Starbucks’ International Operations
One of the reasons why companies why companies decide to go global is to diversify risk, however, there is a diverse set of risks which exist in the international market. These risks can be classified as operational risks, political risks, environmental and economic risk.
Risks faced by Starbucks
Starbucks faced all of the above mentioned risk at some point. It is important to understand political risk as this is one of the most important risk which prevail in the market. In simple terms it refers to the political actions which negatively affect the company’s value. In case of Starbucks, it faced immense political risk as the tension between Middle East, US and Israel was growing and that had negative implications for Starbucks as young Arab people boycotted American products.
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The company also faced high resistance, and tough competition from the customers in its European market(Dutta 2003). The local competitors offered very similar kind of products at a lower price as compared to Starbucks which posed additional problems. High real estate cost and training costs further aggravated the problems.
Recommendations for Starbucks
The company should use the following strategies to mitigate its risk of international business.
Slow Down Its Pace Of Expansion
The company must slow down its pace of expansion in Europe and Middle Eastern countries. This is because there is increasing political uncertainty between US and rest of the world.
Focus On Pricing And Product Base
The company is facing immense competition in Europe so it needs to market its product, broaden the range of offerings just like it did in Japan and most importantly reduce price as it is one of the biggest constraint on the company. Although this will further worsen the financial conditions of the company in the short run, it will be helpful in the long run.
Improve Its Impression
Because of political tension between the US and rest of the world, the company is suffering from heavy losses. This uncertainty is likely to further aggravate and thus the company should take measures to improve its impression not as an American brand supporting Jewish lobby but as an International brand which exist to cater to the needs of coffee drinkers.
Control its Operational Cost
It is extremely important to reduce the operational cost as it is one of the most important determinants of profitability. Just like the company has decided to outsource the production of its mugs, and other paper goods, it is a good way to reduce operational costs at the time of high financial constraints.
Provided the company takes the above mentioned measures, it is likely to achieve success in the long run. Only time will tell if the company is on the right track regarding its international operations or not.
Starbucks’ International Operations Dutta and Subhadra. All’s Not Well with Starbucks, March 2003. May 3, 2010