Category: Starbucks

Starbucks: From The Friendly Culture To The Effective Production Stage

A cup of coffee, that’s all it is? This business, rather than being founded by a big business conglomerate as we might expect, but Starbucks was actually founded in 1971 in Seattle, Washington by Jerry Baldwin, Zev Siegl, and Gordon Bowker, three students at the University of San Francisco. It was a single store offering coffee beans and a coffeemaker. But now, Starbucks Corporation is an American multinational chain of coffeehouses and roastery reserves headquartered in Seattle, Washington and it is estimated that since 1987 an average of 2 new Starbucks locations is opened every day. In addition, as the largest coffeehouse in the world, Starbucks is seen to be the main representation of the United States’ second wave of coffee culture.

It was announced in December 2016 that Howard Schultz would step down as CEO of Starbucks, and later in April 2017 that he had personally recruited Johnson to be his successor. Kevin R. Johnson is an American businessman and software engineer who became the fourth CEO in Starbucks history.

As the global coronavirus pandemic has brought companies to a standstill, Kevin showed how great a disturbance handler he was, when everything hits an unexpected roadblock, Kevin took charge. He posted a clear letter to all U.S. employees, appointing his company’s strategy for the next months in response to the current pandemic, Covid-19. In addition, that letter showed that Kevin was also an absolute figurehead. As he mentioned in his letter “I am proud of all Starbucks partners, and how you have shown up in support of one another and in support of the communities we serve. You are the heartbeat of Starbucks, and you have demonstrated why our company is resilient.” He was able to communicate effectively with internal contacts and be a source of inspiration for them.

‘The impact of COVID-19 varies across communities, and decisions will need to be made locally, with our field leaders, store managers, and local health experts.’ said Kevin in a letter to his partners, by that he showed that Kevin acted as a free rein leader. He gave complete freedom to his subordinates for making decisions. Additionally, he announced that field leaders would have access to a special tool to help inform their decisions. He did not use power, but he did maintain contact with them.

Culture acts as an anchor, which maintains a solid brand base. Starbucks ’ community is different. It brews the best coffee and that too is brewed with a human touch, respect, and love. Shared values are at the heart of Starbucks ‘ lifestyle and culture. Starbuck’s shared values embrace equality, accountability, ethics, integrity, and inclusion. Moreover, it is even as good at keeping its employees happy as its customers. It has focused on creating a culture of warmth and belonging where everyone from employees, regardless of their role, to customers can feel welcomed and are referred to as partners to form a sense of unity. It created an environment of inclusion and non-discrimination.

“Giving more than we take from the planet.” was one of the fundamental believes at Starbucks. They are committed to offering high-quality, ethically purchased, and responsibly produced products, and by 2025, the coffee retailer plans to have 10,000 environmentally friendly stores worldwide, this is the new ‘Starbucks Greener Stores’ initiative-showing an activist (Dark Green) Approach.

The purchasing perspective of generations has shifted consumer focus to social responsibility especially when it comes to the environment. Studies showed that customers are steadily willing to spend more when they recognize their investments would lead to a positive impact on the environment. Moreover, the impact isn’t all external. It was shown that employees feeling confident about the CSR program of their company increased their expectations to remain with their present employer and their commitment to the organization. Commitment includes a vast variety of optimistic beliefs, including how many employees like their organization, make personal sacrifices for the organization, and see their own success linked to the success of the organization.

An orientation towards growth was obvious since Starbucks started. It is the largest coffeehouse company in the world with more than 31,256 stores across the globe now.

Starbucks seems to be pursuing a general and global strategy, where they get products from their domestic market and sell them internationally with only minimum local customization. Besides, many managers at Starbucks are geocentric they pay very close attention to “what best is what is effective, regardless of origin”. Also, Starbucks used three main different entry mode strategies to internationalize: joint venture, licensing, and Strategic Alliance.

Starbucks in 2019 announced it was partnering with Uber Eats to expand its delivery in the United States, and the most recent partnership Starbucks announced on 25th of Feb 2020 was with Nestle, “Starbucks and Nestlé announced another collaborative innovation as a result of the global coffee alliance, the launch of Starbucks Premium Instant Coffee, available in Japan, China, Europe, Latin America, and the Asia Pacific.”,

Starbucks is trying to compete successfully only within a single industry. It relied heavily on concentration strategies to become dominant players. It did not limit itself to selling coffee, but also selling coffee beans and even selling beans in grocery stores. This allowed consumers who do not visit their coffee-houses to reach the products of Starbucks. Thus, Starbucks used market development which involves taking existing products and trying to sell them within new markets.

This Starbucks SWOT analysis shows how the world’s largest coffee chain is leveraging its strategic advantages to keep rising so effectively across the globe.

One of its main strengths is its strong brand image, in the food and beverage industry, Starbucks is the most popular, powerful, and strongest brand. As Interbrand ranking showed it had a brand value of $11.7 Billion. Nevertheless, one of its main weaknesses is a recall of products, where Starbucks has recollected many in-demand products over the years which can have a negative impact on the company’s brand identity and induce a loss of customer base.

Besides, Business diversification and Products Specifications act as the main opportunity for Starbucks, where it can further expand its business operations and its company activities to boost overall revenue growth. Also, producing products as per the customer preferences in the specific target market is also a profitable opportunity. However, competition with low-cost coffee sellers is a major threat. Starbucks’ offerings are more expensive than other coffee shops or products and these high prices reduce affordability for the consumers, which threatens the future’s stability of Starbucks.

In conclusion, looking at the outstanding rate of growth and achievements, I believe that was accomplished with the right strategies and decisions, from the friendly culture to the effective production stage. Also, the freedom the manager gave for his employees globally helped in having a great reputation worldwide as it maintained what was suitable locally. Starbucks aimed not only for a profit but also for satisfaction for both, internally and externally, employees and customers.

The Globalization Of Starbucks And Its Effect On The World

International trade and economic transactions between countries. Commonly traded items include consumer goods, such as televisions and clothing; capital goods, such as machinery; and raw materials and foodstuffs. Other transactions include services, such as travel services and payments for foreign patents. International commercial transactions are facilitated by international financial payments, in which the private banking system and the central banks of commercial nations play important roles. International trade and accompanying financial transactions are generally carried out for the purpose of providing the State with goods that it lacks versus those that it produces abundantly; such transactions, which work with other economic policies, tend to improve the standard of living of the nation. Much of the recent history of international relations relates to efforts to promote free trade among nations.

Coffee is now a fun experience that anyone can have at any time of the day; thanks to Starbucks. When one buys a Starbucks coffee, they don’t just buy a cup of coffee; they buy an experience. From the strong aroma of the coffee, the laid-back atmosphere, and the rich taste of any combination you like, Starbucks customers understand the difference between regular coffee and Starbucks coffee experience. Starbucks, although technically the American name, is a well-known name and is spoken by people no matter where they are or from any language they speak. Originally just a narrow facade at Seattle’s Pike Place Market, Starbucks has become one of the largest companies in the world, with more than 15,000 stores in 50 countries. Since 1971, Starbucks has been offering some of the best coffee in the world for anyone who wants to pay the price stepped for a cup. Starbucks did not rise to the top with just luck; it did so through acquisitions, differentiation from its competitors, and protecting its name fought hard to create.

Analysis

The macroeconomic environment in which Starbucks operates is characterized by the ongoing global recession, which has weakened the purchasing power of consumers. However, market research conducted in the past few months has shown that consumers have not reduced their coffee consumption and instead are moving to cheaper options. This means that Starbucks can still take advantage of consumers’ purchasing power in a way that will give it a huge advantage over its competitors by offering cheaper alternatives. Apart from this, Starbucks has already taken some steps to leapfrog the emerging mobile computing revolution by linking it with Apple to offer discounted coupons in applications used on iPhone devices. Furthermore, this exercise is also accompanied by co-branding and cross-selling, which means that Starbucks is well-positioned to reap the benefits of the smartphone revolution. Having said this, it should be noted that consumers around the world are increasingly turning to “ethical verification”, which means that the products they buy and the brands they consume need to prove that they follow social and environmental standards in their manufacture. This is the main challenge for Starbucks as it faces the emerging challenges of the new era of consumer awareness and the stagnant smartphone revolution.

Political

The main political imperative faced by Starbucks is concerns about access to raw materials that have attracted the attention of politicians in the West and in the countries from which their raw materials are transported. This is why Starbucks is keen to adhere to social and environmental standards and to adopt appropriate sourcing strategies in accordance with “fair trade” practices agreed upon by international companies and governments of developing and developed countries. Another political imperative faced by Starbucks is the need to abide by the laws and regulations of the countries from which their raw materials are exported. This was necessary because of the activism and increased political awareness in developing countries, which form the basis of Starbuck’s sourcing strategies. The third political imperative faced by Starbucks is regulatory pressure within its home market in the United States due to further scrutiny of the business operations that are now subject to US multinationals.

Economical

The most important external economic driver for Starbucks is the ongoing global recession, which has reduced the profitability of many companies. However, studies have shown that instead of reducing their coffee consumption, consumers are turning to low-cost alternatives, an opportunity for Starbucks. Of course, the company still has to face rising operating and labor costs because the inflationary macroeconomic environment coupled with lower profitability is pressing the company from both ends of the spectrum.

Social and cultural

Although Starbucks can offer cheaper alternatives as previously mentioned, it must do so without sacrificing quality. This is the company’s main social and cultural challenge as it expands its consumer base to include lower- and middle-class consumers the income pyramid. Apart from this, the ‘green’ and ‘elegant ethical’ consumers who are concerned about the social and environmental costs of the brands they consume mean that Starbucks must be aware of this trend. Third, older consumer spending is likely to dwindle, so Starbucks will have to look to exploit the younger generation as part of its strategy.

