Costa Coffee is entering China where Starbucks is already market leader. Do first mover advantage and market leadership matter in a market as big and as young as China? IntroductionAs economic growth in China continues to spiral, the Chinese have discovered a long-repressed taste for all things Western. Whether in terms of Western fast food, Western cosmetics, or Western clothing, those Western companies that were smart enough to jump into the Chinese market have already begun to enjoy the incredible advantage of being early in the marketplace. Starbucks, an American coffee company, was such a first mover, making the name recognizable to many Chinese, in particular, the younger demographic set.
In fact, Starbucks can even be found at the heart of Chinese heritage, the Forbidden City, raising the question as to whether another coffee company that seeks to make its mark in China really has a chance. Although there are definite advantages to being first in the market all is not lost for second movers, meaning that Costa Coffee, which seeks to make its own mark in China can benefit from the experience of Starbucks and perhaps avoid some of the mistakes that the first mover might have made while at the same time following other more successful moves by Starbucks.
First mover advantageQuite apart from the companies that became first mover winners during the dotcom era, there are many other traditional companies that have been able to leverage their first mover position in a new market into lasting success. Royal DutchShell and BP are cited by Frynas et al as early entrants into the Nigerian crude oil market. Even now, these two companies continue to dominate in that market.
Likewise, Volkswagen made an entry into the Chinese automobile industry in the early 1980s when it had not become fully clear that China was on a straight clear path towards spectacular economic success. And Lockheed Martin was also the first foreign company in the aerospace industry to collaborate with Russian companies in that field. Not surprisingly, Lockheed Martin continues to dominate in its field. What sets these companies apart, however, rather than just the first mover status, according to Frynas et al is their connections to the political establishment.
“Experienced international managers know that political support can be critical in establishing an early market entry, especially in transition economies where free market competition did not exist until fairly recently” (Jedrzej et al 2006 321). In a country such as China, having the right political connections has also been seen as crucial to success. Starbucks’ ability to negotiate the political landscape in China to the point where it is able to establish a store in the Forbidden City, is nothing short of remarkable and perhaps speaks to the strength of the company’s connections with people in high places in China.
Starbucks’ expansion into China was a big success from the beginning. This is because thanks to the Internet and the opportunity that Chinese have to travel in recent years, some had already had the benefit of trying Starbucks coffee and enjoying the ambience of sitting in a Starbucks shop. Regarding Starbucks success, Paul S. Biederman writes in “Commentary on Exporting a North American Concept to Asia: Starbucks in China, ” that “Precise financial data are lacking because of the uniquely Chinese arrangement by which the local licensee owns controlling interest while Starbucks manages the operation.
But analysts familiar with the situation have described financial performance as impressive, while claiming that Asia, and China in particular, is the place where the potential for financial success is greatest” (Biederman 2005 288). The company has more than 148 stores in China most of which are in the largest coastal cities and of course in Beijing and Shanghai, two of the leading cities in China.