Evaluation of the Long-term Strategy of Starbucks Company in China - Essay Example

Analysis of Starbucks and its Business Strategy Starbucks is an internationally acclaimed brand of coffee and some other beverage products. The company was found in 1971 in Seattle's Pike Place Market today it has its presence in 36 countries outside United States. It is offering more than 30 blends and single origin coffees, hand-crafted espresso and blended beverages. Company's mission statement says, "Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow." Company's main competitors include Caffe Nero, Diedrich Coffee Inc, Dunkin' Brands, Inc., Green Mountain Coffee Roasters, Inc., McDonald's Corporation. Having established itself as the world' leading brand, the company now wants to strengthen its market in China, a big consumer market, the land of billions and vast opportunities. Its importance is highlighted by the statement of Howard Schultz (Starbucks) when he says, "No market to date potentially has the opportunities for us that China ultimately will." Schultz also underlines the fact that Starbucks has moved China up to the No. 1 priority. To go ahead with this task, Starbucks needs to have a detailed customer profile depending on the targeted segments because in general, as a long term strategy, customers are segmented based on their demographics, marketing habits etc. Such an analysis is to be preceded by a detailed analysis of the company, with a Chinese perspective, using some of the following strategic tools. Globalisation of production and investment in recent years has led to a situation where long-term capital inflows from advanced economies to developing economies is taking place at a rapid pace. No doubt this has contributed immensely to the economic growth and development of these nations. In this process while on the one hand global knowledge is being used locally, at the same time local societies too are moving towards a knowledge society with an increased level of locally produced knowledge. It is still widely believed about the developing world that most of the knowledge and the transition societies are produced outside the region. The later half of the 20th Century saw dramatic growth in industrial production and in the mass consumption in developing nations. Growth of industrial output in countries like China and India during this period was robust and to some extent the process of catching-up also began in the technological field (Linsu Kim, 1997). The process is thus called "imitation to innovation" approach. Well Starbucks, the coffee can only be enjoyed in the cool company of a friend, while relaxing after a days' work, or while preparing oneself for the day full of assignments. It's not like any other product or service, which we can order on its e-business website. But nonetheless, the company has an attractive presence on the net with http://www.starbucks.com/ which informs the coffee lovers about the varieties and processes available with Starbucks. The website basically has the following sections; Our Coffees: This section tells about the range of Starbucks coffees and company's expertise on the subject. With a details menu of its varieties available in Latin America, Africa, Arabia, Asia and some multi regional blends, the site encourages the visitor to at least have a look at it in any one of its locations. Our Stores: This tab spills the beans about different locations where the patrons of coffee can have a go at it. Starbucks Card: The Company also issues 'Starbucks card' to its customers, which serves as a means of rewarding the loyal customer. This is a co-branded card with Visa and calls on the consumers to earn more and more Starbucks "Duetto Dollars" with every Visa purchase through this card. At Home: Here the site gives us information about how we can enjoy Starbucks at home with little help from our nearby store. For Business: This section calls for business opportunities with other corporate clients and how one can open a Starbucks coffee outlet with the availability of requisite shop floor and other ambience. About us: This section deals basically with corporate info for the investors and researchers. Starbucks history and career opportunities available with the company are also listed out in this section. Recently Starbucks was in news, when the company was embroiled in a legal battle with an Indian entrepreneur, Shahnaz Husain, who has detailed out to open up her own coffee stores in India with the name 'Starstrucks'. Starbucks has lodged a complaint with India's Controller-General of Patents, Designs and Trademarks. Company's contention is that the name Starstrucks is deceptively similar to Starbucks. This is recent controversy as Starbucks lodged its complaint in March 2007 only. It is worthwhile to mention here that Starbucks has no retail outlet in India as yet, but it plans to open up its 25 outlets in the country by the end of 2007. The final word is yet to be said about this controversy. Starbucks plans to strengthen its China operations. We'll do a PESTEL analysis for this venture of Starbucks. PESTEL Analysis Political: China's accession to the WTO on December 11, 2001, symbolizes its' ongoing integration into the world economy, a transition from government controlled central planning to market-driven principles and significant opportunity for investors. The international community is curious to know more about China so that it can be a part of a huge market driven economy. But the international investor is taking cautious steps as the Chinese government is in the process of implementing more and more confidence building measures. China has made significant progress towards a market driven economy, but parts of its bureaucracy is still wary of leaving the 'power' and tend to use protectionist measures for some local firms and state-owned firms. Transparent and consistent body of laws and regulations for predictability in the business environment, are still in formative stages in China. Economic: The understanding of free enterprise and competition is gradually percolating down to different sectors of the Chinese business community. The Chinese economy is often terms as prone to overinvestment and over-production, for reasons not related to supply and demand. Foreign businesses community is therefore still finding it challenging to properly study and investigate the Chinese market, resulting in underestimation of the challenges of establishing operations in China. Social: China is the largest country in Asia and has the largest population of around 1.3 billion in the world. Economic reform has brought along reforms in other areas as well. The Chinese people are now having more freedom than earlier times. China has also intensified its effort in fighting government corruption. The society in general has welcomes such changes. Though the scenes of student movement oppression at Tiananmen Square still remind of the grim past, yet in the past few years, China has taken steps to bring its human rights practices into conformity with international norms. Technological: In contrast with the Western world, China lagged behind in the 19th century science and technology development. But today China has been at the forefront of pushing ahead cheap manufactured goods in the global markets. Environmental: Since the late 1970s, China has been engaged in an incremental transition from a command economy to a market economy, from an agricultural society to an industrial society, and from a totalitarian state to a democratic state. This incremental 'reform and open door' strategy is to an extent characterized by the improvement of Pareto economic efficiency. This has resulted in improving the economic conditions of the people in general, thus increasing their purchasing power. Legal: China has been actively pursuing investment friendly laws since the WTO regime came into force in China. The state sector is being transformed through institutional restructuring and re-organisation to promote total factor productivity, while allowing the non-state sector to play a greater role in the market-oriented economy. References: 1. Kim, Linsu. (1997) Imitation to Innovation: The Dynamics of Korea's Technological Learning (Boston, Harvard Business School Press). 2. Starbucks (2007), available online at www.starbucks.com 3. Datamonitor (2006). Company Profile: Starbucks Corporation, Nov-2006, Datamonitor Europe, Charles House, 108-110 Finchley Road 4. Marketline (2007), Starbucks files complaint against 'Starstrucks' coffee chain - report, (Report published March 6, 2007). Read More