Technological

Starbucks is poised to reap the benefits of the emerging wave of mobile phones, and since they are tied to Apple to offer discount coupons on the app, you can expect to ride a portable wave easily. The company has already incorporated Wi-Fi capabilities into its outlets so that consumers can browse the web and do their job while having coffee. It’s really an added value for the Starbucks brand and something, which enhances the consumer experience. It can also make mobile payments, which is something that it is already testing at pilot sites in the United States.

Starbucks must ensure that it does not conflict with laws and regulations in the countries from which its raw materials are exported as well as local markets in the United States.

There have been many concerns about the business practices of Starbucks from activists, international advocacy groups, and consumers themselves. Therefore, Starbucks should be mindful of these concerns if it is to continue to uphold the trust it enjoys with its customers.

PESTLE analysis proves that Starbucks operates in a relatively stable external environment. The main reason for this is the fact that it works in the food and beverage field, which means that despite the recession, consumers cut consumption somewhat rather than completely. The task before Starbucks is to reduce costs and increase value so that it retains its consumer base and attracts consumer loyalty.

Globalization of Starbucks

Global expansion is essential for successful businesses Starbucks is no exception. Despite the success of Starbucks in its domestic market, the company’s leaders knew they would have to exploit globalization and expand the company to foreign markets to take full advantage of the company’s potential. In 2003, Starbucks quickly expanded into overseas markets and began to develop into the global company we know today. Countries are beginning to experience the Starbucks Impact, the constant emergence of new competitors with superior business models that force companies to reconsider the feasibility of what they have always done. In short – if your company can’t keep up with the efficiency of Americans, it won’t work. Since globalization helped establish Starbucks as an international company, the company faced problems. These problems arose internally, within the company’s international business model, and abroad, in the form of external competition. Competing cafes began to copy Starbucks’ business practices, name,s, and even company logo. Starbucks had to use intellectual property laws to dispel customer confusion with competitors.

When Starbucks first expanded internationally, it used the same aggressive business model it developed in the United States, but soon discovered that the same tactics that established the market in the domestic market were not conducive to international expansion. In addition to cultural disputes between the organization’s retail practices and different regions, many cities opposed the establishment of Starbucks as a means of protesting against the larger trend of globalization. Because of this resistance in some areas, Starbucks had to create ways to adapt to foreign countries and seek the support of their populations. Starbucks does this, and it does so well, by listening to its customers. Starbucks experienced difficulties when trying to enter the European market. What Americans found strange did not translate well into Europe. Europe has been a trading hub for some of the world’s most exotic goods from distant regions for centuries. While beans from foreign locations were perceived as allergic to Americans, Europeans were thinking differently. Initially, Starbucks in Europe began to head to the United States, like a coffee shop/restaurant offering a Starbucks experience. Over time, Starbucks evolved to suit the demand of European citizens. Starbucks staff on the sidewalk will educate pedestrians on how to “make your own coffee”, in an effort to attract a classic French sense of art and creativity. The Starbucks strategy in Paris encourages the purchase of its coffee as an economic endorsement for foreign coffee bean producers that embody the unique characteristics of soil and light … which blends the classic French concept of pride in individual craftsmanship and professionalism, and land products, with the promise of a green and sustainable brand.

Starbucks not only listens to its customers; it also listens to and appreciates its employees. Starbucks was the first company in America to offer comprehensive health benefits and stock options to every employee, including more than 65% of those who worked part-time at the time. In addition to providing employees with a significant benefit plan, Starbucks also provides its employees with comprehensive training that enables the organization to promote its products through its employees. Starbucks, by recruiting words, is able to save big money on marketing costs and redistribute them to improve the company elsewhere. Starbucks spends $ 30 million a year on advertising or nearly 1% of revenue. Most consumer companies scale up to $ 300 million annually. This is an enormous advantage, not only in low spending but also in foreign countries where the recruiting of verbal words replaces traditional marketing methods that are not effectively available.

Competitive Forces

Since the beginning of Starbucks, the growth trend has been visible. After continued growth within the United States, the saturated market made it necessary to find alternatives in order not to decline. The result was the company’s international focus. In order to succeed in business, in the domestic market as well as in overseas markets, there are various factors of importance. These factors can be described and analyzed on the basis of Porter’s five forces model. The Porter Framework includes five key factors affecting business: the threat of alternative products, the bargaining power of suppliers, the bargaining power of buyers, competition between competitors, and market entry barriers.

Alternative products affect demand for a company’s product. More alternatives provide a greater choice for customers. As a result, as price elasticity increases and given the same benefit of the commodity, lower alternate prices will result in lower sales. In the ideal market, the lowest-priced competitor will attract all customers. To be successful, customers must be able to see greater benefit from using a particular item in order to be willing to pay a higher price for it. A different type of alternative is the alternative use of money, so instead of going to the cafe, visiting the cinema may be an alternative to spending money. However, most customers go to Starbucks for a drink and most likely will not give up a cinema visit for a cup of coffee making the threat of alternatives offering different experiences smaller.

Starbucks is not just a cafe but offers an experience. With regard to these alternatives, they should be measured in the package provided by Starbucks to its customers: a large selection of coffee, a pleasant atmosphere, great decor, and access to a wireless LAN in most of its American and European stores. It is difficult for a supermarket or regular cafe to offer hot and cold drinks to imitate Starbucks, for example in Britain, other different retailers have a similar assortment, similar music, decor, and ethics, they cannot equal the Starbucks brand and the associated image. Thus, Starbucks can request a premium on their offer. Problems appear when Starbucks is converted into a cafe. Then any other cafe equals Starbucks and the cheapest price or coffee culture is the main factor for customers, especially in countries with a large coffee culture where Starbucks is new and rare.

The bargaining power of suppliers is determined by their chances of influencing the price they get for their product. If suppliers are concentrated or low or if the costs of switching between suppliers are high, their impact will be significant. Today, as in past years, coffee is the second most traded commodity behind crude oil. In the coffee industry, there are many small suppliers, competition is high, and products are subject to global price fluctuations making it difficult for farmers to make long-term calculations. As a result of the increasing number of countries that began to produce coffee prices, they dropped from more than $ 1 in the 1980s to less than 50 cents per pound of coffee today. Since there are only two types of coffee beans, Robusta and Arabica, where the latter is used only for premium coffee, suppliers wishing to serve Starbucks should create and maintain a high-quality standard and offer good prices. Since prices are too low, their profit margin is too small, or may sell with a loss. Therefore the strength of suppliers can be considered weak. As a minimum of protection, Trade Fair coffee was established in the second half of the 20th century. It is a not-for-profit program that ensures coffee producers in poor countries get a fair price for their goods. But despite Starbucks paying higher prices for their grains, fair-trade contributes only a fraction of Starbucks’ business.

For high quality, Seattle trains suppliers specifically to meet their standards, and samples are taken to determine quality differences in the early stages. In addition to fair trade, prices pay above the market average in order to maintain their quality standards and get a good relationship with their suppliers. But with regard to the expansion strategy of Starbucks, maintaining a steady supply of high-quality coffee will become difficult. High-quality coffee is a rare resource and crops are naturally limited. Through this supplier, you may get a stronger position to negotiate with Starbucks and the coffee industry in general.

At the other end of the customer value chain. The average customer visiting a retail store has no negotiating power. Its price is fixed. Clients who enjoy a stronger position are those who demand large sums to give them a better position. Starbucks deals with both types. Besides the retail store customer, Starbucks has partnered with major companies such as Pepsi, and Barnes & Noble, and so on. They can improve Starbucks’ image and gain strategic value as they help develop new products and increase their Starbucks market share. Because of this, they are able to place orders towards Starbucks and negotiate prices.

Apart from these factors, great competition in retail between coffee chains. Starbucks’ biggest competitor is McDonald’s. They have an extremely large infrastructure, one of the largest networks in existence, but a different picture. They have a fairly simple picture and the presentation is still geared towards meeting needs quickly. In contrast to this Starbucks provides an environment where spending time is the key point. Different coffee chains try to imitate Starbucks and are able to attract customers because their focus is slightly different. One of the biggest contenders, the second Canadian Cup, has focused on shopping malls but is now expanding to one location. Even in general competition is very large. Despite this fact, Starbucks has succeeded in becoming the biggest player in this business, so its success in the United States is not only clear but a certain contribution from its international business is also included in this success. Since there is no supplier power, very few buyers can put pressure on Starbucks but the great competition with many different coffee cultures around the world is a very difficult expansion strategy.

Conclusion

Overall, Starbucks is a strong company in a growing industry, it takes a strong position in the coffee industry and launches promising strategic and environmental goals. Over the next few years, Starbucks will continue to grow in the international market. Although two-thirds of its stores are local at the moment, the percentage of foreign stores will rise over the next few years. Starbucks handles the transition from a local company to an international company very smoothly. It is taking the right steps to allow it to successfully achieve its long-term goals. Starbucks’ strong business model can and should be replicated by international companies. Starbucks is a company that takes its global products and specializes in them to suit the local and cultural needs of different regions and communities. They have a transnational business model that allows them to have a global product that can be tailored to national needs. Starbucks’ corporate learning system allows you to gain knowledge of new marketing or product ideas that can then be transferred to other national areas within Starbucks. Starbucks must be responsive to its different markets. Economic meltdowns and political instability can ruin the business market. Starbucks must be aware of the changes in government and culture in order to better predict the problems it will face. It is important for Starbucks to continue its robust communication system in order to continue to grow as a business.

Starbucks: Business Model And Strategy

Introduction

The company that I have chosen to research is Starbucks. The company that I work for does not have information that is public so I was unable to use them. When thinking of what company, I should research, I chose to research Starbucks because that is usually my go-to coffee shop. While I frequent this coffee shop, there is not much that I actually know about the company behind the scene and get a better understanding of who the company is. Starbucks has come a long way since the very beginning and is continuing to grow both in the United States and Internationally.

