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Starbucks India Dilemma

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    Starbucks Coffee Co. | Indian Dilemma| | This paper evaluates the Strategic Audit of Starbucks Co. and its attempt to enter the India coffee market. | | Malinda | 11/15/2012| | Introduction and Background “In 2006, the world’s No. 1 specialty coffee retailer, Starbucks Coffee Company, had over 11,000 stores in 36 countries of the world and employed over 10,000 people. The company had over 7,000 retail locations in its home country and largest market, the United States. “ Starbucks opened in Seattle, Washington in 1971 with three partners, Gordon Bowker, Jerry Baldwin, and Zev Siegel.

    Their store offered 30 different varieties of whole-bean coffee, bulk tea, spices and other supplies. The store grew within 10 years, employing 85 people with five retail stores. It’s logo of a mermaid became a very popular and respected symbol. The company did not sell coffee by the cup however, Howard Schultz, after visiting Italy and seeing the personal relationship that they had to coffee, he tried to convince Starbucks otherwise. They turned him down and he left to start up his own coffee shops in 1985. By 1987, each store’s sales had reached around $500,000 a year.

    In 1987, Starbucks decided to sell its assets and name and Howard Schultz decided to buy Starbucks. Over time, Starbucks developed a sophisticated store-development process based on a six-moth opening schedule. In 1996 alone, it opened 330 outlets. Starbucks then moved on to entering alliances. Starbucks entered new markets outside the United States either through joint ventures, licenses or by company-owned operations. Its main concentration was Asia due to its developmental stage. After making Japan and China two of its largest markets, it planned to enter India.

    Both in 2002 and 2003 Starbucks announced their plan, but did not follow through. In 2006, India was ranked as the fourth-largest economy in the world in terms of purchasing power parity. India emerged as a key destination for BPO companies. However, India’s economic growth was constrained by inadequate infrastructure, bureaucracy, regulatory and foreign investment controls, the reservation of key products for small-scale industries, and high fiscal deficits. In 2006, the Indian retail market was estimated US$350 billion. Also, the food habits of Indians varied across diverse regions.

    According to market research, coffee was mainly consumed in the urban areas (71%). Although India was known as a tea culture, the coffee culture was emerging, especially among young adults. In 2006, Starbucks spoke again about entering India, but still have not at this time. I. Current Situation A. Current Performance Starbucks Co. YEAR| Profit Margin| ROI| ROE| EPS| 2007| 7. 52%| 11%| 42%| $0. 87| 2008| 2. 46%| 4%| 44%| $0. 43| 2009| 8. 87%| 5%| 35%| $0. 52| 2010| 11. 75%| 13%| 32%| $1. 24| 2011| 11. 12%| 15%| 29%| $1. 62|

    Summary of what is happeningjalkdjflkasjflkjsdfjdkfjldj B. Strategic Posture Mission Statement: “to inspire and nurture the human spirit-one person, one cup and one neighborhood at a time. ” Objectives: To establish Starbucks as the most recognized and respected brand in the world. Strategies: To achieve this goal, the Company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development f new distribution channels. Policies: Below is a variety of issues that support not only the health of Starbucks, but also their partners (employees) and communities that they are a part of: * Global Human Rights * C. A. F. E. Practices * Supplier Code of Conduct Overview * California Transparency in Supply Chains Act * Starbucks Social Responsibility Standards for Manufactured Goods and Services * Health Care Positions * Menu Labeling Position * Cocoa Practices Guideline * Cocoa Practices Overview * Animal Welfare Standards of Business Conduct * Corporate Political Contributions and Expenditures * UN Global Compact II. Corporate Governance Board of Directors: Howard Schultz, Starbucks founder, chairman, president and chief executive officer William (Bill) Bradley (Allen and Co, LLC), managing director Robert M. Gates, former Secretary of Defense Mellody Hobson (Ariel Investments, LLC), president Kevin Johnson (Juniper Networks, Inc), chief executive officer Olden Lee (PepsiCo, Inc), retired executive Joshua Cooper Ramo (Kissinger Associates), vice chairman

