Contemporary Developments in Business and Management of Starbucks - Assignment Example

Introduction This paper examines the case of Starbucks. The paper examines important components and elements of modern business in Starbucks and howit compares with other entities and activities in terms of international business, strategic management and other elements of business management. The research would cover the elements of the module on strategy and international business. This includes themes relating to international economic factors, newly developing countries and knowledge management. The research is presented in two parts. The first part would include the examination of some short elements and aspects of business and management as it occurs in the international environment. The second part of the paper would examine elements of international financial integration and competitive advantage in relation to Starbucks. Starbucks commenced operations in 1971 in Seattle where the company opened its first store (Starbucks History, 2012). The company embarked on a revolutionary expansion in the early 1980s and acquired different chains in the United States. Towards the 1990s, the company expanded to Europe and opened a branch in the UK in May 1998. The companys mission is “to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time”. Starbucks concentrates on selling coffee through outlets selected in major cities and major points around the world. Starbucks in the UK competes with Whitbreads Limited, Costa Coffee, Caffee Nero and a host of numerous independent operators (Reuters, 2013). Part 1 Question 1: PESTLE Categories and Starbucks/UKs Coffee Industry The PESTLE model provides a structured approach for the examination of political, economic, sociological, technological, legal and environmental situations that are relevant to a given company or industry: Political: This include government policies on corporate entities in the UK. And since these coffee entities are businesses, they are subject to those rules. Also, international rules on international trade and EU rules affect Starbucks. Economic: This include the major macro-economic trends that affects the earning and spending aspects of the company. The UK coffee industry is affected by inflation, taxation and the rate of the British Pound. Sociological: This refers to trends that shapes dominant activities of people in the UK. Now, people are more concerned about their health and the British population is ageing. Thus, the industry needs to focus on healthy variations of the coffee they sell. Technological: This refers to the ways of brewing the coffee, and methods of selling. Technology has advanced and it is best for Starbucks to advertise online and via mobile. Legal: Laws on coffee exports and laws on trading patterns are relevant here. The coffee industry needs to be sensitive to all that. Environmental: There are principles on what can be served and cannot be served. This affects the sourcing and whether the species used are organic or not. Question 2: The World Trade Organization and their Influence on Starbucks and Coffee Industry The World Trade Organization is an offshoot from the global talks that commenced on trade amongst 23 nations in 1947. These talks led to the formation of the General Agreement on Trade and Tariffs. The World Trade Organization was formed in 1994 to help remove all kinds of protectionism that nations placed on the import of foreign products. This meant that the different efforts made by governments to either restrict or put their products on a competitive advantage in international trade were to be removed to encourage fair trade and interactions. This culminated in the gradual reduction of tariffs. The UK Coffee industry is a benefactor of this agreement. This is because it prevents the countries that produce coffee from putting high costs of tariffs on the imports of the UK Coffee industry. This leads to lower costs of operations. Also, the processed products of the company can be exported fairly easily without issues. This saves the companies a lot of money. However, this trend opens up risks. There is the chance for producers from foreign countries where there are other advantages to enter the UK coffee industry and compete. Thus, Chinese businesses and African governments can easily put themselves together and form coffee companies that can come in and compete with these UK coffee companies like Starbucks. Question 3: Ease of Doing Business in the UK and its Influence on The UK Coffee Industry In the Ease of Doing Business Index (2012), the UK ranked number 7 in the classification of the easiest nations to start and do business around the world. This was in a list of over 160 countries around the world. The UK is ranked very high in the areas of starting a business since there are different opportunities with it. The country also raked number 1 in getting credit in the world and number 10 in protecting investors. This shows that the UK is an attractive and ideal place to start and operate a business. This has two implications for the coffee industry of the UK and Starbucks. First of all, the UK is an ideal place for doing business. This makes it an attractive place for competitors from other countries that produce and sell coffee to target the UK. Foreign companies can easily enter the market. This means that competition would be high and the survivability of these UK coffee