Starbucks’ Internationalization Plan in the China

Market: Opportunities, Challenges and

Recommendations Way Forward

Submitted by Melissa Liow

SID: 123456
Lecturer: Ms. X
Table of Contents
1. Introduction..................................................................................................................................2

2. Macro-environmental factors.......................................................................................................2

2.1 Social-Cultural Factors..............................................................................................................2

2.2 Legal Factors.........................................................................................................................3

2.3 Economic Factors..................................................................................................................3

2.4 Political Factors.....................................................................................................................4

2.5 Technological Factors............................................................................................................4

3. Opportunities and Recommendations..........................................................................................4

3.1 Social-Cultural Factors..........................................................................................................4

3.2 Economic Factors..................................................................................................................5

3.3 Technological Factors............................................................................................................5

4. Challenges and Recommendations..............................................................................................6

4.1 Legal Factors.........................................................................................................................6

4.2. Political Factors....................................................................................................................6

4.3. Technological Factors...........................................................................................................6

5. Conclusion...................................................................................................................................6

6. References....................................................................................................................................8

1. Introduction
China’s Market is very huge as it is the most populous country of the world constituting
population of about 1.3 billion people. Many international businesses prefer to spread their
business in China because of its vast market. This report is also based on an international coffee
franchise system named Starbucks. The first store of Starbucks was founded in 1971 in Seattle,
in 1992 the business grew up to 140 stores internationally[CITATION Ali16 \l 1033 ]. Starbucks
continued its internationalization strategies in China, and it was introduced in the Chinese
Market in 1999 with about 4700 stores in mainland China cities [CITATION Sta19 \l 1033 ].
Today Starbucks has more than 17000 stores in about 50 countries and it is one of the largest
coffee chains in the world. Starbucks has its unique taste and ambiance style that is served at
premium prices, but customers prefer to buy Starbucks because of its branding[ CITATION
Ali16 \l 1033 ]. Starbucks analyze the macro-environmental factors carefully before spreading its
business to a new country or region that helps the business to succeed in the coffee market. This
report aims to analyze the macro- environmental factors of Starbucks in China with the help of
PESTLE analysis. This report will also provide practicable recommendations for Starbucks to
harness the market opportunities and overcome the challenges and lead in the food market of
China.

2. Macro-environmental factors
The macro-environmental factors are the external forces that can affect the success and
operations of the company. To succeed in a particular market, it is very crucial for a business to
analyze its macro-environmental tools. In this report SLEPT analysis is used to analyze the
political, economic, socio-cultural, socio-cultural, legal, and environmental factors .

2.1 Social-Cultural Factors

One major socio-cultural factor is the interest of Chinese population to lead a luxury and branded
lifestyle. Moreover, Chinese consumers prefer, and value western brands and Starbucks is one of
the leading western coffee brand [ CITATION Mag13 \l 1033 ]. Customers prefer Starbucks for
its unique ambiance, service quality and its design that is specifically selected for Chinese
consumers with spacious seating areas [ CITATION Ali16 \l 1033 ]. These factors provide
primary opportunity for the successful expansion of business in urban cities of China like Beijing
and Shanghai [ CITATION Har93 \l 1033 ]. According to [CITATION Mon18 \l 1033 ] the use
of high-end luxury food styles like Starbucks coffee is predicted to grow about 10-15% from
2019 to 2024. A socio-cultural factor that poses challenges for Starbucks is the tea drinking
tradition of Chinese people. Chinese local people had very less knowledge about the flavors and
benefits of Coffee and the company had to acknowledge the Chinese customers about Coffee
before starting their business[ CITATION Ali16 \l 1033 ].

2.2 Legal Factors

China’s capital city Beijing entered in World Trade Center in 2001 that acted as a positive legal
factor for foreign companies to spread their business in China. Chinese government has also
reduced the legal restrictions for foreign businesses in recent years [ CITATION Hed19 \l 1033 ].
The legal system of China is gradually improving its policies regarding consumer rights and
patent protection that provide freedom to foreign companies to operate in Chinese market. The
legal policies and laws also differ in various provinces of China so local authorities of different
provinces in China can pose threats for Starbucks licensing their business in various regions of
China. To maintain the integrity of the business in presence of many copycat coffee businesses in
Chinese market, Starbucks needs to register itself on constant basis that can increase the
investment capital of the business [ CITATION She20 \l 1033 ].

2.3 Economic Factors

The economy of the country is continuously growing that increases the capacity of Chinese
customers to spend on branded and luxury food like Starbucks. Rapid economic development in
China is also improving the consumption level and preferences of Chinese residents that has a
positive impact on Starbucks market in China [CITATION Wan14 \l 1033 ]. Starbucks has a
fixed price strategy while in China the consumption patterns are not same in different provinces
and cities because of imbalanced and regional economic development. The high positioning
pricing strategy of Starbucks can pose challenges for its success in China. Shanghai’s annual
GDP (Tier-1 city) is close to USD500 billion compared to the lesser-known Gansu city that
generates an annual GDP of USD2billion[ CITATION Won19 \l 1033 ] . In Tier 1 cities of
China with a developed economy, Starbucks market has many opportunities while in Tier 2 and
Tier 3 cities most of the population belongs to middle and lower middle-class economy that
cannot afford premium Starbucks coffee [ CITATION Won19 \l 1033 ].
2.4 Political Factors
China joined World Trade Organization (WTO) in 2001, China and USA becoming member
countries of WTO provided an opportunity for Starbucks to reduce its operating cost. Chinese
government is also launching many policies to support the international and foreign businesses in
China that can help Starbucks to grow and launch more stores in China. The relationships
between US and China are causing problems for western companies working in China. United
States and China are a having a trade war since past few years that is posing threats to US based
companies in China. This situation is prompting many foreign business and franchises to leave
China. This condition is threatening the Starbucks stores distributed in different regions of
China.

