International Business - Starbucks in Africa - Case Study Example

Introduction

Market entry is the planned method of delivering goods and services to new target customers. It is mostly done by multinational that have taken a time to study the new area and understood what the challenges are and what the customer in this field are doing. In this part, we will focus on the planned market entry for Starbucks in Africa. Starbucks is a coffee chain outlet that is across the world with more than twenty thousand stores.

It has always been an independent entity, but when it comes to different countries, there are different ways in which they can now join the industry. There are considerations that any company will consider. First is to understand who the target market is? Their income and what they like. Coffee being for any citizen very few people in Africa can afford three dollars a day. It has to be challenged so as to ensure that they can get the people who are willing to spend that amount. Africa has different demographics, and this should be used to understand the different economies. There are various countries in Africa with various Gross domestic product. For example one of the largest economies in Africa is South Africa Egypt and Nigeria. It is the countries Starbucks should focus on in gaining entry in Africa as this market have a significant number of the middle class than the others (Becker, 2013).

The Type of International Entry

There is three strategy of getting in a new market. One is the waterfall model. Wave strategy and sprinkler plan. Sprinkler Strategy is where the firm does not focus on one service or goods but concentrate more on diversification of its services. Sprinkler strategy works with conglomerate which offers different products, and it cannot work for Starbucks as the only thing they offer is Coffee.

Another model is the wave strategy this model is more concerned with the timing that the service. The wave strategy focuses do they enter the market during winter or summer when is it the right time. Starbucks may ask the question when is it good to enter South Africa is it in January or December. These factors come up because for example when schools are closed there are more people than when schools are open.Starbucks can sit and try to analyze if there will be any impact. Another model star bucks can use which is the best is waterfall model In this star bucks will enter one country in Africa and try and make the estimate of their target market. The population and also compare the number of competitors they have. It Is the best model for star bucks as they try to roll out in the Sub-Saharan Africa.Starbucks being large company funds will not be the issue, and it will focus more on first understanding its market and how to grow the market share (Carl, 2011).

To become a market, there are issues on a need to analyze so as to decide what model to use. It Can be summarized as Porter five analyzes. This helps in identifying what are the key requirements for starbucks.It is through the analysis of the company that star bucks will decide on what is the best entry model and how to ensure they don’t tap the market (Peterson, 2013).

Starbuck History

Starbucks started in 1971, and it mostly sold the coffee beans and the coffee making machine before the three partners decided on selling coffee to maximize their sales. The first branch was in Seattle. The next year star Buck was sold to Schultz, who then renamed the company and it. It grew in a span of ten years then star bucks open doors in Tokyo Japan in 1986.Over the years, Starbucks has acquired other companies such as Petite. This way can easily be used by Starbuck to get more customers by converting existing hotels into Starbucks.There are cases where trying to adjust the already existing ones proves tough, and this discourages the company. Before any entry to the African continent, there are certain issues that should be analyzed. One is the political stability of the country.africa has long faced challenges in succession politics and this is one of the cautious questions that any international firm should try and avoid (Salah, 2008).

The other risk to minimize is the sourcing of raw materials. Africa being with a population of a billion people this shows that the market is there the issue is if there is enough of materials to feed the existing market. Labor laws also are part of the consideration that ought to be done. Unemployment, a colossal issue for the African continent and their government, have started enacting laws that prohibit multinationals for employing foreigners.Starbucks being a company with a long history will understand that operating in different countries can expose them to foreign currencies risk. It will cushion them to achieve more sales and also reduce a lot of challenges and help in making their target market (W, 2012).

The rationale for choosing market entry

After understanding all these types of entries, it is up to Starbucks to decide how they will enter the market. First, they can choose to buy an existing outlet and convert it to a Starbuck.this case scenario has both its advantage and disadvantage. one of its advantages is that star bucks will have current customers in the existing hotels compared to starting a new outlet. The going concern policy is that the business will still go on, and people will still come at the hotel even if it changes ownership. The opportunities in Africa are many from increased population to the cost of labor is cheaper, and also, the raw materials are found in plenty. This will work for the African market the challenge will be how to enter the market. South Africa also has indigenous coffee shops and outlets that have been there for ages what will Starbuck do differently to win the hearts of the customer.

