STARBUCKS

(Failure in Australian Market)

   

Introduction
In economics, market failure is a situation in which the allocation of goods and services is not efficient.
That is, there exists another conceivable outcome where an individual may be made better-off  without
making someone else worse off. Market failures can be viewed as scenarios where individuals' pursuit of
pure self-interest leads to results that are not efficient – that can be improved upon from the societal
point of view.  The first known use of the term by economists was in 1958, but the concept has been
traced back to the Victorian philosopher Henry Sidgwick.

Market failures are often associated with time-inconsistent preferences, information asymmetries, non-
competitive markets, principal-agent problems, externalities, or the public.  The existence of a market
failure is often the reason that self-regulatory organizations, governments or supra-national institutions
intervene in a particular market. Economists, especially micro economists, are often concerned with the
causes of market failure and possible means of correction. Such analysis plays an important role in many
types of public policy decisions and studies. However, government policy interventions, such as taxes,
subsidies, bailouts, wage and price controls, and regulations (including poorly implemented attempts to
correct market failure), may also lead to an inefficient allocation of resources, sometimes
called government failure.

Given the tension between, on the one hand, the undeniable costs to society caused by market failure,
and on the other hand, the potential that attempts to mitigate these costs could lead to even greater
costs from "government failure," there is sometimes a choice between imperfect outcomes, i.e.
imperfect market outcomes with or without government interventions. But either way, if a market
failure exists the outcome is not Pareto efficient. Most mainstream economists believe that there are
circumstances (like building codes or endangered species) in which it is possible for the government or
other organizations to improve the inefficient market outcome. Several heterodox schools of thought
disagree with this as a matter of principle.
Starbucks Corporation 
Is an American coffee company and coffeehouse chain. Starbucks was founded in Seattle, Washington in
1971. Today it operates 23,768 locations worldwide, including 13,107 (+170) in the United States, 2,204
(+86) in China, 1,418 (-12) in Canada, 1,160 (+2) in Japan and 872 in South Korea (bumping United
Kingdom from 5th place) (Differences reflect growth since Jan 8, 2016). Starbucks is considered the main
representative of "second wave coffee", initially distinguishing itself from other coffee-serving venues in
the US by taste, quality, and customer experience, while popularizing darkly roasted coffee. Since the
2000s, third wave coffee makers have targeted quality-minded coffee drinkers with hand-made coffee
based on lighter roasts, while Starbucks nowadays used automated espresso machines for efficiency and
safety reasons.

Starbucks locations serve hot and cold drinks, whole-bean coffee, micro-ground instant coffee known as
VIA, espresso, caffe latte, full- and loose-leaf teas including Teavana tea products,  Evolution Fresh
juices, Frappuccino beverages, pastries, and snacks; some offerings (including their Pumpkin Spice Latte)
are seasonal or specific to the locality of the store. Many stores sell pre-packaged food items, hot and
cold sandwiches, and drinkware including mugs and tumblers; select "Starbucks Evenings" locations
offer beer, wine, and appetizers.  Starbucks-brand coffee, ice cream, and bottled cold coffee drinks are
also sold at grocery stores.

Starbucks first became profitable in Seattle in the early 1980s, and despite an initial economic downturn
with its expansion into the Midwest and British Columbia in the late 1980s, the company experienced
revitalized prosperity with its entry into California in the early 1990s.  The first Starbucks location
outside North America opened in Tokyo in 1996; overseas properties now constitute almost one-third of
its stores. The company had opened an average of two new locations daily between 1987 and 2007.

Starbucks Coffee International, Inc. purchases, roasts and sells whole bean coffees, brewed coffees,
Italian-style espresso beverages, and cold blended beverages. The company markets its products
through more than 15,000 stores in North America, Europe, the Middle East, and Asia and the Pacific
Rim among other regions. The company was founded and is based in Seattle, Washington. As of 2008
Starbucks operates in 44 countries.  Starbucks Coffee International operates as a subsidiary of Starbucks
Coffee Company. Starbucks diversified its business. Starbucks now offers compact discs, books, and
other lifestyle products. In addition, they have created several strategic alliances with food
manufacturers both domestic and abroad. (www.starbucks.com)

Company History
In 1971 the first Starbucks store was opened in Seattle’s Pica Place Market by Jerry Baldwin, an English
teacher, Zev Siegel, a history teacher and the writer Gordon Bowker. In 1982 Howard Schultz joined the
company as a director of retail operations and marketing. He saw potential in Starbucks and started to
build up a coffee house culture in Seattle. In 1984 Starbucks enlarged its product mix, adding coffee
specialties like different kinds of Cafe Lattes and espresso beverages. In 1985 Howard Schultz left the
company and set up his own Coffee Bar. Shortly after, Starbucks began losing money on its expansion
efforts. Howard Schultz purchased the struggling company in 1984. He then combined Starbucks with
the firm’s name to Starbucks Corporation. New and experienced managers were hired and successfully
turned around the business. By 1991 Starbucks was doing well enough to offer stock options to all of
their employees.

