operations.
Company History
Starbucks was formed in 1971 with the first store opened in Seattle Washington. It was formed by three partners one of whom was writer, and the other two were teachers. The three were inspired by an entrepreneur who challenged them on an idea of selling properly backed coffee beans. The company then opened its first store on 2000 western Avenues and later relocated to 1912 Pike Place . Soon the company was reporting good fortunes and soon expanded to other states and cities.
It was its first attempt outside North America that the firm realized its success in international expansions. In 1995, Starbucks opened its first store in Japan and soon recorded massive achievement. In 1998, it expanded into the United Kingdom by acquiring the biggest coffee house in the country. It was during these purchases that the company rebranded all its stores to use a single brand name, Starbucks. In the year 2003, Starbucks invested in Italy, one of the most competitive coffee markets in the world . In 2007, Starbucks invested in china in with Beijing being the head of its Chinese operation. It was at this time that the company faced the most of its controversies. Several protests were held by locals over Starbucks attempts to ‘trample on Chinese culture’. However investing in china is perhaps one of the most important reviews that any scholar would not avoid, this is due t the fact that China is increasingly becoming an important economy at the world stage.
China’s Economic Growth and Its Importance
The Peoples Republic of China is by far the fastest growing economy in the world. Over past three decade, the country has grown both socially and economically at an impressive rate. Since 1978 poverty levels in the country plunged, increased industrialisation and immense investment in the nearly every sector of the economy. Industry is the leading sector of this economy to the point of China being referred to as the industrial unit of the world. Almost every part of the globe has Chinese products on sale. Multinational firms are setting up their production centres in Asia especially China. This investment has seen the economy of China develop at a double digit rate, a feat attained by a handful of nations. This growth has seen a rapid emergence of burgeoning middle class residing in urban areas. A rich community has also emerged rivaling that of the developed economies. Starbucks understood this fact and that China’s middle class is perhaps one of the largest markets in the worlds.
Spotlight is now fully focused on the middle class mushrooming out of Asia. Experts estimate that in the next fifteen, this middleclass population will be about eight hundred million people. Due to this sheer size, this middle class has been termed as the next engine of the world economy. The middle class has been deemed to be the next consumers of health care, insurance, consumer products, financial services and other factors that run the economy (Li, 58).
In case study on the city of Kunming, evidence of the importance of the middle class is clearly outlined. Kunming is the largest city in Yunnan Province located south-west of the Peoples Republic of China, Starbucks largest investment region in China. In the past two decades urban centers in China have grown with a strong migration to these urban centers. China’s urban centers are dominated by industry and investment in real estate for housing new wealthy Chinese citizens are providing one of the largest economies that Starbucks targets in its operations.
For these reasons, China’s absorbing foreign direct investment (FDI) has been increasing at a monumental rate. Over the past few years, several multinational firms have set up shop in China due to its low energy and labor costs. However, China, as country has taken dedicated measures towards ensuring that that the investment terrain is good for FDI. Starbucks has since taken advantage of these incentives and heavily invested in China . However, china’s restaurant and coffee industry is perhaps one of the most difficult investment frontiers. This is due to two main reasons. First, China is one of the most reserved cultures in the world. The Chinese population is very concerned about their culture thus several companies have to adhere to these issues. Secondly, China has many investments in these industries. Each firm is adopting a rather aggressive investment strategy and therefore the competition in very stiff.
Stores Opened in China
Starbucks understands this population distribution and has since investment in mainland China with several stores. In October 2011, the company opened the 500th store in mainland china. Belinda Wong, president, Starbucks China announced the opening of the store in at the Beijing departure terminal. To this end, the company has store all over urban center in mainland china with efforts directed at opening other 1500 stores over the next five years .
Success and Management
Starbucks is a cases study that scholar have reviewed with keen interest. According toil (2010) Starbucks has undertaken successful venture in a market that several multinational firms have terribly failed. Li (2010) attributes this success to two main aspects. First, the company has succeeded due to the strategic human resource management ideals. Secondly, the company has succeeded due to its investment quality of service.
Strategic Human Resources Management
When Starbucks first invested in Japan, it learned that human resource management was beyond simple hiring and remuneration of employees. The company considers quality of service in Chinese culture is the important aspect in any business. To fully understand these issues, employees undergo training on culture and importance of quality of service.
According to the company chief Executive officer Howard Schultz, quality management should not only focus on the products. Jeffries (2009) asserts that Starbucks quality management system is pegged on having a good working environment for the employees. Starbucks has taken this idea with keen interest and has adopted strategic human resource management processes that have been applied in the United States operation. These management processes have been used in measuring and managing the impact of human relation to the performance of the company. In so doing, the company realized that if the employee were left to have a free environment guided by simple principles that the company would see its products undergo transformative innovation. This free environment was referred to as ‘lean thinking’.
The idea of lean thinking is essentially unlike other management strategies. Lean thinking identifies that there is no ‘one best way’ or proficiently sophisticated models that would resolve all the quality management practice of the company. Lean thinking on the other hand, allows employees to express their ideas at the workplace and that each employees has the obligation to develop own goals and endeavors as they work . Starbucks has since employed this strategy towards its human resource management policies.
The thinking behind lean thinking is quite clear. According to Li (2010) the idea focuses on serving and adding value to customer satisfaction. Lean thinking redefines how employees should shift management thinking from mere customer satisfaction to ultimate customer experience. Competence in ensuring customer satisfaction should also be emphasized. Starbucks in China has emphasized these ideal and have since reported great result. According to company CEO, Howard Schultz, company success first begins with employee satisfaction before dealing with customers. Ideally, satisfied and happy employee with transcend into better working environment and eventually satisfied customer.
The new idea of lean thinking creates flow by focusing attention on people and process. Starbucks believes that employees should engage customers to ensure that their expectations are met. It also focuses personal learning and group experiences to improve on the products. umana Lean Thinking ideals identify means and methods managing human potential. Top managers are should be keen to identify human differences and engage the employees in driving principles along with their values.
Competition
Starbucks has not had a ‘smooth ride’ as some may argue. According to Liker (2004), China is perhaps one of the most competitive restaurant markets in the world. This is due to the fact that direct foreign investment in China is ever increasing with big multinational firms ensuring their presence in China. Since the venture into China by Starbucks, other coffee house firms and restaurant firms have followed suit. For instance, Gloria Jeans is an Australian Coffee house investing in the Chinese Market. Additionally, unlike Starbucks that has suffered several imitation, Gloria Jeans seems not have other firms copying its brand and logo. For this reason, Starbucks face heavy competition.
Another company that presents formidable competition in China is Costa. Just like Gloria Jeans, Costa is an international business geared towards specialty coffee. Similarly, Costa has heavily invested in China with several stores in mainland cities and urban centers. However, Costa invested much later than Starbucks though Costa has undertaken massive marketing and advertisement strategies.
Conclusion
In conclusion, Starbucks’ venture into the Chinese market has been one of the most successful direct foreign investments ever attempted. It has seen its operations grow to more than five hundred stores in China. Today, the company is aiming at opening 1500 stores by 2015. However, this success has taken concerted effort and dedication. Taking keen interest in strategic human resource management is perhaps one of the successes of the company. These efforts have seen the capitalization of Starbucks’ Chinese operation come second only to the American chain of stores.
References
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