Strategic Issues Facing Starbuck’s Entry Into India Sample

Table of Content

The Global Coffee Bean Company ( GCB ) decided that the Indian Hot Drinks Industry did non stand for an attractive market. Following a recent proclamation by Starbucks that they intend to come in the market we were commissioned to execute an initial analysis into the likeliness of Starbucks success. This study concludes that Starbucks enterprise is sufficiently interesting to justify a full graduated table probe into whether GCB should besides come in the Indian market. Introduction

This study is divided into a figure of subdivisions:* Analysis* Decisions* RecommendationsIn the analysis subdivision we look at a figure of facets impacting the likely success of Starbucks and GCB. These facets are: * An designation of the strategic issues confronting Starbucks as a company * A PESTLE analysis of tendencies in India

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* A 5 Forces analysis of the Indian Hot Drinks Industry* An analysis of the consistence of the Starbucks determination with their bing scheme * An scrutiny of the force per unit areas confronting the Starbucks/Tata confederation over the following 10 old ages In the decisions we consider the likely success of the Starbucks enterprise and whether it could be replicated by GCB. Analysis

The strategic issues confronting StarbucksPorter ( Porter. 1996 ) sees scheme as being about doing picks about what you do. whereas operations is about making those things better. Strategic issues are developments inside or outside an administration probably to hold an of import impact on its ability to run into or find its intents and aims. Starbucks mission statement can be summarised as making stockholder value by functioning ethically sourced. great savoring java in welcoming shops ( Starbucks. 2012 ) . Starbucks’ does non ever live up to its aspirations but the declared aims represent a good footing for analysis. We have conducted a brief analysis of recent publically available informations and see the followers to be the chief strategic issues impacting Starbucks’ sustainability. * Domestic Market Saturation

* Supply Concerns* Product Quality* Threat of Substitutes* CSR Issues. particularly associating to employment in the USA Domestic Market SaturationCardinal figures ( Datamonitor. 2011. p24 ) :68. 7 % of the entire grosss during FY2011 were from the USUS growing has slowed to 6. 3 % . international growing is at 14. 7 % . Supply ConcernsSouth American java bean production is down and expected to worsen farther ( Datamonitor. 2011. p31 ) . Monetary values are likely to intensify. particularly for premium and Fare Trade beans. Product Quality

Starbucks has been registering increasing cases of merchandise callbacks recently ( Datamonitor. 2011. p28 ) Menace of SubstitutesA major replacement for sing a cafe is to imbibe more java at place or in the office. In the US Nestle and Green Mountain are major advocates of this replacement. Starbucks is turn toing the market excessively with its Via Ready Brew. K-cups and Verismo merchandises ( Datamonitor. 2011. p30 ) but these and the competitors’ merchandises hazard gnawing the nucleus shop proposition. CSR Issues. particularly associating to employment in the USA

Starbucks’ place page shows that the company presently considers many CSR issues to be of pressing strategic importance. The most seeable of these is a focal point on occupations in the USA. Tendencies in India

In this subdivision we analyse the macro-environmental tendencies in India over the following 10 old ages and their likely impact upon the long-run profitableness of Starbucks’ joint venture with Tata. The PESTLE ( OU 2012a ) model represents a simple classification which can be used to place positive tendencies ( chances or tailwinds ) and negative tendencies ( menaces or headwinds ) . The rule beginning for our analysis is the latest BMI study ( BMI 2012 ) but we have besides referenced extra sociological informations ( Varman & A ; Belk. 2009 ) . The findings are summarised in Figure 1 and detailedbelow.