businesses including Starbucks could be threatened significantly. On the other hand, Starbucks can use the opportunity of doing business in the UK easily to expand to other lines of business and expand its stake in the UKs coffee industry. Thus, they can diversify and add different activities to promote Starbucks as a high earning entity. Question 4 Consider a major multinational enterprise (MNE) in your chosen industry. How do its multinational operations help the firm to compete? A major multinational entity is Pricewaterhouse Coopers. Pricewaterhouse is not a primary player in the coffee industry. However, it is a major player in the global industry and it has a vision of primarily supporting different businesses in their internationalization drives. Pricewaterhouse is one of the worlds top four accounting and auditing forms. It competes alongside KPMG, Ernst and Young and Deloitte and Touche. Currently, Pricewaterhouse is the accountants for Starbucks Global. Due to this, they provide various levels of accounting services to the company and its affiliates around the world. Pricewaterhouse helps Starbucks UK to compete by providing accounting services for the company in the UK and auditing services for the US based owners of the company. Being an American firm, Starbucks needs taxation services in the UK. Pricewaterhouse UK has a local company and a local team who know British tax laws better than most American firms. Hence they help the company to make significant tax savings. Pricewaterhouse also helps Starbucks to compete and provides a culturally sensitive service for the human resource unit of the company. All the other coffee companies have one of these top four companies working for them to enter the UK markets and succeed in it. Question 5. How do differences of culture between countries or within a country affect the operations of your chosen organization or of firms in your chosen industry sector? The British people are traditionally accustomed to tea rather than coffee. Thus, the coffee industry has a major problem in the UK markets. They have to compete with people who would prefer to have tea on their own at home. This means that they have to put in extra effort to attract and sustain British customers and help them to get the right taste for the product. Starbucks is a generally American brand. And most British customers are somewhat sceptical about anything American. Culture defines consumer behaviour and work ethics in the coffee industry in the UK. Geert Hofstede identifies some important factors that are relevant to the industry. First if all, the individuality defines how the coffee must be sold and offered to consumers. The UK is a very individualistic country thus, coffee must be sold to individuals and not to groups. The uncertainty avoidance index of the UK is quite high so they have to ensure that their offering are definite and are carried out as they have to be carried out. Also, roles are not defined strongly in the UK. So there must be low segregation in marketing. Question 6. How does your chosen country score in terms of democracy and how does this affect your chosen organization and/or firms in your chosen industry The UKs democratic index indicates that it has an overall score of between 75% and 100%. This shows that the country is highly democratic and the rule of law is strongly instituted in the UK. Although the UK is not in the top 10 most democratic nations is classified as “flawed democracy” by the Economist Intelligence Unit, the rule of law provides the coffee industry a propitious business environment where it can carry out its activities. UKs democracy indicates that elections are free and fair. This means that the government is stable and when compared with some developing countries, the UK is a relatively safer place for investors in the coffee industry. Thus, Starbucks would be better. Also, there is a relatively high level of separation of powers which means there are checks and balances in the system and human rights are high. On the downside, the UK is an attractive place to do business. This means that coffee companies around the world would prefer to come to the UK to conduct business. This would give Starbucks and other entities more competition and difficulties to survive and thrive in the economy. Question 7: If disputes arise across national boundaries about the interpretation and/or implementation of contracts how can they be resolved? Most transnational contracts in the UK are formulated with a clause that gives room for alternative dispute resolution (ADR). Amongst the popular approaches are arbitration and mediation. Thus, Starbucks and other businesses in the coffee industry have the chance to use arbitration and other activities to resolve their disputes and disagreements. This allows them to work without issues. In mainstream courts, civil cases are heard with the hope of resolving them and solving the problem if it involves foreign and international entities. The civil law system has been reformed and this makes it possible for cases to be heard and decided quickly in the UK. However, if an international commercial contract specifies a foreign jurisdiction for the resolution of conflicts, then any disputes arising from them would be heard in the foreign courts. The UK gives the opportunity for such cases to be sent to the jurisdiction in which they were formulated. Thus, it is quite a free and transparent