Starbucks' Indian Market Essay Strategy

Critically evaluate the strategy of a multinational company which has recently entered an economy of your choice (preferably your home country) including the motives for entry.’

About the Starbucks company

The purpose of this study intends to analyze on the strategy of a multinational enterprise that has currently entered in India. The multinational company chosen for this study is Starbucks enterprise. When any enterprise seeks in entering the foreign market, it select most proper entry mode for the particular market. The entry medium strategic decision is the most vital decision for expansion in the foreign market. The selection of strategy has long- term effect on the multinational corporation. The strategies of entry mode are irreversible and might impact the performance of organization in long- run. There are several factors that impact the organization’s entry mode decision. The managers of the organizations need to assess these factors and determine most appropriate international strategy (Deresky 2017). The influential factors in the entry medium decision might be varied in every case. The extent of impact of each factor might vary among the nations. However, some MNCs might utilize varying entry modes for adopting to particular situations in the internationalization process. The study focuses on the reasons behind Starbucks entering this country. This company’s entry mode motives and medium for entering India is also discussed in this study. Some of the key challenges faced by Starbucks while entering this country is explained in this study. This study also highlights on success stories and porter’s five forces analysis of this organization. Furthermore, the strategies integrated by Starbucks for managing their business on India is also elucidated in this study.

The Starbucks enterprise is one of the biggest American coffee enterprise and coffeehouse chain that has been founded in the year 1971 in Seattle, Washington. As of the year 2017, this company has around 27,339 branches around the globe. This organization has around 182,000 employees across its licensed stores in more than 62 nations. Their product mix involves – roasted as well as handcrafted high quality or premium price tea, coffee and various fresh food products and beverages. This enterprise also sell different tea items as well as coffee products its trademarks via various channels such as grocery, licensed stores and domestic foodservice accounts. This company also markets its goods with other brand names mainly within the company’s portfolio (Starbucks Coffee Company 2018).

Starbucks mission is to motivate as well as cultivate human spirit that is one person, one cup and one neighborhood at one time (Panmore Institute 2018). This company’s vision is to establish its business as premier source of coffee across the globe while maintaining its principles while growing. Starbucks is mainly committed to the role of environmental leadership in every facet of their business. The company fulfill its mission by commitment to develop innovative as well as flexible solution for bringing about change, striving to purchase and utilize environmental friendly goods, understand environmental issues and instill environmental responsibility as corporate value (Panmore Institute 2018). Aside from selling coffee, this enterprise has made business out of community involvement, human connections and integration of varied cultures.  

In today’s world, alliances have become one of the vital strategy for the multinational enterprises to expand. The corporations are considering strategic alliances as better form of growth with other growth routes. Some of the characteristics of each form of strategic alliance are given below-

Motives for Starbucks entering India

Mergers- It indicates to joining of two enterprises to form a new firm. However, both the firms have equal control over others or dominate other entity.

Acquisitions- This relates to procedure where one enterprise purchases other enterprise. In this circumstances, the purchasing entity absorbs the existing entity. It is important to eliminate entity by absorbing other or expand their portfolio.

Alliances- It refers to an approach where two companies agree in pooling their resources to form combined force in marketplace. But this do not include emergence of new entity.

 Starbucks is mainly committed to uphold culture where diversity has high value. This organization’s diversity strategy basically focuses on four major areas that include- partners, suppliers, customers and communities. They engage its partners who are highly diverse as that of communities. Even they target to provide unique customer experience by connecting with them in cultural way. They also support as well as invest global communities via economic development opportunities and strategic partnerships. In addition to this, they enhance business relationship with its suppliers through supplier diversity program.

Recent evidences reflect that numerous coffee enterprises have entered in India in the present years owing to this industry’s high growth potential. There are several reasons behind Starbucks entry into the Indian market. One of the strong reason behind entry of this coffee company is that this nation is one of the growing coffee markets across the globe. Moreover, the dynamic markets of this country consists of diverse culture and huge potential. Apart from this, the changing pattern of customers buying behavior in India has been another reason behind this enterprise entry in the Indian market. It has been evident from recent facts that near around 52% of the Indian customers prefer to go to cafe for having coffee or other beverages. It has been found from recent facts that most Indian preferring tea now prefer to have coffee at cafes since this nation’s growing middle class adapts to the western tastes. Besides this, increase in total consumption of coffee in India also motivated this enterprise to enter the Indian market. The people residing in this country now afford to spend money on those things they desire and prefer. In fact, the Indian consumers have been shifting from being saving oriented to consumption oriented.