Figure 1 PESTLE AnalysisMentions on Figure:1 BMI Page 72 BMI Page 103 BMI Page 454 BMI Page 155 BMI Page 466 VARMAN & A ; BELK. 20097 BMI Page 31

The impact of these tendencies is chiefly positive. The strong and go oning demographic alterations in India are particularly favorable to a premium trade name aiming an educated urban market sector. The hazard to economic growing is a planetary 1. instead than specific to India and is non hence considered to be a disincentive. The local issues of terrorist act and anti-consumption do stand for issues which any entrant to the market needs to take into history. The anti-consumption and legal issues in peculiar are 1s which would be likely to impact Starbucks or GCB more badly were they to come in the market without a strong local spouse and co-branding. The place taken by Starbucks to jointly venture with Tata in a 50/50 partnership reduces the impact of legal limitations where companies with more than 50 % foreign ownership must beginning 30 % of their goods from Indian bungalow industries ( Clasislaw 2012 ) . However. the entire graduated table of the Indian java market is likely to stay little.

BMI estimate a entire market of $ US1. 5bn by 2016. which represents less than 20 % of the 2011 US gross. For India to be the growing engine it would necessitate grosss of around $ 400M in 2013. stand foring more than 50 % of the expected state entire. This is improbable given the expected activity of Costa and autochthonal rivals. Besides. Starbucks and Tata will portion the net incomes. But there are as many in-between category Indians as there are citizens of the US. The little market size is due to the difference in buying power between the US dollar and the Rupee. and to the disparity between java and tea ingestion. If India follows the UK and converts from a tea to a java imbibing society and if the disparity in currency were reduced. the image would be different. Industry Analysis

In this subdivision we analyse the comparative attraction of the Indian hot drinks industry based upon an analysis of its industry construction. Porter’s 5 forces represent a manner of structuring the information about an industry. When utilizing this attack it is of import to specify the industry under analysis. For illustration. this enables one to distinguish between new entrants and competition. We follow the brief here and place the industry as the Indian Hot Drinks industry. In this context both cafes and food market shops in India are inside the market stand foring rivals whereas foreign rivals who have yet to come in the Indian market are new entrants. The providers to the Indian Hot Drinks industry are planetary so this differentiation can non be made for providers. Porter’s model is intended to assist mensurate the overall profitableness of the modelled industry. Where the forces are weak. the industry can be profitable. Where the forces are strong. profitableness will be low. The Indian host drinks industry exhibits reasonably strong forces in all of Porter’s five dimensions. Suppliers and purchasers have options with low costs to alter. Rivals can vie on equal footings and replacements are. in fact. dominant. This suggests that the overall industry profitableness should be rather low. This analysis is summarised in Figure 2

Figure 2 – Industry AnalysisThe footing for the above sum-up is provided below. Each of the 5 forces are examined and assessed in footings of the menace to profitableness they represent. Threat of new entrants

The menace of competition from new entrants tends to squash borders. advancing quality of merchandise and service. advertisement outgo and maintaining monetary values low. If new entrants face high barriers to entry so this force will be weak. If officeholders have clear operational benefits over new entrants so this force will be weak. For the Indian Hot Drinks industry barriers to entry are low for established mercantile establishments such as hotels which are in a related industry and can make up one’s mind to advance their installations to non-residents. Local enterprisers desiring to get down a individual mercantile establishment face some barriers to entry in footings of set uping supply. geting trained staff. premises and licenses. Bureaucracy represents a reasonably strong barrier to entry. Foreign companies face strong barriers to entry from bureaucratism. legal regulations. etc ( BMI 2012 p31 ) . On the other manus. there are few clear operational benefits to officeholders.

Local distribution costs are likely to rule long distance costs due to the low perishableness of the merchandise. low cost of cargo by sea and hapless conveyance substructure within India. The local nature of the costs therefore hits officeholders and new entrants likewise. Demand side benefits of graduated table are limited by the capacity of an single mercantile establishment. Customer exchanging cost is undistinguished. Capital demands scale reasonably linearly on a per mercantile establishment footing. There are some tenure advantages independent of graduated table. for illustration client trueness to a trade name and early entree to premier locations. In this initial analysis we have non found grounds of revenge by officeholders although this could supply a mechanism for cut downing the forces. In sum. we assess the menace of new entrants as high. although it is clearly easier for Indian new entrants than for foreign 1s. The Power of Suppliers

