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The Potential Market Expansion Of Starbucks

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Question:

Describe about the project focuses on the potential market expansion of Starbucks in two countries Singapore and India?
 
 

Answer:

Introduction

The project focuses on the potential market expansion of Starbucks in two countries Singapore and India. It consist a detailed analysis of the Indian and Singaporean market for expansion of Starbucks. It is done with the help of PESTLE Analysis. PESTLE analysis of the company helps in understanding external environment.   

A newer concept is recently introduced which is gradually gaining importance that is Ethics. Ethics is the set of moral principles and values that governs the action and decisions of a individual or a group (Oxlearn.com, 2015).

The pestle analysis provides a framework that enables to find out the external environment with the help of 6 basic questions, they are:

1) What are the factors regarding politics?

2) Do the cultural factors important for business?

3) What are the important economic factors regarding business sustainability?

 4) What are the environmental considerations?

5) What are the current and impending legislation may affect the industry?

6) What technological innovations will be effective for business?

(PEST Analysis of USA et al., 2014)

Each factor are analysed in informative form for the respective countries. And in the end they are individually rated out of 10 for comparing the degree of beneficial of investment. The total advantage is calculated on percentage with a clear conclusion and some recommendation.

 

About Starbucks:

Based in Seattle, Washington, Starbucks have been the largest coffeehouse chain in United States since 1977. From Peet’s coffee of Alfred Pee, Zev Siegl and Gordon Bowker got the idea of establishing Starbucks. The company was initially famous for selling Coffee beans and Coffee making equipments. After 10 years, the Director of Retail operations Howard Schultz decided to sell drinks along with the other available products. The first expansion of starbucks in overseas was on Tokyo, Japan, which still holds a sizable presence there (Michelli and Parks, 2013).

Over course of time, Starbucks have taken over many companies and made an impression amongst coffee people in places where coffee has be one of the most accepted beverages. Around 1990’s Starbucks was offering stock option and went public. The present expansion of Starbucks is over more than 17,000 stores in 55 countries though the biggest chain lies in United States in 11,000 locations.

Products such as hot and cold beverages, cold bean coffee, teas pastries and snacks are available in Starbucks. It also offers beers and wines in evening locations after 4 pm. One of the marketing strategies that Starbuck follows to beat the competitors is to buying out competitors lease and clustering several locations in a small geographical area. Starbucks is not only a well-emerged coffee house known for its products but they also educate their customers regarding their various products.

PESTLE Analysis

Pestle analysis is a popular tool that considers external factors such as political, economical, social, technological, legal and environmental. Through the analysis, it helps the organization to expand their existing borders and ensures a thorough information on the external factors. Pestles analysis is vital in three cases; they are

  • Appropriate planning in diversify products or launching new products
  • Through advertising increase sale in the new country
  • Work with high collaboration with each other

Political factors:

Political factors constitute external factors of a business. It includes how the government of a country operates, the various government policies that influences the market, the political leading majority that can interfere, parties that would support the expansion the funding, the grants and permissions and the various initiative undertaken by government. It is the budgetary plan of a country and the norms and regulations of FDI that must be considered for business expansion.

Economic factors:

The economic factors consists the Gross Domestic Product of a country. Whether the country is suffering from various price hike and inflation, whether the labour charges the interest rates and the energy costs are too cost effective for the company or not.

Social aspects:

In pestle analysis the social aspects refers to the demography of a country, the media coverage and development, the lifestyle the fashion and the culture of a country.

Technological aspects:

Technological aspect refers to the level of technological advancement that a country, a location or a city posses. Whether new technologies are yet to be adopted by a country or whether the environment is technological which also partially states that the people are technologically advanced. The IT sector is now an emerging trend and today along with four necessary resources that is land, labour, capital and organization Information Technology also plays a vital role.The Informational technology of a country supports the social infrastructure of a country.

Legal aspects:

Legal aspects deal with the various labour laws of respective countries or respective states. The legal aspect also highlights the regulation and standards of business development and expansions. It refers to the various laws that a company have to abide in order to continue business with the region.