system for contract resolutions. In the global ranking, the UK is said to be number 18 in resolving conflicts and contract issues. Starbucks can benefit from this but stands to risk getting more competitors due to this positive attribute of the UK business environment. Question 8: Consider the outcome of the Copenhagen conference on climate change (2009) from the viewpoints of individual consumers, society in general, governments and your own company or industry. The Copenhagen Conference sought to help the world to cut down on its carbon emissions and promote the use of cleaner fuels and systems. Thus, it encourages businesses to go into the promotion of cleaner fuel and the improvement of their services. Also, companies are encouraged to help by recycling products and services around the world. There are different obligations for the improvement of production systems and structures. The UK has adopted improved methods of encouraging people to become more environmentally responsible. Businesses, by convention rather than law, have to report on their environmental footprints and how much effort they made. Starbucks and the coffee industry invest in improved research for better and cleaner systems and services. Starbucks and the coffee industry are seeking to recycle their activities and improve their technology so that they do not pollute the environment. The coffee industry also undertake drives that are meant to encourage their employees to use less hydrocarbons. They indulge in corporate social responsibility drives like the need to use bicycles rather than cars. This go a long way to enhance the contributions that they make. At the end of the year, coffee companies in the UK like Starbucks would have to give an accounting. Question 9: In relation to your chosen organization or industry sector what in your opinion are the most important and/or difficult ethical issues. The biggest ethical issue in the coffee industry is the source of raw materials for the industry. The first issue is with the kind of species that are used to grow the coffee and the second issue relies to the practices of the growers. Most consumers in the UK prefer organic products to inorganic or genetically modified products. Hence, many consumers expect coffee sellers like Starbucks to use ethically grown organic coffee as the source of raw materials for their coffee. The growing of organic coffee is expensive. This is because a farmer would have to desist from using inorganic or chemical fertilizers. They would have to use the right grades and classes of natural products and natural practices to nurture the products. Secondly, the source of coffee is important. To cut down cost, UK coffee companies can source for coffee from developing countries where there are cheap methods and approaches used to grow and harvest the coffee. The main issues of struggle in sourcing for coffee is the use of child labour and other unethical practices. Most UK companies are liable to lawsuits if they source from a nation that uses practices that are illegal in the UK. Thus, the coffee industry gets higher costs than normal and this makes it less profitable. However it presents them as an ethical business. Question 10: Interest rates are the price of borrowing money. How might changes in interest rates affect your chosen organization and/or industry? Changes in interest rates would affect individual businesses in the coffee industry. It would also affect allied businesses in the interest in several ways and manner. Starbucks, like any other coffee business in the UK carries out part of its operation through the working capital that is contributed by the owners and its reserves. However, in some instances, like the acquisition of assets, it might not have enough money in its capital base to acquire them. Thus, they might need to borrow from banks or third party institutions. When interest rate goes high, the interest they pay on the loan would go up. When it falls, they would pay less interest. Interest is a cost to the business. Thus, interests reduce the total earning of the company. Hence, Starbucks would reduce its profits if the interest rates go high and vice versa. In the general sense, other businesses that are connected to Starbucks in the UK that it transacts business with are likely to increase prices. This is because a higher interest rate would mean that they would have to earn more money to cover the differences. This would lead to higher prices to cover costs. Part 2 In relation to your chosen organization (Starbucks) and answer all questions in the following sets of questions. Set 1, International financial integration a) What are some of the main ways in which increased financial integration has affected business? Starbucks UK is influenced by financial integration from two main parts of the world. The first is the most immediate consequences of the European Union. The other is the integration of North America through the North America Free Trade Agreement (NAFTA) which affects the headquarters of the company in the United States. However, this section would examine financial integration in the European Union. The European Union led to the formation of a common market for Western European nations. This has led to the creation of a common currency in the European Union and similar standards and metrics for the attainment of results in the public and financial sector. The European Unions financial