Expansion
In 1992 Starbucks once again began expansion efforts. This time Starbucks set up coffee shops in
department stores and bookstores and provided coffee to Sheraton Hotels. By the end of 1993
Starbucks had opened a new roasting plant and the number of stores locations neared 275. Starbucks
began operating internationally in 1996. Their first international venture was opening a Starbucks in
Tokyo. In the same year, Starbucks began operating an online coffee shop called Caffe Starbucks. This
venture, in particular, was ahead of its time and not necessarily as successful as other ventures
Starbucks was involved in. However, Starbucks kept on expanding in domestic areas like Florida,
Michigan, and Wisconsin and further internationally even opening a store in the Philippines in 1997. In
the next year, Starbucks opened several stores in Thailand, Taiwan, New Zealand, and Malaysia and in
the UK. Starbucks entrance into the United Kingdom was markedly different. There they acquired an
existing firm, “Seattle Coffee Company”, and used the existing stores to transition into the market. In the
same year, Starbucks expanded its brand name into several different grocery market chains and
convenience stores. Domestically, they focused on entering new states like Louisiana, Oregon, Kansas,
and Missouri. With business booming, the company continued expansion internationally and
domestically. Between 1999 and 2002 Starbucks began operations in over 15 nations. After 2002, Japan
had over 300 Starbucks cafes, and there were over 5,886 shops worldwide. As of 2008, there are at least
15,756 Starbucks cafes and licensed stores in operation.  
Starbucks Coffee Quality
Kevin Knox, who was in charge of doughnuts quality at Starbucks from 1987 to 1993, recalled on his blog
in 2010 how George Howell, coffee veteran and founder of the Cup of Excellence, had been appalled at
the dark roasted beans that Starbucks was selling in 1990. Talking to the New York Times in 2008, Howell
stated his opinion that the dark roast used by Starbucks does not deepen the flavor of coffee, but
instead can destroy purported nuances of flavor. The March 2007 issue of Consumer Reports compared
American fast-food chain coffees and ranked Starbucks behind McDonald's Premium Roast. The
magazine called Starbucks coffee "strong, but burnt and bitter enough to make your eyes water instead
of open". As reported by TIME in 2010, third wave coffee proponents generally criticize Starbucks for
over-roasting beans.

Although pour over coffee options are available at every Starbucks location, the company generally does
not advertise them conspicuously, because preparation times are much higher and thus profits are
lower than for espresso-based variations.

Starbucks Marketing Strategy

Global marketing requires some effort to work, but it does have a number of benefits. Most obviously, it
ensures your marketing strategy is applied consistently (but smartly) across territories and it allows you
to operate more efficiently through economies of scale.

Beyond this, one of the biggest benefits of operating globally with a local presence is the opportunity it
provides to develop a deeper understanding of the markets in which your company operates and their
potential. It enables you to prioritize and optimize your efforts and budgets effectively. And last but not
least, it gives you as many territories to test and learn from. For each campaign or activity, you run, you
will gather feedback and suggestions from a range of markets. This is invaluable insight you can leverage
by developing a repository of best practice and ideas which will help drive your long-term success.

Some of the methods Starbucks has used to expand and maintain their dominant market position,
including buying out competitors' leases, intentionally operating at a loss, and clustering several
locations in a small geographical area (i.e., saturating the market), have been labeled anti-competitive
by critics. For example, Starbucks fueled its initial expansion into the UK market with a buyout of Seattle
Coffee Company, but then used its capital and influence to obtain prime locations, some of which
operated at a financial loss. Critics claimed this was an unfair attempt to drive out small, independent
competitors, who could not afford to pay inflated prices for the premium real estate.
 Starbucks Coffee’s Vision Statement
Starbucks Coffee’s mission statement and vision statement reflect the company’s emphasis on
leadership in the coffeehouse industry. The firm’s mission statement serves as an indicator of what the
company wants to do at the core of its business. On the other hand, Starbucks Coffee’s vision statement
shows what the company wants to achieve in the future. In this regard, through the mission statement
and vision statement, the firm guides the activities of employees and shows customers what the
business is capable of doing. In particular, the Starbucks Coffee mission statement shows customers the
benefit that they can get from the company.