History

Starbucks was founded by Jerry Baldwin, Gordon Bowker, and Zev Siegal in 1971 and started as just one store in Seattle’s historic Pike Place Market. The founders came up with the name from the novel Moby Dick written by Herman Melville. In 1983, Howard Shultz, CEO of the company, went to Italy and was inspired by their Italian coffee bard and the romance of the coffee experience. He then decided to bring those techniques back to the United States. Shultz then decided to leave the company for a few years to start his own coffeehouse. However, he returned in 1987 and bought Starbucks with other local investors.

Mission, Vision, and Goals

Starbuck’s mission is to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time (Starbucks, n.d). As stated on their website, they wish to create a culture of warmth and belonging, where everyone is welcome. Doing this in ways such as great season beverages, Christmas cups, and specials throughout the year. As well as acting with courage, challenging the status quo and finding new ways to grow the company and each other. Being Present, connecting with transparency, dignity, and respect. Delivering the very best in all that is done, and holding oneself accountable for results (Starbucks, n.d). Starbucks is very proud of its employees and holds high expectations for them. Taking care of them by offering great training, room to quickly advance within the company, as well as help with schooling. While they do demand the most out of their employees, they will back them with rewards and support. Starbucks desires to have that connection with each customer, their mission is not just about sales and coffee, but about the customers and the impact, they have on each person. This is all in the belief that if they have a positive impact on those that come in the shop they have a chance to become part of their everyday schedule.

Starbucks is the largest coffeehouse chain in the world and that somewhat has to do with the brand and products that they have to offer. The company has never stopped exploring options that will appeal to its customers and bring in more business. They have become a company that holds almost a status symbol within the market. They are looked at in the same way as Apple. They lead the field in success and everyone is trying to catch them. Coffee is not the only product that Starbucks has to offer. They also have a number of teas and a small menu that includes breakfast dishes and treats. Though the product does have a lot to do with the success of the company, there is also their branding strategy that definitely rests on several pillars apart from great production and marketing as well as a well-managed supply chain (A, Pratap, 2019). Starbucks is a mix of company-owned and franchised stores. This has proven successful for the company due to having a great focus on their quality in all areas ranging from sourcing to production, sales, and service. Not only are they focus on full storefront but are huge in partnering with colleges, malls, airports, and even stadiums to but in smaller stores with limited menus to bring their products to as many people as possible in all settings.

Since the start of it all, Starbucks has focused mainly on the quality of its products, and this has not changed over time. Starbucks has a higher price point but this is because of the quality of the products they are selling. Although their prices may be higher than some competitors, their customer base does not mind paying more because they know they are paying for the quality of the product they will be receiving. Starbucks Customers are the company’s core focus and their level of commitment is noticeable when walking into a Starbucks coffee shop. While customers mean a lot to the company because without them, the company would not be as successful, the employees are just as important. Starbucks makes sure that the employees are happy because happy employees will be willing to give their best while at work and the company is dedicated to providing an excellent work environment. With a focus on giving them a voice and the ability to be creative at home, they do things. All of these lead to happy employees that love to stay with the company for a longer term. There are a number of other influences that make Starbucks so successful. To simplify it, their customers and employees are what help make the company so successful. As we can see, by how many Starbucks are around, Schultz’s business model has proven successful for him and the company.

External Factors Analysis

Political

The main political factor Starbucks faces is sourcing raw materials. Politicians in the west and the source countries of these raw material has gained a lot of attention. Starbucks should follow the social and environmental norms (PESTEL analysis contributor, 2016). In all of these factors is outs Starbucks in the middle of watch tariffs in not only this country but others. They have to play the political market more than other companies in the industry because changes in other countries have a bigger impact on them being multinational companies.

Economic

A global economic decline is a major external economic influencer for Starbucks. Because of this global decline, Starbucks’ profitability may be lacking. Buyers will pursue cheaper alternatives to cut down costs. If the consumers quit buying coffee, Starbucks may look for other opportunities such as marketing sales and lowering prices to be more competitive in the market. Starbucks has also introduced Seattle’s best coffee that can be found in gas stations and fast food that is a lower quality of Starbucks coffee but is still a way to make the company more money off of more economic levels of customers.

Social

Some social impacts that Starbucks could face may be forfeiting the quality of its product to adapt to the economic challenges. A socio-economic advantage to giving up quality would be opening up their customer base to include buyers who are lower and middle-income status. Starbuck is also viewed as a status symbol by some people. When they walk into the room with coffee on the go people will judge them as being high status or even trendy if they chose this company over a cheaper one such as a local gas station.

Technological

Presenting Wi-Fi capabilities, consumers can now use the internet and work, which will promote sales of products and keep consumers in their stores longer. Enhancing the consumer experience will also add value to the brand. Starbucks takes advantage of the ever-changing technology and creates an app for their customers. This app can do a lot for its customers, it can show great new offers, display the menu, offer a loyalty program, even offer surveys for its customers to earn points to get to a fee item. It also is big in cutting down wait times for people that before could not afford to wait in line in the morning. They can put in an early order through the app and not have to wait in line once they arrive. Technology can really help the company reach the next level with customer service.

Environmental

Activists and international advocacy groups are concerned about Starbucks ‘ business practices. Consumers have also expressed issues with Starbucks ‘ environmental practices and the firm should consider this while maintaining consumer trust. (PESTLE Analysis of Starbucks, 2015). The biggest political factor is in regards to sourcing raw materials. Because there is a lot of attention from politicians in the West and from the source countries, the company wants to adhere to social and environmental standards (PESTEL analysis contributor, 2016). Starbuck has also tried to become more friendly for the environment with cups that are made of recycled material as well as straws that can easily break down and not pose a threat to wild animals.

Legal

Starbucks must be hardworking not to violate any laws or regulations in its home market or countries where they are buying raw materials. Caffeine and consumption-related policies and regulations by health authorities will be imperative for the firm to pay attention to. Being a company that is in multiple countries they also have watched that they follow laws and policies in every country they are in.

Internal Factors Analysis

Strengths

Quality, profitability, and ethicality: Starbucks has made itself known as a premium coffeehouse chain. The products they sell are premium quality, the company is also environmentally friendly, and pretty consistent between locations. Due to this, they are able to charge customers higher prices, which as seen, most people are willing to pay. This means large profits as well as being globally recognized as one of the best coffee shops chains Bush, 2016).

Efficiency and reinvestment strategy: many of the profits that the company makes will go right back into expanding the business. This is obvious due to the increase in the number of locations that Starbucks has. As we can see, the corporation has a well-planned growth strategy, which is working well for them (Bush, 2016). One of the ways they are looking to expand is getting in with Keurig to get their coffee into people’s homes easier.

Employee treatment: Starbucks is known for treating its hundreds of thousands of employees very well, and has previously been listed as one of Fortune’s Top 100 Places to Work For (Bush, 2016).

Weaknesses

High Price Point: While their high price point can be a strength, it can also be a weakness. Their high prices may discourage customers from coming in and purchasing their products. Starbucks has a number of good qualities but some of their potential customer bases may not be able to afford that kind of money on a cup of coffee (Bush, 2016). The addition of greater reward programs and deals on its app has helped with this problem.

Lacking in a lot of unique products: Starbucks has a variety of products they offer, but they do not necessarily have the most unique market. For example, there are other chain restaurants that offer the same if not very similar products with a different name and cheaper price (Bush, 2016).

Opportunities

Global Expansion: Starbucks does have a number of stores around the globe. However, at this time most of them are within the United States. Starbucks should consider branching out to other regions such as India, Africa, or Central Europe (Bush, 2016).

Adding new products: Starbucks, while this has already begun, could really profit from selling their own branded products in retail stores other than their own. For example, they could sell not only their coffee beans but also other merchandise at local grocery stores (Bush, 2016).

Threats

Competition: Dunkin Donuts and Mcdonald’s are very big global companies that directly compete with some of the products that Starbucks sells. While they do not offer the premium quality that Starbucks has to offer, they do sell similar products that are not quite premium quality but convenient and cheaper (Bush, 2016). There are also up-and-coming companies such as Biggby that are having impacts on Starbucks ‘ bottom line.

Value Chain

The business management concept of the value chain was introduced by Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance in 1985. He stated that a value chain is a sequence of activities that intends to create and add value to a product at every step during the production process. Value-chain business activities are divided into two activities, primary and secondary. The main activities are related to the creation of goods and services, while the support actives help in enhancing the efficiency and work to achieve a competitive advantage amongst their peers. As an example, Starbucks began with one store in Seattle in 1971 and is now the most recognized brand in the world (Bajpai, 2019).

Intellectual Property

Intellectual property rights refer to the general term for the assignment of property rights through patents, copyrights, and trademarks. These property rights allow the holder to exercise a monopoly on the use of the item for a specified period (OECD Statistics Directorate, n.d.). Starbucks intends to own exclusive rights, including all intellectual property rights, to any work they create or have created from the idea or a similar idea of its own. Both Starbucks and other companies will need to pay careful attention to make sure they are not copying something that is already trademarked or patented by other companies. For example, a New York City Café had sued Starbucks over the Unicorn Drink Trademark because the café had filed a trademark application for “Unicorn Latte” in January of 2017. There was a settlement and the café agreed not to sue Starbucks. Starbucks does have a hotline and specific e-mail that they are constantly checking on any information on possible breaks in intellectual property.

Financial Health

Starbucks had reported earnings that outperformed its expectations which raised its outlook for the year. This is due to the sales within the United States and the sales growth in China was stronger than they had expected. The company has really done well with launching new products and marketing for those products, Starbucks has really proved its success both within the United States and internationally, especially in China.

