Discuss about the International Expansion of Starbucks.
The report talks about the international expansion of the company's one product. The paper shows the evaluation of the expansion of the business in the potential market. The organization selected for the international expansion is Starbucks and the product of the company selected is coffee. The emerging markets of the business include Mexico, Brazil, India, South Africa, and China. These are the emerging potential market for the business. The company is already inroad into the Chinese market but definitely, there is still a need for the expansion in these markets. The potential market for this report selected is Italy. Italy market is the best potential market for the Starbucks expansion (Forbes, 2015).
The report includes the evaluation of the coffee of the Starbucks in Italy. The Italy market analysis is considered to figure out the strategy that is going to help the company for the expansion. The company needs to think of the mode of entry, for entering into the chosen market.
Starbucks Corporation is an American coffee company, who was established in the year 1971 in Seattle, WA. The company consists of the 182,000 employees across 19,676 company-operated and consist of the licensed stores in 62 countries. The main product of the company comprises of the tea, coffee, fresh food and other beverages. The company sells a different variety of coffee and tea products and the company licensed their trademarks. The company sells these products through licensed stores, grocery and the national food service (Geereddy, 2013). The company operates and competes in the retail snacks and the coffee store industry. Currently, Starbucks is dominating this industry with the market share of 36.7% as compared to other like dunking brands with 24.6%. In the dynamic world, every company is willing to expand the business in the global market. The company believes in expanding the business internationally because they want to establish a good brand value and position internationally. The international growth helps the company to earn more of the revenue (Forbes, 2016). The company will be able to register the growth of the business.
The market analysis is a quantitative and qualitative assessment of the market. It considers the factors that affect the expansion of the business or the segment and the buying patterns of the customers (Susanty, and Kenny, 2015). It includes the analysis of the economic environment that became the barrios to entry for the Starbucks.
Market Analysis of Italy
The government of the company welcomes the companies like Starbucks. The company starts up in Italy brings the development of the infrastructure in the Italy market. This development of the market attract the suppliers towards the market this will be beneficial for the government of the Italy (Cohen, and Leventis, 2013). The country will be able to attract the FDI (foreign direct investment) towards the Italy.
The economic factors consist of the inflation, employment, purchasing power of the country etc. the economy of the Italy is the 3rd largest national economy in the Eurozone and it is 8th largest by the nominal GDP. The GDP per capita of Italy is $30,507 is shows that the purchasing power of the company is high. The purchasing power of the people is high which shows that the Starbucks will be able to earn the profit even If the company sell the products at the high prices. The unemployment rate of the Italy is 11.2% that is the government of the country welcomes the expansion of Starbucks. Starbucks expansion will help in enhancing the employment opportunities in Italy.
The start-up of the Starbucks in Italy needs a huge amount of investment because the company is willing to open 500 stores in Italy. The investment of the Starbucks in the Italy brings the rural economic development for the company. The company will invest in the rural areas to get the best quality of the coffee beans because the population of the Italy is specific for the coffee flavors. Though it will be difficult for the company to set the new flavor for the crowd of the Italy, the company can try to offer the best from their end (Rabanal, and Taheri Sanjani, 2015). The investment of the Starbucks in Italy is a beneficial deal or the company as the company will be able to earn more profit.
The Starbucks has the opportunity to improve its performance by providing the maximum satisfaction to the customers of the company. This is possible by implementing the product safety regulations on the ingredients which are used by the company (Fishman, Washington, Haworth, and Watson, 2015). In Italy market, the company might face the threat of the access to the labor market.
Starbucks has the opportunity to enhance the revenue of the company because of the increase in the demand for the coffee by the people of the Italy. The coffee industry is in boom nowadays coffee culture is growing. The demand for the healthy products increasing and the people are becoming more health conscious. The Starbucks can easily attract the customers who are health conscious (Castano, Mendez, and Galindo, 2015). Starbucks can face the problems in the cultural factors the reason being there are very less international chain cafes. The international chain coffee café available in Italy holds a very low share in the market of the Italy.
Recommendation for the Business Strategy
The above factors show the Italy market condition that can impact the Starbucks. The company knows very well how to deal with the factors as the company has operations in many other countries. Though, the factors show the positive role in the expansion of the business.
Italy is the second largest importer of the green coffee beans in Europe. Coffee is most important part of the Italian culture. Italians tend to value a high quality of the coffee and they are loyal towards the flavors of the coffee. This is the reason most of the coffee companies like to enter into the market of the Italy. Italian espresso is the famous across the world and this is the reason many brands are exported worldwide (Blouin, and Macchiavello, 2017). Italy has the second largest consumption of coffee in Europe, the country consumes approximately 5.7 million 60 kg bags of the green bags in the year 2015, that is approximately 14% of the total European union consumption. This is the reason why the company’s potential market will be Italy (Mordor Intelligence, 2017). Though, it is very difficult for the company to set the business in the Italy market because of strong Italian tradition and customs in foods.
In the Italy coffee market, there is a coffee sales dominance by Lavazza (an Italian brand) with approximately 36.9% market share. The international chain coffee makers are not able to survive in the Italian market because the Italian follows their tradition.
