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University of Liberal Arts Bangladesh
A new vision in higher education
Academic Year 2015
A Report
On
Starbucks Corporatio...
PREPARED FOR
Mohd. Mahbub Hussain
ULAB School of Business
PREPARED BY
Asif Mahmud Onik ID : 141051002
Umma Tamanna Sharmin...
: : Executive Summary
Starbucks Corporation, founded in 1971 is headquartered in Seattle, WA and now operates
21,000 retai...
: : Table of Contents-
Topic Page No
Executive Summary iii
Chapter 1.1 Starbucks Corporation 1
1.2 American business shift...
1.1 Starbucks Corporation:
Starbucks is the world’s leading specialty coffee retailer, producing and selling a wide variet...
2.2 Starbuck Journey to Indian Market:
Coffee consumption in India is growing drastically, although too different likings....
2.4 Starbucks challenges in India:
Coffee in India is growing by around a fifth per year and is estimated to be worth in t...
Political and Legal Risk (situation):
Political system of a country shapes its economic and legal systems. India is larges...
Cultural Factor: India culturally a tea drinking country. This country tea industry, which is
based in the rolling hills o...
Economic Factors: Indian economy is not match in western country or china scenario. In this
market situation Starbucks bus...
wide. Literally, it means two or more individual and independent firms join together in an
alliance in order to achieve be...
4.2 Organizational Structure:
Every corporation mentions organizational structure and chart. STARBUCKS Corporation is
deve...
: : Reference List:
Howard Schultz “ Starbucks & You Its bigger than coffee” January 2014.
Available from: http://www.star...
Starbucks corporation  (indian coffee)
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Starbucks corporation (indian coffee)

Starbucks corporation (indian coffee)

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Starbucks corporation (indian coffee)

  1. 1. University of Liberal Arts Bangladesh A new vision in higher education Academic Year 2015 A Report On Starbucks Corporation (Indian Coffee)
  2. 2. PREPARED FOR Mohd. Mahbub Hussain ULAB School of Business PREPARED BY Asif Mahmud Onik ID : 141051002 Umma Tamanna Sharmin Haque Ummay Sanjida Bithi Athter Biswajit Saha ID : 141051074 ID: 133051010 ID: 133051013 ID: 133051065 ID: 133051077 [April 2015]
  3. 3. : : Executive Summary Starbucks Corporation, founded in 1971 is headquartered in Seattle, WA and now operates 21,000 retail stores in 66 countries. The backbone of Starbuck’s business is its company operated retail stores. Starbucks coffee has followed different strategy in different country. Our report presents a summary of the Starbucks Corporation branding value and what kind of strategy use in coffee & beverage business for India (Tata Starbucks). The main purpose of this report is to find out different entry modes and strategy used by the branded company like Starbucks in an overseas market. Primarily internal and external factors were analyzed in order to understand the factors which have an impact on Starbucks’ entry mode decision. After analyzing online journals and resources data on line, it turned out that Starbucks prefer three operational entry modes in overseas market: joint venture, licensing agreement, and company- owned operations/wholly owned subsidiary. In our analysis result many opportunities exist for Starbucks in this industry. The premium coffee market continues to grow, offering opportunities such as rural U.S. expansion and continued international proliferation. The firm may also be able to create new distribution channels for other products as it has done with music, DVD’s, and books. Premium and proprietary food offerings can be used to drive growth in order to compete with fast food restaurants, and acquisitions and joint venture/licensing agreements provide additional possibilities for brand leverage. The Starbucks brand is very strong, but more steps can be taken to ensure that it becomes an enduring global brand.
