Submitted By: Lee, Ryan, Jared and Derrik
The second day of firm visits in Shanghai presented a very unique learning experience for the group. The primary visits of the day were focused on the main Chinese offices for Starbucks and Callison Architecture. Each firm is based in Seattle, Washington and each has chosen to capitalize on the endless amount of opportunity presented by the Chinese marketplace.
Several mantras continued to ring true during the visits; China is a tremendous growth market with unrivaled growth potential, market research and knowledge of local customs is paramount to success, and China is a marketplace where only the best and brightest of a company’s employees should be sent.
Starbucks has a very unique and short history as an international retail power but nevertheless one must respect their rapid international success since their first international store opened in 1996. The company was originally founded in 1971 as a roasted coffee bean and grounds retailer. They originally offered high quality product for at home brewing. The concept of the Starbucks we are so familiar with is the result of the breeding of the third place concept. “Third place” meaning that people inevitably flock to three distinct locations in their everyday lives; home, work, and a restaurant or other retailer. Starbucks successfully designed a place for the consumer to purchase a high quality product at an acceptable price as well as design an area to converse and congregate with friends, co-workers, and family.
Dr. Eden Woon shared many of the guiding principles that have accounted for Starbucks’ rapid success. He also provided insight into Starbucks market entry strategy and milestones for achieving success. Starbucks opened its first location in China in 1999 after more than two-years of discussion on the topic and an exhaustive amount of market research. We learned that the first location opened in Beijing as the result of a joint venture with a small Chinese firm. The firm licensed the Starbuck’s name and leveraged their brand image to allow early success. However thanks to China’s entrance into the WTO in 2005 Starbucks was able to repurchase this location from their licensee. Starbucks plans to continue this strategy for their more than 500 locations in mainland China, one-half of which are owned by their partner firm.
Obviously Starbuck’s coffee is considered a luxury item in China where the level of discretionary income of the majority of the populous does not allow for the same purchasing patterns of American consumers. In fact, this reality causes a dramatic shift in the target market for the firm, forcing them to rely upon the purchasing power of a much younger segment than the one that frequents their stores in the United States. This also has caused Starbucks to redesign their store fronts, because Starbucks in China offers a product that is not widely consumed, coffee (China has a tea drinking culture), their value adding service becomes more the location to meet and relax than the coffee itself. Though they are offering a good alternative to a good cup of tea, and offering some products more catered to the Chinese palette. It is said that “if you are not at Starbucks, you are on your way to Starbucks”. Their stores have become a popular destination, thus increasing the importance of their brand identity related to corporate social responsibility and their core values.
Nothing would be more tragic to Starbucks than a bad experience or a sour taste in the mouth of the consumer with regard to their brand. That said, Starbucks has worked diligently to support the goals of the Chinese people by offering over $5 million dollars for philanthropic efforts. This form of public relations should create the positive image Starbucks seeks to garner throughout the 40 countries they are currently serving.
It is also important to note that because the Chinese have such a unique palette and loyalty towards brands that Starbucks works diligently to continuously improve its product. Being on the ground and active in China is extremely important to a firm’s success in the market and Starbucks intends to continue it’s expansion organically so as to prevent the dilution of the brand.
Looking back on the day, our most important take away as it relates to Starbucks is that an American firm can be successful with the same product with very little modification for local taste. Starbucks’ success seems to stem from the fact that the experience at a Starbucks is similar in all 40 countries they operate in. Their product and brand has not been changed to suit existing demands or conceptions like many other firms in the same category (e.g.m, YUM Brands, McDonald’s).
Callison Architecture was our next stop. It is one of the world’s foremost designers of retail space. According to Callison, the architectural industry of the United States is comprised of firms that specialize in specific areas including residential, mixed-use, corporate office and public works projects. However, in the Chinese market firms are expected to be much more generalist in their expertise and ability.
China’s centrally planned governmental structure creates unique challenges for architectural firms. In order to be successful, a firm must balance their artistic desires with the government’s vision for the city. This highlights several of the key issues in doing business in China. First, relationships within the government and private industry are key to getting things done. Secondly, the realities of a centrally planned city and regional expansion, where the government is the owner of the land, allows for a greater influence from individual political officials than it would in a more pure market structure.
Callison, the number one retail space designer in the world, has had a hand in many of the most impressive mixed use and pure retail projects worldwide. These include the Pearl in Doha, Qatar, the retail space underneath the World Trade Center Memorial Building in New York City, Microsoft’s Main operations office in Redmond Washington, and multiple resorts, hospitals, and corporate offices around the world.
Their experience in China began in 1987 and the learning curve was steep as it is with many American firms entering the market. One difference mentioned was the proliferation of large mixed-use projects not common to the United States. The scale of projects within China tends to be over 3 million square feet per development. Such size tends to naturally allow only the largest of firms with a breadth of resources to compete successfully in the Chinese market.
China is strategically one of the most important markets for Callison. Given China’s low standard wages, knowledge based work such as rendering and drafting can be performed at a much lower cost This makes the importance of a successful Chinese office even greater. In order to remain competitive in an industry where costs can rise quickly, minimizing costs becomes increasingly important. They have recently moved to a larger office in order to accommodate their plans for growth from 16 architects to 30 by year’s end and 45 by the end of next year.
The day ended with an incredible cultural experience. We had the opportunity to dine at a restaurant that served food from the most northwestern region of China. We all had a wonderful time dancing with the locals and enjoying their music.