Starbucks Buying Out China Partners
Starbucks is on the road to winning over the market that foreign countries have drooled over for centuries (China, of course), and it will do so all by itself, buying out all of its partners in China.
The article below, translated out of Modern Weekly, goes into a fair amount of detail on Starbucks’ strategy of buying out all of its China partners:
Starbucks’ Quick Domination in China
Facing a market with huge profit potential, Starbucks can’t restrain itself from monopolizing its growing profits in the Chinese coffee market.
Starbucks move toward direct retailing in China has taken another step: After finishing its plans to attain a controlling stake in all of its South-Western and Southern China operations, Starbucks announced it would buy High Grown’s stake in Beijing Meida Coffee, Starbucks’ Beijing partner. After this purchase, Starbucks will have a 90% stake in Beijing Meida, giving it absolute control over sixty stores in Beijing and Tianjin, as well as any future stores to open in said areas. After this purchase, Starbucks will be only one market away from selling directly to the entire mainland Chinese market: Shanghai.
Quick Starbucks Growth in China
In 1999, when Beijing Meida Coffee opened the first Starbucks store in mainland China, perhaps even Starbucks did not know how fast it would turn into a fashionable new lifestyle among a newly emergent Chinese consumer class.
Like every multinational company that has made its way into the Chinese marketplace, Starbucks discovered that its first shops in China became profitable far faster than in any other overseas market. Although it is Starbucks’ policy to only put up 5% of the capital for its overseas branches (remember that it receives licencing fees), since Starbucks has expanded so quickly in China, Starbucks decided it is no longer willing to hand over such enormous profits largely to others. Because of its new strategy, in 2003 Starbucks began to buy larger stakes in its China partners.
Other multinational corporations have begun to purchase larger stakes in their China operations just as Starbucks is doing. Along with the opening up of China’s retail industry, foreign retailers are allowed to have wholly foreign owned stores. Carrefour, Ikea, and other multinational companies have already bought out or mostly bought out their China partners. Not too far off in the future, Starbucks will likely both own outright and fund the expansion of all of its stores in mainland China.
The goal of Starbucks in China is to transform China into its biggest market outside of the US. In addition to gradually buying back stakes in its various China partners, Starbucks is planning on opening hundreds of Starbucks in second tier cities in mainland China within the next couple of years. However, Starbucks’ China play is not without its risks. Starbucks’ current somewhat lacking human resources and support divisions will challenge the effectiveness of Starbucks in mainland China.