  4. 4. : : Table of Contents- Topic Page No Executive Summary iii Chapter 1.1 Starbucks Corporation 1 1.2 American business shift to India 1 Chapter 2.1 Coffee Market in India 1 2.2 Starbuck Journey to Indian Market 2 2.3 Engaging as Join Venture in India 2 2.4 Starbucks challenges in India 3 2.4.1 Business Risk in India 3 Foreign Exchange Risk 3 Political and Legal Risk (situation) 4 2.4.2 Other Strategy Factor Facing to in Indian Market 4 Emerging markets experience 4 Laws across borders 4 Cultural Factor 5 Socioeconomically Factors 5 Existing Competitors 5 Economic Factors 6 Pricing decisions 6 Bargaining Power of Buyers 6 Bargaining Power of Suppliers 6 Chapter 3.1 FDI Mode of Starbucks in INDIA 6 3.1.1 Long term plan in India 7 Chapter 4.1 Global Standardization Strategy of Starbucks 7 4.2 Organizational Structure 8 4.3 Vertical differentiation (Decentralized) 8 Chapter 5.1 Conclusion 8 Reference List 9
  5. 5. 1.1 Starbucks Corporation: Starbucks is the world’s leading specialty coffee retailer, producing and selling a wide variety of beverages, as well as pastries & confections coffee shop around the world. Starbucks story began in 1971. Back then Starbucks were a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle’s Pike Place Market, Washington (USA). and nurture the human spirit one person one cup and one neighborhood at a time. 1.2 American business shift to India: India is a mixed economy country, where both public and private sector enterprises work together to achieve economic development for the country. India has many large and dynamic private sector companies which operate in all areas of economic activity like trade, commerce and industry, without much interference from the government. India and U.S. have developed strong business relations with each other over the years. U.S. is the second largest source of FDI for India. It is also the second largest trade partner of the nation after EU. Not only is that U.S. the largest services export destination for India as well. In fact, American companies in India form the major part of the foreign companies operating in this country. The biggest reason is the high potential of Indian market and economy. 2.1 Coffee Market in India: India is the faster growing (Developing) country in the world. India accounts for approximately 4.5 percent of world coffee production and has coffee importing countries including Italy, Germany, Russian, Slovenia, US, Japan, Netherlands and France. The coffee market itself in India is rather fragmented with no evidence of market leaders. Meanwhile with increasing competition amongst different multi-national brands, companies are coming up with added facilities. Coffee shops tend to focus on quality service, providing a cool and soothing ambience. Currently, Indian industry is expecting marginal improvement in price realization in the global market. The quality and aroma of Arabica variety of Indian coffee is much diverse than in other global coffee markets. The Indian Coffee Board is quite sensitive to the plight of the country's coffee industry and makes the domestic industry feel least impact of adverse international market condition. Since the beginning, Starbucks has been a different kind of company. Committed to serving the finest coffee, creating an exceptional customer experience and try to being a great place to work. Today, Starbucks are privileged to connect with millions of customers every day with exceptional products and more than 21,000 retail stores in 66 countries. Starbucks dream to inspire
  6. 6. 2.2 Starbuck Journey to Indian Market: Coffee consumption in India is growing drastically, although too different likings. Before Starbucks coffee entering into the Indian market, the company tweaked its menu to suit the Indian conditions. This enabled them to offer their coffee at Rs. 80, which is far lower than those offered by the competitors in the market. The current coffee bars in India provide some similar environments to that of Starbucks, and the ones which are different appear to be simple enough to where Starbucks can meet the needs of the Indian consumers, should it choose to adjust slightly. For example, there is a Garden Café, and a Cyber Café, as well as a Highway Café. If Starbucks wishes to stay competitive and can do so without hurting their current image, they can create similar cafés with the same type of peaceful “home away from home” environment which they currently strive to achieve. (Source: What risks do organizations face when engaging in international finance activities By Nicola Sargeant on February 26, 2013) 2.3 Engaging as Join Venture in India: India, with the largest middle class in the world, also ranks second, after China, in terms of overall population (over 1 billion). For example, India has 1.03 billion people and about 170 people per car. The US, on the other hand, with a population of 275 million people, has three people per car (Source: business news_ UK essays). But India is fast industrializing and with its vast labour force and talented people, the Indian government is striving to make the country an industrial giant within a 22th century. When Starbucks decides to start their business in India, they also take on additional risk as well as opportunities. The main risks that are associated with businesses engaging in Indian finance include foreign exchange risk and political risk. These risks may sometimes make it difficult to maintain constant and reliable revenue. Tata Starbucks, the joint venture between the Starbucks Coffee Co and Tata Global Beverages, with both holding equal stake (50/50 joint venture), entered the Indian market in October 2012. It currently operates 45 stores in India across Mumbai, Delhi and the national capital region, Pune and Bangalore (In December 2013). Starbuck Corporation Chairman, President & CEO Howard Schultz and Tata Group Chairman Ratan Tata.