Business Strategy

A differentiated culture is also one of the major strengths and a central pillar of Starbucks’ business model and strategy (Pratap, 2018). Starbucks has explained a few of its most important traits that outline its culture. Customers and customer service are at the core of their culture and it is apparent when you go into one of their stores. Some other critical traits that define Starbucks culture include inclusion, transparency, courage, dignity, respect, integrity, and accountability. It is not just about the customers, but the culture at Starbucks is meant to make its employees whom it calls partners feel included (Pratap, 2018). A strong culture and mutual standards keep the entire organization together and help create an atmosphere of trust. This, in turn, increases the efficiency of the organization and also gives it the strength to take on new challenges. It brings accountability and unity which is critical for companies that are competitive and taking on more of a challenge. A strong culture has some other great benefits too. Sometimes, it is the best tool to form a strong customer connection (Pratap, 2018). Customers are important but so are its employees, the employees are treated well and will therefore give their best and provide a good work environment. It is imperative that Starbucks continue to be innovative to keep up with competitors. To ensure differentiation, the company needs to continue to stand out with its specialty products, such as healthy options like salads and wraps, or dessert items that do not contain high fructose corn syrup.

Corporate Level Strategies

There are three concentration strategies which include, market penetration, market development, and product development. In market penetration, the company is trying to gain additional customers aside from the existing customers they already have. For example, using a celebrity presence in their marketing techniques or advertising specifically to a certain culture. Since Starbucks has an international presence, it is important to advertise to all cultures and parts of the world. Another strategy is market development. The best way for marketing development with Starbucks is selling their products other than just in Starbucks stores. Starbucks already sells their coffee beans in other grocery stores but they could extend that out to the other products and merchandise. This could help sales increase and will allow customers to purchase their products even if they do not have a Starbucks near them to visit. Lastly would be product development. This would mean for the company to continue to come up with new products whether this is new specialty drinks or even new food products to offer to the menu.

Starbucks: Analysis Of External And Internal Strategic Factors

Starbucks was found by Gerald Baldwin and Gordon Bowker who were two college friends. Howard Shultz purchased Starbucks Coffee in 1982 to introduce and improve the performance of the market. Starbucks is widely known in the United States and internationally as well, including countries like China, Canada, Germany, etc. Starbuck’s main mission is to inspire individuals throughout their brand.

Starbucks Strategies

Starbuck’s strategy was the experience of Starbucks, meaning the way customers experience was with Starbucks. Starbucks strategy included excellent customer service, community relation, location, layout and design of Starbucks, and top-quality products. In further detail, Starbucks had several strategies that led to having one of the best coffee beans. Employee involvement was another factor that attributed to Starbucks strategy, where employees are required to be enthusiastic and take pride in their work. Recruitment hiring those who bring to that table consistency and personality. Having a training program that extended and broaden basic customer service skills. Alongside building community relations and social purposes that build that customer bond. Where everyone is welcomed and not judged by one’s color or race. That connects shareholder value because everyone is part of the community. The layout and design of Starbucks attribute to the strategy Starbucks holds because layout and design are what catch a customer’s eye. The detail that Starbucks portrays in its store is critical. The layout and design are to be comfortable with an artistry approach to it. A layout and design with natural earthy tones that are rich and eye-catching. The location of Starbucks is a major role that plays in

the strategy aspect, putting stores in urban parts to build that brand buzz and get the word out. To build a bigger horizon in Starbucks Strategy, they started to diversify the business, which meant incorporating “other ownerships and management formats, more products, and different channels of distribution”. This included, but was not limited to Starbucks store cards, Starbucks bottled drinks (PepsiCo), retail packs of Starbucks through grocery stores.

Starbucks Financial Performance

Starbucks ‘ financial performance is important when evaluating how efficiently it performs. Starbuck’s financial performance will be an analysis and comparison of its performance through the years 2007- 2014. While analyzing Starbucks ‘ finances during 2007-2014, in the seventh period, the ratio and growth decreased (2008/09). Although after that recession, revenue growth remained well. The revenue growth in 2010- 2014 was at a high growth for Starbucks. The operating income has also increased tremendously from 2008 to 2012 by 15% during the year 2012. Although there was an operating loss during the year 2013, they didn’t let that hurt their future earnings, while they still managed to bounce back to a healthy state. The reason for this loss was due to legal actions from Kraft Foods. There was an improvement in the future (2014), as well the improvement in previous years apart from the 2013 loss, Starbucks had a high improvement during the year 2009-11 for instance. In general, Starbucks portrays healthy finance with low debt or equity.

Starbucks competencies core is effective and efficient. This is because of their strategies offering different types of products and top-quality beverages. Their equity is basically, formed on selling the best quality coffee. Where it is unique and sets them apart from others (competition). Such as its experience being operated on top-notch customer service skills and loyalty. Its human resources having values and building that external and internal link with its suppliers. This allows a successful business strategy to expand in the international market long-term.

Starbuck’s tangible (external analysis) resources are its equipment and supply of goods. Such as operating globally and showcasing tangible parts of it around the globe. High-quality coffee beans and merchandise is another factor in building business awareness and revenue. Whereas its intangible resources (internal analysis) are its skills, reputation, brand, and technology also. These four categories mentioned are key in differencing Starbucks from its competitors. The skills that employees hold are important in serving customers the best service that they deserve. The skills that the employees have, allows them to build relationships with customers. Successful employment interaction creates and builds trust with their customers. Having updated technology and a positive reputation, as well a brand name grows, a business successfully like Starbucks.

Starbucks’ external factors are its opportunities and threats, whereas its internal factors are there strengths and weaknesses. Starbucks’ external factors include new market opportunities where it can expand internationally in China or European countries. As well as forming partnerships that will expand their market. Another external factor is threats from competitors.

This is the same for the threat of new entry. Once McDonald’s came in as a competitor, it becomes a competition because of similar products and lower prices. As well as other private local coffee shops that offer similar products, such as Dunkin Donuts. Another is the bargaining power of buyers or customers. This is because there are many different buyers in the market and industry, where they can have the ability to put a decrease in prices. Competition rivalry is a factor in this because they have a bigger market share than others. Starbuck’s internal factors include (strengths) their design and layout being unique from others. Offering free Wi-Fi connection, friendly environment where there are comfortable seating areas. Alongside quality products and a strong brand name. Having a great representative and powerful human resource management. The weaknesses of Starbucks are another aspect, some of its weaknesses are its high prices compared to other coffee shops. As well as mostly being known for coffee or tea, beverage drinks.

Shareholder Interests & Future Strategy Solutions

Starbucks operated in the interests of its shareholders because they want to hold a shareholder value that is long-term. The reason behind this is because they would benefit from expanding the business and growing in the international market. It would be an opportunity to grow in the international market by merging in China or India for example. Their interests are more likely in shareholders because of the high profit they are making. There are hundreds of Starbucks stores in China, that are operating well. India is another venture that holds Starbucks stores in airports and malls mainly.

Starbucks’ solutions to their threats and strategies are that being unique and different is what sets them apart from the competition. As well as providing that top-quality product that allows them to have one of the greatest coffee beans. A solution would be to possibly lower prices down a bit because they are also known as having high product prices.

Starbucks Threats

Starbucks faces quite a few threats when it comes to being new into the market and its competitors as well. Starbucks competitors included McDonald’s, Dunkin Donuts, and Burger King for instance. Most fast-food services provided coffee drinks in their menus, where most were looking to build competition with Starbucks. They started doing this by including premium coffee into their menus like Starbucks. Apart from showcasing similar products, McDonald’s and Dunkin Donuts mentioned that “Starbucks is overpriced and snobbish”, where they were hurting Starbucks reputation and name; which threatened their advertising and true character. On the other hand, the competition threat was getting more serious with Starbucks’ withdrawal from Australia. Aside from competitor threats, Starbucks does have a possibility of facing threats to the consumption of coffee. Due to many people being more concerned about their health, it is likely that there could be a downward turn in coffee consumption. Another threat factor is the pricing of the products. High prices on their products or coffee beans could cause Starbucks in customers or a withdrawal in certain coffee blends. Its reputation and how other coffee brands are a threat to Starbucks because they could advertise Starbucks in a negative way. For example, McDonald’s and Dunkin Donuts did, which is harming the brand name.

In conclusion, Starbucks has greatly earned a positive brand name and reputation. They have grown in sales over previous years. Starbucks is unique and has deafferenting skills that set them apart from the competition. Starbucks’ strategies will keep on leading them to a successful future ahead.

Starbucks Evicted from The Forbidden City: Public Debates Analysis with Kantian Ethics Theory

Culture is the spiritual entrustment of human beings. It is not only a heritage of tradition, but also a symbol of a country. With the rapid development of globalisation, more and more brands choose to develop in countries around the world, especially China, which is developing rapidly. In 2007, a controversy over the issue of Starbucks in the Forbidden City caught the public attention. The case started with Rui Chenggang, a CCTV anchor-man accused Starbucks of opening its branch to the Forbidden City via his blog. ‘The Forbidden City is a symbol of China’s cultural heritage. Starbucks in a symbol of lower middle class culture in the west. We need to embrace the world, but we also need to preserve our cultural identity. There is a fine line between globalisation and contamination.’ (Watts, 2007)

However, this also ushered in new questions: What is the Chinese culture spirit? Why did Starbucks’ actions cause the Chinese to react fiercely? This is not just a problem for Starbucks of how it should find a breakthrough point to sustain in this increasingly complex global business environment, whilst adapting to different cultures and moral standards in China. In the era of globalisation, ‘the various civilisations and cultures formed by history have begun to separate from their roots. They have merged into the technological and economic world and into an empty sense doctrine.’ (Jaspers, 2009)

This essay aims to critically evaluate views from the five main stakeholders who were involved in the debate, using the Immanuel Kant’s non-consequentialist theory, which exams on the reasoning and motivation behind actions opposed to their consequences. A brief yet precise Chinese history will be portrayed firstly, which acts as a crucial background and factor for the analysis subsequently. Moreover, this essay will explain the reasons why I support this Starbucks business expansion in the Forbidden City using the Kant’s theory, limitation of this theory will also be introduced afterwards. Lastly, the causation of this case will be clarified and potential suggestion towards the problem will be described.

