Starbucks corporation - Essay Example

? Starbucks Introduction Founded in 1971 and operating in more than 50 countries worldwide, Washington based Starbucks is the largest coffee retailerin the world at present. Starbucks has more than 16000 outlets all over the world. Out of these 16000 stores, nearly 12,000 stores are located across North America, South America, Europe, Middle East and the Pacific. In America, they have coffee outlets virtually in every corner. In other words, America is a saturated market for Starbucks now and they are looking for overseas markets as part of their expansion. In addition to coffee, Starbucks has other products such as tea, cake, cake filling leather goods, beverages, food, confections, coffee related machineries such as expresso machine, stainless steel coffee filters etc. This paper analyses the strengths, weaknesses, opportunities and threats of Starbucks in the modern business world and also the change processes necessary for Starbucks to grow in the right direction in future. Starbucks: SWOT Strengths “Starbucks Corporation is a profitable organization, earning more than $600 million in 2004. The company generated revenue of more than $5000 million in the same year. Starbucks was one of the Fortune Top 100 Companies to Work For in 2005”(SWOT Analysis Starbucks, 2010). In 1992, Starbucks listed on the stock exchange. Since then, its growth was phenomenal. Its annual average growth rate is 20% and profit growth is around 30%. Its share price marked a record 3500% increase, since its listing on the stock exchange. In other words, the market value of Starbucks shares from increased from $400 million to $15 billion recently. Starbucks is a reputed company with huge brand value and enormous resources. Its major strength is the ability to forecast market trends correctly and to make changes in business strategies. It should be noted that Starbucks was one among the few American companies which was unaffected by the recent recession. Starbucks top management team is extremely smarter in guiding the company even in unfavorable market conditions. Not even a single management decision went wrong for Starbucks in the last decade. Satisfied employees are another strength of Starbucks. “They always treat the employees as their partners as mentioned earlier. Firm strategy, executive compensation and the performance of the firm can be divided into different streams and fit between firm strategy and compensation system is one among them” (Rajagopalan, n.d., p.4). Moreover, Starbucks is a socially committed company which gives something in return to the communities in which it operates. They are eager to recycle all industrial wastes produced by their activities. Smart business strategies, good suppliers, efficient leadership, talented employees are some other major strengths of Starbucks. Through the selling of coffee-related products such as brewing equipment and accessories, many consumers can enjoy high quality coffee at home rather than traveling out of their way. The equipment available includes Expresso machines, stainless steel coffee filters, and Starbucks cleaner and canisters. This is another example of how Starbucks is meeting the needs of current customers as well as increasing its attractiveness to potential customers (Kembell, 2002). Weakness “Starbucks products are expensive compared to their competitor’s products (Starbucks Swot Analysis, n. d)”. One of the major weaknesses of Starbucks is the heavy pricing of their products. Starbucks never bothered to reduce the prices of their products irrespective of the market conditions. They do believe that for quality products, heavy pricing may not affect the customers very much. Starbucks is trying to implement the same price which they charge in America for coffee products, in international markets also. They are forgetting the fact that America is a wealthy country and the per capita income of Americans is more than that of the people in other countries. In other words, they are thinking that same product needs same pricing everywhere in the world irrespective of the economic conditions in different countries. Because of the expensive nature of Starbucks products, ordinary people stay away from purchasing Starbucks products. Its major consumers are White Collar Class people. Starbucks a created a reputation in which people think that its products are intended for intellectuals and high class people who love boutique, food and art. Thus many of the ordinary people stay away from Starbucks products. Starbucks has a habit of changing its product ranges without considering the sentiments customers attached with it. For example, they have changed the romantic La Marzocca machines and introduced automatic espresso machines, in order to solve the major problem in terms of speed of service and efficiency” (Saving Starbuck’s Soul, 2007). They failed to recognize the emotions the customers have on the earlier machine. Current machines are too big in size so that and short people have difficulties in using it. Moreover, new machines prevent the customers from enjoying the preparation of the drink. Opportunities Asian region in general and China and India in particular offer huge business prospects for Starbucks. China now has become the second largest investment market of Starbucks in addition to USA and they have opened more than 140 branches in China recently. They are trying to increase the number of stores from 140 to 1500 in China by 2015. It should be noted that Asian region faced less troubles as a result of the recent recession and may of the Asian countries are on the verge of huge economic growth. Many people believe that global wealth is currently shifting from the less heavily populated American and European region to more heavily populated Asian region. Under these circumstances, Starbucks has huge opportunities in Asian countries. The per capita income of Asians is increasing and hence they may spend more money for coffee related products in future. Globalization and liberalization have opened many opportunities to Starbucks in all parts of the world. It should be noted that coffee is one of the most popular beverages in all parts of the world and it is