  7. 7. 2.4 Starbucks challenges in India: Coffee in India is growing by around a fifth per year and is estimated to be worth in the region of $300m, though the industry as a whole is beginning to stagnate somewhat because Indian people most preferred Tea more than coffee. One of the first coffee shops in the country, Barista, is up for sale whilst UK favourite Costa is believed to be contemplating ending its agreements with Devyani International unless the New Delhi based company stumps up more capital. Costa in India has not been profitable after a nearly a decade of existence (Source: NDTV brand analysis report in 2012). Starbucks faced challenges with coffee competitors that have made their imprint on the Indian community. Starbucks’ still has competitive western advantage when compared to these other competitors. Their prices are also said to be in line with its competitors, giving Starbucks’ a chance to succeed. To enter the Indian market successfully they must understand that the Indian people are focused on leading a healthy lifestyle. Starbucks’ high calorie, fat products will pose a challenge of successfully entering the market. With good management and a strong strategic plan, Starbucks’ can successfully conquer these challenges in India. 2.4.1 Business Risk in India: When Starbucks Corporation decides to engage in Indian financing activities, they also take on additional risk (as well as opportunities). The main risks that are associated with businesses engaging in international finance include: These risks may sometimes make it difficult to maintain constant and reliable revenue. Foreign Exchange Risk: India’s government approved plans to allow foreign investor share more than 51 percent and local 49 percent because Indian government always want to benefited local company. When Starbucks want to invest big amount of money in Indian market, this time Starbucks realize his company at first facing foreign exchange risk, because this corporation to know foreign exchange risk occurs when the value of investment fluctuates due to changes in a currency's exchange rate. When a domestic currency appreciates against a foreign currency, profit or returns earned in the foreign country will decrease after being exchanged back to the domestic currency. Due to the somewhat volatile nature of the exchange rate, it can be quite difficult to protect against this kind of risk, which can harm sales and revenues. Foreign Exchange Risk Political Risk
  8. 8. Political and Legal Risk (situation): Political system of a country shapes its economic and legal systems. India is largest populated and also democracy country (A political system in which government is by the people, exercised either directly or through elected representatives) When Starbucks invest in Indian market this time faces major problem are political which directly negatively affect the foreign company. These policy changes can include such things as trade barriers, which serve to limit or prevent international trade. Some governments will request additional funds or tariffs in exchange for the right to export items into their country. Tariffs and quotas are used to protect domestic producers from foreign competition. This also can have a huge effect on the profits of an organization because it either cuts revenues from the result of a tax on exports or restricts the amount of revenues that can be earned. Although the amount of trade barriers have diminished due to free trade agreements and other similar measures, the everyday differences in the laws of foreign countries can influence the profits and overall success of a company doing business transactions abroad. (Source: National Differences in Political Economy, class lecture “Business in the Global Environment)) 2.4.2 Other Strategy Factor Facing (Starbucks Business Operate in Indian Market): Emerging markets experience: Starbucks analyses India market rapid industrialization and often demonstrate extremely high levels of economic growth. This strong economic growth can sometimes translate into investment returns that are superior to those available in developed markets. However, emerging markets are also riskier than developed markets, there is often more political uncertainty in emerging markets and their economies may be more prone to excessive booms and busts. In addition to carefully evaluating and financial fundamentals, investors should pay close attention to the country's political climate and the potential for unexpected political developments. Laws across borders: When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable. Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the India often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application). Starbucks sought after potential joint venture partnerships in India. Starbucks sought to acquire a competitive intelligent strategy by gathering key information such as scouting locations and meeting with government officials prior to entering these markets to fully gain the additional market knowledge required for its success. Government actions impacted Starbucks as a challenge with exchange control, trade agreements, trademarks, and other foreign regulations all of which protected the working farmers and their rights.
