Chapter 4 Case Study:

Starbucks
Selling Coffee in the Land of Tea
Starbucks has been doing business in China since 1999, it cool to have a latte and hang out. Starbucks offers
when they opened their first coffee shop in Beijing. more food on the Chinese menu, including duck sand-
Today, hundreds of Starbucks stores sell coffee in the wiches, moon pies, and green tea cheesecake, than in
land of tea, including one at the Great Wall. It has be- other countries, and more seating as well. Only 20 per-
come one of the most popular brands among the coun- cent of North American customers eat and drink inside
try’s 20- to 40-year-old upwardly mobile Chinese, or the store after ordering, but the number is close to 90
“Chuppies,” as they’re called, but so far China accounts percent in China.
for only about 10 percent of Starbucks’ global sales. China remains a communist country, so a change in
Nevertheless, Chairman Howard Schultz believes the its one-party dictatorship could potentially affect busi-
country will someday be the company’s largest market ness overnight. Schultz says the key to establishing stores
outside North America. “The market response,” he says, there is to first find local partners who understand the
“has exceeded our expectations.” changing political and business landscapes. Starbucks
This may seem surprising when you consider the fact initially entered China by authorizing local developers
that the majority of China’s one billion-plus population to use their brand and setting up joint ventures with
are tea drinkers who didn’t know what coffee was until partners.
Nestlé introduced a powdered version on store shelves Industry analyst Pei Liang advised that for long-
in the 1980s. But Starbucks is betting that they can win term success in the country, Starbucks would need to
the new generation over by marketing its signature prod- acquire controlling stakes in its joint ventures. This, Pei
uct as an emblem of modern China’s new sophistica- explained, would strengthen management’s control and
tion. “Coffee represents the change,” says Wang Jinlong, put them in position to reap more of the profits as the
president of Starbucks Greater China. “The disposable market grew. “Licensing or holding a minority stake is
income is concentrated on the young people, and this is an effective tool when first stepping into a new market
the place they want to come.” Success in China could because it involves a small investment,” says Pei. “But
depend on how well Starbucks markets itself to what Starbucks, the brand’s owner, receives only royalty fees
Wang calls the “little emperors.” China’s one-child law from the licensee.”
has spawned a generation that isn’t interested in collec- In late 2006, Starbucks announced that it was buy-
tive goals, he says. Instead, they embrace the Western ing out its partner in China and taking control of 60
belief in individuality that Starbucks embodies. stores. The market had changed after Beijing entered the
After surveying Chinese consumers, Starbucks World Trade Organization in 2001, making it easier for
compiled a list of the top reasons they go to cafés. foreign companies to navigate alone. “Buying out one’s
Surprisingly, the number one reason was “to gather with partner is becoming more common,” says industry con-
family and friends,” while “to drink coffee” lagged be- sultant Kent D. Kedl. “Starbucks probably feels they
hind at number six. Living spaces are generally small know better how China works now so they can go it on
and cramped there, making places to congregate impor- their own.”
tant to the Chinese. Chairman Howard Schultz says that Starbucks will
Da Wei Sun, manager of outlets in Beijing, believes concentrate most of its future expansion efforts in China,
that Starbucks found success in China because they took and Kedl predicts they will see continued success there:
this idea of a place to gather and gave people in the “It’s not just a drink in China. It’s a destination. It’s a
cities a “third space” beyond work and home, making place to be seen and a place to show how modern one

CASE STUDIES
1
 is.” And with China’s economy continuing to grow in
double digits, the number of Chuppies willing to pay
$3.63 for a Mocha Frappuccino Grande is likely to 4. What was the initial global-market strategy Starbucks
grow, too. employed to enter China? Discuss the advantages
and disadvantages to this early strategy. How has
Questions their strategy changed since then and why?
1. Many of the same environmental factors, such
as cultural factors, that operate in the domestic
market also exist internationally. Discuss the key
cultural factors Starbucks had to consider as it ex-
panded into China.

2. Discuss the key political and legal factors Starbucks

3. What demographic factors were important for

2 CASE STUDIES