Starbucks FDI Case: 20 substantive points; 5 points given free.

QUESTION 1: Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became disenchanted with this strategy. Why? (5 points) ANSWER 1: Award 5 points if the student mentions all of the following: *With licensing, Starbucks had limited control of their expansion rate. *Key to Starbucks strategy is quick expansion to build consumer habits while Starbucks is trendy. *Their licensees did not have the capability to expand as rapidly as Starbucks wanted. Award 4 points if the student mentions all of the above except expansion rate Award 3 points if the student mentions all of the above except expansion rate and building consumer habits while Starbucks is still trendy: Award 2 points if the student only mentions lack of control over the licensee as the main issue QUESTION 2: Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures, to whom it licenses its format, as opposed to a pure licensing strategy? (3 points) ANSWER 2: Award 3 points if the student mentions both: *Starbucks has a larger measure of control * and still can access local knowledge through the JV partner. Award 1 point if the student mentions only one or the other QUESTION 3: (a) What are the advantages of a joint venture entry mode for Starbucks over entering through wholly owned subsidiaries? (2 points) (b) On occasion though, Starbucks has chosen a wholly owned subsidiary to control its foreign expansion (e.g. in Britain and Thailand). Why? (4 points) ANSWER 3(a): Award 2 points if the student mentions both of the following: *A JV gives Starbucks access to local knowledge and local markets, * Starbucks can still exercise a large measure of control, even though it may not be to the same degree as a wholly owned subsidiary Award 1 point if the student mentions only one or the other of the above. ANSWER 3(b): Award 4 points if the student mentions both of the following: Starbucks pursued wholly owned subsidiaries: * Where control is a critical issue or JV partners are not available * or appropriate operations are up for sale, Starbucks pursued wholly owned subsidiaries.

(In Britain, Starbucks purchased an operation, for example. In Thailand, they purchased a JV operation that could not produce on expansion.) Award 2 points if the student mentions only one of the above QUESTION 4: Which theory of FDI best explains the international expansion strategy adopted by Starbucks? (6 points) ANSWER 4: Award 6 points if the student mentions all of the following: *Correct theory: Market imperfections theory (internalization) best explains Starbucks approach. *Explain why this theory is correct: Starbucks wants to maintain product quality and brand identity (the Starbucks experience) across a wide range of cultures, taste preferences, work habits and ways of doing business. Award 4 points if the student identifies the correct theory and mentions only product quality or brand identity, but not both Award 2 points if the student only correctly identifies the theory but does not offer to explain why he/she chose that theory