Global Business in Emerging Regions - Essay Example

?Global Business in Emerging Regions Table of Contents Introduction 3 Background 3 Aims and Objectives 3 Part A Company and Industry Analysis 4 AboutStarbucks 4 Company History 4 Organisational Culture 5 Starbucks Business Experience 5 Coffee Industry in South Africa 6 Part B Market Specific Issues, Challenges and Risks 8 Opportunities for Starbucks in South Africa 8 Challenges for Starbucks in South Africa 9 Competitor Analysis 9 Risk Mitigation Strategy 10 Part C Political and Economic Analysis 10 Political Environment of South Africa 10 Economic Environment of South Africa 12 Part D Entry Strategy Plan 13 Starbucks Market Entry Strategy in South Africa 13 Conclusion & Recommendations 17 References 18 Introduction Background Starbucks is one of the leading and largest coffeehouses in the world. Starbucks believes to inspire and cultivate the human spirit throughout the world. Starbucks is a leading player in the coffee market because of its rich product quality which is facilitated by sourcing of the finest coffee beans. Starbucks operates in nearly 62 countries but has no retail outlets or headquarters in every country. The main focus of Starbucks is to embrace diversity and treat every individual of the countries with respect. One of major focuses of Starbucks is to deliver customer satisfaction with their best quality coffee beans. Starbucks greatly commits in creating sustainability within the competitive market scenario (1Starbucks Corporation 2013). Aims and Objectives The aim of the essay is to explain and explore the market entry strategic plan of Starbucks to enter the new market of South Africa. The study intends to evaluate the organisational culture of Starbucks and South Africa’s market environment. It also entails the detailed discussion of the political and economic conditions of South Africa that will help the company to derive in-depth knowledge about the opportunities, competitors and risks in the new market. The planned aim of Starbucks is to build a retail outlet in South Africa and gain decisive market share from the prospective market. The study will further focus on the challenges pertaining to the emerging market entry i.e. entry to prospective South Africa market for Starbucks. It will reflect upon the strategies to mitigate the challenges as well. Furthermore, the objective of the essay is to: Understand the culture of Starbucks Understand the South Africa market potential The competitive analysis of Starbucks in South Africa Recommendation about the entry strategy mode of Starbucks in the emerging market Part A Company and Industry Analysis About Starbucks Company History Starbucks came to existence in the year 1971 in Seattle Pike Place market. It was formulated by three partners Jerry Baldwin, Zev Siegal, and Gordon Bowker. The small store of Starbucks offered the finest coffee beans of the world. It was named after the first mate Moby Dick, with the logo enthused by the sea which features a twin?tailed siren from Greek mythology (2Starbucks Coffee Company 2011). In the year 1982, Howard Schultz joined Starbucks as the director of operations and marketing. Subsequently, Starbucks was fully owned by Schultz in the year 1987, and stared expanding the business quickly (Starbucks Coffee Company 2011). Today, Starbucks is one of the largest coffeehouses, which employs more than thousands of employees and has a strong customer base. In the modern era, Starbucks in order to satisfy its customers has expanded the digital offerings and business strategies to extend its brands reach. Moreover, Starbucks is one of Fortune magazine’s 100 Best Companies to Work For in 2012 and generated revenue of US$10,707 million (Cable News Network 2013). Organisational Culture The mission of Starbucks and the principles formed in the year 1990 are the basic foundations of the culture which is followed by Starbucks and its partners. The basic principles followed by Starbucks are to provide a better work environment and treat each individual with respect and dignity. To accept diversity and change along with enhancing and expanding the business throughout the world are key aims of Starbucks. To develop satisfaction and positive working environment with high standards to gain profitability are the major principles which provide value and evocative direction to Starbucks and its culture (Roby 2011). The culture of Starbucks focuses on to add value to every individual’s ideas and talent for the betterment of the company. The work culture and the leadership style followed by Starbucks are participative as every individual’s views are taken into account. Moreover, the integral part of Starbucks is to provide recognitions and rewards to the employees to keep them motivated and happy so that they can inspire and nurture human spirit with the one cup of coffee. Recognition in Starbucks is validated through internal Caring Unites Partners (CUP) Fund (Starbucks Coffee Company 2004). Starbucks Business Experience Starbucks prides itself to be more than just a coffee house. To demonstrate “Starbucks experience,” it replicates comfortable environment and seating arrangement to lure customers and imbibe a true sense of belongingness within them. The friendly environment, aroma of the coffee, the music and the friendly staff create relaxing and positive vibes in the customers which help in creating the Starbucks experience different from others. To make the environment homely and friendly, Starbucks is providing various benefits such as making the outlets well equipped. Entertainment is the primary focus of Starbucks which would enable it to build more brands and create prospects in the market (2Starbucks Corporation 2013). Coffee Industry in South Africa Coffee is consumed throughout the world and it is one of the most valuable products in the world trade. It is an important product in