Global Business - How Starbuck Will Develop in the International Markets - Case Study Example

Global Business Name Course Tutor University Date Executive summary Despite their success in the various markets they have ventured in Starbucks needs to keep a close look into the environmental and the PESTLE analysis seems to be effective in achieving this (Gillespie 2007). Additionally, through the continued effectiveness when it comes to addressing the external factors that are outlined by the PESTLE analysis, Starbucks can continue to succeed in the markets and also succeeded in the new markets despite the presence of negative aspects that tends to have an impact on a business. Another recommendation relates to the entry strategy and in this respect the most appropriate method that can be adopted is the joint ventures and this is widely attributed to the wide range of advantage associated with the method. In conclusion, the modern market faces a lot of competition as firms ties to outdo each other and as they also tries in making sure that they have a widen markets share than their competitors. While some firms tend to reach their peak in that they try to cover all sides in a country where they first based their operations thus they need an alternative solution to address the current situation. A great number of firms have responded to this by moving to overseas markets and they view this as being among the most effective ways is entering in new markets for increasing their selling and also enhancing their profit. Contents Executive summary 1 Introduction 3 Discussion 5 PESTLE Theory 5 Political 5 Economic 6 Social 7 Technological 8 Legal 8 Environmental 9 OLI (ownership, location, international) Theory 10 Cost/differentiation strategy 12 Global/multi-domestic/traditional 14 Entry methods 16 Recommendations and conclusion 18 Appendices 22 Introduction A great number of people from various walks of life usually walks into Starbucks everyday with the aim of enjoying s cup of coffee and but the reason why they do so surpasses the overpriced coffee. Starbucks Corporation was founded back in the year 1971 in Seattle Washington. Starbucks has stores that exceed 24,000 and their presence is felt in over 70 countries. Based on their wide spread it is clear that the company have a passion for great coffee and offers genuine services to their customers and their community connection in a way transcends culture and language (Starbucks Official Website 2016). The company is considered as being a major representative e of the second wave coffee and it also distinguishes itself from the other in the market in that they offer their customers with a different quality, taste and customer experience and in a way it also popularizes the darkly roasted coffee. Starbuck usually offers their customers with an upbeat and friendly environment and they also have a group of helpful staff who assist the customers on any queries that they may have in relation to the service or the coffee. By being categorized as being among the third wave coffee makers who tends to target more the considers who are quality-minded and they focus more on the handmade coffee which are made using the lighter roasts, Starbucks have gone a step further and they make use of the automated espresso machines for safety and efficiency reasons (Baertlein 2015). The various Starbucks locations usually offer both cold and hot drinks, micro ground instance coffee, whole-bean coffee, loose and full leaf teas, evolution fresh juices and many more products. This paper sets out to offer a global business report on Starbucks and great emphasis will be focused on how it will develop in the international markets and the international market to be focused on is China and in doing so the key themes of global business module will be applied. This will be achieved by conducting an Pestle analysis of the company, the OLI (ownership, location and international)theory, the costs and differentiation strategy adopted by the company, global, multi-domestic and traditional strategies, the competitors that are likely to face in the selected country, the entry methods compaction in addition to the advantages and their disadvantages and suggestion of the best method to choose .this will also be followed by a recommendation section and a conclusion to sum up the report. Discussion PESTLE Theory The PESTLE analysis is a strategic and an analytical tool and is stands for the political, economic, social, technological, environmental as well as the legal factors. Despite their success in the various markets they have ventured in Starbucks needs to keep a close look into the environmental and the PESTLE analysis seems to be effective in achieving this (Gillespie 2007). Additionally, through the continued effectiveness when it comes to addressing the external factors that are outlined by the PESTLE analysis, Starbucks can continue to succeed in the markets and also succeeded in the new markets despite the presence of negative aspects that tends to have an impact on a business. Political Starbucks is affected by the political factors in a directly and also indirectly. A major political factor relates to the sourcing of the raw materials. The patterns that are mainly applied when it comes to the sourcing of the raw materials have over time evolved and became a major political factors that affects the business and more so in a direct manner (Housing Industry Association 2011). More specifically, it have become compulsory for the all organizations such as Starbucks and other who have both local and global operations to engage in the sourcing of raw materials and based on these they are supposed to comply with the various social norms and environmental norms that they are becoming stricter with each passing day. In instances when companies neglect such norms either unintentionally or intentionally they are likely to experience a lot of political pressure. Additional, the government attitude towards business is also seen as being a significant political factor that affects a great number