I was irresistibly reminded of a scholarly article I read last year about a failed Starbucks venture in China's Forbidden City. The Forbidden City location was just one of eighteen franchises licensed under a joint venture between Starbucks and China's Beijing Mei Da Coffee (Rae, 2000) -- and just one of over 400 locations to open in China between 1999 and 2006 -- but it caused such a "stir" (sorry; had to include a coffee pun) that its failure overshadowed Starbucks' success at other sites.
The article examines the conflict that ultimately forced the closure of the Forbidden City Starbucks through the theoretical framework of the "circuit of culture," with a particular focus on the role of new media in the controversy (Han & Zhang, 2009). Though the Forbidden City location prospered from the time of its opening in 2000 until 2007, it ultimately "had to close down under tremendous public pressure" (Han & Zhang, 2009, p. 395). Because the article's topic strays a bit far from our readings this week, I considered choosing another one instead. However, after some consideration, I decided that the lessons of our readings do apply, and it's up to me to illustrate the connections. Additionally, the article raises questions not sufficiently addressed in our readings that are worthy of discussion.
Several of our readings briefly address the importance of cultural integration in successful international alliances. Kanter, in particular, asserts that those involved in alliances must posses the "communication skills and cultural awareness to bridge their differences" (109). Yet all of the week's authors seemed to gloss over this seemingly important topic. While examining the Wal-Mart case study, I often found myself wondering how the retail giant would successfully bridge the gap between American and Indian consumer cultures (Bose, 2009). Cultural discord was certainly a key factor in the closing of the Forbidden City Starbucks (Han & Zhang, 2009).
Starbucks does attempt to "localize its brand to fit into the mainstream Chinese culture" (Han & Zhang, 2009, p. 398) in most of its Chinese locations. But in a baffling display of shortsightedness, Starbucks failed to sufficiently consider Chinese customs in its Forbidden City location. For example, since Chinese people "experience coffee as a social event rather than daily necessity" and "come to Starbucks to socialize," Starbucks typically increases the size of its Chinese stores to make room for these lengthy customer interactions (Han & Zhang, 2009, p. 298). But the diminutive Forbidden City location contained just two cafe tables and a handful of chairs (Kotha & Glassman, 2003, p. 12). Han and Zhang inform us that Chinese consumers see Starbucks as representing Western fast food values and modernity, an image that may be viewed by some Chinese as "an object of attack" against traditional customs (2009, p. 298). Reducing the Forbidden City store to a two-table kiosk only reinforced this view of Starbucks as mere fast food.
The authors also describe the supremely sacred nature of the Forbidden City site, with its artful embodiment of 5000 years of Chinese history "that showcases the wonder and splendor of China's past" (Han & Zhang, 2009, p. 297). Such a locale may have been an inappropriate location for a Starbucks store of any size, as "the presence of any foreign brands or products in this place may imply invasion of the Western culture assisted by Western corporate power" (Han & Zhang, 2009, p. 298).
Considering the increasingly global nature of business, greater attention should be placed on the cultural dimension of business alliances. How should consideration of culture inform the way companies choose partners? Might a different partner have advised Starbucks on the cultural implications of opening a location in the Forbidden City?
Our readings also review the kinds of contracts used by firms to formalize their alliances over time (Gulati, 1998). After "news media and legislators jointly intensified their pressure" on the Forbidden City's management, Starbucks was given the option to sell "their coffee only under the 'Forbidden City' brand" or exit the Forbidden City altogether (Han & Zhang, 2009, p. 399). Ultimately, Starbucks decided to terminate its contract with Forbidden City management and close shop (Hang & Zhang, 2009). This brought to mind Barney and Hansen's article on "Trustworthiness as a source of competitive advantage." I found myself imagining that the Starbucks-Beijing Mei Da Coffee alliance must be characterized by "semi-strong form trust," a form of trust built by the protection of parties through governance (Barney & Jansen, 1994, p. 177). One at least hopes that Starbucks' contract allowed it to escape from a no-win situation relatively unscathed.
Finally, I wish to address a seeming gap in our survey of business alliances. The crusade to close the Forbidden City Starbucks was ignited by the personal blog entry of a Chinese newscaster and media celebrity (Han & Zhang, 2009). In short order, "thousands of Chinese Internet users participated in a Web-based campaign" calling for the store to close (Han & Zhang, 2009, p. 395). In today's Web-facilitated environment -- where "a personal blog can be influential and affect the business of multinational corporations or organizations" (Han & Zhang, 2009, p. 400) -- how important is it for businesses to consider public perception in choosing, forming and transacting alliances?