 The total revenue from the café business in this country has accounted for around $230 million in the year 2011-2012 and is predicted to grow by around 13-14% every year. According to Aielle and Dickinson (2014), the coffee shops as well as café market in India is predicted to grow in the next five years. Furthermore, improvement in the consumers disposable income, rising influence of the western nations, accessibility to internet as well as social media also influenced Starbucks to enter into the Indian market. Several evidences also reflect that coffee has also turned out to be one of the trendy beverages for young population of this nation. In fact, the coffee shops also turned out to be best location for youngsters hangout in recent years. This ensured the Starbucks company to expect higher amount of revenue from the business entering this nation. Overall, the rising disposable income of consumers, influence of the western culture amidst youth and other people witnessed shift due to global exposure of international brands in Indian market. The rising acceptance of coffee as beverage across the nations has motivated this company to launch its coffee store in India.

Entry mode medium of Starbucks

According to Aielle and Dickinson (2014), a foreign market entry medium is to create possibility by organizing the entity’s products, human skills, technology and other resources for entering into foreign nations. Lakshminarayanan, Maggio and Best (2017) has found out that the entry modes mainly aid the organizations to determine target, resources and policies for channeling their foreign activities towards sustainable international expansion. As per Gopalakrishna, Victor and Fleischmann (2016), when an enterprise strategizes to enter an international market, the selection of better entry mode becomes the entity’s expansion strategy. There are mainly six varying entry modes such as- exporting, franchising, licensing, joint venture, turnkey projects, with the host nation firm and setting up subsidiary in host nation. All these entry modes have its benefit for the enterprise to enter any foreign market.  However, the managers of these enterprises must make proper choices as it directly impacts their business operations.

In this case, Starbucks uses joint venture entry mode medium for entering into India for doing its business. This type of entry mode is used by several companies world-wide. As per Hanson et al. (2018), joint ventures means two independent entities joining together in alliance for achieving good position in the market. It is the process that both companies hold same share percentage in venture. Starbuck select joint venture with the Tata Group for entering the Indian market. Starbucks has invested more amount for gaining huge share percentage and hold tight control of business operations. But one disadvantage that Starbucks faced during its entry mode is to get in conflict with Tata Group regarding relative share ownership for having control over the entity. Furthermore, being the partner this company also facilitates Tata Coffee tap opportunities in the domestic market (Lakshminarayanan, Maggio and Best 2017).

Starbucks has been facing some of the key challenges after entering into India. The potential challenges faced by this organization after entering into Indian market are rising competition from other retailing company and its lack of experience in doing their business in the price sensitive market. In addition to this, another challenge that thus enterprise faces is that most people residing in this nation aren’t drinking coffee as per International Coffee Organization (forbes 2018). However, this corporation faces lowest growth of sales in the Indian coffee market last year. Since the Indian coffee market is price sensitive, the premium pricing has created challenge for Starbucks corporation while opening stores in new location. The company also faced challenges due to absence of empowerment as well as responsibility of the cooperative structures, which shift beyond the supply chains engaged in responsibilities within developing nations. The management of this organization also faced delimma regarding the workers well-being where resource constraints and the fair trade agreements rest on customers buying decision (Banerji 2013). Several researches have also pointed out that this company has faced problems regarding change in consumers preferences and tastes. Due to this, the company has to introduce new menu for attracting people of different cultures in India.

From Starbucks perspectives, the quality of baristas and employees has been the major determinant of Starbucks success. Huge financial resources have been dedicated for pursuing best means in obtaining high employees quality (Cheng 2015). Starbucks uses proper approach to raise benefits of health care and extend in working more than 20 hours in a week. The workers at this company reasoned that rising benefits of healthcare might not only attract high quality workers but decline turnover rate and other expenditure for the enterprise. Another initiative that this enterprise team adopted has been employees stock ownership plan. The plan has been the stock options to the workers from top managers to baristas. As Starbucks offered stock options, they had to gain exemption from Securities and Exchange Commission. By including employees in equity success of enterprise, this company created incentive for workers to reduce costs and has treated consumers with proper service (Tikson 2018).

One of the tools of the sector’s competitive forces is five force framework developed by Porters. The porters five forces analysis of Starbucks in India are explained below-

 Buyers bargaining power-The buyers bargaining power for Starbucks is moderate. With the advent of other coffee corporation, it becomes difficult for Starbucks to impact buyers to pay quality products. As per capita income of Indian customers is low and their behavior is lees affirmative with that coffee culture, it is attracting Indian youths. Thus, pricing requires to be competitive and on the zonal basis( Shaik 2017).