of companies. A good example of the effect that a political factor can have is the tax scandal that Starbucks faced in the UK. Due to the scandals the brand image of Starbucks was damaged. Economic The economic factors also have an impact on the business and in relation to Starbucks the effects can be said to be paramount and direct. The consumer buying power is usually reflection of the general economic situation in a certain country and this means that it is a major economic factor that determined the profitability of Starbucks. A major aspect that can be considered under this are instances which as the economic crisis in that that they affect the consumers in a way. For instances during the 2007-2008 economic crisis the consumer spending was derailed and this also decreased the revenue of Starbucks in a noticeable way. Another aspect that is considered under the economic factors is the exchange rates and this is an aspect that Starbucks need to deal with and address at all costs (Housing Industry Association 2011). For example, the strengthening of the US dollar as compared to the other currencies in a way diminishes the profits that Starbucks can potentially make and other businesses of US origin that may be operating globally. Therefore, in more precise terms it can be noted that aim instances when the USD increases in terms of their value, revenues that are generated in the foreign markets in the local currencies tens to buy fewer USD and this leads to a decrease in the total profits made. China seems to be experiencing a high economic growth and there rate of unemployment also seems to be decreasing (Burkitt 2010). This in a way leads to a rise in the labor costs and this can be a great threat to starbucks since their spending in ingredients are likely to increase. Social Due to the internet there have been globalization of lifestyles and the various forms of media that are present in the modern day have also played a crucial role in the spreading of various cultures all over the globe and they can be in a way be termed as being a noteworthy social factors that have contributed greatly to the long term growth prospects of Starbucks. The aspect of spending of time in Starbucks is in a way associated with the leading European and American lifestyles in terms of the perception of the consumers and ion this ay individuals from countries such as China are in a way attracted to the European and American values can act as the future consumers for Starbucks coffee (Gillespie 2007). In the same way there exist a number of social factors that posses threats to the long term growth of Starbucks. The increasing health concerns among a great number of people and more so when it comes to the consumption of sugar and caffeine can be outlined as being a social factors that a great number of people considers. In this regard a great number of people are becoming more health conscious and thus though they may consumer the coffee they are likely to moderate the intake and this will in a way mean a decrease in the sales figures of Starbucks. Additionally, Starbucks coffee is likely to be affected greatly by the changing patterns that are being seen in work, families and the consumers are also showing shift when it comes to their preferences and values and all these aspects well affect Starbucks in a way. Starbucks needs to address the issue related to health conscious of the consumers and the best way to do so is to come up with a wide range of healthy products and by doing so they will attract those customers who are health conscious’s in their cafes. Technological The technological factors refer to the technologies and the associated trends. In this regard starbucks is likely to experience the following technological factors in their environment. This technology includes the rise in mobile purchases, the rising availability of specialty coffee machines which can be used at homes and technological transfers to the coffee farmers (Gillespie 2007). In relation to technology Starbucks needs to make the opportunity and make improvements to their mobile applications and linked services and this will assist them in gaining more revenue as people make purchases through them. Starbucks also needs to make use of the opportunity provided by technology and improve the supply chain efficiency and this can be achieved by making use of new technologies. At the same time Starbucks will be faced by a threat in that the rising availability of home-use specialty coffee machines seems to be a threat that can cripple Starbucks operations and reduce their revenue in a great way. This is based on the fact that the home use machines in a way increases the availability of substitutes to the products that Starbucks offers to their consumers. Legal The legal factors refer to the regulations and laws relating to a business. In this regard, Starbucks needs to address a number of legal issues in their environment if they need to succeed. Starbucks need to make use of available opportunities and the best way to achieve these is improving their performance by satisfying and meeting the products safety regulations and also following the regulations related to the ingredients that are termed as genetically modified organisms (Housing Industry Association 2011). Currently, Starbucks seems to be performing greatly in these aspects. Howver by venturing further into China, there will be an increase in employment regulations and this in a way threatens their access to the labor market. This will also increase the costs incurred by Starbucks in that they will have to spend a considerable amount of their revenue on human resources (Koehn 2002). Environmental This aspect the model is also referred to as the ecological factors and it identifies the effects of the environmental or ecological conditions and changes that are likely to occur in a business. Starbucks is faced by a number of environmental factors and they need to address them on time and through the right ways for them to achieve be desired results and returns from their operations (Koehn 