In order to exam the case further, the Chinese culture and its meaning and the historical value to the Chinese citizens will be introduced firstly. Chinese are very proud of their own culture – they deeply believe that they have the qualifications and confidence to stand out when it comes to culture of a nation. China’s cultural self-confidence comes from the time-honoured history and splendid civilisation that Chinese ancestors have created in the long human history. China has a history of 5,000 years of uninterrupted civilisation, (Eckholm, 2000) and it is known for one of the four great ancient civilisations. As early as the Spring and Autumn Period, and the Warring States Period, which were two of the early dynasties of China, the narratives and classics left by the Hundred Schools of Thought have almost covered all aspects of politics, economy, science and technology, military, which contributed heavily not just to Chinese culture but worldwide (Schaberg, 2001).

The Forbidden City is an epitome of the Chinese traditional forms and cultural norms. It is the most important cultural symbol to Chinese. As far as the ancient architecture of the Forbidden City is concerned, it is a world cultural heritage, and it is the largest and best-preserved ancient palace complex in the world. However, the Forbidden City is not an ordinary ancient building; it is an imperial palace. It not only embodies the excellent tradition and unique style of ancient Chinese architectural art, but also inherits the traditional forms and codes of ancient Chinese palaces, and reflects the Chinese design traditional philosophy. Additionally, the importance of the Forbidden City is because of it is the home 24 emperors of Ming and Qing Dynasty (Jarus, 2013), many important events in Chinese history took place here. Therefore, it is not easy to truly understand the value of the ancient buildings of the Forbidden City for foreigners, or even the Chinese themselves. Even the researchers at the Palace Museum continue to deepen their understanding of the value of the Palace Museum and its collections.

The main stakeholders involved in this case were: Starbucks; the Forbidden City; media; cultural relics protection experts and Chinese netizens.

To begin with the first stakeholder, the former president and CEO of Starbucks Jim Donald replied to Rui Chenggang blog, mainly to clarify three points. Firstly, Starbucks was invited by China to open a branch in the Forbidden City in 200; Secondly, Starbucks opened this branch with a respect for Chinese cultural traditions; Lastly, Starbucks has made every effort to adapt this store to the surrounding cultural environment (Tian & Dong, 2010). From the perspective of the protection of cultural relics and the coordination of the landscape, Starbucks in the Forbidden City does seem to be uncoordinated, and it is not entirely unreasonable to ask it to move away. However, Kant would agree with this business decision as Starbucks was acting according to their own maxim, which was to expand their business. Starbucks is a global business chain and it is fair to say that they have created their formula of autonomy which is global expansion. Therefore, it is considered correct under the Kantian ethics theory. Nevertheless, Starbucks had claimed their intention of this expansion, the issue with this case was that it was unclear of their true intention. This is the weakness of the Kant’s theory – it is difficult to judge the level of “wrongness” of their behaviour, as there isn’t a clearly defined moral standard or ruler to Kantian theory. On the other hand, almost every company has performed unethical behaviours and it is difficult to discover the truth behind it – whether they are intentional or not. The same scenario applies to this case, it is almost impossible to judge if Starbucks carried out on the premise of knowing that this expansion plan was unethical to the Chinese. Additionally, in terms of its ‘wreckage’ of the cultural landscape of the Forbidden City, it is difficult to identify the differences of the shops around the Forbidden City that sell cigarettes, fruits, and snacks. The only mistake of Starbucks was that it was so famous and its foreign identity that it played the role of a strong intruder in this cultural conflict and caused a fierce rebound.

Secondly, according to Sina news (Guangming Wang, 2007), to deal with the public pressure, Feng Nai’en, the spokesman for the Palace Museum, stated that there were 1.6 million foreign tourists visiting the Forbidden City annually, many of whom had a need for coffee, and a substantial number of tourists wanted to solve the dining problem in the Forbidden City, which could also effectively extend the time of visiting the Forbidden City. The fast food stalls and Starbucks in the Forbidden City were generated under this premise. Through the investigation, they found that the existence of Starbucks met the needs of some visitors. The argument from the spokesman also fall into the category of ethical and reasonable based on the Kant’s theory. This is because his purpose was to satisfy visitors’ need to create quality experience for them, which benefit the palace at the same time as satisfactory customer service helps the palace to build a positive image to the publics worldwide. However, it is also possible that Kant would disagree with his argument. Even though his action was created by thinking from visitors’ perspective, potential impact that could bring to the palace was not considered. As a spokesman for the Palace Museum, it is arguable to state that he should put the palace as his priority. The main argument for Starbucks in the palace is that it ruins the representation of the whole palace. However, by allowing food stalls or cafés in the palace which includes Starbucks, there is a potential of litter creation, and in this case, does it not produce an even worse impact to the palace?

Furthermore, a commentator in Southern Metropolis suggested that “the fateful question of the coexistence of commercialisation with traditional culture surely cannot be solved by simply choosing one and rejecting the other” (Zhou, 2007) On the other hand, according to Dr Nyíri Pál (Nyíri, 2009), a famous news agency called Xin Jing Bao (New Beijing News) wrote: “If we simply see Starbucks moving into the Forbidden City as ‘foreign peddlers usurping the dignity of the heavenly dynasty,’ that is disrespecting both traditional Chinese culture and the rules of global business. Besides, we can hardly avoid discussing the fact that those who allowed Starbucks to move into the Forbidden City in the first place were, sadly, Chinese people themselves.” There are substantial amount of articles from Chinese media debating about this topic, and by evaluating from Kant’s perspective, every article can be ethical depends on what perspective it is coming from as all opinions are arose for a better solution.

Additionally, Guang Ming Daily (Guang Ming Ribao, 2007) published a debate from several experts. Two main arguments from the experts will be demonstrated in this paragraph. Firstly, the president of the China Society of Cultural Heritage Luo Zhewen explained that for such an important national cultural heritage as the Forbidden City, management must be taken seriously to protect the heritage and it should be dominated by Chinese tradition, and properly absorb individual business projects with characteristics of other countries. In contrast, Du Xiaofan, who is the UNESCO National Program Officer for Culture Heritage, stated Starbucks entering the Forbidden City should be regarded as the exchange and collision of Chinese and Western cultures, not confrontation. He has visited several countries and found many Chinese restaurants have been engaged in commercial activities within the local World Cultural Heritage Protection Zone. Similar to the previous stakeholders, Kant would approve both side of the arguments as they were criticising from different aspects but the common goal was to build a better Forbidden City for visitors – Luo Zhewen spoke from the perspective of the protection of cultural relics in the Forbidden City whom hoped to protect the cultural monument to the greatest extent possible from being destroyed whilst protecting traditional Chinese culture; Meanwhile, Du Xiaofan promoted the idea of a more open and internationalised Forbidden City and hoped to build a global image to the public.

Lastly, an online petition initiated by Rui Chenggang attracted half a million people to sign (Watts, 2007). The majority of Chinese netizens who posted comments were against commercial facilities in the Forbidden City. The opponents seem to have enough evidence to show that their fears are not superfluous. Judging from the China in the recent decade, from ‘KFC’ and ‘McDonald’s’ all over the streets to NBA games and Hollywood blockbusters, foreign cultures are profoundly changing the original Chinese. The image of that ancient civilisation is fading away, and traditional culture is being hit. Using the Kant’s theory, it is a reasonable action for the Chinese netizens to go against Starbucks as their intention was to protect their own culture. As mentioned earlier, the Chinese cherish their culture immensely and they are very protective over the Chinese culture – there is no tolerance towards any disrespect. They believe that any improper and disrespectful traditions will lose the dignity of the country. China is hugely influenced by the Confucianism, which makes them a group-oriented nation and will criticise any act of disrespecting cultural dignity. This explains the internet battle and the huge pressure created towards Starbucks. However, the Starbucks incident exposed the deep anxiety of some Chinese people in the cultural identity facing the era of globalisation. It coincided with the crisis of national identity brought about by China’s increasingly deep involvement in the global system, which made it particularly intense and sensitive. Out of a strong sense of crisis in the mother’s culture and national interests, some ‘elites’ hoped to resist the invasion of foreign cultures by reviving and rebuilding their own cultures, rebuilding their identity with their own cultural resources, and regaining their dignity. Briefly, the cultural conservatism generated by the impact of Western heterogeneous culture was the main reason for this event. In this regard, the Starbucks incident was by no means an isolated incident, and its correlation with many cultural events in modern China was clearly discernible.

This reaction seems to be confirming Huntington’s (Huntington, 1993) hypothesis: “the great divisions among humankind and the dominating source of conflict will be cultural… The clash of civilisations will dominate global politics.” Huntington sees the rise of cultural conservatism as “each civilisation will become a single coherent political entity”, as eventually the nation states will disappear. However, after Starbucks’ moved out of the Forbidden City, the Forbidden City coffee shop replaced Starbucks where served Chinese tea and coffee (Reuters, 2007). This is somewhat contradictive to what the Chinese stakeholders argued about Starbucks. Starbucks had become a target for destroying the integrity of traditional Chinese culture, the new café did not only sell Chinese tea but also coffee. There is a question that is puzzling – if Starbucks representing Western food culture is enough to destroy the integrity of the Chinese culture, why the coffee culture will not destroy the integrity of the culture? According to those who were against the ‘Starbucks culture’, coffee should also be a forbidden product in the Forbidden City, allowing the existence of coffee should also be regarded as a cultural invasion. One logical reason was that the Chinese were opposed to ‘Starbucks’ not because of coffee culture, but due to Starbucks belonged to a foreign origin, which made it difficult for people to accept their place in the Forbidden City. Although, as Jim Donald said, after entering the Forbidden City, Starbucks had made great effort to adapt this store to the surrounding cultural environment as much as possible. However, particular groups of Chinese still believed that the existence of Starbucks was a bad graft in their culture and a scene that damaged traditional Chinese culture – without removing ‘Starbucks’ from the Forbidden City, the tradition and integrity of Chinese culture will be difficult to preserve.