Preparatory of Entry Strategies

Advertisements and policy mobilization will be the best way for the company to announce their intention. Lately, they have decided to use a joint venture together with a company called taste holdings to venture in Africa. They have pinpointed South Africa as the middle class in the southern country are many, and so there is disposable income. Though Nigeria has the largest population, there is a lot of insecurity this might have discouraged star bucks in starting here. There are different considerations and real estate in Africa is rising due to demand. It is through this planning and analyzing that will help star bucks understand what needs to how to solve issues.

The most important part in analyzing the entry model understands the rules and regulations that operate in that country. Countries like Morocco and Egypt are also well advance and with an active market population. Though the political stability of Egypt is not something to be proud of it has the healthy legal bodies that can stand the test of time. It is for this reason that star bucks need to understand though the population is Africa is huge the demographics are different in each country and therefore most of the country cannot generalize the industry (Weiss, 2012).

Evaluation of Market Entry

There are events where they may prefer joint partnerships or also decide to venture alone. There are issues regarding how to set up this task. There is three rationale of choosing how to make an entry level. Market selections depend on different stages this involves identifying and screening of the nation economic levels. It is what the Starbucks help identify which nation in Africa they will join and what to carry around. Most of the countries have very strict legislation about foreigners this are the issue that they can understand to help minimize any strangers from getting in.

Preparing a market entry strategy is a strategic plan that requires the top management level to set strategic goals. It Will need to outsource these issues to other firms that will enable them to prepare a long-term plan. Strategic companies expect different issues they first consider the industry they are operating in. After reviewing this, they understand the demographics. They need to put in place the SWOT analysis of the firm. The strength of Starbucks includes the brand name where it has the presence all over the world. There is also cash flow the firm having a lot of money flow and having enough capital will help a long way in pushing the brand name. The weakness of star bucks is there are also other homegrown coffee shops that can be very competitive and locals tend to prefer to promote the locals in their countries.Opportunities including the growth of market share and also revenue. There is also the need to expand market share.

SWOT Analysis

Threats include the insecurity facing Africa in the name of political instability and also terrorism from other cartels. It is these things that bring the economy to be a failed state. There are five decisions a company can take when entering a new country first they might choose either Exports. They will consider when to import their goods or whether they will source in the local markets. Both have its advantages and disadvantages. One it will cushion itself from foreign exchange risks, and also, it will help create employment in the domestic market, therefore, going along way in helping the corporate social responsibility.

The second thing the firm should check and understand is the licensing and franchise. It is first to ensure that the country has been notified and ensure they meet all the requirements. It is a long-term strategy, and it matters that there are within the law. In other countries, a multinational has to sell some of its stakes to a local company. Therefore, this differed from country to country. The joining of Alliance is good as it cushions the multinational from being branded a foreign company and may see a lot of rejection.

Opportunities In the New Entry Level

The joint venture is also another option for Starbucks.The issue with joint venture is if you get the right partner, and this is a good move.There are different perspectives of a theoretical framework in entry modes. One is the transactional cost theory. The theory includes calculating how they will charge the prices and the taxes they will pay. For one to set up transactional value theory, there is need to have two assumptions bounded rationality and opportunism. The transactional cost theory is a tradeoff between control and resource allocation. When the different cost of operating is higher in Africa, it is through transactional value method that can help determine the best price.

Resource-based View also known as organization capabilities works to ensure that the company provides it has enough resources so as it can maximize output.Starbucks having been a multinational requires a long-term view of how to enter Africa. It is on this issue that there has to more analysis for the future of a continent with the homogeneous group of people, and this should always be analyzed. The entry level is not the final stage but it is always the first step to ensuring the company can thrive in new markets.

Conclusion

There is need to note that the entry levels differ in different countries depending on the cost the nature of the product and also the time it will take to venture. There is also need to outsource the entry strategies to professional that well understand the area you are investing in. They will help in analyzing the status of the market and also work in ensuring that all is well and that there is the need to understand the dos and don’ts.

Africa is different from developed countries with other people complaining of corruption to survive in business. Ethics has become a sensitive issue in the world of business today, and it is for this reason that we need to dissect properly any market before incurring sunk cost that may not be recovered anytime soon. There is the need also to view markets differently so as to ensure people can serve their customers with unique issues.