2002). One such factor is the sustainability of a business. The business sustainability trend in a way focuses more on the business processes that aims at ensuring that there is minimal environmental impact. In these regard, Starbucks needs to adopt aspects that the society they are operating in terms as sustainable now and in the future. By doing so, a great number of customers will be more willing to purchase from them as opposed to companies that are not sustainable. The best way to achieve these is making use of responsible ways when it comes to sourcing and they should also place great emphasis on corporate social responsibility and more so in their supply chain. Starbucks needs to make use of opportunities presented and this will enhance their performance. It is crucial to note that as of now Starbucks already have responsible sourcing policies in place. Starbucks also needs to take up the opportunity and offer a great number of their products in packages that can be recycled. This will depict them as a responsible company that caters for the environment and that aims at making it sustainable for the future (Koehn 2002). OLI (ownership, location, international) Theory The modern market faces a lot of competition as firms ties to outdo each other and as they also tries in making sure that they have a widen markets share than their competitors. While some firms tend to reach their peak in that they try to cover all sides in a country where they first based their operations thus they need an alternative solution to address the current situation. A great number of firms have responded to this by moving to overseas markets and they view this as being among the most effective ways is entering in new markets for increasing their selling and also enhancing their profit (Wilkinson 2005). Nevertheless, the aspect of moving from national firm into an international one is seen as being a complex one, this is clearly seen in the case of Starbucks which is growing into a transnational corporation in the food and beverage industry. Starbucks makes use of the Dunning eclectic paradigm (the ownership advantages, location advantages and the internationalization advantages) and this theory explains the aspects of foreign direct investment and mostly from the perspective of the firm. Starbucks is applying and it should make use of the Dunning’s theory and it also focuses on the reasons as to why firm’s outward is based in the followings. In respect to ownership tends to focus more on the assets that are owned by a firm which can in a way compete with other firms and more so on an international level (Davies and Lam, 2001). Some of the most common and notable ownership specific advantages may include but are not limited to the economies of scales and the brand name, scope, managerial skills, organizational skills as well as scope and based on these aspects firms can have specific advantages over all its competitors in the market and industry that they operates in (Subhadra 2003). Starbucks can apply the same strategies like the one they applied in Canada and also in Ireland with the wholly owned subsidiary in which they had full control over the company. Along with the serving coffee they can also sell merchandise. In the same way Starbucks can make sales to CD like in the past where they sold in-house music programs and this can be used with the aim of alluring the consumers. Additionally, to increase their presence in the country, Starbucks can enter into alliances with other companies such as the hotels, airlines with the aiming of serving their coffee to a great number of customers (Adams & Juleff 2003). Locations focuses more on asset oriented production and the market. The theory sets out to address the questions “where” which involves the MNE activity which is outside of the home country and it also addresses the why question. The price of the human and natural resources on the overseas territories, communication, transportation, market-size, and infrastructure as well other Locational attributes. Starbucks can be successful in attracting the young people and more so in the Chinese market and this is based in the fact that the young people in the market are eager to imitate numerous aspects of the American culture (Davies and Lam 2001). Starbucks have already occupied the US market and thus the need to move to other countries. In the interim, there exist a number of variations in terms of the age costs, knowledge skills, labor productivity as well as the controlling forces of Starbucks to the outward. For instance, China has a wide range of natural resources for the coffee and there is relative unit labor cost. Additionally, the large population in China will in a way influence the high demand of coffee in the Chinese market since Starbucks will have a wide range of customers that they need to meet their needs (Wilkie, Johnson & White 2015). Internalization is all about equity in terms of internalization production as well as the concern of the costs to entering market, for example, the costs of negotiation, monitoring and also enforcing the contract. In this regard, the firms makes a decision of whether it is cheaper for them to own and it would be easier for them to operate a plant on other country or they can also subcontract a foreign firms and the forms operates in their behave through the use of franchise, supply agreements or license (Robinson & Chiang 2002). In earlier ventures Starbucks ventured into the international markets by making use of three major strategies wholly owned subsidiaries, joint ventures and licensing. A great number of countries are making use of the strategic trade policy with the aim of protecting their local markets and in this way they restrict the imports from other countries. Cost/differentiation strategy The porters generic strategies usually describes the manner in which companies pursues the competitive advantage and more so across a chosen market scope. There are a number of strategies which a company can focus. In regard to the cost/differentiation Starbucks