Environmental factors:

The market scenario is changing daily, the market situations can be controlled and there are many things that cannot be controlled. The environments that surround us influence us largely. Certain Environmental factors like the weather conditions, the climatic change, and pollution manipulates a business decisions. It is because for typical products certain weather conditions are not appropriate. For example, woollen sweaters are sold during winter season only. However, countries having moderate climate i.e, neither too hot nor too cold woollen sweaters are not an ideal product for selling.

 

Application of Pestle analysis for market Expansion in India:

capital

New Delhi

Area

3,287,590 km

Official language

Hindi, English

Population

1,19,19,98,392 (NPR)

(Censusindia.gov.in, 2015)

currency

Rupee

Calling code

+91


Indian Political Scenario

India is one of the largest democratic countries in the world having the biggest constitution being federal in nature and unitary in spirit. In state of a country, president is the head on the other hand the Prime Minister is the head of the government. The political condition in India is relatively stable).The political parties hugely interfere and influence the business expansion in Indian market.

With BJP as the ruling party and Prime Minister Narendra Modi in power, the current political and economic scenario is very much favourable for business expansion. One of the important initiatives taken by the ruling party is ‘Make in India’. Some of the new Goverment policies include 100% FDI allowed in Telecom and Single Brand retail, the FDI raised to 74% in credit information. These are some factors that are favourable for Starbucks in business expansion, (Makeinindia.com, 2015).

 

Factors

severity

type

impacts

1

Trading policies

high

(+)tive

favourable

2

Political Pressure

high

-

unstable

3

International pressure groups

medium

(-) tive

unfavourable

4

Government policies

high

(+)tive

favourable

5

International relationships

high

(+)tive

stable

6

Terrorism

low

(+) tive

stable

 
Economic factors of India:

Indian economy is the tenth largest economy in the world by nominal GDP 4th largest by purchasing power parity. It is one of the most attractive destinations of business expansion till date, specially due to its investment opportunities (FDI), manpower availability (labour), diversified natural resources with strong macro-economic fundamentals. On 25th September 2014, the Prime minister of India introduced a national program “MAKE IN INDIA” whose prime objective is to facilitate investment, foster innovation and enhance skill development to encourage economical growth.

The current GDP rate of India is 5.6% and expected to grow to and World Bank declared, with the rise in economic progress, India would have 6.4% GDP rate for 2015. The RBI repo rate currently is 7.75% and the reverse repo rate is 6.75%, this indirectly implies banks will be providing more loans. For exchange rates being Re 1 =US $0.016, it is advantageous for Starbucks for land acquisition, cheap labour rate. Even the general economic climate in India is also favourable for Starbucks. Before expansion of business it is necessary to know the inflation rate or the consumer price index so that capital investments and labour rate does not leads to a loss incur.. In India, the inflation rate has been according to last records by tradingeconomics.com 5.00 which was previously 4.38.

Social factors of India:

India is the seventh largest country in area and the second most populous country in the world with more than 1.2 billion people. India is considered one of the leading democratic countries and has a vast diversity. This helps in acceptance of culture and being densely populated the probability of acceptance of the product. It can also be inferred that India being densely populated can provide a huge number of customers to Starbucks. In 2014 declared by UN India also have world’s largest youth population with 356 billion populations belonging under 10 to 24 years of age. (Articles.economictimes.indiatimes.com, 2014)

Technological factors in India:

For the past few years India is witnessing a sea change in technological aspects, and for that globalization acquires the majority credit. In order to learn the economy of a country, what attract the business ventures is the technological aspects of the country. From simple to going digital, India has succeeded to pace up with the advancement of technology. With ‘Make in India’ in progress  Manufacturing industry of India infrastructure and capacity for innovation is balanced for one exceptional growth: new smart cities and industrial clusters, being developed in known industrial corridors having connectivity, new youth-focused programs and institutions committed to developing specialized skills. The growing IT sectors with TCS covering the largest market shares ensures that technological up gradation is going to be continuous process. The internet accessibility is also increasing in every region. Infect One of the metropolitan cities in India is undergoing a wi-fi connectivity throughout, which means there will be free wi-fi throughout. Indiatoday.intoday.in, 2015)