Where providers can demand high monetary values there will be a strong force per unit area on profitableness. This will be true where demand exceeds supply or the providers are non dependent on the industry for their income. The java bean market is planetary with most beans coming from South America. Sing the industry being modelled as the Indian Hot Drinks market means that the providers have the remainder of the universe as an alternate market. A sequence of bad crops has put supply at hazard. The power of java bean providers is hence considered to be high. Conversely. the other primary provider group is labour. Indian labor is inexpensive. plentiful and good educated. The power of this group is considered to be low. Other considerations are the cost of altering providers and the menace of forward integrating. Changing providers is comparatively easy with a mature planetary trade in beans although labour Torahs make sacking staff hard. The JV with Tata can be seen as an case of forward integrating. since Tata are historically a natural stuff provider now come ining the industry. In drumhead. Supplier Power is considered to be low to medium. The Power of Buyers

Powerful purchasers force down monetary values and demand high quality merchandises and services. Buyer power is strongest when there are few big purchasers or strong consumer militant administrations. This is non the instance in the Indian Hot Drinks Industry so the overall potency for purchaser power is comparatively little. However. the cost of exchanging is really low for purchasers and word of oral cavity and other societal networking can make a powerful anteroom in favor or against a peculiar trade name. Buyer power is hence considered weak to medium.

The menace of replacementsFor the Indian Hot Drinks industry. there are many possible replacements. Specifying the industry boundary in this country is complex. Should home imbibing or office imbibing be considered industry competition or a replacement? We treat it as a replacement but it could every bit be considered to be portion of the industry. Soft and alcoholic drinks represent clear and active replacements with viing mercantile establishments offering much of the same experience as sing a cafe . The cost to the purchaser of exchanging to replacements is low and purchasers may exchange merely portion of their buying behavior. However. java ‘culture’ is considered aspirational by the quickly turning in-between category in India. The menace of replacements is considered high.

Rivalry among bing rivalsThere is important chance for competition within the Indian Hot Drinks industry. The market is segmented by merchandise ( tea. java. etc. ) and between premium and basic trade names. every bit good as between ironss and boutique mercantile establishments. There may be fruitful competition between the premium and basic market sections. There is a important component of zero-sum competition between tea and java and between premium trade names. The industry contains major planetary and Indian ironss and the tea section is five times bigger than the java section ( BMI 2012 p46 ) . Rivalry is hence considered to be a strong force.

Is Starbucks’ determination to come in India consistent?The undermentioned citation from the Starbucks 2011 one-year study ( Starbucks 2011p2 ) provides a utile statement of its preexistent international scheme: “Our aim is to keep Starbucks standing as one of the most accepted and respected trade names in the universe. To accomplish this end. we are go oning the disciplined enlargement of our shop base. chiefly focused on growing in states outside of the US. ” Starbucks shops in the US and abroad offer the same experience. In footings of Ansoff’s theoretical account ( Ansoff 1957 ) ( Figure 3 ) . Starbucks can be seen as prosecuting a market development scheme.

Figure 3 – Ansoff’s MatrixThe Starbucks entry into India can be seen as consistent with this scheme. But. by offering Tata tea merchandises Starbucks is taking the scheme further into variegation. Besides. by partnering with Tata. with Tata having the shops. Starbucks may hold to work hard to keep the trade name individuality and values in the Indian market.

Strategic Pressures over the following 10 old agesIn this subdivision we analyse the possible comparative impact of the undermentioned ‘pressures’ ( OU. 2012b ) on the joint venture over the coming 10 old ages * industry kineticss* globalization* hazard* moralss

Industry kineticssThe Indian Hot Drinks Industry is likely to alter significantly over the following 10 old ages. The major vectors act uponing alteration are the slow inclination to liberalization of the legal model for making concern. the Indian and planetary fiscal mentality and the go oning urbanization of the population and lifting in-between category. These vectors could force the Hot Drinks Industry in a figure of waies. Recognized premium planetary trade names are likely to happen a healthy section in the market. alongside dress shop and ‘heritage’ mercantile establishments. One interesting inquiry is whether India will follow the UK in traveling from a really tea dominated market to one where java is preferred. Increasing liberalization. urbanization and a turning in-between category all tend to propose that the overall industry will see noticeable growing over the following 10 old ages. Within this overall positive tendency. there may be an even larger growing in java imbibing. If this tendency does non go on. the java market will see 6-8 % growing. If there is a big motion from tea to java. the growing could be every bit big as 40 % . This is improbable. but some optimism is called for. Starbucks/Tata is good placed to work and direct this tendency. Globalization