needs to make use of a product differentiation strategy with the aim of attracting customers from their close and core competitors (Moore & Farris 2004). Starbucks coffeehouses can be said to be a strong beacon for a great number of the coffee lovers all over the globe. A great number of consumers usually insist on starbucks since they can count in being offered with genuine service, a superb cup of coffee that have been roasted and brewed well in addition to an inviting atmosphere. Starbucks is not just about the passionate purveyors of the coffee, but they are also passionate in everything elapses that tends to go along with a rewarding and full coffeehouse experience. Starbucks also prides themselves on the coffeehouse atmosphere and this also inviting the consumers to stay and also enjoy the coffee as they work, read and also chat with their friends (Kotler & Philip). Starbucks also differentiates in terms of the manner in which their coffeehouses are designed and this is evident in that they make use of materials that are environmentally friendly materials and this makes them comfortable, modern and unique. Starbucks also tries to reduce their environmental footprints in that apart from the use of environmentally friendly materials Starbucks need to continue using reusable and recyclable cups and also conserve their water usage as well as their energy usage (Kotler & Kevin 2009). Starbucks also tends to take a more ethical approach when it comes to the making of coffee. In this regard they engage in a holistic approach by ethically sourcing the highest quality of coffee. This entails engaging in responsible purchasing and they also promote forest conservation and supporting their farmers. The above mentioned aspects are in a way beneficial to the consumers who are really trying to be environmentally conscious. Additionally, Starbucks have for a considerable amount of time engaged in a successful international growth strategy. Since they opened their first international coffeehouse they have expanded to other locations in a great number of countries. The success of the company can be greatly attributed to their international partners. In this regard, Starbucks make great efforts to look for partners who have similar ideals and they also takes into consideration their strategic practices, ethical values as well as the leadership styles. Additionally, Starbucks usually strives and ensures that they respect the cultures of the people in the various countries that they are venturing into and in this regard Starbucks needs to respect the culture of the Chinese people. It is in this respect that the Chairman Howard Schultz states that the company remains highly respectful of the traditions as well as the cultures of the people in the countries that they conduct their business. Starbucks employees also realizes that their success is not in any way an entitlement and thus they must continue to earn the respect and the trust of the customers on a daily basis (Hochbaum 2011). Global/multi-domestic/traditional To expand their markets, Starbucks has made use and it will continue making use of the multi-domestic strategy as its global strategy (Goldstein & Lee 2005). The strategy can be termed as multi-domestic since Starbucks tailors most of their service and products to the various needs that are available in the market. Their multi-domestics strategy is also evident in that they have products that are in a way adapted to the various countries that they are operating in. For instances products such as the green tea latte was usually produced to serve the Japanese market but the product was later brought and introduced to other markets for instance, in the UK and also in the US. Additionally, another consideration that can be noted is that there tends to be varying atmospheres in this stores and this tends to be different based on the country that one is in. this in a way also plays into the multi-domestic strategy of adapting and fit well in the local environment. Starbucks products can also be said to be relatively priced in each of their stores all over the globe and this further depicts the multi-domestic nature of strategy that is applied by Starbucks. Through this Starbucks have proved that coffee can be enjoyed irrespective of one’s culture. This is supported by the philosophy of Starbucks in that they remain a highly respectful of the traditions and the culture of the countries in which they conduct their business. The philosophy has proved to be a great success in that Starbucks have a great number of stores in a great number of countries over the globe (Solis 2011). Competitors with the selected country Competition exists in every industry and at times competition can be of great benefits to a business. Over the years starbucks have been engaged in some battles and it has been fighting to maintain their position as the coffee king. The desire and the preferences of the customers have a great impact on the fights and based on these companies are fighting and aiming at expanding their menu options and they are also expanding their physical store locations so as to reach and also better serve a large customer base and also draw the consumers away from the competitors (Shimizu 2003). Since Starbucks started its operations they have experienced phenomenal growth as well as success. A great number of people considered that people go to the coffee place to socialize and work and this concept in a way corresponds further with the marketing approach of Starbucks. From its initial development Starbucks have aimed at offering the customers with a place in which they can make a stop over as they are going home and this has led to the formation of physical locations that offers the consumers with a relaxed experience and atmosphere. A major competitor of Starbucks is Dunkin Donuts. Dunkin Donuts have for a long period of time peacefully coincided with Starbucks. When the spokesman that Dunkin Donuts was using retired in the late1990s, the company began to put a great amount of emphasis and they are therefore