Analysis of Issues Faced by Starbucks in China and Australia

In today's day and age, coffee has become a necessity for most of us. There are new coffee shops opening up every day, but there is one that almost everyone has heard of and that is: Starbucks. As of today, Starbucks has a net worth of $30 billion dollars and over 24,000 stores in over 70 countries (Dennison S. , 2018; Starbucks Company Profile, 2018). With globalization comes many issues, of which Starbucks did not avoid. I chose to talk about Starbucks because, even though it has had its fair share of issues with going global, it never gave up and always managed to overcome whatever it faced. I will be analyzing issues faced in China and in Australia by using Pankaj Ghemawat’s CAGE Framework, which analyzes the cultural, administrative, geographic, and economic distance between globalizing organizations and countries. (Pankaj Ghemawat, n. d. )

Starbucks opened its first shop in Seattle, Washington in 1971( Starbucks Company Timeline, n. d. ). It was founded by the University of San Francisco students Jerry Baldwin, Zev Siegl, and Gordon Bowker (History of Starbucks, n. d. ). It started off as a small coffee shop that offered fresh-roasted coffee, teas, and spices(Starbucks Company Profile. , n. d. ). In 1981, Howard Schultz became part of the Starbucks team as director of retail operations and marketing. After traveling to Italy, he was inspired by the importance of coffee in Italian culture and said: Seeing the sense of community and romance and theatre around an espresso… it just made me realize that Starbucks perhaps was not in the right part of the coffee business, the real business and opportunity was the integration of the beverage to creating a destination and sense of community in the store. (B. , 2015) After proposing to create a more communal environment, his idea was rejected and Shultz then left Starbucks. Years later, he ended up purchasing the company in 1987 for $3. 8 million dollars (B. , 2015). This was when Starbucks started its turbulent journey towards globalization. Starbucks opened its first store in China in the city of Beijing in 1999.

At that time, there was another prominent Chinese coffee shop by the name of “Shanghai Xingbake Coffee Co. ” “Xing” is the Mandarin word for “star” and “bake” when pronounced sounds identical to the English word “bucks. ” (Davidson, J, 2006 ) Their logo was greatly similar to Starbucks’s famous circular green and white logo, seen here: Source: Starbucks When Starbucks found out about the popular Chinese café, they immediately took them to court for copyright infringement in 2003. Starbucks ended up winning the case in 2005 and Xingbake Coffe Co. had to pay $62,000 dollars as compensation (Davidson, J, 2006; Beijing, D. E. , 2013) The Chinese administration has always struggled with copyright infringement cases. "Absence of a copyright law has made it next to impossible for US companies to protect proprietary technical information provided through licensing agreements. " (Schloss, P. A. , 1990) The administrative distance between China and the United States of America is demonstrated here. In the end, Starbucks managed to overcome this issue and continued to spread its coffee shops. Today, there are over 3,400 stores in over 140 cities in China. (Starbucks in China, n. d. )

However, when started expanded into Australia, it was not so lucky. 7 years after opening its first store in Sydney in 2000, Starbucks generated $105 million dollars in losses, obligating them to close 61 locations in 2008. (Turner, A. , 2018) Coffee plays an important role in the Australian culture, primarily due to the large Italian and Greek immigration in the mid-1900’s. (Turner, A. , 2018) Australians already had high standards, of which Starbucks, unfortunately, did not meet. “ They thought that their business model could just roll out to a different environment, and there was no need for them to adjust,” says Nick Wailes, professor and deputy dean of University of New South Wales Business School (Turner, A. , 2018). The strong influence of the tight-knit Italian and Greek culture of sitting at a local café and sipping on an espresso while catching up with a friend inspired the need for a sense of community and comfort in Australian coffee shops. Cultural distance can be seen here since Starbucks, an American chain company, did not offer a sense of community and intimacy that people in Australia preferred.

As a result of the slow development and stagnant performance in the Australian market, Starbucks decided to sell the remaining 24 stores to The Withers Group, owners of the famous 7-Eleven chain in Australia. "Our aim will be to make Starbucks the most successful coffee chain in Australia. " Said Chief Executive Warren Wilmot of the Withers Group (International Business Times, 2014) showing that there will still be hope for the American coffee franchise in Australia. Starbucks, a worldwide franchise with over 25,000 locations in over 60 countries, has had difficulties with globalization. For global companies, factors such as the cultural, administrative, geographical, and economic differences can pose as an obstacle in their path(Pankaj Ghemawat, n. d. ). From dealing with copyright infringement from another coffee company in China to maneuvering its way through Australia’s café culture, Starbucks managed to find ways to overcome its obstacles and always did what was best for the future of the company.