    James Sheenan, Jr. (Trinity Ventures), general partner emeritus Clara Shih (Hearsay Labs, Inc. ), chief executive officer Javier Teruel (Colgate-Palmolive Co. ), retired vice chairman Myron Ullman, III (JC Penny Co, Inc. ), retired chairman and executive officer Craig Weatherup (Pepsi-Cola Co), retired chief executive officer Top Management: Howard Schultz, chairman, president and chief executive officer Troy Alstead, chief financial officer, chief administrative officer Cliff Burrows, president, Americas

    John Culver, president, Starbucks Coffee China and Asia Pacific Michelle Gass, president, Starbucks Europe, Middle East and Africa Jeff Hansberry, president, Channel Development and Emerging Brands Arthur Rubinfeld, chief creative officer; president, Global Development and Evolution Fresh Retail Blair Taylor, chief community officer Adam Brotman, chief digital officer Curt Garner, chief information officer Lucy Lee Helm, executive vice president, general counsel and secretary Kalen Holmes, executive vice president, Partner Resources (Human Resources) Vivek Varma, executive vice president, Public Affairs

    Craig Russell, senior vice president, Global Coffee III. External Environment: Opportunities and Threats (SWOT) A. Natural Physical Environment “Environmental Sustainability refers to the use of business practices to reduce a company’s impact upon the natural, physical environment. ” Starbucks is constantly looking for ways to improve the environmental performance of their stores. They feel that in order to reduce their impact on the planet that they should find better ways to design and build their stores in a more environmentally friendly way.

    They use strategies that help conserve water and energy and use building materials and construction methods that are considered “green”. By doing this, they are building all their new stores to LEED, an internationally recognized green building program, Certification Standards. There are many other ways that Starbucks is searching for more sustainable and environmentally friendly ways to run their business. The following are a couple ways in which Starbucks is searching for better ways to share their commitment to the environment: * Recycling: They are attempting to develop more environmentally friendly cups and trying to xpand their recycling program. They started composting, making reusable cups, and working with local governments for improving recycling opportunities. * Energy: They are launching many initiatives to cutting their energy consumption by 25% and to covering 100% of their electricity consumption with renewable energy. They are hoping to reach these goals by 2015. In doing so, they have changed their stores lighting, by changing their LED bulbs to more energy efficient GE bulbs. They are in the process of reducing their equipment energy usage in all their stores by 25%.

    They are reducing the heating and cooling energy usage in their stores, by finding better ways to control the HVAC equipment. They have already reduced HVAC consumption by 20%. And they are purchasing Renewable Energy Credits (REC) from wind farmers over the U. S. They are also monitoring the market for other models for renewable energy development. * Water: They are launching many initiatives to reach their goal at consuming 25% less water by 2015. They have already * Green Building: They are attempting to make stores as green as they can by using responsible building materials and energy efficient designs to reduce their footprint. Climate change: Coffee farmers are reporting shifts in rainfall and harvest patterns that are hurting their communities and shrinking the available usable land in coffee regions around the world. Since 2004, Starbucks has been implementing a climate change strategy that focuses on energy conservation, renewable energy, and collaboration and advocacy. They also conducted an inventory of their greenhouse gas emissions to focus on their efforts to reduce their GHG emissions. B. Societal Environment * Economic forces: a) In periods of normal price variation, the demand for coffee is price inelastic.

    However, when coffee prices show large increases, consumers tend to reduce their consumption. (T) b) In 2008, Starbucks had 12,000 layoffs and hundreds of store closings due to the recession. (T) c) When an economic downfall occurs, more consumers look to home-brewed coffee. This could be a threat and an opportunity. Starbucks started making coffee beans that can be purchased at stores and brewed at your home. (O) But their margin of customers of their ready-to-drink coffee in-stores may decrease. (T) * Technological: ) With internet availability on Smartphones, consumers are able to access the Starbucks website and are able to see what the website offers while consumers are out and about, including discounts or ordering of products. (O) b) Starbucks made a ‘Starbucks Card’ in order to improve customer service and make shorter lines by quicker orders. The card also made it more convenient for regular Starbucks purchasers. (O) *