the economy and earns huge foreign exchange incomes. The Arabica coffee seeds used by Starbucks is one of the highly competitive traded commodities in the world. Due to tough economic scenario that prevailed within the country, the spending of South Africans was quite affected. However, in the recent scenarios there has been a slight positive shift in the demand which can be demonstrated as a beneficial prospect for Starbucks. Moreover, due to the shift in the coffee industry, the major contributor which has emerged in South Africa is Nestle with a market share of 37% in the year 2012. However, with the growing and changing trends of the people of South Africa, Starbucks has an opportunity to gain decisive market share. The key drivers of the Coffee market in South Africa include convenience and value for money. As per researchers, it is evaluated that the expected growth towards the premium coffee would continue to increase, creating huge scope for Starbucks to enter the market. Furthermore, the increase in the demand for the organic coffee to maintain health and wellness among the consumers has increased as forecasted by the researchers. This demand for the organic coffee can be the key entry strategy by Starbucks coffee because of their high quality beans of coffee with proper pricing (Euromonitor 2013). Part B Market Specific Issues, Challenges and Risks South Africa is a nation having considerable population with rich and assorted culture. South African market has enjoyed remarkable macroeconomic stability and has favourable business environment. Thus, it is regarded as a rational and attractive choice for Starbucks to market its products. South Africa is also regarded as the most developed and productive economy in the entire African continent and represents considerable proportion of African gross domestic product (GDP) (U.S. Department of State 2010). The market of South Africa is well established and gradually developing. The economy is well managed with slow productivity gains. Besides, the banking system in South Africa is also stable and the nation has effectively managed the recent international economic recession. The nation also boasts of well-developed infrastructure which would be helpful for Starbucks to enter into the market (U.S. Department of State 2010). Opportunities for Starbucks in South Africa There are considerable opportunities for Starbucks in the market of South Africa. In South Africa, urbanisation is taking place at a rapid pace. The key driving force for ensuing business opportunity for Starbucks in South Africa is increasing trade. The volume of trade in South Africa has increased considerably since 2005. Besides, South Africa requires development in almost every segment and the demand of consumer food products is also increasing. In this context, it can be stated that one of the key development areas in South Africa is food segment. The food segment of South Africa is underexplored and hence provides considerable reason for Starbucks to open up its outlet in that area (The Economist Intelligence Unit Limited 2012). The domestic demand of consumer goods in South Africa is also expected to stay strong because of increasing income of people. The South African population is becoming wealthier which replicates strong opportunities for growth of Starbucks in the region. Furthermore, the evaluation of Ernst & Young has also depicted that there is strong growth in middle-income group people and corresponding increase in disposable income which also demonstrates favourable market opportunities for Starbucks (Ernst & Young 2010). Challenges for Starbucks in South Africa Starbucks might also face several challenges while doing business in the South African market. There are several considerable business issues which must be taken into concern while investing in business in the South African market. There is a possibility of political risk in South Africa. In South Africa, corruption remains one of the key problems related to business. The government lacks in addressing the corruption related problems in South Africa. Besides, the institutional structure of the nation is poor. Even where the regulations are strong, local officials are less aware about implementing them (The Economist Intelligence Unit Limited 2012). Furthermore, unemployment is also regarded as a significant challenge for Starbucks while operating in South Africa. There is a shortage of skilled employees which might cause problems for Starbucks in terms of executing its business operations efficiently. Competitor Analysis There are several other coffee and restaurant chains that can create competition for Starbucks. One of the key competitors is Nescafe brand. It is considered as a key contributor of coffee in South Africa. Nescafe represents almost 37% of market share in 2012. The second biggest competitor of Starbucks is National Brands with market share of about 7%. It is regarded as the leader in supplying fresh coffee products to South African market. Also, Starbucks is required to contend in a mature and competitive market, particularly from European competitors (Euromonitor 2013; UW Business School 2003). Risk Mitigation Strategy Concerning other business related risks, an organisation can take four types of strategies namely risk acceptance, risk avoidance, risk limitation and risk transference. In this context, it can be stated that Starbucks is required to use both risk avoidance and risk acceptance strategies. With regard to risk avoidance, Starbucks can make business agreements with European Union which would help to deal with the political risks. On the other hand, with respect to risk acceptance, Starbucks can establish contingency plan which can compensate any kind of losses that might arrive during business. Moreover, Starbucks can take risk limitation strategy by providing training to the employees in order to enhance