Starbucks' International Operations

Starbucks' International Operations

One of the reasons why companies why companies decide to go global is to diversify risk, however, there is a diverse set of risks which exist in the international market. These risks can be classified as operational risks, political risks, environmental and economic risk.

Risks faced by Starbucks

Political Risk

Starbucks faced all of the above mentioned risk at some point. It is important to understand political risk as this is one of the most important risk which prevail in the market. In simple terms it refers to the political actions which negatively affect the company's value. In case of Starbucks, it faced immense political risk as the tension between Middle East, US and Israel was growing and that had negative implications for Starbucks as young Arab people boycotted American products.

Economic Risk

This is risk associated with a country's economic situation for example crisis in one country affects a company's operation in that country. Starbucks faced a lot of problems due to recession in various countries like Germany, Switzerland and Japan which was reflected in the form of declining sales.

Operational Risk

The company also faced some operational risk. This can be defined as factors which exist within the company and they result in a loss of value for the firm. This risk was specifically in France where labor costs were extremely high as compared to US. As a result, overall cost of production was very high in France which continued to pose a threat to the company. The company also faced high resistance, and tough competition from the customers in its European market(Dutta 2003). The local competitors offered very similar kind of products at a lower price as compared to Starbucks which posed additional problems. High real estate cost and training costs further aggravated the problems.

Recommendations for Starbucks

The company should use the following strategies to mitigate its risk of international business.

Slow Down Its Pace Of Expansion

The company must slow down its pace of expansion in Europe and Middle Eastern countries. This is because there is increasing political uncertainty between US and rest of the world.

Focus On Pricing And Product Base

The company is facing immense competition in Europe so it needs to market its product, broaden