Vision Statement

Starbucks Coffee does not readily present its vision statement. However, a careful reading of the
company’s website reveals that its vision statement is “to establish Starbucks as the premier purveyor
of the finest coffee in the world while maintaining our uncompromising principles while we grow.”
This vision statement has the following components relevant to Starbucks:

1.      Premier purveyance

2.      Finest coffee in the world

3.      Uncompromising principles

4.      Growth

Being a premier purveyor means that Starbucks Coffee wants to achieve leadership in providing its
products, especially coffee of the best quality. Starbucks has already achieved the premier purveyance
component of its vision statement because it is now the largest coffee and coffeehouse company in the
world. However, it is not yet clear if Starbucks effectively addresses the finest coffee in the
world component of its vision statement. Analysts and critics point out that coffee from McDonald’s or
Dunkin Donuts may be better than Starbucks coffee in some aspects. Nonetheless, Starbucks Coffee
addresses the uncompromising principles component of its vision statement. These principles include
ethical conduct and a warm culture. Starbucks maintains these principles, especially after Howard
Schultz resumed his role as CEO in 2008. Also, the firm satisfies the growth component of its vision
statement, as manifested in the continuing global expansion of the business through new Starbucks
cafés. Starbucks Coffee now has more than 22,500 locations around the world. Thus, the firm effectively
addresses its vision statement.

Why Australians Hate Starbucks?

Thanks to waves of Italian and Greek immigrants in the early 1950s, Australia adopted the art of
espresso-drinking-as-a-social-lubricant much earlier than the United States. While Starbucks introduced
Americans to a European Lite version of coffee shop culture, in Australia it was a latecomer to a party no
one invited it to. Australia already had a well-established cafe culture based on espresso when Starbucks
arrived. It had to compete with cafes that provided a similar product of equal or better quality.”

Unlike almost every other country in the developed world, Australia does not do Starbucks. The
international coffee monolith launched its first Sydney cafe in 2000 before opening a further 84 outlets
across Australia’s eastern coast. Just eight years later, it had stacked up $143 million in recorded losses
and was forced to close 60 stores.

Problems with International Expansion

Not all challenges faced by companies seeking to expand internationally are so tangible in nature. When
negotiating a path through new and unfamiliar markets, cultural considerations can all too often be
underestimated or swept under the carpet as an afterthought. In actual fact, managing the cultural
implications of international expansion is a non-negotiable ingredient for its success. Companies that get
to grips with cross-cultural communication are the best placed to use shared information and
experience to enhance their competitive position at home and abroad.

They are also far better equipped to deliver their long-term business objectives. It’s important to
appreciate and assimilate the subtle differences in verbal and non-verbal communication across
cultures. And language is perhaps the least of the cultural obstacles that international managers can
face. If misconstrued, even barely perceptible nuances of gesture, eye contact, tone, and humor have
the potential to offend, and can even derail projects if not dealt with swiftly.

Business cultures themselves can also vary widely, with significant deviations among countries on
attitudes to challenging authority, resolving conflicts and even working with members of the opposite
sex fluctuating significantly between countries. This is where strong, sensitive and flexible leadership
from the management team can be invaluable for keeping things on track. With multi-cultural
businesses fast becoming the rule, rather than the exception, managers are increasingly recognizing the
value of working with the diversity of a cross-border team to create mutual trust, recognizing that the
creativity engendered by a multi-cultural team can lead to more rounded decisions and more effective
plus productive performance.

Lack of understanding local culture is even more evident in Starbucks entry into Australia. When
Starbucks penetrated the Australian coffee market in 2000, the company approached the endeavor with
great ambition. Not only did they build stores in major cities like Sydney and Melbourne, but they also
set up stores in less populated communities that occupy the coastal regions of the country. By 2008,
they had established 85 stores. All the stores were internally structured and operated the same as they
do in the United States. Essentially, they attempted to infiltrate the Australian coffee market by
establishing their presence within the market relative to their presence in the US and other international
markets.

It doesn’t take a marketing genius to see where Starbucks went wrong with its foray into the Australian
market. Rather than building an organic demand for their coffee-flavored syrup slushies, the chain
bombarded potential customers with multiple store openings over the space of a few months. The
premium prices and questionable customer service didn’t help much either.