2.5 Technological Factors

In 2018 the internet penetration in China grew up to 58%. Chinese customers are more likely to
be attracted towards social media marketing that can be a huge opportunity to spread the
knowledge about the unique flavors of their coffee through social media [ CITATION Moh18 \l
1033 ]. The company will also need to allocate a significant budget to promote their product
through social media market that will increase its capital investment. Chinese consumer also
prefers to use mobile payment systems and card payments instead of cash and Starbucks
provides such services in almost all its outlets [ CITATION Sha19 \l 1033 ]. Starbucks and
similar cafés are considered as a third destination other than work and home and most of the
Chinese customers prefer to have internet facilities along with good ambiance and taste,
provision of such facilities can also act as a positive factor for the success of the business in
China [ CITATION Ali16 \l 1033 ].

3. Opportunities and Recommendations

In this section of the report various opportunities and recommendations to avail those
opportunities will be provided according to the secondary data obtained through SLEPT analysis
of Starbucks in China mentioned in section 2 of the report.

3.1 Social-Cultural Factors

In Tier-1 countries like Beijing where people are more brand and quality conscious, Starbucks
should work on improving its branding or franchising model and integrity of their quality
products. In Tier-1 countries, most of the consumers are aware of USA Starbucks flavors and
want to have the same premium quality and taste so the company does not need to introduce any
amendments in their flavors and styles. For Tier-2 cities where consumers are not much adaptive
to western flavors, Starbucks can succeed in such regions by introducing local products like local
green tea flavors and some traditional Chinese snacks along with their beverages. This initiative
will be very fruitful to expand business in Tier 2 and Teir-3 cities of China [ CITATION
Won19 \l 1033 ].

3.2 Economic Factors

To avail the economic opportunities in China, Starbucks should evaluate the changing economic
conditions in different provinces and cities of the country. The fixed pricing strategy of
Starbucks will work great in Tier-1 cities where consumers are willing to pay premium prices for
branded coffee but for Tier-2 and Tier-3 cities it is recommended that instead of using fixed price
strategy, the company should introduce low price products to succeed in such regions
[ CITATION Gup18 \l 1033 ].

3.3 Technological Factors

Increased use of internet and technology in China is providing opportunities for Starbucks to
spread market their business among the carefully targeted consumers with the help of social
media marketing. Internet marketing provides and opportunity for the businesses to target the
desired audience while respecting the personal and emotional needs of the consumers
[ CITATION Hen20 \l 1033 ]. This will help Starbucks to attract customers towards their brand
and by making them understand about the importance and benefits of Coffee and uniqueness of
Starbucks coffee flavors. Starbucks is also providing Wi-Fi facilities in almost all its outlets that
also helps to attract customers who prefer to do their work or spend time on their mobile phones
while sipping their coffee. This initiative provides a competitive advantage to Starbucks as most
of coffee shops in China do not have such facilities [ CITATION Hen20 \l 1033 ]. It is
recommended that Starbucks can improve its business in Tier-1 cities by providing facilities like
home-delivery orders using popular ride-hailing company services of China. Starbucks should
also incorporate mobile payments through China’s Mobile Wallet Giant companies such as
Alipay, these initiatives will make it more convenient for the customers to access Starbucks
products [ CITATION Sha19 \l 1033 ].
4. Challenges and Recommendations
4.1 Legal Factors
Various copycat coffee companies in China are trying to succeed in the name of Starbucks brand
that pose threat to the brand image of Starbucks in China. Because of these threats Starbucks
need to ensure its trademark, copyrights, and brand name by undertaking the laborious
documentation and closely monitoring all legal procedures [CITATION Hed19 \l 1033 ].

4.2. Political Factors

The US-China trade war is posing a great threat to international businesses like Starbucks in
China. Starbucks need to redefine its internationalization strategies so that its operations do not
get affected by US-China trade war. Starbucks need to improvise strategies like “for China, in
China” to stiffen its roots in domestic market of China amidst of this trade war between two
major international markets. Starbucks should prepare for a two-track market to succeed in China
during this US-China trade war [ CITATION Arn20 \l 1033 ].

4.3. Technological Factors

The increasing impact of technological use in China provides many opportunities to expand the
business but at the same time internet marketing and provision of technical facilities demands the
business to allocate a significant budget in this department. To avoid inefficient budget allocation
Starbucks needs to evaluate and assess its target market and local media behavior and use of
social media in China thoroughly before allocating its promotional budget. The company needs
to adopt 3-mile marketing through consumer surveys. Starbucks should also work with local
Chinese business partners to reduce its promotional costs and reach to a huge range of
consumers[ CITATION Dev18 \l 1033 ].

5. Conclusion
To conclude, according to the results of SLEPT analysis, the socio-cultural, legal, economic,
political, and technological factors have a great impact on the success of Starbucks in China.
These factors provide many opportunities for Starbucks to expand in China while some factors
also pose huge threats to the success of the business in China. The Tier-1 countries where
consumers are more brand oriented and willing to pay premium prices for luxury food, Starbucks
can succeed without any customization in its flavors of pricing strategies. The consumers in Tier-
2 and Tier-3 countries who belong to middle class economies are more conservative and prefer
their traditional flavors of Tea instead of Coffee so in such regions Starbucks need to customize
its products by introducing some traditional items in its menu and repricing of its products. China
is highly advanced in technology and internet use so incorporating efficient internet marketing
strategies will also help the company to reach maximum consumers. Starbucks need to conduct
market research continuously to blend in varying markets of China in its different cities and
provinces and to succeed during the trade war between US and China.
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