In my judgement and with the grounding of Kant’s theory, it is difficult to justify the “rightness” for each stakeholder as true intentions are almost impossible to discover. However, this business decision appeals ethical to me based on Kant’s theory. Starbucks’ expansion to the Forbidden City should be classified as ethical as the intention was to expand their business profile instead of humiliating this world heritage. This case happened in 2007 when China was still at the early stage of economic development. Simultaneously, Chinese were not yet fully accustomed to the “invasion” of foreign cultures. Therefore, it is arguable that if this case happened in the recent time frame, we might see a different story with how the publics would react to it. Concluding from analysis from the main stakeholders with Kant’s theory, responses from every stakeholder is considered ethical as they all hold moral intention and seeking for the best from each of their perspective. However, this phenomenon reflects the limitation of Kant’s theory. The Kant’s theoretical background has characteristics of the society it was created at. The speed of globalisation, and the different moral standards and diversification of culture were not recognised which makes the theory itself inconsistent with the contemporary era, in this case, the 20th century. Therefore, the theory itself may not be applicable for today. Additionally, since global business expansion did not exist in Kant’s time and multi-cultural environment was not acknowledged either, hence it is uncertain how Kant would view or criticise this case, since the theory is outdated to be used in the contemporary global environment.

The Foreign Direct Investment (FDI) Strategy Of Starbucks In India Based On Dunning’s Eclectic (OLI) Paradigm

Introduction

Dunning’s eclectic paradigm was proposed by John Dunning to explain the manner in which firms internationalize and why they choose to invest through FDI rather than an alternative investment strategy (Letto-Gillies, 2019). When conducting his research Dunning identified two key areas in which companies have involvement with foreign economies, firstly economic activities that take place within the home country of the company with goods and services directed towards foreign markets, the second is activities that take place within a host country that produces good or services and direct these towards foreign markets. The OLI paradigm refers to economic activity within foreign markets and specifically why and where FDI is focused. The eclectic paradigm is also referred to as the OLI paradigm, standing for Ownership, Location and Internalization advantages (Gray, 2003). Ownership advantages are tangible assets that firms own, these may include patents and intellectual property but vary to superior technology, management and workforce as well as less tangible assets brand recognition, reputation and the ability to exploit economies of scale (da Silva Lopes, 2010). Location advantages refer to the advantage of conducting business within a particular country or market and the benefits of doing so. These may include low cost labour, raw materials and government policy incentivizing FDI. Finally, Internalization advantages which stems from the ability of firms to “exploit its ownership advantage internally in order to minimize the transaction costs associated with the inter-firm transfer of proprietary knowledge and capabilities” (Buckley and Hashai, 2009). These three factors can be used to analyse Starbucks FDI strategy within India.

Starbucks were worried about over saturation of the US market which gave them cause for international expansion (Franck, 2017). Starbucks had massive success in China which is now their fastest growing market outside of the US and decided to try and implore the same strategy they had used within China in another developing market, India (Ramakrishan, 2017). Starbucks entered into the Chinese market through a joint venture with Uni-President Enterprises Corp and President Chain Store Corp (Reuters, 2020). They implored the same strategy in India forming a 50:50 joint venture with Tata Consumer Products to form Tata Starbucks Limited (Starbucks, 2020).

Location Advantages

There are various factors that led to Starbucks choosing India but to properly understand them we must apply the ‘L’ of the OLI paradigm to explain why India was the right location. One location advantage that India has in common with China is their rapidly growing economy. Starbucks is confident that India will become a top 5 global market for them as their economy continues to develop (The Basis Point, 2018). The World Bank (2020) shows India’s economy has been growing by at least 5% every year since 2008 and on average by 7%. Combined with their rapidly growing population, currently at 1.366 billion people, this will create a huge consumer base as the country develops, becomes better educated and contains more people with disposable income (The World Bank, 2020).

India currently has a very sensitive price market, as a results Tata Starbucks currently operates with a target market of the urban middle class as these are the only people who can afford their products (Jain, 2014). Coffee drinkers are currently outnumbered 8-1 within India however coffee consumption has increased 40% over the last 10 years and is projected to continue this trend (Statista, 2020). This growing market is another location advantage of choosing India as with an increasing demand, combined with a growing middle class, will increase the demand for their products.

Perhaps the largest location advantage of India is the high availability of cheap labour, as a developing economy India has a large pool of unskilled workers seeking employment. These low wages reduce operation costs for Tata Starbucks and were part of the appeal of India as a target for FDI. The average monthly salary for a Starbucks barista in India is 13,000INR a month which is around £135 compared to the average salary for the same position in the UK over the same time is £1,160 (Glassdoor, 2020). This is about in line with what you would expect with the variation in average salary between the two countries however the real advantage here comes from Starbucks price of coffee’s, costing £2.67 in India and £2.90 in the UK and £3.49 in the US (Binsted, 2020). Although there is a major disparity between the two in terms of salary the same disparity is not found in product price, benefiting Starbucks profitability massively.

By locating in India Starbucks can also take advantage of the local climate as it is one in which coffee is grown naturally, according to the Associated Press (2012), Starbucks sources locally grown coffee for their Indian stores. Coffee requires a hot tropical climate and most of it is grown around the equator and in the tropics, often called the ‘coffee belt’ (Lincoln & York, 2020). India lies within this ‘belt’ and Starbucks uses this advantage to source coffee for their Café’s from within India, both cutting down on shipping and purchasing costs. All of these factors, cheap labour, low cost materials, rapidly growing economy and a growing demand for coffee contributed to Starbucks choosing India as their location for FDI.

Ownership Advantages

Most competitors within India have adjusted their storefront to better suit the Indian market however Starbucks, like they did in China, have maintained the same style of Café regardless of location in order to maintain a more authentic ‘Starbucks ambience’ (Aiyer, 2014). The major benefit of structuring their business in this way allows Starbucks to leverage their brand recognition by giving customers the same experience that Starbucks are known for as a western beverage company, creating customer pull as they’re attracted to this lifestyle. While these quick service restaurants are not the preferred or traditional type of café for India people to frequent, they are increasing in popularity with a compound annual growth rate of 22% between 2016-2022 (Singh, 2017).

Tata Starbucks recognised the extremely high demand for tea within India, a demand they were not meeting. One of the benefits of being a large international organization is the ability to quickly and efficiently leverage your position to make fast and effective changes to your business to meet market demands. In Tata Starbucks case this meant increasing the amount and variety of tea they had available. In 2017 they introduced 18 new varieties of tea under the newly created brand Teavana (Tata Global Beverages, 2017).

As a large MNE that has been in existence since 1971 Starbucks is able to use its vast experience in coffeehouse culture to create some of the most efficient chain of café’s in the world (Starbucks, 2020). With this wealth of experience Starbucks has set up its STRIVE program in India that combines job skills training with Starbucks experience and expertise within its retail operations. Within this program they are planning on training over 3000 young people from disadvantaged backgrounds who do not have practical labour skills and who face barriers to employment. Starbucks have a particular focus on young women with an aim to increase the proportion of women within their workforce up to 40% from 25% by 2022 (BW Online Bureau, 2017). While this will benefit Starbucks directly through having a better skilled workforce the indirect of this program will be a recognition within the communities they operate in as a company who tries to help the people who work for them and those around them, for Starbucks they hope this reputation will translate to patronage further along the line.

Internalization Advantages

As mentioned earlier Starbucks have set up their café’s in the same manner as those in the US however there is another advantage to this aside from creating a ‘Starbuck ambience’. They create economies of scale for themselves with suppliers. These economies of scale are established through a large network of their café’s using the same ingredients from the same suppliers, lowering their costs as it is spread over a large number of goods (Baumol, Blinder and Solow, 2008).

Starbucks have faced an issue with their joint venture partner Tata Beverages as Tata also owns multiple other tea and coffee brands within India making up the majority of the market share. While looking for expansion opportunities into India, Tata are the clear favourites in the market to partner with due to the huge range of connections they have. While Starbucks are confident in their ability to be successful on a store front basis, they are unfamiliar with the Indian market in terms of suppliers, this is the main area Tata would be able to help with. The issue comes from Tata owning such a large portion of the market share, that Starbucks are now directly competing against their partner creating a conflict of interest within their business relationship. Going forward this may be Starbucks biggest obstacle however this is one we can see they have already overcome before. Starbucks operation in China was originally a Joint Venture however in 2017 Starbucks acquired 100% ownership for approximately $1.3billion (Starbucks Stories, 2020). Starbucks vast success as a company allows this kind of risk mitigating strategy as they have the capital behind them to be able to afford acquisitions on this scale, the benefit to them is the original joint venture partnership introduces Starbucks to the foreign market with a local experienced company to assist in areas they may be unfamiliar with. At this point Starbucks were aware of how the market and suppliers functioned and were confident enough that the risk to them had been mitigated so continuing without a partner was no longer as hazardous as it would have been prior to their investment. Starbucks may employ the strategy in India once stores become profitable, projected to be 2020 however this is likely to be delayed as a result of the Covid-19 pandemic (Malviya, 2017).

