The
Chinese joint venture seems to have reached its sell by date, at least
in the retail and distribution sector where western firms now want to
go it alone.
Starbucks became the latest lone ranger when, last week, it announced (pdf) it would buy out its local partner in the JV that operates 60 coffee shops in Beijing and nearby Tianjin.
The local partner, Beijing Mei Da Coffee, was owned by private equity firm H&Q Asia Pacific and other shareholders.
H&Q puts a positive spin on the news, saying that as a private equity firm, its natural role is to help successfully establish a brand like Starbucks in a new market like China. Now that the brand is well established, its time to head for the exit, H&Q argues.
Martin Coles, president of Starbucks Coffee International, told the Financial Times that Starbucks was now considering exercising "contractual rights" to gain a greater share of its Shanghai business, where it is in partnership with a Taiwanese food and drink conglomerate.
The trend to buy out Chinese partners is becoming more common, according to Kent Kedl, general manager of Shanghai-based consultancy Technomic Asia, who told BusinessWeek:
Starbucks at the corporate level probably feels they know better how China works now and so they can go it on their own. It's a pretty natural thing to do. And with the food and retail market pretty much open, more and more companies are deciding to do this."
According to a survey (pdf) by the US-China Business Council, 75 percent of new FDI by its US member companies in going into wholly foreign-owned enterprises, rather than to JVs with Chinese partners, thus countering one common misconception about foreign investment in China
In the seven years since H&Q Asia Pacific opened the first Starbucks shop in Beijing in 1999, the Seattle phenomenon has grown to 190 stores in 19 cities in mainland China. Coles said that number would probably grow into "thousands" over time.
Starbucks' attempts to export the success it has had in the west to China have not been entirely problem free. China's latte drinkers apparently spend too much time in Starbucks' stores rather than buying their coffee "to go", which means store turnover is disappointing low.
In addition, Starbucks has been plagued by home-grown stores blatantly copying Starbucks branding and signage -- see this EngagingChina story for more on Starbucks IPR problems in China. It has had similar problems in South Korea, reports Name Development.