  9. 9. Cultural Factor: India culturally a tea drinking country. This country tea industry, which is based in the rolling hills of Assam and West Bengal in the east produce huge tea than the other agriculture product and Indian people are traditionally consume more. In this scenario the government in New Delhi to officially recognize tea as the national drink. As this situation Starbucks coffee entered new markets with new leadership that recognized the culture, history and quality behind premium coffee; however, the no-smoking policy, high rent, in India posed great challenges to Starbucks. Starbucks incurred additional losses with the exchange of materials. Starbucks only offered North and South America ground roasted premium coffee beans, India did not have a roasting facility; therefore, Starbucks paid additional shipping costs to allow shipment of its coffee from its roasting facility in India. (Source: The Hindu news article “The first flagship Starbucks store in India”). Socioeconomically Factors: The coffee consumption rates in different international markets such as in the Indian markets where coffee market is in the development stage, Starbucks faced the challenge of having to educate the market and future consumers about the quality of coffee, the experience, and the idea of coffee away from health concerns. Existing Competitors: The Indian coffee market is growing at a feverish pace. Consumption has almost doubled in the last few years on the back of the large, young urban population that prefers western cafes to traditional Indian coffeehouses. Leading coffee chains like Café Coffee Day and Costa Coffee are already registering double digit growth rates and statistics indicate the market is far from saturated. The current coffee bars in India provide some similar environments to that of Starbucks and the ones which are different appear to be simple enough to where Starbucks can meet the needs of the Indian consumers, should it choose to adjust slightly. Indian local & large coffee brand Café Coffee Day With Bollywood stars Arjun Rampal & Chitrangada Singh.
  10. 10. Economic Factors: Indian economy is not match in western country or china scenario. In this market situation Starbucks business strategy not same to other country experiences. The Starbucks product and service offerings allowed in India were twice that much in the United States and yet Starbucks incurred huge losses due to the surmounting consumption of the Indian intake of its gourmet and premium priced coffees. Pricing decisions: Before Starbucks coffee entering into the Indian market, the company tweaked its menu to suit the Indian conditions. This enabled them to offer their coffee at Rs. 80, which is far lower than those offered by the competitors in the market. Pricing decisions in India posed a great challenge to Starbucks due to the increase in disposable income and economic situations that affected their idea about coffee which included: Bargaining Power of Buyers: As we know that Starbucks is providing the same quality of product and services all over the world. So the customer’s bargaining power is limited. In fact there is another threat to Starbucks is that their customers have the ability to brew their own coffee and this is a threat for Starbucks. Bargaining Power of Suppliers: The quality of coffee sought by Starbucks is very high. Starbucks Corporation always want to follow rule and guidelines, not only just shareholder and employees as also rule developed to suppliers because this corporation clearly known when any company entire a big market this moment some clear guidelines benefited seller, buyer and suppliers. That’s why Starbucks announced coffee purchasing guidelines for control the power of supplier. These guidelines are based on the following four criteria: Quality baselines, social conditions, environmental concerns, and economic issues because Starbucks known this brand provide service to customer and this kind of quality must needed to run successful business in global market. 3.1 FDI Mode of Starbucks in INDIA: Tata Starbucks Ltd is a 50:50 joint venture company, owned by Starbucks Corporation and Tata Global Beverages that owns and operates Starbucks outlets in India. The outlets are branded Starbucks "A Tata Alliance". Starbucks, through an agreement with Tata Coffee, serves coffee that is 100% locally sourced and roasted. A joint venture is a typical entry mode used world- The obesity rates which have an impact on corporate responsibility programs Shifts in demographics and social trends such as the age of the coffee consumer
  11. 11. wide. Literally, it means two or more individual and independent firms join together in an alliance in order to achieve better position in the market. Often the joint ventures are a 50/50 venture. It is a method that both sides hold relatively the same percentage of shares in the venture. The joint venture’s operation is separate from both companies and often the same role is shared by both managerial teams. It could be possible that one firm invests more in order to gain the larger percentage of shares and hold tighter control of the joint venture’s operations. 