The Fundamental Work of Starbucks in China - Essay Example

Business Corporate Strategy (Starbucks in China) Starbucks is indeed an Internationally acclaimed brand of coffee and some other beverage products. Founded in 1971 in Seattle's Pike Place Market today it has its presence in 36 countries outside United States, Offering more than 30 blends and single origin coffees, hand-crafted espresso and blended beverages. The mission statement says, "Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow." And towards this goal, Starbucks has decided to explore the Chinese market. Having established itself in many parts of the world, the company now wants to expand its network in China, the land of billions and vast opportunities. Its importance is highlighted by the statement of Howard Schultz 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. SWOT Analysis Strengths Starbucks is in the business since 1971 and today it has its footprints in more than 36 countries with 11,000 stores. It has already gained a first hand successful experience in China, having entered China in 1999. A committed managerial team is headed by Howard Schultz, the present Chairman, who has proved to be a man with a mission. A dynamic person, he known to be full of energy who successfully transformed the US operations to their present proposition. Over time and with experience, Starbucks has developed a sophisticated store-development process based on a six-month opening schedule. This target driven strategy helped the company in opening large number of stores in US and elsewhere. Starbucks has held the 'brand' and quality in a high esteem. It has so far resisted the temptation of offering franchises and instead believes in offering the consumer a unique Starbucks touch. Of late Starbucks has also entered into strategic tie-ups with some companies, to cater to its consumers at Airports, Hotels, Airlines etc. Starbucks has a big presence in the Asia-pacific regions, which will give it further strength in its operations in China. Weaknesses Starbucks has been doing the ground work in China since 1994. Therefore comparing the growth of its operations in other nations, Starbuck could not successfully implement this experience in China and had to be content with relatively modest success. The company has taken little too long in building the foundation. Though Starbucks has shown its commitment to environment and health by maintaining a no-smoking policy, but in this part of the world, people prefer to sit out and chat with a cup of coffee on the table and a cigarette in hand. Opportunities For long China carried the reputation of being the world's greatest opponent of globalisation. But now things are perceptibly different. Today China has transformed itself into a committed member of WTO. Under the globalization, China is a rapidly growing market Though dominantly a tea drinker nation, Chinese consumer is rapidly accepting Coffee as one of the main beverages. According to Euromonitor, total sales of coffee in China has grown by nearly 90% between 1998 and 2003. Estimates for future point out that the market is bound to grow by about 70% in the period 2004-2008. Consumption of coffee has so far been concentrated in big cities only. Now with the establishment of a firm foundation the company can plan out a formidable plan for mediums sized cities and hamlets. Chinese beverages market is still vastly (more than 42%) dominated by Tea drinkers, this leaves enough room for inviting these people to a coffee table. India is nearby. This market too is a rapidly growing market and Chinese experience will certainly help the company in getting a foothold in the neighboring rapidly growing market. Threats Some of the key players like Nestle, Dante Coffee, Manabe Coffee, McCafe, K-Cafes have a strong presence in China Many local and regional operators are also offering coffee at cheaper rates. The research activities and anti-caffeine activists have been sounding alarm bells for companies in the coffee business. 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. Stakeholder Mapping For any business venture to succeed, stakeholders are identified and then strategies are devised accordingly to look after their interests. Starbucks goal is to become a leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and by providing superior customer services. For Starbucks the stakeholders in its Chinese venture are; Investors and Financers: The Company will have to arrange necessary funds in order to expand its operations in the desired way. The Government of China: In order to arrange for the necessary go-ahead the company will have to approach the Chinese government Youth of China: This segment is the most lucrative one for any coffee house. Starbucks has a two fold challenge at its hand, first, to popularize itself amongst the youth and second, to wean away a chunk of market from competitors. While inviting the loyal customers of other brands the company must keep in mind the sensibilities and must respect the marketing ethics expected of an international brand. This particular segment is the biggest segment of coffee lovers. Easy accessibility and customer service excellence are the key driving forces behind any successful business. Families and other sections of the society: In case a family or a group of friends wish to spend a day out, Starbucks will have to entertain them in such a manner that the vast majority of tea-drinkers feel attracted towards coffee. Tourists: Besides the above-mentioned primary markets, the secondary target market comprise of tourists in the subcontinent. A Tourist when discovers his/ her favorite brand in a foreign land, the nostalgic feeling brings him closer to the brand. For many of the tourists are from Europe and America, therefore Starbucks can plan out appropriate strategies. Employees: Since Starbucks has been paying good attention towards maintaining a unique blend of Starbucks culture, it needs to recruit and train its employees accordingly. These employees then become the ambassadors of Starbucks in a foreign land. Suppliers: Suppliers of coffee grains and other material hold the key in supplying quality material on time, in order to serve the people of China Coffee at its best. Strategic partners: Strategic partners for Starbucks will help in gaining more customers in diverse markets. The company will therefore have to select its partners in different markets with an eye of furthering its cause while not placing the partners at a disadvantage. Porters 5 forces: Buyers'/Consumers' power: The consumers of Starbucks coffee hold the key in writing a script of success for the company. The Chinese consumer has other alternatives like local coffee and tea. Therefore, Starbucks will have to reckon with a formidable force while attracting and retaining the customers within its fold. Suppliers' power: Since Starbucks doesn't have to deal with suppliers on a daily basis, as its main supply chain of coffee grains can be fulfilled even from back home, as was done during the early days of Chinese foray. Therefore suppliers don't hold too much power in influencing the decisions at Starbucks in a drastic way. Rivalry amongst Competitors: Such a rivalry appears to be the most influencing force at Starbucks, with each trying to influence the customer in his/ her own way. With strong contenders like Dante Coffee, Manabe Coffee, McCafe, K-Cafes sweating it out for the slice of Chinese coffee market, Starbucks has got a reasonable competition on hand. Threat of new entrants: Since the Chinese market is a huge market, any new entrant can carve out a niche for itself. But majority of Chinese still prefer Tea to Coffee, and huge investment is required during the early years of operation, no new entrant can grab the market share overnight. If any new company plans out its Chinese mission, Starbucks will get ample time to react and adjust its strategies accordingly. Threat of substitute products: That's indeed something the Starbucks is worried about. Tea and cheaper versions of coffee proved to be the alternatives to its offering. But consistency in quality and standards are the key to good results for the company. On the basis of the case study it is quite apparent that Starbucks has a good presence in China, as on today. Now in view of the growing influence of its competitors, the company wants to expand and strengthen its network further in the country. Having been in China the company must be well aware about the prevailing environment in the country, therefore PESTEL analysis may not prove to be of key importance. If the company is able to sustain its business in China for this while, company must be aware about its SWOT factors as well. Therefore, after evaluating the usefulness of all the four above mentioned strategic analysis tools, Porter's five forces model appears to be the most useful and appropriate for this venture of Starbucks, as it needs to thoroughly study the competitors and their strategies, for making suitable moves. Read More