References
Barney, J. B., & Hansen, M. H. (1994). Trustworthiness as a source of competitive advantage. Strategic Management Journal (15), 175-190.
Bose, I. (2009). Wal-Mart and Bharti: Transforming retail in India. Asia Case Research Centre. pp. 1-18 (full article)
Gulati, R. (1998). Alliances and networks. Strategic Management Journal (19), 293-317.
Han, G., & Zhang, A. (2009). Starbucks is forbidden in the Forbidden City: Blog, circuit of culture and informal public relations campaign in China. Public Relations Review 35(2), 395-401. doi:10.1016/j.pubrev.2009.07.004
Kanter, R. (2010). Collaborative advantage: The art of alliances. Harvard Business Review. pp. 1-16. (full article)
Kotha, S., & Glassman, D. (2003). Starbucks Corporation: Competing in a global market. University of Washington Business School. pp. 1-26 (full article)
Rae, S. (2000, November 2). Beijing's franchise revolution. The American Chamber of Commerce People's Republic of China. Retrieved from: http://www.amchamchina.org/article/5786
Great example, Leslie. I, too, am confused on how both Starbucks and China's Beijing Mei Da Coffee failed to foresee the problems associated with opening in this location. Purely conjecture, but I wonder if they did realize the potential backlash, and viewed the controversy as free publicity (cost/benefit analysis?). Do you think the public would have been accepting of this store if it changed to the Forbidden City brand?
ReplyDeleteWe will talk about culture issues in international alliances during this week's Walmart discussion. In your example, it seems the Chinese coffee company failed in one alliance responsibility by not accurately informing Starbucks of all potential cultural barriers.
Great illustration of this weeks' concepts, Leslie.
ReplyDeleteYou suggest that cross-cultural awareness is the foundation of successful international partnerships. I have seen that in person, having lived overseas as an adult for more than eight years. The most successful ventures seem to properly ride the balance between keeping the purity of their brand while adapting for local needs. An example would be McDonalds offering many vegetarian products in India, where the Hindu religion is very strong. Most Hindus are vegetarian.
As an aside, I went to a Starbucks in Hong Kong, and there were very few offerings that were different than what one would see at a North American Starbucks. Fail.
The article does mention some efforts on Starbucks' part to customize its offerings for the Chinese market. For instance, according to former Starbucks Chief Executive Jim McDonald, Chinese typically have a sweeter palate; in response, the chain "incorporated moon-cakes during the traditional Chinese moon festival" (qtd. in Han & Zhang, 2009, p. 298). And in response to the public campaign to close the Forbidden City location, Starbucks tried to make the shop more unobtrusive by camouflaging or removing signage (Han & Zhang, 2009), but by then it was really too late to stanch the controversy.
ReplyDeleteIt's possible that the risk of cultural backlash was considered and dismissed by Starbucks, but if so, that seems like a risky decision to me. Starbucks has become such an internationally known brand that its new logo does not even include the words "Starbucks Coffee" anymore -- the wavy-haired green siren is THAT well-recognized. Yet at the time the Forbidden City location was first opened, Starbucks had only recently entered into the Chinese market. It turned out that Starbucks found great success in China over the next few years (Han & Zhang, 2009), but Wal-mart's failures in South Korea and Germany attest to the dangers of assuming success in a new market (Bose, 2009).
Paul, while I have never been to Hong Kong, I always hear it is the most Western of Chinese cities. I wonder if the location you visited was geared more toward tourists and expats. It would be interesting to compare the offerings in another Chinese city. I propose we travel in the name of research.
Ok, you twisted my arm. If you and Paul travel to Hong Kong for the sole purpose of researching Starbucks, I'll go.
DeleteIt seems like when entering a market like Hong Kong or China's Forbidden City, non-Chinese companies, especially the mega-corporations like Starbucks that are the definition of Western capitalism, have to walk a fine line between acceptance and rejection when it comes to their product lines. On one hand, you don't want to offend the native culture; on the other hand, you don't want to rid yourself of the allure that comes with something new, exciting and Western.
When I lived in Sicily, there was always a line at the McDonald's in town near my base. I, like most other Americans that I knew, never ate there. Italians, however, loved it. There was ALWAYS a line and the locals flocked to take a bite out of a nice, greasy piece of America. The Hard Rock Cafe in town was the same way.
Interesting that you bring up the idea of coffee as a social event. In Italy, eating is the same way. It's not uncommon to spend three-plus hours at the table, eating, drinking and talking. The McDonald's and Hard Rock on the island subscribe to the American food motto of "get 'em in, get 'em out" and do not seem to offend anyone. If anything, it adds to the uniqueness and builds curiosity. Obviously, every culture is different, but I found the difference in cultural perception intriguing.