    Political-legal: a) Starbucks will need to make sure to keep up with the global warming legislations and invest in more alternatives to conserving energy and/or reducing GHG emissions. T) b) Starbucks only imports their coffee beans, so if there was a change in import laws, it could affect the production immensely. (T) c) A basic need for growing globalization is to learn the different cultures of the country they plan to start business. (T/O) * Sociocultural: a) Different cultures share different lifestyles, like drinking only tea, as opposed to coffee. (T) b) Younger consumers are appealed to hanging out in a ‘barista’ environment and drinking coffee while doing so. (O) c) Caffeine has been known as having a negative effect on the body, affecting your body’s chemistry. T) C. Task Environment: Porter’s 5 Forces * Threat of New Entrants (High) a) The entry barrier for the coffee industry is relatively low. For someone who has the capital, it is not difficult to open a cafe. b) The Starbucks name is well-known globally, so the threat of new entrants to exceed or compete with the Starbucks name is fairly low. * Bargaining Power of Suppliers (High) a) Coffee is the second largest traded good, with South and Central America producing the majority. Starbucks depends on the exporters for their beans.

    If there is over-crowding in the oversea market, profits will decline for coffee bean exporters, giving the suppliers bargaining power. b) Starbucks also put restrictions on which suppliers they will buy from. They partnered with The Center for Environmental leadership in Business, only buying from suppliers who meet the four criteria: Quality baselines, social conditions, environmental concerns, and economic issues. By doing so, they are restricted on who they will buy from. This could give the few companies who meet the criteria, the bargaining power.

    It may also be an opportunity for the supplier as well as Starbucks, because the suppler will be bringing in high revenues from importing to a large company like Starbucks. * Bargaining Power of Buyers (Medium) a) Starbucks sells in small quantities, except their ‘The Preferred Office Coffee Provider’ which allows companies to buy the ingredients and tools to brew a Starbucks cup of coffee for their office. Starbucks products are highly differentiated and unique. They also offer some of their products at grocery stores (e. g. coffee beans and Frapuccino drinks). ) Customers also have the ability to brew their own coffee, giving them the bargaining power. Buyers face no switching costs. * Threat of Substitute (High) a) There are many substitutes for coffee in the beverage and coffee industry. Consumers can consume tea. They could also consume other caffeinated beverages. * Rivalry Among the Competitors (High) a) Starbucks current competitors in the U. S. market are Diedrich Coffee, Seattle’s Best Coffee and Noah Bagel Corporation, McDonald’s McCafe . b) Substitute products are also competition. * Bargaining Power of Stakeholders ( D.

    Summary of External Factors: EFAS Table, See Appendix, Table 1 IV. Internal Environment: Strengths and Weaknesses (SWOT) A. Corporate Structure 1. CEO: Howard Schultz B. Corporate Culture C. Corporate Resources D. Summary of Internal Factors: IFAS Table, See Appendix, Table 2 APPENDIX Table 1: External Factor Analysis Summary (EFAS Table): Starbucks Co. | External Factors| Weight| Rating| Weighted Score| Comments| | | Add to 1| 1-5| W*R| | | Opportunities:| | | | | O1| Coffee market is growing| . 15| 4| . 60| Coffee is becoming more popular with the growing younger generation. O2| Technologies advancement| . 15| 4| . 60| Ability to offer internet access to purchasing products, etc. /offer Starbucks cards| O3| On-the-go lifestyle| . 10| 5| . 50| Drive-up windows and Starbucks coffee beans/Frappaccino’s offered in grocery stores. | O5| Globalization: Easier to enter international markets| . 05| 5| . 25| Constantly searching for new international markets to enter. | | | | | | | | Threats:| | | | | T1| Rivalry Among Competing Firms| . 15| 3| . 45| Peet’s Coffee and other coffee companies| T2| Bargaining Power of Buyers| . 05| 4| . 0| Satisfying buyers| T3| Global Warming| . 10| 2| . 20| Effects the way they operate. | T4| Economic downturn| . 10| 4| . 40| Customer’s willingness to spend on commodities decreases, lowering revenues. | T5| Cheaper Alternatives| . 15| 2| . 30| If competitors offer lower prices on their products, consumers will shop elsewhere. | | | | | | | | Total Scores:| 1. 00| | 3. 70| | Table 2: Internal Factor Analysis Summary (IFAS): Starbucks Co. | Internal Factors| Weight| Rating| Weighted Score| Comments| | | | | | | | Strengths:| | | | | S1| Product Quality| . 15| 3| . 5| Claim to search and purchase only higher-quality coffee beans. | S2|