used by poor as well as rich people. Coffee is a safe beverage for all people irrespective of their age differences and therefore its market will grow further and further. Threats Increased competitors, the cultural conflict, raw material costs increase and imperfect region development are some of the threats facing by Starbucks. “Small and large coffee companies, fast-food operators, and mom and pops are big threat to the business prospect of Starbucks” (Saving Starbuck’s Soul, 2007). Competitors from Fast food industry such as McDonald's, Dunkin’ Donuts & KFC, along with peer competitors such as Costa coffee and Cross-strait coffee are raising stiff challenges to Starbucks at present. Coffee, milk and sugar prices are increasing day by day which is another major threat for Starbucks. Moreover, some propaganda is already going on against coffee nowadays because of the suspected health problems it may generate in future. All these factors are causing big threats to the growth prospects of Starbucks. Change process necessary to guide Starbucks in the right direction “The world’s most successful organizations are also the most agile and adaptable”(Change management, N.d.). It is impossible for any organization to survive in the market without implementing periodical changes in its business strategies based on the rapid changes taking place in the business world. It should be noted that the market is undergoing rapid changes because of the changes taking place in global political, social, economic, legal and cultural spectra. The markets in 1980’s and markets in 2010 are entirely different. It was difficult for foreign companies to penetrate into domestic markets earlier. Because of the globalization, all countries are currently doing everything possible to attract foreign direct investments. As a result of that international business or cross cultural businesses are increasing rapidly and Starbucks should device new strategies to cater the needs of international markets rather than to the American market. As stated earlier, China is going to be the second largest market for Starbucks in few years. Chinese business philosophies and American business philosophies are entirely different. Moreover, China has huge differences with America; politically, economically and culturally. It is impossible for Starbucks to operate freely in China as they do in America. The communist administration in China is accused for human right violation and censoring of information. Even though China is a WTO member, Chinese legal system is entirely different from that of America. In short, Starbucks need to make lot of changes in its business strategies to cater the needs of Chinese business world. America is democratic country whereas China is a communist country. Democracy and communism may not go in parallel directions and therefore change becomes inevitable in the business strategies of Starbucks in China. Planned change is necessary for Starbucks to operate successfully in other parts of the world. A process of moving from one state to another through a series of pre-planned steps is referred as planned change. “Once managers and an organization commit to planned change, they need to create a logical step-by step approach in order to accomplish the objectives” (Steps in Planned Change, 2012). For example, in India, they need one business strategy whereas in China they need another strategy. Unlike China, India is an extremely diverse region culturally. Each state in India has its own culture and language. Moreover, India and China has extremely different political and economic philosophies. In short, custom made strategies are necessary for India and China or planned change is inevitable for Starbucks to prosper in overseas countries. Emergent change is also necessary for Starbucks. A continuous and unpredictable process of aligning and re-aligning an organisation to its environment is referred as emergent change. “Through Emergent Change, people develop a better understanding of the roles, responsibilities and realities of others throughout the organization”(Emergent change, 2011). Since Starbucks in the past has concentrated only in the American region, their awareness about the external business world could be limited. Emergent change is necessary for Starbucks to adjust their business strategies in overseas markets. Conclusions Starbucks has lot of strength and weaknesses. Huge brand value, immense resources, talented employees, smart top management team etc are some of the strengths whereas heavy pricing is the major weakness of Starbucks. Asian region offers huge opportunities for Starbucks, but competitors such as KFC, McDonalds, etc offer huge threats to Starbucks. Starbucks need to implement both planned and emergent changes in its business strategies to overcome challenges they are facing in overseas countries and to sustain its growth. References 1. Change management, N.d. . [Online] available at: http://emgtconsultants.com/organization.html [Accessed 26 March 2012] 2. Emergent change. 2011. [Online] available at: http://www.clevelandconsultinggroup.com/services/emergent-change.php [Accessed 26 March 2012] 3. Kembell, B 2002. Catching the Starbucks Fever. [Online] available at: http://www.academicmind.com/unpublishedpapers/business/marketing/2002-04-000aag-catching-the-starbucks-fever.html [Accessed 26 March 2012] 4. Rajagopalan, N. N.d. Strategic Orientations, Incentive Plan Adoptions and Firm Performance. [Online] available at: http://www.marshall2.usc.edu/ceo/publications/pubs_pdf/g96_13.pdf [Accessed 26 March 2012] 5. SWOT Analysis Starbucks. 2010. [Online] available at: http://www.marketingteacher.com/SWOT/starbucks_swot.htm [Accessed 26 March 2012] 6. Starbucks Swot Analysis, N.d., [Online] available at: http://www.scribd.com/doc/3972739/Starbucks-Swot-Analysis [Accessed 26 March 2012] 7. Saving Starbuck’s Soul. 2007. BusinessWeek, April 9, 2007. [Online] available at: http://www.businessweek.com/magazine/content/07_15/b4029070.htm [Accessed 26 March 2012] 8. Steps in Planned Change. 2012. [Online] Available at: http://www.cliffsnotes.com/study_guide/Steps-in-Planned-Change.topicArticleId-8944,articleId-8888.html [Accessed 26 March 2012] Read More