Starbucks Japan -- A Brief Research Note / Position Paper What are the triggers of cultural change that drove, shaped and made possible the introduction of Starbucks to Japan? From a financial perspective, what were
Starbucks‟s
options for licensing for entry into Japan vs. setting up a wholly owned subsidiary there? The triggers of cultural change in Japan that drove and shaped the initial invest- ment and then the continued expansion of Starbucks coffeehouses since their introduction there in 1996 are rooted in that country
‟s emergence and self
-image as a highly affluent, post-industrial society since the end of the Second World War. While many Japanese leaders and ordinary consumers have taken their economic clout as a clue to compare their country more often against North America and Western Europe rather than against closer geographic neighbors such as China and South Korea, this outlook has also manifested itself inter
nally. Japan‟s
continued industrialization amid an increasingly globalized world, even in the face of the
nation‟s own prolonged recession in the 1990s,
is indicative of a cultural and societal shift away from its traditions of collectivism and towards more individualism. The social scientist Ronald F. Inglehart has corroborated this set of changes in the World Values Survey across more than 25 years and nearly 80 countries. For Japan, the increases in wealth and per capita income from about 1955 to 1995 resulted, for example, in new generations more likely to plan their own careers rather than depend on employment for life at one company. For global brands such as Starbucks, this change in values has translated into many persons who can both afford and wish to be seen
consuming an upscale ($3 to $6+ per serving) coffee-based drink in its own distinctive packaging and cup, Starbucks being merely one Western luxury or
„status‟
brand to which people can aspire. For at least as long as the novelty or cachet of such a famous American brand is in effect, many young people are willing to break with any traditions of visiting
teahouses or Japan‟s
previously existing coffeehouses, the latter of which Starbucks differed from greatly by being clean, smoke-free, family-friendly, and well lit.
If Starbucks‟s retail
environment as a Third Place beyond home and work can be seen as a healthy alternative to its peers, then it is a good example of
Japan‟s
shift from traditional or
„
survival
‟
values to “secular rational”
values based on an individual con- sumer
‟s well
-being as dictated by personal choice. In such an environment of changing psychographics, Starbucks achieved market entry in 1996 and has now grown to more than 1,000 retail stores in Japan by foregoing competing on price
–
a decision which, in turn, conveys increased value
–
so it can focus on its core competencies of customer service (which was already highly valued in Japan), customized products, and the creation of a welcoming environment. Starbucks has thus been able to profitably customize additional products for the Japanese market such as smaller sandwiches, less- sweet desserts, and new entries in the crowded field of chilled, ready-to-serve coffee. Had Starbucks pursued a Japanese expansion strategy based on creating a wholly owned subsidiary to manage its operations there, the financial advantage of such an arrangement would have been a more integrated, consolidated, and streamlined balance sheet of Starbucks
Japan with the parent company‟s, with profits in Japan
eventually able to subsidize financial losses or newer expansions elsewhere internationally. However, the risk that Starbucks wished to mitigate was having any financial losses from this
particular international expansion, especially in its early years, disproportionately impact the
company‟s
overall financial performance. In fact, to this day, Starbucks Japan, which was
the company‟s
first foray outside of continental North America, is a public company traded separately on Japanese stock exchanges. Considering the amount of control that Starbucks and its CEO, Howard Schultz, wish to exert so as to protect the
company‟s
strategic asset of a very strong brand image, any wholly owned subsidiary in Japan most likely would have been a greenfield investment for such a new entity. Starbucks actually did set up a new business entity but instead chose the joint venture financial option whereby they licensed their Starbucks methods and technology (store format, employee training, customer service, etc.) to a local Japanese partner in order to achieve rapid market entry, with a balance achieved between financial risk and management of brand integrity. While Starbucks locations are all company owned, the parent company formed the new company Starbucks Coffee International (SCI), with SCI then forming Starbucks Japan with Sazaby Inc., which now owns 60.4% of this local joint venture,
according to the parent company‟s
2012 annual report. Sazaby contributed knowledge of Japanese culture and consumer tastes, experience in the local real estate market (keeping in mind the custom design of each Starbucks store within each retail
location‟s physical environment
despite similar décor in each one), and regulatory expertise and navigation through local and national laws, rules, and customs as Starbucks sought a successful market launch and expansion within the country. Sazaby could meet these objectives while simultaneously respecting the separate Starbucks brand image enough so as not to promote any products that could clash
with Starbucks‟s
own oft- stated commitments to authenticity and quality.