their skills (Lam 2011). Part C Political and Economic Analysis Political Environment of South Africa Since 1994 South Africa has become a stable democracy with modern constitution. The judicial authority of South Africa involves various levels of courts. The independence and the fairness are looked up and maintained by the constitution, which affect the wellbeing of the business environment. Whereas the different provinces are provided with little power and hence must comprehend the legal laws of national constitution (SA Migration International 2009). The political democratic environment of South Africa has created various opportunities for the new emerging organisations. However, due to the political insecurity the pressure is being created on the stability of the South African business environment. Due the lack of the political directions and decisions the market with regard to the Coffee industry might be affected on the grounds of the business decisions. The increase in the socio economic factors such as corruption, lack of skilled employees and poor government regulation might create issues for the sustainability of the business. It is important for Starbucks to have an in-depth knowledge about the political environment so that it can effectively strategize its plan for Starbucks market entry (Xinhua 2013). However, in terms of South Africa, Foreign Direct Investment (FDI) has increased which would enable to augment the business opportunity in the country. This can be depicted through the graphical representation below: Fig 1: FDI Inflow in South Africa in 2011 and 2012 Source: (UNCTAD 2013) The graph demonstrates the fall in the FDI inflow from 2011 to 2012. Although there is a fall in the FDI flow, the South African market exhibits opportunity for the new ventures especially for the coffee industry. The changing initiative of the government would help Starbucks to enter the new market and get a positive response with the changing trend of the people. Economic Environment of South Africa One of the key reasons for Starbucks to enter in South African market is its strong potentiality of economic growth. South African economy is relatively small and open but had strong GDP growth of about 2.8% in 2010 which had increased to about 4.8% in 2012. This growth was supported by strong demand of products and effective fiscal policies. Furthermore, South African currency Rand is also expected to stay strong which is mostly determined by the requirement of external financing. The consumer spending of South Africa has also increased considerably due to expansion of low cost housing and increased welfare payments. The consumption expenditure of households in South Africa was predicted to increase by 3.5% in 2011. The private consumption was also increased to about 3.4% in 2011, led by expenditure on consumer durable products along with recreational and entertainment products. Consumer spending on services has also increased because of augmented expenditure on communication and food products among others. Thus, from these figures on consumer spending, it can be stated that Starbucks can exploit this market prospect and enhance its business in South Africa. It is further expected that the real GDP growth in South Africa would be slow. However, the government has developed several fiscal stimuli in order to encourage more foreign organisations and investments in South Africa. For instance, it is expected that financing will be made easier for organisations to restore the economic growth. The level of bank lending activities will be high which can effectively enhance the capital of organisations. Besides, the government of South Africa is also attempting to invest in the improvement of transportation and power generation which would be helpful for Starbucks to conduct business though providing better services with low expenses (Deloitte & Touche 2011). The following figure demonstrates the real GDP growth of South Africa from 2003 to 2013. Fig 2: Real GDP Growth of South Africa from 2003 to 2013 Source: (AfDB 2012) Part D Entry Strategy Plan Starbucks Market Entry Strategy in South Africa Since South African market is quite urbane in nature, the market entry strategy must be well planned. Several aspects must be considered while entering in the South African market. The first factor is that South African market is characterised by skewed distribution of income. Besides, people are quite price-sensitive in nature. Hence, the products must be developed by considering the affordability and value for customers. Concerning the distribution of products, it can be observed that the big retail outlets of South Africa are spread over only few metropolitan regions. Thus, Starbucks must carefully select to position the outlet in certain areas where it can attract considerable number of traffic. Besides, the market entry plan of Starbucks must clearly reflect the role, South African market will play in wider corporate approach. The entry strategy of Starbucks should go through seven key steps (see figure3) Fig 3: Entry Phases of Starbucks Recognising Market Opportunity: The first phase of entering the market is to identify the opportunities and to gain profound understanding about the market characteristics, the competitors, Starbucks will face and the customers they will serve. South Africa has less dependence on exports and has high reliance on domestic demand with respect to consumer spending. Besides, irrespective of low per capital income, the average income of people is increasing which would enhance the level of spending (Santamaria & Ni 2008). Development of Proper Value Proposition: Once Starbucks recognises the market it is required to develop a set of differentiated and attractive products and service offerings by considering special characteristics of the South African market. For instance, due to low-income level, price is regarded as the