The Australians were not impressed by the Starbucks coffee culture. Starbucks had been successful all
around the world, but some people did not want to buy coffee from the corporate giant. Those who had
tried Starbucks were not impressed by the product. Consumers said it did not compare with the
numerous local brews available which were largely better. Starbucks International failed to pay attention
to the Australian’s passionate coffee preferences and culture.

Reasons for Starbucks Failure in Australia

Australia’s Sophisticated Coffee Culture

What Starbucks ignored when they set up the 85 outlets in Australia is a “very sophisticated coffee
culture” according to the Starbucks Asia Pacific president John Culver. Australian cafe market is the only
country, with New-Zealand, outside Italy with 100% espresso-based markets in the world. Comparing to
the United States and other countries mostly dominated by filter style, or brewed coffee. Australian
have the reputation to be the consumers who have a unique taste in espresso-based coffees (Mercer).
So entrance into such a market would clearly be a tough task for an American coffee brand.
Aggressive Growth Strategy

“Part of the problem is that Starbucks’s original business model just doesn’t translate across markets.
Starbucks’s original success had a lot to do with the fact that it introduced European coffee culture to a
market that didn’t have this tradition. Australia has a fantastic and rich coffee culture and companies
like Starbucks really struggle to compete with that”

Staff Differences

The perception of the staff that worked in Starbucks was also often compared to the workforce of the
smaller brands and boutique coffee shops – the public did not feel they were knowledgeable enough
about what they were selling. Brendan Smart, cafe owner, Sydney, commented, “What we do isn’t
rocket science, I’m the first to admit that, but you’ve got to have a passion for coffee that involves
everything from grinding the beans to operating the machine. You go into Starbucks and it’s full of
teenagers behind the counter. I’d question whether they have that passion”

Understanding the Market

They begin with the brand overestimating its points of difference, as well as the customer-perceived
value of its services. After giving Starbucks a try, many Australians – who, in the majority, lived in cities
with already thriving café cultures and experienced, world-class baristas – failed to understand why
Starbucks charged more for its coffee. If the prices were made reasonable for the coffee where there is
pre-existence of café culture and read the true potential of the products and market conditions.

Passive Market Coverage

The second serious problem was that service at Starbucks suffered as the number of stores grew at a
fast pace and began employing younger, less-experienced staff.

If the employees be trained and stood up to the standard they maintain in other expansion, they could
have done better.

Product Taste and Pricing

 Product taste and pricing are the important things to make sure by every business who are planning to
the different land. The tastes of Australian are way different than Americans as they experience the café
culture before Starbucks. The major thing Starbucks failed to do is to make their product market suitable
and perfect pricing.

Advertisement

As Australian Starbucks entered an extremely competitive and mature café market. Not only that, but as
Starbucks did not advertise in the mass media – relying instead on its reputation – it failed to
communicate its brand. "It is probably against their corporate ethos, but I would have done some
above-the-line advertising to promote the brand, as to make the customers should know what your
product actually is”

Starbucks & The Cultural Differences

A key to being successful in business internationally is to understand the role of culture in

international business. Whatever sector you are operating in, cultural differences will have

a direct impact on your profitability. Improving your level of knowledge of the

international cultural difference in business can aid in building international competencies

as well as enabling you to gain a competitive advantage.

However, on the one hand, where it is important to be aware of cultural differences of different
countries, on the other, it is also hard to be aware of every single aspect of each country’s organizational
culture. Therefore, you should be aware of the key factors that have a direct impact on business. These
are:

   Communication is the key to success for any business, whether you are operating nationally or
internationally, but when operating internationally it becomes even more important due to language
barriers. Passport to Trade 2.0 project aims to remove this barrier by providing training materials in the
languages of the country you are operating.
  Being aware of basic customer needs is an important aspect as this will give the advantage of conveying
your message. In simple terms, if you are aware of the customer’s cultural background, then you will be
able to adopt better and more suitable advertising methods.

  Body language is another key factor in the cultural difference. As different countries have different ways to
convey or share their message, for instance, in Germany people tend to speak loudly when sharing
ideas, whereas in Japan people speak softly, it very important to know what your body language should
be doing when interacting with people whether it’s your business partner or an interviewer.

  Before launching a marketing campaign, always conduct research to become aware of your target
audience since customer demand, decision making, gender views, and ideologies greatly vary in
cultures.

In the business world, communication is imperative for the successful execution of daily operations.
Understanding cultural differences and overcoming language barriers are some of the considerations
people should have when dealing with a business with people of various cultures. Often business deals
are lost because the parties involved did not take the time to learn about each others' cultures prior to
interacting.