There are different business strategies that can be implemented by the business such as transnational strategy, global standardization strategy, localized strategy and international strategy. Out of these strategies, the Starbucks should implement the transnational strategy. These are a general strategy that the company should adopt. Considering the Italy market it is recommended to Starbucks to implement the transnational strategy.
The transnational strategy is the strategy that combines the global configuration and the coordination of business activities with the local responsiveness (Chung, 2014). If the company is looking to expand the business across the international market then the company understands the market where the company is expanding the business and according to that, they bring the changes in the process. Similarly, Starbucks is expanding the business in Italy so a company should understand the demand of the customer and accordingly they should bring the changes in the products and services that the company provide to their customers. Transnational strategy changes with the change in the customer behaviour and the external factors of the country. The business will get the benefit of adopting a transnational strategy (Rothaermel, 2015).
- To maintain the tradition: - The Starbucks need to bring the Changes in the product they are manufacturing so that they will be able to make the customer consume their products. The investment in the coffee beans production will help the company in maintaining the tradition of Italy in their coffee. The Italian people will be able to pay high prices for the quality of the product. So, Starbucks should invest in getting the quality coffee beans. This is the only way to attract the customer towards the Starbucks.
- Lower labor cost: - The Company can easily appoint the labor at the low cost because the unemployment rate shows that there is the need of jobs. The development of the Starbucks in Italy will enhance the job opportunities and the company will be able to hire the specialized workers at the low cost.
- To enhance the customer satisfaction: - The customer satisfaction plays a vital role in the business. The customer satisfaction comes when customers attract towards the product of the Starbucks. To attract the customer's company need to bring the changes in the product according to the expectations (Reiner, Gold, and Hahn, 2015). Meeting the expectations of the customers is must for the company. After meeting the expectations company will be able to enhance the customer satisfaction.
Foreign market entry modes differ in degree of risk that they present, the control and commitment of resources that they require and the return on investment that they promise. There are different modes of the entry into the foreign market such as exporting, licensing, joint venture, mergers, and acquisitions, franchising, turnkey project, strategic alliance and wholly –owned subsidiary (Basic, Vlajcic, and Kiessling, 2016). The best mode of entry that the company can use to enter into the Italy market can be a joint venture.
A joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task (Li, and Parboteeah, 2015). The Starbucks can do the arrangement with the Italian coffee company to enter into the Italy coffee market. This is recommended to the Starbucks because in the Italy market the individual international chain might not be able to survive, make position, and earn a profit.
There are numerous benefits to the company if the company select joint venture as the mode of the entry into the Italy market (Yan, and Luo, 2016). Some of the benefits are discussed below:-
- Access to the new markets: - The Starbucks will be able to access the market of the Italian coffee that helps the company in entering the market (Axelsson, and Easton, 2016). If Starbucks will enter into the joint venture with the Italian coffee company then it will be a beneficial deal for the company.
- Awareness about the distribution network: - being in the joint venture with the Italian coffee café company will get to know about the distribution network that the traditional Italian coffee café follows (Amini, Nabi, and Haghifam, 2013). The company will get the support of the tie-up company in forming the connections with the distributors.
- Access to resources: - Company will get the details related to the resources and collectively they can access more of the resources that will help the company in making a huge profit out of the project.
- Awareness about the secrets of the traditional coffee flavors: - The Company will get the details related to the secrets of the traditional coffee beans and the flavors that are used by the traditional coffee places. This will help the company to bring the flavors in their product (Schapira, Schapira, and Schapira, 2016). So that it will easier for the company to provide the traditional flavors to the Italian people because these people stick to their traditions and customers.
- A better understanding of the traditions and customs: - Starbucks gets to know more about the traditions and customs of the Italy that helps the company in transforming themselves and bringing the traditions. These changes of the company will help them in attracting more and more customers. The needs of the customers will be fulfilled that help in enhancing the customer satisfaction which results in a hike in the share value of the company (Pocock, 2016). This how the company will be able to make a profit.
- Increase capital: - In the joint venture both the parties will get the advantage of the capital. The burden of the finance will be divided among the two of the parties. The capital is must for the expansion of the outlets. If in case the company will not be able to succeed in the investment done by the company then both the parties will bear the risk together.
The benefits of the joint venture show that it is going to be a beneficial deal for the company like Starbucks. The company will be able to make the position and the brand value in the Italian market. Definitely while doing the joint venture agreement with the other company will make the Starbucks think that which company they should select for the joint venture. It is difficult for the company to search and identify the coffee maker company who is agreeing to for the joint venture with the Starbucks. Apart from the identification, it is required for the Starbucks to check the working and positioning of the other party in Italy. The joint venture helps the company in the successful expansion of the business.
The report talks about the expansion of the Starbucks Company in Italy. Coffee is the main product of the company and this is the only product which company is willing to establish in Italy. The report shows the market analysis of the Italy that talk about the culture of the people of the Italy. The market analysis of the Italy shows that they are a dominance of the traditional coffee café who provide the traditional and customs in the food. This tradition is the only thing that attracts the customer towards the coffee.
The transnational strategy helps the company to bring the changes in the product that the company is going to follow. This strategy helps the company to maintain the space and position in the Italy market. Apart from this, the company can use joint venture to enter into the Italy market. The joint venture will be the best mode because the company is unaware of the market of the Italy. So it is best for the company to make the agreement with the company who is already established in the market of the Italy.
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