trying to growth their coffee business. In the 2000s, the company introduced their specialty coffee and drinks and with tine they made a name for themselves and they also became a destination coffee shop. It was not until 2006 that Dunkin Donuts upped their game and they declared war on Starbucks. In respect to these, the company has continued to expand their menus and by doing so they are expanding their product line and most especially the most substantial ones. Another major competitor of Starbucks is McDonalds. The revenue made by McDonalds tends to be higher as compared to the revenue generated by Starbucks and also higher as compared to the revenue made by Dunkin Donuts. However, it can also be noted that the high revenue by McDonalds can be attributed to the fact that it has a larger menu (Burritt 2007). Traditionally, McDonald is well known since they operated as a fast food restaurant but they are not well known for their coffee. Despite these, after the introduction of the iced and flavored coffee, McDonalds became major competitors of Starbucks. McDonald also tends to be revamping their advertising and marketing strategies. For a considerable amount of time being using the slogan “I’m lovin it” but until recently the company have noted that the campaign is not trending as expected. This has led to McDonald into employing research and development specialists and they are sourced from various ethnic and they have a wide range of experience. Entry methods There exist a great number of entry methods that companies us in entering new and foreign markets. Some of the most common methods include the turnkey projects, exporting, wholly owned subsidiaries, licensing, joint ventures and franchising. It is crucial to note that in their global expansion Starbucks made use of three major entry methods and this includes the licensing, franchising as well as joint Venture (Laermer & Simmons 2007). Licensing is termed as an arrangement where a company which is termed as the licenser grants some rights to intangible property likely the inventions, patents, process, formula, copyrights, designs as well as trademarks to the other company which is termed as the licensee for a certain period of time. In this regard the licenser usually receives some loyalty fee from the company which is termed as the licensee. This entry method has an advantage in that it has low developmental risks and costs. But at the same time it also have a disadvantage in that the company lacks control over technology, they also have the inability to realize experience curve economies and location as well as their inability to engage in a global and strategic coordination (Adcock, Al Halborg; Caroline 2001). The other method that Starbucks uses is franchising. Franchising seems to be in a way similar to licensing but it has a difference in that it calls for long-term commitments. In franchising, the franchise in addition to selling the intangible property to the franchisee but also ensures and greatly insists that the franchisees abodes to the rule of the business (Haleblian et al. 2012). There are also instances when the franchise also asserts the franchise on maters relate to running the business. This entry method has an advantage in that it has low developmental risks and costs. But at the same time it also have a disadvantage in that the company lacks control over technology, they also have the inability to realize experience curve economies and location as well as their inability to engage in a global and strategic coordination. The other entry methods are the joint ventures. This method seems to a contrast from the above discussed entry methods is that the joint ventures in a way allows companies so as to own stakes and also play a crucial role in the management of their foreign operation (Griffiths & Wall 2010). This entry method requires training and direct investment, technology transfer and management assistance. A major advantage of this method is that the foreign company has access to the local partner’s knowledge and there is also sharing of the developmental costs and risks. The entry method also have a disadvantage in that they lack full control over technology, inability for them to realize the experience economies and location and there is also the inability to engage with global strategic coordination (Lymbersky 2008). In relation to the three entry methods that have been discussed the most appropriate method that can be adopted is the joint ventures and this is widely attributed to the wide range of advantage associated with the method. Recommendations and conclusion Despite their success in the various markets they have ventured in Starbucks needs to keep a close look into the environmental and the PESTLE analysis seems to be effective in achieving this (Gillespie 2007). Additionally, through the continued effectiveness when it comes to addressing the external factors that are outlined by the PESTLE analysis, Starbucks can continue to succeed in the markets and also succeeded in the new markets despite the presence of negative aspects that tends to have an impact on a business. Another recommendation relates to the entry strategy and in this respect the most appropriate method that can be adopted is the joint ventures and this is widely attributed to the wide range of advantage associated with the method. In conclusion, the modern market faces a lot of competition as firms ties to outdo each other and as they also tries in making sure that they have a widen markets share than their competitors. While some firms tend to reach their peak in that they try to cover all sides in a country where they first based their operations thus they need an alternative solution to address the current situation. 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Wilkinson, N 2005, Managerial Economics: A Problem-Solving Approach, Cambridge University Press, Cambridge. 1. Appendices a. Statement We hereby specify that we have not use the company in this assignment for any other module project b. Team work process Read More