 

Legal norms and restrictions:

 In India, there have been several legal environments that require to be considered in for any firm to operate, especially for custom duties, for various types of taxes to be paid and one of the prime legal aspect i.e labour laws. However, In India labour is cheaper though there are various labour unions and acts to guide a firm for labour exploitation. India has the largest labour force, huge manpower available in this country, professional managers and semi skilled and unskilled labour available at comparatively moderate cost. In order to provide central Government with the means to implement its industrial policies, several legislations have been enacted and amended in response to the changing environment. There are several acts that should be followed to set up of a business in India, they are Companies act, payment of bonus act, Gratuity act, Employees Insurance act, equal remuneration act, Employees Provident fund act and various others.

Environmental factors:

Environmental factors include 4 factors, they are: weather, climate change, soil erosion, land use. Indian geology is climatically pivotal in nature. Where the Himalayan ranges are situated in the north, there the northern region subjected to have alpine climate, whereas in the north-east it has humid sub-tropical climate. Tropical rainy climate governs regions that experiences warm or high temperatures. the coffee production in India is dominated in the southern part of India, where state Karnataka accounts 53%of production, Kerala 28% and Tamil Nadu 11%. the common type of coffee that are cultivated is the Kent, S.795, Cauvery and selection 9.

Application of Pestle analysis for market Expansion in Singapore:

Singapore:

capital

Singapore

(downtown core, central)

Area

718.3 km

277 sq m

Official language

English, Malay, Mandarin, Tamil

Population

5,469,700

currency

Singapore Dollar (SGD)

Calling code

+65


Political scenario of Singapore:

Singapore takes the parliamentary form of representative democratic republic, where the President is the head of the State, and the Prime minister is the head of the government. The political power of the country is at the control of the Government, and it believes in communicating its endeavour directly to the public rather than assembling opinion from the public.

 

Factors

severity

type

impacts

1

Trading policies

high

(+)five

favourable

2

Political Pressure

strong

-

favourable

3

International pressure groups

low

(-)five

-

4

Government policies

high

(+)

favourable

5

International relationships

medium

-

favourable

6

Terrorism

low

(-)five

favourable


The trading policies though strict yet are very much in favour of Starbucks expansion. The political pressures are high whereas the there is n low international interference, despite of having a moderate international relationship with other countries.

Economic factors of Singapore:

Singapore is the 40th largest economy in the world in accordance to GDP and PPP. Currently the GDP of Singapore is in PPP it is Int$ 425.251 billion (Tradingeconomics.com, 2015) and for nominal it is US$297.941billion. According to current Index point, the labour cost decreased to 130.30 that is SD $4314. (Mom.gov.sg, 2015)  Singapore is ranked the 6th most desirable place in the world. According to the Economic Board of Development, Singapore provides strong and stable physical, legal and social infrastructure including a wide range of factory space. it also provides pro-business policies and tax regime, wide range of flexible financial schemes. According to current exchange rates SD$1= USD $0.80. (Singapore Economic Development Board - Investing Business in Singapore, 2015)

Social factors of Singapore:

Singapore ethnic mix is Malays, Chinese and Indians (southern part), the Singaporeans are against blue collar jobs and similar other works in hard environment. ,(Guidemesingapore.com, 2015) As the labour costs are high the neighbouring countries falls under an advantageous position in the eye of the investors. Almost every population is having English as the primary language and in comparison the literacy rate in English is higher than India. the Singaporeans consist the mindset of Kia-Su which means afraid of being defeated and this has made an positive impact on the productivity of the people.  (Ho et al., 1998)

Technological factors in Singapore:

