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분야
docxII. Starbucks’ International Expansion
A. Why Starbucks prefers direct investment to franchising and licensing?
B. Motivation of Joint Venture
C. Motivation of Direct Operation
D. A Key Growth Drive: Indian Entry
III. Comparison with the competitors
A. The Coffee Bean & Tea Leaf
1. Motivation of Franchising
2. Disadvantage of franchising
B. Hollys Coffee
IV. Conclusion
V. Appendix
The composition of retailers of Starbucks (2009.9)
The Major Overseas Performance of Starbucks (Non- North America)
The Coffee Bean and Tea Leaf’s International Expansion (2008)
VI. Reference
A. The Coffee Bean & Tea Leaf
Some competitors of Starbucks have taken the different way in terms of international business. The representative example is “The Coffee Bean & Tea Leaf” (hereafter, The Coffee Bean). The Coffee Bean has adapted franchising strategy for overseas expansion.
As of 2008, The Coffee Bean has opened approximately 750 cafés in 22 nations. Specifically, it has 288 cafés under direct control while 444 cafés are being operated by franchisees . (Refer to Table. 3)
When a company makes a licensing contract with licensor, it is able to use licensor’s patent, know-how, trade mark and technology. By comparison, franchising enables franchisee to get support from franchisor concerning operation and management, working principle and marketing. In other words, franchisor could be strongly involved in franchisee’s operation.
1. Motivation of Franchising
The first reason that The Coffee Bean chose franchising is to expand its business into the outer market quickly. Since it began expanding far later than its competitors, it strived to take faster entry mode than FDI. By doing its international operation with franchising, The Coffee Bean could enter more than 20 countries including India without big trouble. In the meanwhile, Starbucks has struggled to enter India market by governmental and political intervention as we discussed above.
Second, as mention above, while Starbucks wanted to provide customers with not only just coffee but also coffee culture at its foreign market entry, The Coffee Bean has more focused on the quality of coffee. As its strategy is to serve tasteful coffee to as many customers as it can, it is essential to motivate franchisee to serve more people. Franchising can provide high motivation to franchisees as they just need to pay fixed royalty. It means that more customers they serve customers, the more profit they can expect.
The last reason is cost saving. If it had entered the overseas market as FDI, it would have born more cost such as rent and operating cost. By franchising, extra cost could be avoidable.
2. Disadvantage of franchising
One remarkable problem which franchisor could face is that it can lose control of operation. As franchisor doesn’t have authority on operating, it might be difficult to keep high quality of service and exerts a bad influence on its brand and image.
For example, the coffee bean was uncovered by Korea Food and Drug Administration because it had used unsuitable ingredient. In addition to this, it did not implement a regular staff heath inspection program. The incident damaged the company’s image and it can be referred to as a typical example of the disadvantage.
B. Hollys Coffee
Hollys Coffee is a well-known Korean coffee retailer founded in 1998 and it has developed into one of the domestic competitors of foreign coffee retailers such as Starbucks and The Coffee Bean & Tea Leaf in Korea. Since 1998, Hollys Coffee has steadily increased its stores and the number of them has amounted to more than 200 recently. Not satisfied with the huge success in Korean domestic market, Hollys Coffee decided to go abroad and opened stores in Malaysia and Los Angeles in US in 2007.
A few months ago, in December 2009, Hollys Coffee launched the third international store in Peru, one of the coffee bean-producing nations. Hollys Coffee announced it would achieve two goals in Peru; operating eight stores and sales up to 7 billion Korean won within a year. In order to realize these goals, Hollys Coffee entered into the Peru through ‘master franchising’ method that allows individuals or corporations to buy the rights to sub-franchise within some specific countries. The company usually adapts master franchising method so as to minimize risk when it enters the country where its brand is seldom familiar to the local
Starbucks timeline-EMEA, Starbucks Corporation, 2009.
Starbucks timeline-China, Starbucks Corporation, 2009.
Annual Report of 2009 (Form 10-K), Starbucks Corporation, 2009
Starbucks India Strategy Looks Promising, Seeking alpha, Oct 2, 2006.
Starbucks Delays Entry of India, Vccircle, Jul 21, 2007
인도, 외국인 직접투자 규제완화, Yonhap news, Feb 12, 2009
Starbucks brews a fresh strategy for India entry, The Economic Times, Jan 29, 2010
KKR in $200m Indian Coffee shop deal, Financial Times, Mar 17, 2010
Company Growth, The Coffee Bean and Tea Leaf (http://coffeebean.com/franchise/company.html)
What is a master franchising?
(http://www.allbusiness.com/buying-exiting-businesses/franchising-franchises/2975165-1.html)
