but has by ties of sion that centage riety of, son the ort, sales protect i peones compe ne tariff nfactur. 1 fre, country eating, major sion of (PSAs) sofa of the As ch ee CHAPTER 2 THE MULTINATIONAL ENTERPRISE 59 44 How are CSAS different than FSAs? '5 How successful are the large industrial MNEs? What accounts for this? {6 What are the five basie steps in the strategic management process? Identify and briefiy describe each. 7 How has Zara used the strategic management process to help it become a successful multinational? 8 How has Levi Strauss used the strategic management process to help it improve its competitiveness? iit Vine 1 Starbucks From its first location in Seattie’s Pike Place Market in 1971, Starbucks has growin into one of the largest coffee chains with 16,425 locations in markets across the world in 2009. The company purchases and roasts high-quality, eoitee beans that are then brewed and retailed in trendy designer coffee shops that cater to 8 loyal following of young urban professionals who appreciate the distinct, taste of Starbucks’ coffe. In 2007 its sales were US $9.774 billion, bout two-third the size needed tobe in the top 300, world firms. The company’s road to success began in 1985, when, after eorwincing the founders of Starbucks to test the coffee bar concept, the then director of retail operations, Howard Schultz, strted his own coffee house to soll Starbucks: coffee under the name Il Giornale. Within two years, Schultz purchased Starbucks and changed its company ame to Starbucks Corporation, Since then, the company has expanded rapidly, opening stores in key markets and creating 2 “corporate coffee culture” in ach ofthe urban areas in which it settled, Coffee bars are located in high- traffic areas and include large bookstores, suburban malls, Universities, and high-traffic intra-urban communities. Popularity has not come without a price for Starbucks. Colfee prices fell considerably n the late 1990s and led to the displacement of thousands of farmers. The main reason for @ fall in the price of coffee was the oversup- Ply that arose from improved preduction techniques and from 2 crap boom in the 19905. Although Starbucks only purchases approximately | percent ofthe globat supply of coffe, its high profile has made it 2 main target for protes- tors wh accuse the coffee giant of not providing fair price to coffee growers; this, despite Starbucks’ policy of pur- chasing high-quality Beans at promium market prices. To address the concerns of protestors, Starbucks intraduced Feirtrade-endorsed coffee to its coffee houses. While the “amount of Fairtrade coffee sold by the company is insig- nificant, at 1 percent of total sales itis enough to portray the company 2s progressive and avert a consumer boycot. ‘The company directly operates 6,764 coffee houses in the United States in 2009. Untike many coffee and fast-food chains, Staraueks doos not franchise [license the right to operate one ofits stores] to individuals in the United States. Itdoes, however, negotiate licensing agreements with com- panies that have contra over valuable rotall epace, such as {an airport or hospital. In 2009, there were 4,366 Starbucks stores operating under licenses. With coffee houses in 40 countries, today Starbucks has. 2 global presence. In contrast to its domestic operations, the vast majority of Starbucks’ international operations aro through Ueenses. Indeed, of 5,507 international stores in 2009, 3.499 wore licensed and in joint venture. Starbucks might have operations in far-away countries Like Australia, Oman, and China, but it isnot global in its ‘cope of operations, In 2008, 85:36 porcent ofits stores60 PART ONE THE WORLD OF INTERNATIONAL BUSINESS were located in its home region of North America, includ ing operations ip Canada, Mexico, and Puerto Rico. An ‘even larger portion of Starbucks’ revenues and operat- ing income are home-region oriented. The United States alone accounts for 79.7 percent of revenues and 99 percent ‘of operating income. International operations, including those that are directly owned and operated by Starbucks, require a higher degree of administrative support to be responsive to country-specific regulatory requirements, In addition, because these are mainly now markets, econ- fomies of seals in marketing and production have not yet materialized. esate; ww terbucks com, owes ete Ssetuehs, Anal apr, 209; wn starch a Ne ina ole Gap Faas, December 200, "Mug Shot he Eva Septamber 202, Jae tare, serous Takes fonts Ces” BOC cau Feary 7.2002 LN oN Sony Very few companies can claim to be globally successful, but Sony, which brought us the Walkman end co-developed the CD and the DVD, has the numbers to prove it. In 2008, the company's $74.261 billion in revenues were evenly distributed aerose mainly three markets: Japan, the United States, and Europe, Headquartered in Japan, Sony is best known forts high= ‘quality consumer electronics, which account for 61 percent cof total revenues, but the firm also produces games, music, and pictures. Consumers might not own a Sony electronic system, but the movie they watched lastnight or the CD they listen to while jogging may be the intellectual property of a Sony company. Sony's strategy boils down to produc ing electrical gadgets and controlling the content that {goes through them much in the same way sits successful PlayStation 2 game console provides the hardware necess- ary for the firm to capture the games market, In the 1980s, Sony's Betamax lost the VCR war to NC's VHS. Both systerns had been developed in the mig 1970s and initially Sony's Betamax was the clear winner. Indes, all movies were originally released in Betamax format. General wisdom argues that Betamax lost the VER war because it failed to license its software to rival manufacturers while Matsushite licensed to all. Today, the Betamax-VHS battle is often cited to argue the benefits of licensing new technology. 11 Why does Starbucks rely on licenses for most of its international operations? Does the firm risk the dlisipation of its managerial or technological advantages? 2. Can you argue that Starbucks is global company regardless ofthe strong dominance of ts home region in terms of sales and locations? Explain. 2 What accounts for the discrepancy between percentage of foreign locations and percentage of foreign net revenues? 4 What are some of the reasons why Starbucks ‘chooses to retain operational control a its domestic operations? Yet, how could Sony have been so reckless as to igner= the benefits of licensing? The answer is that it did not.» 1974, a year before the Betamax release, Sony approache VC and Matsushita seeking to reach an agrooment Standards for the new product. In doing so. it freely dis closed Botamax’s patented specification and technolo to its rivals, The VHS format developed by JVC used ve similar technology, but, because ofits different size, w incompatible with Betamax. Matsushita was asked ‘choose between Sony's and JVC's product. Its deci ‘came down to cost. It was cheaper to produce the Vi format because it hed fewer components. With this, © players for the market were defined. The Betamax was be manufactures by Toshiba, Sanyo Electric, NEC, Aiwa, = Pioneer. Matsushita, Hitachi, Mitsubishi Electric, Sharp, 2 Akai Electric manufactured VC's VES. Perhaps more impertant than the size ofthe VCR disks the two formats was that the VHS format allowed rece ing for two hours, twice thet of Betamax. This would h allowed consumers to record an entire movie wale ava for the night. Sony was close to integrating technology i its format that would have inereased the recording tr to that ofthe VHS. I this was what tilted the balance, t ‘all Sony would have needed is bit of time, Potentie 23t least, it could have bought itself some time if it ow the rights of the movies and refused to release ther