The Growth and Scope of Multinationals - Seminar Notes

Starbucks Case

  • Service firm founded in Seattle (US) in 1971.
  • Currently operates more than 33,000 stores across 80 countries.
  • Coffee bars are strategically located in high-traffic areas.
  • Offers Fairtrade-endorsed coffee to its coffee houses to support local producers.
  • Most of their business is concentrated in the North America region.
  • Business model in North America (especially in the U.S.): primarily direct operation of stores.
  • Exception: companies that have control over valuable retail spaces.
  • Business model elsewhere: a 50/50 split between direct operation and licensing.

Starbucks Case Questions and Answers

1. Why does Starbucks rely on licenses for most of its international operations? Does the firm risk the dissipation of its managerial or technological advantages?
  • Local owners with local knowledge and a similar strategic vision may outperform US managers unfamiliar with the local market and business environment.
  • Licensing decreases the risk faced by Starbucks in international markets.
  • Starbucks might lack a sufficient number of US managers to fill international positions.
  • There is a risk of dissipation of Starbucks’ managerial and technological advantages.
  • However, the firm’s competitive advantage primarily stems from its brand name and image-building capabilities.
  • Local managers might learn how to market another brand, but building a brand from scratch is a significant undertaking.
2. Can you argue that Starbucks is a global company regardless of the strong dominance of its home region in terms of sales and locations? Explain.
  • 2009: Starbucks was primarily a home-region-oriented company focused on North America.
  • 2021: Starbucks remains dependent on the North America region but has become more geographically diversified and globalized, expanding from 40 to 80 foreign markets.
  • Comparison of store and revenue percentages:
    • North America
      • 2009:
        • Stores: 83.4%83.4\%%
        • Revenues: 90.3%90.3\%%
      • 2021:
        • Stores: 52.4%52.4\%%
        • Revenues: 72.9%72.9\%%
    • Rest of the world
      • 2009:
        • Stores: 16.6%16.6\%%
        • Revenues: 9.7%9.7\%%
      • 2021:
        • Stores: 47.6%47.6\%%
        • Revenues: 27.1%27.1\%%
3. What accounts for the discrepancy between percentage of foreign locations and percentage of foreign revenues?
  • Most foreign stores are owned by foreign nationals.
  • Starbucks generates revenue from product sales and fees collected from these stores, which do not include the total revenues of the store.
4. What are some of the reasons why Starbucks chooses to retain operational control of its domestic operations?
  • The organization does not have to share profits with licensees, but this comes with the increased cost of controlling all the coffee houses.
  • Starbucks positions itself as a “quality” coffee provider, marketing to a select group of urban professionals.
  • Control of operations is critical for the firm’s success to maintain quality and brand image.
  • The company cannot risk having franchise owners jeopardize their image.
  • The firm only licenses stores when it wants retail space where there is no option but to license.

Sony Case

  • Firm founded in Shirokiya (Japan) in 1946, rebranded as Sony in 1958.
  • Started as a small electronics shop with 8 employees.
  • Currently has more than $$84 billion US in revenues.
  • Revenues are evenly distributed across the triad markets of Japan, U.S., and Europe.
  • A major challenge occurred in 1980 when Betamax lost the VCR war to JVC’s VHS due to incompatibility and Sony's reluctance to license Betamax technologies.
  • The conglomerate aims to maximize joint profit and understand other division businesses.
  • Sony has three main lines of business:
    • Videogames (Play Station 5) – HQ in Japan – not licensed.
    • Other integrated electronic goods – HQ in Japan - licensed to other manufacturers.
    • Production and commercialization of Music and Movies – HQ in the U.S.

Sony Case Questions and Answers

1. Is Sony a multinational enterprise?
  • Definitely yes!
  • The production division is headquartered in Japan but has manufacturing, Research and Development (R&D), and marketing facilities in other countries.
  • The Music and Movies division is headquartered in the U.S.
2. If the vast majority of Sony’s consumer electronics business is based and developed in Japan and the vast majority of Sony’s music and movie business is based in the United States, does Sony make decisions that are best for the entire company regardless of location?
  • There is evidence of an attempt to make decisions in the best interest of the entire company regardless of location.
  • Sony refrained from developing an MP3 player in Japan that could compete with Apple’s iPod because it was perceived that such a product could infringe on the intellectual property rights of its US music and movie business.
3. Why does Sony need to license its technology to competitors?
  • The electronics industry is constantly standardizing itself.
  • By licensing new products that need to work with other products, the company can increase supply, reach more customers, and ensure that other complementary manufacturers will make products that are compatible with their product, ensuring long-term success.
  • This strategy might prevent competitors from developing competing products that follow different specifications.