Starbucks should also know that cultural differences can affect business communication through:

Customs
When doing business with an affiliate from another country, consider the cultural differences that may
be presented. This includes basic customs, mannerisms, and gestures. For example, If a salesperson
approaches a meeting with knowledge of a customer’s cultural background, then his words, body
language, and actions can all be adapted to better suit those of the customers. This, in turn, may lead to
being better liked by the customer, ultimately increasing the salesperson's opportunity to close the deal.

Language Barriers
In some countries, like the United States and Germany, it is common for people to speak loudly and be
more assertive or aggressive when sharing ideas or giving direction. In countries like Japan, people
typically speak softly and are more passive about sharing ideas or making suggestions. When interacting
with people from different cultures, speaking in a neutral tone and making a conscious effort to be
considerate of others' input, even if it is given in a manner to which you are not accustomed, can help
foster effective business communication.
Target Audience
When launching a marketing campaign or advertising to members of a different culture, always research
the target market prior to beginning the campaign. Levels of conservatism, gender views and ideologies
can vary greatly between cultures. Presenting a campaign that is not in line with specific cultural norms
can insult the target audience and greatly hinder the campaign. Being aware of cultural norms can also
help your company narrow down the target audience. For instance, in Japan and Austria, men usually
are in control of decision making, but women make the majority of purchasing decisions in Sweden.

Technology
Due to globalization, people from various cultures and countries increasing conduct business with each
other. Technology enables people to easily connect with people around the world in a moment's notice,
but there are a few rules to remember before doing so. If making an international phone or video
conferencing call, be conscious of the time zone differences and make sure to set a reasonable time for
all involved parties to interact. It is important to remember that cultural differences can also affect
availability. For instance, just because you schedule a conference call for the middle of the business day
does not mean that the time will be favorable for the people you are conducting business with. Many
Spanish cultures have longer lunch breaks than Americans are accustomed to, which means there may
be a two- to the three-hour time period during the day in which the person you would like to meet with
is unavailable. Asking for availability prior to making the call is the best way to avoid any confusion. Once
you are able to connect, speak clearly and slowly.

Politics
Political influences, both past, and present, can potentially affect the way a person or company does
business. Some cultures have a very strong sense of nationalism and government pride, and therefore,
are more comfortable and willing to purchase from companies with some sort of government backing.
Conducting business with those of differing cultures can also impact negotiations if there are on-going
political disputes between the involved parties' countries of origin. To avoid conflict, it is best to avoid
discussing any political matter that does not directly pertain to the business at hand. This is also true for
inter-office interactions.

Best Alternative Solution and Recommendation

Global marketing is undoubtedly a great concept. The idea of leveraging a marketing strategy across
multiple markets seems to be nothing but beneficial. It saves effort and resources, and ensures a high
degree of consistency between all in-market branding and activities. However, the question of whether
global marketing works is a frequent conversation topic amongst marketers, and the concept of globally-
led marketing resources can be subject to much skepticism.

So, how Starbucks should make it work next time?

1- Starbucks Should Avoid Relying Only On Reputation

A very valuable component for businesses launching a new product or in a new market is to lose the
ego. Just because you say you're after global domination doesn't mean customers will allow it …
Australians react very badly to people banging their chest."

2- Starbucks Should Have More Passionate Workforce

The most important aspect of company success is the passionate workforce. If u go to a shop and see
the teenager behind the desk and lack knowledge of what they are making and what they are using
make u feel the difference when u go to a shop where the passionate employee serves you everything
with experience. If that was considered the coffee market in Australia it can be captured by Starbucks.

3- Starbucks Should Clarify What Is Driven Globally and What Is Managed Locally

A global marketing approach does not mean the absence of local, market-specific plans and initiatives.
These should, in fact, be complementary.  Global marketing will typically set the framework and
parameters within which local marketing operates, whilst giving in-market teams the freedom to control
local success levers.Some areas of marketing that lend themselves to being led at a global or central
level include branding and brand guidelines, strategic marketing planning and budgeting (with
autonomy given to markets within their allocated budget), large-scale marketing campaigns, social
media strategy and guidelines, research strategy, and global PR.

Other areas best managed locally include local outreach initiatives and more tactical campaigns, local
social media channels and PR initiatives, local partnerships and events, etc.   Markets need to have some
control over the local channels that contribute to driving their success. In practice, it might be useful
to divide your markets into tiers.

