Howard Schultz Tells The Truth Behind Starbuck Success in China

One thing I really admire about Howard Schultz apart from the massively successful global brand that he has built is his ability to openly talk about his faults and mistakes.

In his Masterclass that I was going over today, Howard Schultz openly admits that he was the reason for 9 years of financial failure and struggle of Starbuck in China.

I was shocked…

I didn’t know Starbuck failed in China for 9 years straight and struggle to be profitable.

Today Starbuck has more than 35,000 stores across China and is literally opening up more than 1 new store per day. And if you go to Shanghai, Beijing and any other tier 1 and some tier 2 cities in China you’ll see Starbucks everywhere!

So… for a very long time, I thought Starbuck was one of the few brands that succeeded in China. The idea that Starbucks was struggling for a solid 9 year is unimaginable to me.

The Mistake that Howard Schultz Made in China

Yesterday at lunch I was talking to a good friend of mine who has helped many large foreign conglomerates to turn their failure in China into success. We had a very long discussion into strategies and tactics of business and marketing in China and it was a great discussion.

And at some point, I have asked my friend what he believe is the biggest strategic mistake that most foreign businesses make in China.

He said what most foreign brands don’t realize is that…

“their successful system and processes outside of China is ultimately going to be the thing that will destroy them in China”

He went on to explain that most foreign brands forgot what it was like to be a “Start-Up”. They come to China because they’re successful everywhere else and naturally want to tap into one of the biggest markets in the world because if you succeed, the reward is humongous.

But the problem is every foreign business comes into China with the mentally of let’s just migrate what worked and is still working outside of China into China and maybe we’ll localize a little bit by hiring a few Chinese employees but we’ll have our corporate to manage it, rather than adopting a “Start-Ups” mentally of fail fast and adapt quickly to China and Chinese consumer enormous.

China is vastly different and is one of the most unique market in the world with more than 5000 years of culture and traditions. The Chinese consumer while has similar aspiration and desires as everyone else in the world (after all they’re human beings) their perception of the society, interaction with the social world, values, culture, and beliefs are fundamentally different than that of the west.

This, of course, was the exact mistake that Howard Schultz made with Starbucks in China during the early years…

In the early years, like many enormously successful foreign brands Howard Schultz decided to send executives from the US to manage China in order to maintain Starbuck’s culture and process that made Starbuck a huge success everywhere else.

The problem with that approach is, even though Howard Schultz knew that Starbuck would be pioneering Coffee Drinking in a tea drinking culture, he under estimate the just how different Chinese culture, consumer, and even employees really is.

In his own words, while the executive he sends to manage China understood the Starbuck culture and are very capital…

“but they did not understand and the sensibility of the Chinese consumer, the Chinese employee and the marketplace.”

And these subtle yet extremely important initiate intuitions and understanding of culture are not something a foreign executive can adapt by living in China for a few years or from taking a Chinese language, business or culture class.

Take myself, for example, I was born in Shanghai China but was raised in Canada and many of my Chinese friends who are new immigrants to Canada can speak English but will not be able to communicate with a native Canadian like the way I do or understand the local culture.

Vice versa, while I’m born Chinese but I’ve lost the subtlety understanding of current China and the way of the Chinese. But I’m still far ahead of the most none-Chinese foreigner because they will never have my insights of growing up in a Chinese family and being around Chinese consumers every single day.

How Did Howard Schultz Turn Starbucks China into The Success Today

It turned out Howard Schultz was not responsible for Starbuck success in China… somebody else did!

“Today… the success we’re enjoying in China is primary responsible… it’s never one person but primary in this case because of one person. Her name is Belinda Wong. She has transformed our business in China in a way that we could never have imagined.”

Belinda Wong is currently the CEO of Starbucks China and one of the most prominent women in China. Due to her unique background of being born in Hong Kong and immigrants to the United State at the age of 12 and later moved to Vancouver BC in Canada.

This distant characteristic is what made Belinda the most ideal candidate to turn Starbuck around in China. Belinda understood the culture of the west, the culture of Starbucks, and the culture of the Chinese consumer and employee.

Don’t get me wrong, this isn’t about hiring a Chinese CEO to manage or run your brand in China because they probably won’t work either. What made Belinda unique is her ability understanding of all 3 cultures and was able to integrate them together harmoniously.

How Jack Ma Contributed to Starbuck’s Success in China

Howard Schultz also mentioned in his Masterclass that there was a “signature event” that in his view he believes changed the trajectory of Starbucks in China.

Before Jack Ma was well known and before Alibaba was gain global awareness, Jack Ma asked Howard Schultz to give a speech at an Alibaba function for his employees. After Howard give his speech, he begins to realize the people in the audience seem a little old to him.

So, Howard begins to question Jack: “who are these people? Are those your employees, they look a little old to me…”

To which Jack replied: “Well, some of them are, but those are the parents of our employees.”

Howard: “What do you mean their parents? What are they doing here?”

Jack: “We invite, our employee’s parents to a number of functions.”

Howard looking puzzled: “What do you mean by that, I don’t understand that.”

Jack replied: “The family unites is so important in China and the one-child policy they had all these years. So, the child is devoted to the parents and the grandparents and vice versa. So, we create this family atmosphere.”

Howard: “Jack I’m going to steal that ????”

There is a bit more to this story but I’m not going to write it all out here. If you want you can purchase his Masterclass here.

To be fair, not every Chinese CEO or Chairman would have done what Jack Ma has done but the point of this story is in the Chinese culture “family” is extremely important and Jack Ma understood the heart of his employees and their desire to establish Alibaba’s culture.

This, of course, is not to say that family is not important to all other cultures or countries. I’m sure family is extremely important but the ideology and meaning of family are different from culture to culture, this subtly is something that a foreign executive will not be able to understand.

Wrapping Up

The key takes away from Howards Schultz is that China is definitely not an overnight success for Starbucks, a brand that in many peoples eye seem to have won in one of the biggest markets in the world(China).

Contrary to what most foreign brands believe China is not an easy market and a quick win to “Move the Needle”. If you want to succeed in China as a foreign you must adopt a new mindset and take the time to learn about China’s culture, history, and most importantly your ideal Chinese consumers.

Then take a good look at your brand in the mirror and ask whether your brand is right for China’s market and does it add value to the Chinese consumers. China is not a market for you to get rich quick, and not every product or service is right for China.

Personally I believe the key take away from Howards Schultz is that China is definitely not an overnight success for Starbucks, a brand that has definitely experience a lot of success in China today.

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