integration also led to the creation of the free movement of goods and services throughout the borders of European nations. This means that the countries can easily move goods and also compete with other nations outside their borders. The implication is that it is practically easy for Starbucks to access the markets of other European markets by either importing raw materials or selling to other businesses in the rest of Europe who really need their help. European Union also provides subsidies for businesses and farmers to enable these farmers to produce well. The farmers are able to produce more and export more to other countries. This would enable the EU farmers to produce more at lower prices that Starbucks. Starbucks can high quality technology from subsidized producers and remain competitive in its operations around the UK. Financial integration will allow financial stability in every country. The UK has been given metrics to meet and to enable to public sector to balance spendings and ensure stability. Due to this, the situations of hyper inflation and high economic problems are avoided in a country like the UK because of their membership with the European Union. Another area of European integration is that it has promoted deregulation throughout the Union. The UK has no other option but to deregulate the system and promote competition. Due to this, efficiency and innovation are in the area and all coffee companies in the UK benefit from this. b) Analyse how increased financial integration has impacted on your chosen organization (Starbucks)? Starbucks UK operates in a country that is under the auspices of the European Union. First of all, Starbucks can sell to a larger market than it sought to do. Starbucks has the choice to sell, operate and expand easily into other parts of Europe. The company can compete in Europe with limited restrictions and there are no blockages. The European Union has also allowed Starbucks to source from different parts of Europe because the EU provides that kind of opportunity and offer. This means that Starbucks and other entities selling coffee can source for coffee and other machines from parts of Europe when they can get it for a low price. The integration of the European Union has also set up unique and distinct rules that has an effect on Starbucks and other coffee companies in the UK. First of all, they are obliged to hire people from different parts of Europe if they qualify. They cannot deny others because they are not British. Also, there are some health rules that comes with the EU membership and forces Starbucks to vary the kind of products they use to create their coffee and the products they serve. There are some macroeconomic indicators that are placed on the EU because of the UKs membership to the EU. There are higher taxes and there are higher costs that the company needs to pay due to EU compliance rules and regulations. These regulations affect the UKs budget and forces companies like Starbucks to operate according to the budget requirements and try to meet all expectations set out for them. European Union also comes up with serious competition rules. Starbucks and all the other companies in the industry must not operate in a way or manner that would make it difficult for other coffee companies to compete. There are serious anti-trust rules that would make any of the companies a monopoly in the coffee industry. Hence, Starbucks has to compete in the industry due to the financial integration of the European Union. c) Critically evaluate how your chosen organization (Starbucks) has responded to and/or should respond to increased financial integration. Starbucks UK was used by the headquarters in the UK as a satellite entity for the expansion into Europe. Starbucks UK, by virtue of its European Union principles and position became a launching point for the expansion to Austria, Germany, Italy and other EU nations. This is because of the financial integration rules that made it easier for the company to set up operations in other parts of Europe. Starbucks UK has a long-term vision and plan that is carved and shaped according to the constraints of the European Union Laws. This is because the EU directives and rules that are used to regulate the country is the basis and the framework for formulation of strategies. Due to this, Starbucks sells with natural coffee and not synthetic. Also, the company hires people from different parts of Europe and does not discriminate against anyone. Starbucks UK also has limited competition activities. It does not operate as though it is the only sector. It restricts its activities so that other companies can enter the markets and compete in the UK coffee industry. Starbucks also has to spend more hiring legal experts to advise them on European laws and European situations. Set 2, Competitive environment a) What are some of the main elements within a changing competitive environment? The main competitive element in the UKs business environment are research and development, product offering and branding, technology and Internet and corporate social responsibility. These four elements of the business environment provides the basis and impetus for competing and succeeding on a given market. Research and development lead to the formation of better products and better services. Thus, a business that is seen to be research oriented would present innovative and better methods and products for