Technology is the power behind the standard of living and the quality of work life in Singapore. Singapore is fully wifi covered region and has a fundamental attractiveness of foreign investment. Moreover, the Singapore Government is moving toward e-Government era. (Guidemesingapore.com, 2015

Legal norms and restrictions:

The legal structure of Singapore is clear and efficacious and transparent. For making International headquarters here, companies benefit from Singapore’s network of 50 comprehensive Double Taxation avoidance Agreement. The intellectual property law is very strict.                                                                      

Environmental factors:

Singapore is considered as the cleanest country of the World. It is a polution free country, and believes in natural protection by supporting green and low emission of pollutants. Singapore suffers with water Crisis and gets help from Malaysia for the supply of water.

 

Comparison and overall rankings:

 

Factors

(PESTLE)

India

(out of 10)

Singapore

(out of 10)

1.

Political factors

6

8

2.

Economical factors

8

9.5

3.

Social Factors

7

9

4.

Technological

7

9.5

5.

Legal factors

7

8

6.

Environmental

8

9

Total (In %tage)

 

71.6%

88.3%


Recommendations & conclusion

Through the PESTLE analysis it can be concluded that Singapore seems to be in an advantageous position to form a favourable business expansion for Starbucks. Almost in every aspect- India is lagging behind, though has an advantageous position in case of population and area coverage area. Through intensive research It is also found that product appreciation the consumer for Starbucks will be more in Singapore than in India. It is not because the number of coffee lovers but because of the affordability per person and the taste and preferences.

 

References:

Guidemesingapore.com, (2015). Quality of Life in Singapore. [online] Available at: https://www.guidemesingapore.com/relocation/introduction/quality-of-life-in-singapore [Accessed 9 Feb. 2015].

Ha, H. and Coghill, K. (2008). E-Government in Singapore - A SWOT and PEST Analysis. Asia-Pac.Soc.Sci.Rev., 6(2).

Hill, C. and Jones, G. (2013). Strategic management. Mason, OH: South-Western, Cengage Learning.

Ho, J., Ang, C., Loh, J. and Ng, I. (1998). A preliminary study of kiasu behaviour ‐ is it unique to Singapore?.Journal of Managerial Psych, 13(5/6), pp.359-370.

Indiatoday.intoday.in, (2015). Kolkata becomes first WiFi-enabled metro city : News, News - India Today. [online] Available at: https://indiatoday.intoday.in/technology/story/proud-to-see-kolkata-becoming-first-wifi-metro-city-in-india-mamta/1/417265.html [Accessed 9 Feb. 2015].

Michelli, J. and Parks, T. (2013). Leading the Starbucks way.

Mom.gov.sg, (2015). Starting a Business. [online] Available at: https://www.mom.gov.sg/foreign-manpower/working-in-singapore/starting-a-business/Pages/default.aspx [Accessed 9 Feb. 2015].

PEST Analysis of USA, t., Marketing, T., Industry, A., Growth, P., Company, S., Industry, S., Organizations, H., SWOT Analysis of Nestle, t., Template, H., Them, B., Overview, W., Them, M., Process, W., PEST Analysis of USA, t., Marketing, T., Industry, A., Growth, P., Steps, H., Environment, P. and Steps, P. (2014). What is PESTLE Analysis? A Tool for Business Analysis. [online] PESTLE Analysis. Available at: https://pestleanalysis.com/what-is-pestle-analysis/ [Accessed 9 Feb. 2015].

Singapore Economic Development Board - Investing Business in Singapore, (2015). About Business Opportunities in Singapore - Singapore's Fundamentals - Trust. [online] Available at: https://www.edb.gov.sg/content/edb/en/why-singapore/about-singapore/values/trust.html [Accessed 9 Feb. 2015].

Tradingeconomics.com, (2015). Singapore Average Monthly Wages | 1989-2015 | Data | Chart | Calendar. [online] Available at: https://www.tradingeconomics.com/singapore/wages [Accessed 9 Feb. 2015].

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