A tiered market will help you identify territories that might drive the highest potential returns. It also
allows top-tier markets to access bigger budgets, giving them autonomy; for example, research into local
users’ behaviors to inform product development.

4- Starbucks Should Understand Local Market Needs and Develop a Collaborative Approach
Too often, operating globally is seen as an excuse to avoid spending time understanding local cultures,
customer needs, and behaviors, as well as successful and less successful marketing approaches. And yet,
it is obvious that a US-based customer is likely to be very different from a customer located in Australia.
Their lives, cultures, and needs are different, so it makes sense they will interact very differently with
your products or services.

For a global model to work, global teams need to develop an understanding of local
markets and establish a close relationship with local marketing teams. Gone are the days when global
campaigns and strategies were applied in a blanket fashion across all international territories - it simply
doesn’t work. Globally defined initiatives and plans need to factor in a degree of flexibility to cater for
cultural differences. A community meet-up, social media competition, or treasure-hunt based campaign
might resonate well with some markets, and not at all with others. Celebrity endorsement or
participation will only work with … well, actual celebrities. And an Indian celebrity is unlikely to be
known in France or Japan.  Privacy laws can be very different from country to country too.

So, if you are in a global marketing role:

 Research the markets and take the time to get to know the international teams you will be
working with.
 Trust them to be the experts on local customs and users.
 And leverage their knowledge to make your global plans and campaigns a success.

5- Starbucks Should Develop and Socialize a Global Marketing Plan Early

So, you have established key relationships, researched local markets, and defined global marketing plans
which you think accommodate local needs where required.

That’s a great start, but don’t wait for the campaign to begin to validate your assumptions. Socialize
these plans with your international teams as soon as possible, seek their feedback and ensure that there
are no legal issues to prevent your plans from working in certain markets. A proactive approach will give
time to adjust and revise your plans in the event of a problem. It will also allow you to get buy-in from
your local colleagues.  And, after all, a huge part of the success will rest on their shoulders during
execution.

Starbucks Example of Opening Without Planning

Starbucks has been accused by local authorities of opening several stores in the UK in retail premises,
without the planning permission for a change of use to a restaurant. Starbucks has argued that "Under
current planning law, there is no official classification of coffee shops. Starbucks, therefore, encounters
the difficult scenario whereby local authorities interpret the guidance in different ways. In some
instances, coffee shops operate under A1 permission, some as mixed-use A1/A3 and some as A3".

In May 2008, a branch of Starbucks was completed on St. James's Street in Kemptown, Brighton,
England, despite having been refused permission by the local planning authority, Brighton and Hove City
Council, who claimed there were too many coffee shops already present on the street. Starbucks
appealed the decision by claiming it was a retail store selling bags of coffee, mugs, and sandwiches,
gaining a six-month extension, but the council ordered Starbucks to remove all tables and chairs from
the premises, to comply with planning regulations for a retail shop.   2500 residents signed a petition
against the store,  but after a public inquiry in June 2009, a government inspector gave permission for
the store to remain.

A Starbucks in Hertford won its appeal in April 2009 after being open for over a year without planning
permission. Two stores in Edinburgh, one in Manchester, one in Cardiff, one in Pinner and Harrow, were
also opened without planning permission.   The Pinner cafe, opened in 2007, won an appeal to stay open
in 2010.  One in Blackheath, Lewisham was also under investigation in 2002 for breach of its license,
operating as a restaurant when it only had a license for four seats and was limited to take away options.
There was a considerable backlash from members of the local community who opposed any large chains
opening in what is a conservation area. To this date, the Starbucks is still operating as a takeaway outlet.

Conclusion

Starbucks failed to assess the local culture of Australia. They entered a market that had no room for
them. Worse, they failed to identify that they were failing. Unfortunately, Starbucks continued to grow
their troubled business until finally disaster struck. If Starbucks is to succeed internationally they must
realize that convergence is not applicable in all coffee markets. Starbucks must utilize a contingency
approach when entering new markets. Starbucks would be wise to conduct local market surveys and
SWOT analysis specific to each region they are trying to enter. Starbucks expansion clearly demonstrates
traits of divergence, contrary to management’s beliefs. International companies in most situations
cannot implement a one size fits all expansion strategy. The “McDonaldization“ of culture into a
homogeneous world culture has not occurred.

Convergence does not characterize the international coffee market at present, and cultural ties to
tradition may prevent this from ever being the case. Globalization is an opportunity for companies like
 Starbucks to prove to local cultures that they value their customs, norms, and traditions. If they do this,
success will surely follow.

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