consumers. If a company does well and it meets consumer needs, more consumers are likely to revert to it and this would enable that business in question to capture and hold market share. Product offering and branding is very important. If a company offers products that are unique distinct and attractive to consumers, it is likely to get on top of the market. If it offers a less attractive offering or range, customers would switch to anther brand and it would lose market share. The use of the internet and advancement in technology is important. Technology relates to the way things are done. Technology enables a company to cut down costs and serve its consumers better. Thus a company would need to have a better technology to hold a large market share. If another company presents a better technology it would improve in its market holding. Also, more consumers use the Internet now. Thus, a company that has a stronger online presence is likely to get a stronger reach than one that does not have such a strong online presence.` Finally, corporate social responsibility refers to giving back to the society and satisfying all relevant stakeholders. In the UK today, a business that is seen to be discharging its services and obligations to stakeholders is likely to be seen to be more productive and more attractive to consumers. Hence, consumers would be willing to work with such a business and not go to other competitors. This would enable the company to also come up with course-related advertisement which is a productive strategy for attracting and sustaining consumers who want to make an impact on the society. b) Analyse some of the main effects of the changing competitive environment on your chosen organization (Starbucks). The coffee industry in the UK is no stranger to competition and competitive forces. Starbucks can only survive if it gets a leadership slot in research and development. This is because the competitive environment of the coffee industry requires different companies to improve their offerings and offer things that consumers might want that others do not have. Thus, every coffee company including Starbucks needs to invest on finding new recipes and new offerings for consumers to choose and enjoy. There is the need for coffee companies to invest in research and find ways of carrying out their business. The top decision makers must study the environment and ask what consumers want and what should be done about businesses and operations. Coffee companies need to look around and find the best options for everything they do. This would bring about better competitive strength and allow businesses to excel and improve. Also, a UK coffee company would do better if it competes over the Internet. On the average, most people in the UK spend time online checking their mails and reading things. Thus, it is important for coffee companies to market their products and services over the Internet instead of traditional outlets like televisions and the media. Coffee companies must also find ways of advertising on mobile as more people spend time on their smartphones. Corporate social responsibility is now a norm for businesses including coffee companies. This is because most consumers judge companies on the basis of what they add to the society and not just what money they make or the worth of their investments. Thus, coffee companies must discharge corporate social responsibility. The popular areas for coffee companies are healthy living and employee support. This makes the company look attractive to consumers and enhances their image. Also, cause related activities like feeding the poor and supporting people in the developing countries allows coffee companies to become attractive. This makes the companies gain more consumers around the world. This makes the consumers feel that they are making a direct contribution to people who need it by purchasing from the coffee company in question. c) Critically evaluate how your chosen organization (Starbucks) has responded to and/or should respond to the effects of the changing competitive environment. Starbucks has done a number of things to improve its competitive position. Starbucks invests as much as 10% of its earnings on research and development. This is because the research and development is important for the improvement of operations and activities. Starbucks has attained a lot of successes in their research activities. Starbucks also adds up a new product to its range from time to time. Starbucks has very attractive premises for the sale of their goods and services. Hence, the company remains very nice and convenient and preferred choice for companies. Starbucks has expanded its advertising systems and activities on the net. They have adverts online and they have paid so many bloggers to write about their brand and activities. Starbucks uses other intermediaries to advertise on the websites of strategic partners and high earning consumers. Starbucks has launched a mobile network for the marketing and promotion of its activities for consumers around the world. This brings about brand exposure. Corporate social responsibility is a major element of Starbucks. The company announced in its 2011 annual reports that it gave 1% of its profits to charity. It has campaigns for feeding poor children in developing countries and consumers are made to see that they contribute £1 to this when they purchase some selected products. Read More