According to the text, political risk can be classified into three levels: firm specific, country specific, and global specific risks. Starbucks, a successful global enterprise, has ventured into numerous global markets. While the company has achieved success in many cases, not all attempts have been fruitful. Starting in 1996, Starbucks rapidly expanded into 41 countries. However, the company had to withdraw from the Israeli market after opening just 6 stores.
According to our research (Richey, Brenda, July 2006), the unsuccessful venture of Starbucks in Israel can be attributed to four main factors: politics, location, pricing, and lack of localization. It is important to assess the political stability of a country when considering expansion. However, it is equally crucial to anticipate how political changes may impact the operations of a specific firm. Foreign companies operating in the same country may have varying levels of vulnerability to changes in host-country policy or regulations. Therefore, it is essential to consider firm-specific factors when evaluating the potential success or failure of an expansion strategy.
The specific risks that face multinational enterprises (MNEs) include business risk, foreign exchange risk, and governance risks. In the case of Starbucks, instead of targeting lesser-known areas, they decided to enter the already saturated coffee market in Tel Aviv. However, they took a cautious approach by only opening six coffee shops in a market that already had established chains such as Arcaffe, Aroma, Ilan’s, and neighborhood shops. Despite this cautious approach, Starbucks has a track record of successfully establishing locations.
Chief Financial Officer, Michael Casey, states that tough competition is the main issue. Political risk studies that pertain to specific countries usually entail examining the country’s historical stability, present turmoil or dissatisfaction, economic stability, and trends in cultural and religious activities. Many speculate that by analyzing these trends, they can predict that the future will be similar to the past, but this is often not the case. However, despite this challenge, multinational enterprises (MNE) still need to conduct thorough analysis to prepare for the unknown.
Country-specific risks involve various factors such as Transfer Risk, which refers to restrictions on transferring funds out of the country, and Cultural and Institutional Risk, which encompasses differences in ownership structure, labor laws, union contracts, religious heritage, nepotism, corruption, and intellectual property rights in the host country. Similarly to China, the business environment in Israel did not permit Starbucks to fully own its stores; instead, they had to opt for franchising or entering into a joint venture.
Since Starbucks does not support franchising, they decided to partner with Delek Group for their business in Israel. This approach aligns with Starbucks’ usual strategy for international ventures. However, the political climate in Israel posed a difference in this case. Many countries, including Israel, have significant activist communities that oppose globalization. The presence of both Muslim and Jewish religions in Israel contributes to a conservative mindset that rejects western consumerism, liberalism, and free trade. Israelis perceive Starbucks as a symbol of the issues associated with globalization.
These developing countries believe that Americans are attempting to impose their culture, beliefs, and morals upon them. Moreover, both Israelis and Palestinians resent American intervention in their civil war. Adding to the complexity, Howard Schultz got involved by discussing the situation in Israel politically. During a speech at a Seattle synagogue, he stated that the Palestinians had to combat terrorism and warned of a rise in anti-Semitism amongst Jews (Hahn, 2002). Consequently, Israelis initiated a boycott of Starbucks.
When Starbucks withdrew from Israel in April 2003, they claimed it was because of operational difficulties rather than the ongoing political and economic situation in the Middle East (Coussin, n. d.). This statement was likely an attempt by Starbucks to protect their reputation and avoid causing offense. “Globalization” is a term that is used to describe a blending of local and global strategies. In practice, companies like Starbucks strive to maintain their brand identity while also adapting it to accommodate local cultural preferences.
Starbucks should have learned a lesson from KFC’s failed attempt to enter Israel. KFC failed to recognize the unique practices of chicken slaughtering in Israel and the fact that it was a kosher society where pork was not consumed. Consequently, KFC tried to modify their chicken coating by incorporating pig gelatin. On the contrary, McDonald’s can serve as a successful model for Starbucks to emulate in Israel. McDonald’s understood the significance of food in this country and made necessary adjustments to their food preparation methods in order to gain acceptance.
They made the decision to grill their hamburgers rather than fry them (Coussin, n.d.). Starbucks failed to adapt to the local coffee culture by not making any changes to their existing drinks, food items, or pricing. They should have introduced unique food options like falafels, blintzes, and mandelbrot (Thompson, 2006). Global-specific risks, such as the events of September 11th, are difficult to predict. There are multiple groups with interests in disrupting multinational corporations’ operations for reasons including religion, anti-globalization, environmental protection, and anarchy.
Various new indices are anticipated to emerge, analogous to country-specific indices, with the aim of ranking diverse categories of terrorist threats, their locations, and potential targets. Similar to numerous multinational enterprises (MNEs), Starbucks acknowledges its vulnerability to numerous anti-globalization attacks. A primary concern is the company’s alleged exploitation of cheaper sourcing options and its apparent unwillingness to contribute towards enhancing the economic situation of coffee growers. It is encouraged to support governmental initiatives aimed at reducing trade barriers.
Despite the efforts made by Starbucks to address these criticisms, as discussed further, there are still doubts that these actions are solely for reputation management. One particular concern raised against the company is cyber attacks. According to the case, critics have utilized the internet to express their concerns about Starbucks. Given the increasing availability and advancements in technology, it is not unexpected that the company will continue to face such attacks.
There is no effective strategy other than internet security efforts and support for government anti-cyber attack efforts. Poverty Starbucks, along with other coffee companies, promotes the cultivation of “fair trade” coffee. This ensures that farmers receive a fair wage for their crops, allowing them to sustain themselves. In their “Coffee Social Responsibility” brochure, Starbucks outlines various steps they take, such as paying higher prices for coffee, offering long-term contracts and affordable credit to farmers, direct purchasing, investing in social projects within coffee communities, and following the C.A.F.E. Practices buying guidelines. Starbucks also claims to be the largest North American buyer of fair trade certified coffee. The company’s evident public relations issue compelled them to address the problem promptly to prevent any negative associations with their reputable brand. Consequently, they decided to participate in Fair Trade by purchasing from workers who receive a livable wage. Starbucks officially announced the creation of a “Framework for a Code of Conduct” in 2006.
The code emphasized Starbucks’ commitment to purchasing coffee from growers who provide fair wages and adhere to environmentally friendly practices. In addition to partnering with Conservation International, the company also undertakes projects related to water development (ETHOS) and the preservation of wildlife and natural resources in Africa.