    Ethically sustainable| . 15| 3| . 45| Involved in Fair Trade and working towards sustainability improvements. | S3| Variety| . 15| 3| . 45| They offer a variety of different coffee types and products. | S4| Brand Identity| . 20| 4| . 80| There is a consistent brand recognition | S5| Location of Stores| . 10| 5| . 50| Starbucks stores are located worldwide. | | | | | | | | Weaknesses:| | | | | W1| Too many products| . 10| 4| . 40| Their products could lose value. | W2| Risk in investing in more locations| . 5| 4| . 20| Entering new regions that are unfavorable to their culture. | W3| Overexposure| . 10| 4| . 40| Local communities will consider it “a chain” and feel that it will not benefit locally. | | | | | | | | Total Scores:| 1. 00| | 3. 65| | Table 3: Strategic Factor Analysis Summary (SFAS): Starbucks Co. | Strategic Factors| Weight| Rating| Weighted Score| S| I| L| Comments| S4| Brand Identity| . 11| | | | X| | Could be copied| S1| Product Quality| . 09| 4. 0| . 36| | | X| competency| S2| Ethically Sustainable| . 07| 3. 5| . 25| | | X| Need better| W3| Overexposure| . 12| 1. 5| . 8| X| | | fix to compete| W1| Too many products| . 06| 1. 5| . 09| X| | | Could find other methods| O1| Coffee market is growing| . 11| 4. 5| . 50| | | X| Keep hiring better staff| O2| Technologies Advancement| . 10| 4. 0| . 40| | | X| Find new ways to lead| O3| On-the-go lifestyle| . 09| 3. 0| . 27| X| X| X| Immediate & long term benefits| T1| Rivalry Among Competing Firms| . 12| 3. 0| . 36| | | X| Severe rivalry for best methods| T5| Cheaper alternatives| . 07| 4. 0| . 28| | | X| Make them happy| | | | | | | | | | | Total Scores:| 1. 00| | 3. 25| | | | | Table 4: TOWS Matrix: Starbucks Co.

    INTERNAL FACTORS (IFAS)EXTERNALFACTORS (EFAS)| STRENGTHS:-Inclusion of all employees in strategy formulation-#1 internet search technology- Intelligence of workforce- Ad to customer matching- High revenue, low costs| WEAKNESSES:- Lack of service width- Inability to assign one team to one advertiser- Revenues made only from placing ads- Dependence on competitors to propagate search technology- High cost of time spent on hiring and projects| OPPORTUNITIES:- Green or Sustainable Label/ energy efficiency- Technologies advancement- Computer-technologies advanced workforce- Communication Barriers Coming Down Around the World- Users turn to Internet for low price options and online entertainment| SO Strategies:1) Use capital to keep developing best, and more energy efficient internet technologies, with smartest, most involved in culture work force from around the world. ) Be sure to use “green” and “low-price” products, as well as global marketing preferences, including online entertainment, to attract users to Advertisers’ commercials on Google. | WO Strategies:1) Use new workforce and best upcoming technologies to find new ways to make revenues and widen service offerings. 2) Take advantage of opening communications and those people searching the internet for things “low priced” and “green” and entertaining, to place our own ads, be less dependent on competitors, and generate more revenues. 3) Create new workforce jobs that are functional and divisional, thereby cutting costs on extensive hiring and project time, and keeping one team on clients’ portfolios.

    THREATS:- Rivalry Among Competing Firms- Bargaining Power of Buyers- Global Warming- Personal Information Protection- Cannibalization of technologies| ST Strategies:1) Use capital on R&D to develop new services to offer to the public, and new internet technologies that lower total costs to lower rivalry among firms by gaining competitive advantage. 2) Use intelligence of workforce and employee buy-in to brainstorm new ways to maintain sustained competitive advantage by making buyers happy. | WT Strategies:1) Outsource personal information protection to the best company in the business, or become that company. 2) Find services not yet offered to internet users and offer them, thereby reducing:-dependence on competitors-Rivalry among firms-buying power of buyers, by minimizing choice-and widening service selection. |

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