The Hot Drinks industry is already a really planetary 1. Even more variegation of supply is likely but there are anti-globalisation force per unit areas in India which may go on to supply advantages to Indian companies. The joint venture is capable of working some of these advantages but this besides represents a hazard as discussed below. Hazard

The civilization of ‘swadeshi’ ( Varman & A ; Belk. 2009 ) is likely to hold an influence and will forestall entire domination of the market by planetary trade names. Swadeshi is a term used by Mohandas Ghandi to advance bungalow industry in India as a agency of wealth creative activity. Any planetary trade name such as Starbucks is both ‘cool’ as a merchandise to be seen in foreign films and consumed by famous persons – and a unsafe illustration of foreign cultural and economic imperialism. The function of Tata is interesting. Whilst non extinguishing either the positive or negative intensions of the Starbucks trade name. Tata conveying an extra component of credibleness. As a planetary company with Indian roots they can be seen as a successful counter to foreign enlargement. As an industrial pudding stone they can be seen as portion of the job to lobbyists for bungalow industries. A important hazard to Starbucks is that the Tata trade name might go dominant. Looked at from an Indian position. this looks more like a Tata merchandise development than a Starbucks market enterprise. If Tata find that their cafes sell more Tata tea than Starbucks java. there may be no benefit in go oning the joint venture. The fact that the joint venture besides makes Starbucks into a market for Tata makes this even more attractive to Tata. but at least from Starbucks position makes Tata more likely to stay in the JV. Ethical motives.

Starbucks and Tata both have strong CSR profiles at the corporate degree. Tata’s fits in really strongly with Indian tradition and political relations. However as the Tata household stewardship of the group is diluted by retirement it may go weaker. A casual Google hunt of ‘Tata’ and ‘pollution’ does non return any important dirts. Starbucks makes much of its attending to back uping the community where its mercantile establishments are and its Fair Trade committednesss. It has in the yesteryear had a repute for opening stores against local resistance and without be aftering permission. Over the following 10 old ages CSR is likely to go even more of import. Tata and Starbucks appear to be complementary in this country and are likely to go on to endure this force per unit area. Decisions

Why India for Starbucks now?Starbucks entry into the Indian market comes at a clip when it needs to further cut down its dependence on turning the domestic market. The demographic size of the market and the success of rivals such as Costa ( DNA 2012 ) and CCD ( BMI 2012 ) together with a really attractive hazard cut downing partnership with Tata make India an attractive following market to turn to. Why could this be a large error for Starbucks?

A conservative estimation of the overall size of the Indian java market. coupled with the market portion accomplishable by Starbucks and the net income sharing with Tata makes it improbable that India will supply plenty growing to replace the dead US market. The joint venture with Tata could bounce. holding a negative impact on the planetary trade name. and/or being more of a success for Tata than for Starbucks. Indeed. it is possible to see the JV as a successful forward integrating by a provider. which would hold the consequence of gnawing the attraction of the industry. Will Starbucks win in India?

There are several possible standards for success1 ) the joint venture is profitableEqually long as the lessons learned by Costa and CCD are applied. this is really likely 2 ) the trade name image of Starbucks is maintained. both in India and globally If Starbucks maintain a good overview of the local operations this should win 3 ) Starbucks reduces its dependence on the US domestic market. This is dependent on a major displacement in imbibing wonts

Could the Global Coffee Bean Company Replicate the Starbucks Initiative?

GCB would hold to put important resources constructing up a feasible Indian direction squad to perforate the Indian market on its ain. However. partnering with a provider like Tata. or with an bing trade name such as CCD which was interested in the GCB trade name. could be a valuable add-on to planetary operations. Recommendations

GCB should set about a more elaborate concern chance appraisal.


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