key consideration for most of South African consumers and thus, the product offerings must implicate such aspect. Besides, South African culture is highly community and family oriented and thus Starbucks must ensure that its branding and promotional activities resonate such cultural values (Santamaria & Ni 2008). Constructing Market Entry Modes: Although South Africa has demonstrated considerable development as a consumer market, several barriers to entry still remains. For instance, corruption is an on-going concern for organisation that attempts to enter in the South African market. Besides, there are barriers with respect to a lack of skilled workforce and troublesome regulations. Thus, entry modes must be selected carefully by considering key challenges, risks and benefits. There are four types of entry modes an organisation can select while entering in a foreign market namely standalone business or greenfield investment, merger and acquisition, partnerships or joint ventures and licensing. Every mode has certain advantages and disadvantages. Concerning the benefits and drawbacks of each entry mode, it can be stated that Starbucks can enter in the market of South Africa by developing partnership or joint venture with a leading South African firm. It would facilitate to ascertain a quicker method of accomplishing access to the local market along with local distribution channel with sufficient knowledge. However, it is worth mentioning that Starbucks must choose the appropriate partner for making partnership or joint venture through cautious assessment of proprietorship, control, pricing and abilities of associates (Santamaria & Ni 2008). Sourcing and Procurement: After selecting the proper market entry mode, Starbucks will require to develop a stable and inexpensive supply chain network which can allow the organisation to satisfy the domestic demands and to deal with the challenges of sourcing and procurement while at the same time maintaining the profitability in the market. Hence, Starbucks would be required to find and develop relationships with proper sourcing partners, develop strong association with local communities and achieve high level of knowledge about domestic preferences and local market risks (Santamaria & Ni 2008). Selection of proper production strategy: Apart from solving the supply chain issues, in order to enter in South African market, Starbuck requires to develop strong and appropriate production approach. In this context, it can be stated that there are two choices an organisation can make while selecting the production approach, either to develop profitable relationship with local food manufacturers or to concentrate on developing in-house production plant. Considering the business environment of South Africa, Starbucks can use in-house production strategy. However, the organisation is required to develop term contracts with raw material suppliers and capitalise on varied geographical sources in order to reduce any possibility of disruption in production. Starbucks is also required to maintain trustable association with local food manufacturers in order to achieve any kind of support and ensure quality products for business (Santamaria & Ni 2008). Development of Efficient Distribution Channel: As a part of market entry, it is essential for Starbucks to reach the target customers. Thus, Starbucks will be required to establish a strong distribution channel to deliver its products. In South Africa, it can leverage direct distribution which can be achieved by establishing Outlets (Santamaria & Ni 2008). Optimisation Of Marketing and promotion approach: Although Starbucks is accustomed to encourage the demand of its products by western ways of marketing and promotional activities, they would be incorrect in the South African market context. A considerable number of South African people purchase food products by casual, inconsistent and ad-hoc way in comparison with western people. Thus, Starbucks must consider this aspect while providing products to the customers. With regard to promotion, Starbucks needs to ensure that its marketing and promotional activities are concentrated on community and are visible for target audiences. Traditional media such as television, radio and newspaper can be used by Starbucks for marketing and promoting its products (Hatch, Becker & Zyl 2011). Conclusion & Recommendations The key objective of the essay has been to recognise the organisational culture of Starbucks, distinguish the South African market potential and to recommend an entry strategy for Starbucks to enter in the South African market. From the analysis, it can be observed that there are growth opportunities for Starbucks to conduct business in South Africa. It has stable economic growth with large potential customer base. However, there are several political risks and market challenges inherent in the South African market. These aspects can have a direct impact on the entry decision of Starbucks. Besides, there are different social and cultural factors that also must be considered while developing strategy for South African market. Although the organisation has considerable experience to perform in international markets, it is required rationalise the strategies to meet the local requirements of customers. In order to enter in the South African market, it is recommended that Starbucks must evaluate the external aspects in order to find the most efficient method of expansion of business. In addition, Starbucks would be also required to decide whether it should select short-run or long-run strategy for entering in the market of South Africa. In this context, it can be stated that Starbucks must begin with developing short-run strategy and after strengthening its customer base, in South African market it can take several long-run initiatives for business growth. 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