Conclusion

In conclusion Starbucks utilized a joint venture partnership to enter a rapidly growing Indian economy with minimised risk to themselves exploiting the advantages that come with operating within a developing economy with cheap labour and products. They further strengthen their position by instead of the traditional tea drinking culture targeting a growing middle class within the country and drawing them in with an authentic Western style Starbucks experience.

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PESTLE Analysis of Starbucks in the UK

PESTLE analysis is a ‘tool that is used to identify and analyse the key drivers of change in the strategic or business environment’ (De Costa, 2018). The acronym stands for Political, Economic, Social, Technological, Legal, and Environmental factors. PESTLE analysis is easy to implement and is clearly understood and things that are easy to understand are likely to be executed successfully (Parikh, 2017).

Political

When using the PESTLE analysis of the major coffeehouse chain, the first factor that should be considered is political factors. One of the key political factors is the sourcing of the raw material. Locus (2018) states that the company wants to abide by the current environmental legislations, whilst also providing fair trade prices. With regards to the case study, it is mentioned that Starbucks began to follow a new practice whereby they would outbid European buyers for the exclusive Nariño Supremo bean crop. This variety of crop is very limited and grows only in the high regions of the Cordillera mountain range, which makes it greatly sought after by such companies. ‘For years, Nariño beans were guarded zealously by Western Europeans who prized their colourful, complex flavour’ (Case Study, 2018). This implies that there are political factors, which are having an effect on the supply of coffee beans – an essential resource in the coffee making industry.

Economic

With respect to the economic factors, the case study recognises that Starbucks offers an exclusive benefits package to both part-time and full-time employees. ‘The package includes medical, dental, vision, and short-term disability insurance, as well as paid vacation, paid holidays, mental health/chemical dependency benefits, an employee assistance program, a 401k savings plan, and a stock option plan’ (Case Study). This scheme has its advantages and its disadvantages. On one hand, the economic and tax implications that come with this programme can be deterring. On the other hand, the benefits package provides employees with incentives, which will encourage and motivate them to stay and work for the company. As a result, this will increase employee retention and decrease employee dropout rates and the turnover costs of hiring new employees.

Social

As for the social factors, Locus (2018) states that maintaining a work-life balance, changing family and work patterns and drastic lifestyle changes play a major role in the successful functioning of a business. This increases the likelihood of companies in the coffee industry to sell their products to the target market. However, De Costa (2018) identifies that the continuously changing customer preferences and the population’s growing concern regarding their health is leading to a reduction product consumption. This is poses a threat to the coffee industry, as it will impact the sales of coffee related products.

Technological

With regards to the technological factors, Locus (2018) recognises that Starbucks has made technological advances such as developing its own mobile application and a website for customers with a user-friendly interface. ‘Its partnership with Apple provides discount coupons that makes it customer interactive’. This provided companies within the coffee industry with a wider range of resources and opportunities to reach out to their target market. It also provides internet facility within its outlets.

Legal

When taking into consideration the legal factors, Locus (2018) states that companies within the coffee making market must ensure that it does not go against any regulations when buying raw materials (i.e. coffee beans) or selling the manufactured products across the globe.

Environmental

As for environmental factors, Locus (2018) identifies that even consumers have raised concern about the violation of certain environmental laws. The countries that are producing coffee beans have been experiencing environmental disasters and consequently the damages caused by global warming is increasing. (PESTLE analysis, 2016)

Internal environmental analysis, A VRIO analysis on Starbucks Globally

Starbucks holds a high position in the coffee industry. It has more than 22,000 stores open worldwide. With its primary focus on customer service and product quality, the company has been able to grow and achieve success. One of the reasons for this can be due to its diversity as a brand. There are three prime factors that makes the brand stand out from the rest. Most importantly, it is down to the sheer quality of its products – Starbucks serves only premium quality coffee.

This is crucial, as it has helped the company to globalise and become an international brand with a renowned reputation for quality coffee, excellent customer service and ethics. As a result, this has enabled the brand to gain customer loyalty and dominate the coffee market. This VRIO analysis will present a deeper analysis of the factors that have helped Starbucks to develop such a competitive reputation.

Starbucks has a strong brand image that is formed on the basis of three important foundations: ethics, product quality and customer service. This is clearly seen in the company’s global presence as the organisation has 24,000 stores in over 70 countries. This can be perceived as extremely valuable as this helps the customer base to increase and building a great reputation is also good for marketing. Although some may believe that other competitors can achieve this too, it could be more difficult for them due to the level of financial investment that is required. This suggests that this forte is difficult to imitate because of the investment involved but could be possible in the long-term. Due to this, the company has to be well structured to keep up with this competitive edge that they have.

Another advantageous feature of Starbucks is its unique flavours and quality of coffee. This is because the brand is known best for its quality and countless range of flavours of the coffee products that it serves, which is highly attractive to customers. This is significant because it is another reason why customers opt for to Starbucks, as opposed to other coffee shops. A lot of time and money is invested in the creation and testing of these special flavours. This implies that this would be difficult to imitate because of the prices and intensity of the procedure. This strength needs to be organised as Starbucks’ flavours is what sets them apart and an integral part of its marketing and customer retention strategy.

The other strength of Starbucks is its high level of customer service. This is an essential quality of any business, as the level of customer service goes hand in hand with the quality of its products and helps to maintain a good customer base. Unlike Starbucks’ distinguishing qualities previously mentioned, this feature can be achieved by other companies as well. However, it does require more investment in staff training and a set focus on any principle that is valued by its specific industry. The significance of this is that it is important to prioritise the standard of customer service because this can play a key role in drawing in customers and is what makes Starbucks successful.

Bibliography

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Marketing Portfolio of Starbucks in China

Introduction

Starbucks, founded in 1972 in Seattle, has been methodically building the popularity of its brand since the very beginning. Today, the distinctive logo of the two-tailed siren is already internationally recognised. Starbucks has become a powerful player in the market by producing and selling many different types of beverages, pastries and confections in more than 8,400 coffee shops in 30 countries worldwide. But the company is not only focused on coffee and desserts. Starbucks cafés also offer a wide range of mugs, cups and other coffee accessories. The company supplies airlines, restaurants, hotels and private companies. Innovation and thoughtful actions of the company’s management have allowed the brand, which is basically just another coffee shop chain, to achieve such an incredible success.

One of the best examples of these clever and thoughtful strategies is their surprising success in China. A market where other major global corporations, such as Amazon, have been unable to survive. Unlike the Amazon, Starbucks has understood that the key to success in a foreign market, with a commercial culture so different from the US, is to understand the rules that govern China. Fitting the company to the lifestyle of the Chinese instead of forcing their, american approach with the expectation that they will adapt was a big hit.

Most large companies are already introducing their services to the Chinese market as developed corporations that have been successful in Western countries. They forget what it was like to be a Start-up, to be able to adapt quickly to new situations and realities. They simply want to introduce exactly the same thing that worked outside China to their market. But it’s not enough to switch American employees to Chinese ones and build a café in Beijing to really bring the company into the Chinese market. It is precisely because of this misconception that so many very well recognized brands in the Western world do not achieve the expected success in China.

Starbucks also failed to adapt to Chinese reality for the first nine years. One of Howard Schultz’s key decisions after an initial, unsuccessful attempt to bring Starbucks into this new market was to appoint a new CEO for Starbucks in China, Belinda Wong. She, through her background and ability to understand both Starbucks culture, the American lifestyle and the Chinese consumer, became a common element that allowed Starbucks to spread its wings.

• Macro-environment and micro-environment of Starbucks in China.
• Macro-environment of Starbucks in China

Political environment of Starbucks in China

Today, China is the world’s second largest economy, a permanent member of the United Nations Security Council and a country that is constantly seeking to accelerate its development and open up to foreign markets through FTDs. At present, China has already signed 16 such agreements and another 24 are in the process of negotiations.

China is considered to be a politically stable country although ruled by the political party of the People’s Republic of China. It is thanks to its stable political environment, cheap labour and better infrastructure that China is positioning itself as an excellent destination for foreign direct investment (FDI), in 2016 China attracted 139 million USD to its market. But it does not stop at attracting investors alone. In 2019, China spent more than $22 million per quarter on foreign investment not only in underdeveloped continents such as Africa, but also in Australia, many European countries, and the USA.

The Chinese tax system is based on State Administration of Taxation decisions. It sets top-down rules and tax rates in the country, but often, in the case of tax law, there are differences at regional level. There are different reasons for this. Often, special tax reliefs are created for local policy purposes or apply in free trade zones. Tax reliefs also exist for specific industries or for innovations tested in a particular region. The complex tax system and frequent changes in rates are partly due to the developing business environment and the desire of the government to improve the current situation.

Economic environment of Starbucks in China

Despite its closed-market policy in the past, China is now the second largest economy in the world in terms of nominal GDP, thanks to its smooth economic reforms. The country has moved from a centrally planned to a free-market economy, raising GDP by an average of 10% per year. One of the major advantages of China over other countries is it’s easily accessible, cheap labour force, whose average wage, however, is constantly rising. It has tripled between 2005 and 2016 and is now higher than the statistical salaries in Brazil and Mexico.

The standard income tax rate is about 25%, but the Chinese government has introduced discounts for verified entrepreneurs who operate in government-supported industries and will reduce their rate to 15%, individual tax rates vary and reach up to 5%.

Social environment of Starbucks in China

China is the most populated country in the world, with a population of over 1.4 billion, so it is an ideal market for all companies producing consumer products. The latest five-year plan of the Chinese government, by 2020, also assumes a significant increase in the living standards of the Chinese, whose middle class is constantly growing. More and more citizens are pulling away from the status that allows them to be more consumerist, the literacy rate in China is 96.4%. As well as impressive progress in literacy rate, the country has made staggering progress in reducing poverty. Over the last 5 years, the country has lifted 68 million people out of poverty.