Suppliers bargaining power-The suppliers in Indian coffee market supplying coffee beans do not have much bargaining power. This is mainly due to the fact that the coffee retailers such as Starbucks apt to big buyers for any suppliers. This provides this enterprise to dictate terms to supplier (Duke 2017). Likewise, the other resources suppliers might not have much bargaining power as several sources from the organization might source them. Starbucks develops relationship with tea and coffee producers to educate them about the farming practices and thus aid them derive maximum practices.

Industry’s rivalry-The competitors rivalry in coffee sector is high because of monopolistic competition in this sector as well as total number of entities competing for high market share. The barriers to entry and exit is low. The major factor which creates competition for this corporation is its market share.  The high quality as well as product based differentiation, which Starbucks use also provides edge to its rivalries (Duke 2017). The sector has matured as well as growth has moderated since large number of players are competing for its market share. The main competition for Starbucks in this country comes from Café Coffee day. The other rivalries involve costa coffee, Barista Lavazza, Georgia coffee and Mc Donalds.

Threat of new entrants-The new entrant threats for Starbucks is relatively low in India. The barriers is low and saturation level in this sector is relatively high. The new firms compete with other brands such as Starbucks at the local level. Starbucks has attained large market share on the basis of infrastructure and good quality. Given this enterprise is global, it has benefit when it comes to attaining economies of scale. A vital factor that provides this company’s brand competitive edge is accessibility to raw materials as well as suppliers. All such factors act to low threat level posed by new entrants (Hanson et al. 2016).

Threat of substitute product- The total number of the substitute goods for Starbucks coffee is very high. There are numerous beverages that have several substitutes available in market. India has pre- dominantly tea based culture and thus awareness relating to coffee requires to be included in offerings. The other coffee houses also act as substitutes to this enterprise (Duke 2017).

  This analysis helps to provide an overview on the macroeconomic environment of Starbucks in India

Political factors- The Indian economy is stable in terms of political problems in comparison with other nations. This makes good business environment for this company to operate their business. They can also face opposition from existing rivalries through utilization of the political influence (Pradhan et al. 2017).

Economic factors-In economic terms, India has stable GDP growth rate after the recessionary period. This creates favorable environment for Starbucks to enter into India and a place to make safe investment proposition.

Socio- cultural factors- Change in the social trends affect the demand of this company goods and willingness of people to work here. The young population in this nation wants to change their taste, which in turn created huge opportunities for Starbucks to do business. The culture of India might pose challenge to Starbucks. This is because as India has mix of tea drinking population, it can pose challenge Starbucks to change their preferences to coffee (Williams and Figueiredo 2011).

Technological factors- Starbucks has partnered with Tata Coffee Ltd for attaining highest position in the market. Advancement in technologies in India has also helped this company to operate their business effectively. But lack of infrastructure in technology integration might create some problems for Starbucks.

Legal factors-Starbucks has experienced few drawbacks from legal environment in this country. Corruption is high in India and this creates concerns for this business. Due to improvement in FDI policies, lower tariffs has made the market promising to Starbucks (Pradhan et al. 2017).

Environmental factors-The climatic conditions of India is also favorable for growing coffee beans. However, this creates opportunities for Starbucks for doing business in the India. But the uncontrolled population can adversely impact on natural resources as well as environment.

SWOT analysis

 Target market and Strategies adopted by Starbucks for market entry in India

The target market of Starbucks is from middle to high income people with the desire in purchasing premium goods. They utilizes services along with quality goods for achieving targeting strategy and growing rapidly over the years. Starbucks integrated few strategies before entering the Indian market. One of the strategies that facilitates Starbucks in creating successful business in market is joint venture strategy (Shaik 2013). It relates to an agreement between two enterprises for coproducing as well as distributing product in various parts across the globe. Starbucks selects to joint venture with the Tata Group for entering this market (Chua and Banerjee 2013). Owing to this, the enterprise develop better relationship with the suppliers and other workers, which in turn helped them to increase profit of the enterprise. Starbucks has also integrated segmentation strategy for positioning itself as premium coffee provider. For assessing consumer segments, Starbucks have created targeting grids to evaluate suitability of segments depending on certain criteria (Collett Miles 2013).

Conclusion 

From the above discussion, it can be seen that the managers and stakeholders of the multinational organizations are mainly responsible for integrating entry mode strategies before entering to foreign market. As Tea industry dominates the beverage sector in India, Starbucks has faced few challenges while entering the market. Due to this, Starbucks invented new strategies so that they can mitigate risks and challenges while entering the market. These strategies have also helped this entity to attract consumers and enhance profitability from business operations in India. Moreover, Starbucks has also gained competitive advantage in the Indian market through product differentiation. This entity offers differentiation through better customer experience as well as selling quality products inn the Indian market. Furthermore, this company’s working environment and culture also facilitate them to gain competitive advantage over other rivalries.

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