3.1.1 Long term plan in India: On 31 January 2015, Starbucks announced its objective to open more 20 outlets in India by the end of 2015, through a 50-50 joint venture with Tata Global Beverages. The two partners will invest a total of $80million initially. The cafes also try to serve a variety of small dishes ranging in price to customer and also the regular coffee menu is also available during that time. If raw coffee prices remain high, however profit margins for Starbucks’ small packaged coffee business could erode in the long term. Coffee prices have surged this year, making it the best performing commodity for the year to date, as record dry weather in Brazil has undermined production forecasts. Starbucks Coffee president (China & Asia Pacific) John Culver said "We are committed to India for the long-term and we want to grow aggressively here. India will be our top five markets around the world over a long-term" 4.1 Global Standardization Strategy of Starbucks: To develop a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition in market. Starbucks follows a Global Standardization Strategy to focus on increasing profitability and profit Production, Marketing R&D is done in centralized or few favorable locations. The taste and making method is same all over the world. They ensure their quality of product and service run in a same way everywhere. Starbucks follows the cost leadership strategy their Economies of scale is globally standardized. That means a reduction in unit cost achieved by increasing the amount of production. No or very minimum local customization is done as that increases shorter production runs and duplication of functions which raise cost. They makes standard product is for worldwide distribution and sales. Used for industries where less local response is required and strong pressure for cost reduction is required such as industrial goods. Consumer goods requires high local responsiveness, hence this industry do not follow this strategy. If not, the cost will increase and the company must be in trouble. [“The Global market Place” by: Professor Lars Perner, Ph.D. University of South California 2009, & Class lecture: Mohd. MahbubHussain, Lecturer, ULAB School of Business, on April 04, 2015]
  12. 12. 4.2 Organizational Structure: Every corporation mentions organizational structure and chart. STARBUCKS Corporation is developing a new organizational structure. It will be deeply concerned CSR into their department. Their strategy includes good sourcing, high level environmental performance in the development and make new stores, working together and to be a respected partner in their communities and communicating their CSR responsibilities. They specifically allocate leading for their reporting as the most important in the development of strategy. 4.3 Vertical differentiation (Decentralized): Starbuck’s corporation has decentralized authority because they created decision-making for each manager. There are also lots of stores around the world and each store has different from the authority managers and customers. So Starbucks will be an organization and its employees to behave in a flexible way even as the organization grows and becomes taller. This is the way managers are so interested in empowering employees, if they work good they can get good position and establish cross-functional teams. They are used to improve communication between the employee group who is responsible for the product and the group who provides the specific functional skill. [“How to Organize and Lead on Entrepreneurial Venture”, Global Text Project, 2012 by: Dr. Donald J. Cubbrey& Starbucks Wikipedia; seen on August 11, 2014] 5.1 Conclusion: Starbucks faced challenges with coffee competitors that have made their imprint on the Indian community. Starbucks’ still has competitive western advantage when compared to these other competitors. This branding global expansion had successfully developed with market share in various cities in the world. For global company like Starbucks, it is very vital to decide its entry modes when enter into a new market as it impacts a long-term operation in the foreign country. Therefore, by combining internal and external factors, Starbucks does make the right choice of entry modes for international expansion and operating their business in various countries.
  13. 13. : : Reference List: Howard Schultz “ Starbucks & You Its bigger than coffee” January 2014. Available from: http://www.starbucks.com/responsibility/global-report Overholt Alison. “Do You Hear What Starbucks Hears?” Fast Company. July 2004. Available from: http://www.fastcompany.com/magazine/84/starbucks_schultz.html Frey, Christine. “Starbucks to Buy Seattle’s Best Coffee.” Seattle Post-Intellegencer. April 2003. Available from: http://www.sba.pdx.edu/faculty/daveg/562/Starbucks Gilbert, Sarah. “Starbucks buys Coffee People stores, hippies mourn.” Bloggingstocks:SIRI 18 Sept. 2006. Holmes, Stanley. “What’s Behind Starbucks’ Price Hike?” Business Week Online. 25 Sept. 2006. Available from: http://www.bloomberg.com/bw/stories/2006-09-21/whats-behind-starbucks-price-hike- businessweek-business-news-stock-market-and-financial-advice. Starbucks’ International Operations Report By Howard Schultz, Chairman & Chief Global Strategist – Starbucks, 20011 Available From: http://Www.Seriouseats.Com/2008/04/The-Changing-Face-Of-Starbucks.Html http://www.wsj.com/articles/SB10001424052970204740904577192500354456184 http://www.wsj.com/articles/SB10001424052748703583404576079593558838756 http://www.borgenmagazine.com/the-success-of-starbucks-in-india/ .http://profit.ndtv.com/topic/foreign-exchange-rules http://www.2point6billion.com/news/2012/10/31/starbucks-india-expansion-attracts-brand- conscious-middle-class-consumers-11768.html http://www.ukessays.com/essays/marketing/proposed-expansion-strategies-of-starbucks-into- indian-market-marketing-essay.php

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