The largest age group in China is between 30 and 32 years old, which together make up over 80 million citizens. These are people working in a market that is open to the world and increasingly smuggles Western culture and views into Chinese society. Young people are becoming increasingly open to Western influences.

Technological environment of Starbucks in China

According to an article from 2018, published by the BBC, China has the largest population of online users and one of the largest technology companies in the world (Baidu, Alibaba). This is one of the reasons why so many foreign tech brands have failed to succeed in China. The Chinese government wants the country’s rapid technological development, in 2015 it has set itself the goal of being a world leader in this field and for this reason it has launched a programme of ‘mass entrepreneurship and innovation’, which is supposed to stimulate entrepreneurship in the Chinese people. All these innovations are primarily aimed at turning China’s labour-intensive economy into a more innovative one.

Micro-environment of Starbucks in China

Competitive environment of Starbucks in China

Although China has been recognised as a tea-drinking society for millennia, since the economic reforms, China has begun to become one of the most-promising market for coffee growers and international coffee chains. This makes more and more cafes start trying their hand at China. Not only are these foreign brands opening up, but Chinese entrepreneurs also see great opportunities in the Chinese coffee market. One of the greatest competitors of Starbucks is Luckin Coffee.

A company with a relatively short history, started in 2017 in Beijing where it opened its first 9 cafés. It is the first serious competitor of Starbucks in China, as the previous ones, McDonald’s and Costa Coffee were the only ones to be specifically mentioned. Luckin currently has 2,370 stores in 28 Chinese cities and strongly advises that it will further develop the chain. The company’s management is not hiding that it hopes to rebound the Starbucks coffee monopoly in China, which now has a 58.6% market share.

Organisational environment of Starbucks in China

The management of Starbucks in China is largely employee-focused. Starbucks understands the culture and approach of the Chinese people to the family, based on the Confucian ideology, and has created a program for employees called ‘Starbucks China Parent Care Program’, which has already provided health care to the parents of more than 1000 employees. One of the consequences of such a policy is also the ‘Family Form Partner’, which takes the form of a family feast in which not only employees but entire families participate.

Starbucks has also introduced a division in its production divisions, dividing them into those dealing with coffee, baking, etc. This allows for greater development and competitiveness of its products.

Starbucks also has a very well developed employee hierarchy. Because it is an international network, Starbucks has divided the markets in which it operates into branches, which have been divided into further zones. In this way, Starbucks has facilitated operations and allowed individual regions to change on their own and develop innovation.

Market environment of Starbucks in China

Although China still does not dribble in the lists of the most coffee-drinking nations, the consumption of coffee is steadily increasing and is becoming fashionable among a new generation of Chinese people who are more than ever open to the world. Data show that on Alibaby e-commerce platforms, more than 18 million Chinese consumers have bought RMB 2.5 billion worth of coffee products in the last 12 months, and total consumption has increased at an average annual rate of 16%.

Marketing Mix of Starbucks in China

Product

Starbucks boasts a very wide range of products. The company constantly strives to introduce new types of coffee, maintains high standards and provides top quality coffee combined with excellent service. The range and choice of products is constantly growing and has been enriched in recent years with 8 new items in the drinks section and 7 in the desserts and snacks menu. In the interests of customer retention, Starbucks offers a large variety of additives such as non-fat or soya milk and seasonal offers such as caramel Frappuccino in summer and gingerbread latte during Christmas.

Strabucks also tries to meet the Chinese market’s tea needs. The company has introduced many new tea products to its standard menu, including “Tazo Tea” and products that use local ingredients. The Chinese management of the company understood that coffee in the market such as China has to combine with dessert or a small snack (Bolt, K. 2005), so among other things they proposed a variety of sandwiches, including bagels, paninis and croissants; a whole line of festive treats for 2020 and many breakfast options.

Promotion

Starbucks has conducted its marketing policy without focusing, like most companies, on spending large amounts of money on online advertising and billboards, instead investing that capital in the location. A big part of Starbucks’ success in China is the fact that this brand is widely regarded as a luxury by Chinese people and indeed Starbucks itself is trying to maintain this reputation by buying locations for cafes in areas or parts of the city associated with luxury and high prices. Before the opening, Starbucks also organises large social events to highlight the local personality of each location.

Another interesting strategy is Starbucks Card, cards for regular customers with special promotions and the possibility of collecting points. Starbucks also supports non-profit organizations as a way to improve image and brand awareness in local communities. In addition, the brand tries to create a Starbucks concept as a third place between home and work. A place where you come in the morning before entering the office to get your morning coffee and then after work, to rest.

Price

Starbucks as a company has always strived to provide the highest quality products and services. That’s why Starbucks’ services remain only within the reach of higher income customers who can afford their high quality products. In China, because of its marketing tactics of promoting Starbuck as a luxury ark, there has never been any attempt to reduce prices. This is also because Starbucks uses local producers and growers. However, coffee of course itself is not a widely grown product in China because of China’s climate and cultural background. Comparing the prices of coffee in the UK and China, we can clearly see that the price of Espresso that we can buy for￡1.15 in Uk, in China costs 30CNY, which is equivalent to over ￡3.2. Similarly, Caffe Mocha, costs ￡2.65 in the Uniten Kingdom and 28CNY (￡3.0) in China.

Place

Starbucks, in its international strategy, tries to open its cafés in places with heavy traffic, often on high streets, in shopping malls, at larger manors and railway stations. In China, however, as I’ve mentioned, another tactic has been adopted, trying to place the cafés in a more luxurious brand environment. Moreover, since the Chinese are historically a tea-oriented society, the older generation or people living in the suburbs and smaller towns could negative reactions towards the opening of a new western-style café. This, and the fact that a more open-minded population works mainly in big cities like Beijing and Shanghai, makes the new Starbucks cafés open mainly in cities. However, over time Starbucks also plans to strategically expand its reach to suburbs and smaller cities.

Marketing Communication of Starbucks in China

One of the basic things Starbucks took very seriously was reseach. Marketing specialists took a very close look at the lifestyles and cultural framework of modern Chinese people. They noticed, as has already been mentioned, that Western living standards are considered luxurious and bourgeois by them. So one of Starbucks’ basic strategies was to uphold this opinion by locating cafés in luxurious surroundings. Starbucks also prepared to enter a new market in terms of intellectual property regulations and secured its domain against possible attempts to copy its logo or business model. This was a very wise move, given that after Starbucks registered all of its major trademarks, a great many private entrepreneurs and Chinese companies tried to imitate the Starbucks model.

Starbucks also rightly pointed out that China, as one of the world’s largest countries, is very culturally divided between provinces or parts of the country. This diversity has forced Starbucks to enter into a number of partnerships with the local community that have given Stabuck a better insight into Chinese tastes.

The strategy of creating an image of luxury brand, maintaining good product quality and working with local suppliers and companies has proven to be a much better strategy than lowering the prices, like some other foreign chains do China, as a way to attract new customers. Discounts and low prices strategy was proven to be ineffective because international chains will never be able to compete with local competitors’ prices anyway. Starbacks has also become immune to a constant change of international markets because it is adapting its products to the location and preferences of potential customers.

The launch of Starbucks application was also a very good initiative. It contains not only information about products and locations of nearby cafes, but also the possibility of collecting points. However, most importantly, it gives customers a sense of community, makes them feel part of the company. The number of active users of the application who have actively used it in the last 90 days has increased 3 times in the last 4 years.

Starbucks hasn’t spent millions on advertising when entering the Chinese market, even though as a new, unknown brand of coffee in the tea-drinking society it would seem unavoidable. However, Starbucks decided to use a different marketing channel, social media. Instead of renting billboards in the city centre, they created a beautifully told story and let it into the online social world. This created a ‘he goes, so do I.’

It is also interesting to use the Chinese tradition of red envelopes, small gifts in the form of money, which the Chinese give out during holidays and special occasions. Starbucks has taken advantage of this tradition to create its own red envelope system. It’s called ‘Say It With Starbucks’ (用星说) and is designed so that the virtual envelopes have individual signatures such as ‘I love you’.

Five-year plan for Stabucks in China

Starbucks started out in China with losses in its first years of operation, after which it was incredibly successful and for many years was the only major company in the coffee business in the Chinese market. But now, as new market research shows, more and more coffee shops and international chains are opening up in China. We can mention Luckin Coffee, for example, which is growing rapidly and threatening Starbucks’ strong market position. So how can Starbucks keep its place as the largest and most popular coffee chain in China? For starters, I think it’s good to take the risks of the newly opening competition seriously. Starbucks’ recent response has been to work with Alibaba to further develop applications and other Starbucks innovations in the virtual world. This partnership will also help to process the data collected by the application and use it in marketing. Thanks to this partnership, customers will be able to purchase Starbucks Reserve coffee and other products, as well as order free coffee tasting. Investing in social media, applications and expanding the Starbucks experience with an online zone is the way the company should go. In a country that is committed to rapid technological development, with the largest age group between 30 and 32, it is worth investing in this marketing channel. People like to have everything at hand, be able to check the menu, pay by application or collect points on their phone.

But not all strategies have to be changed when competition appears. I think the idea that Starbucks has developed in China is a very good one. Promoting yourself as a luxury brand, putting up cafes in very well known, recognizable places, taking care of the design inside so that every single element matches the renoma that Starbucks built in China.

Challenges of Starbucks as a Coffeeshop

Over the years, Starbucks has become a global company. Today, Starbucks is the largest coffee-house company with 31,256 stores worldwide in 2020. Starbucks is present in 78 countries with around 27,340 Locations. Starbucks purchases and roasted high quality whole bean coffees and also offer a variety of coffee, teas, fresh food item, fine pastries and other delicious treats. And the music you hear in store is to let customer feel relaxing. Starbucks purchases and roasted high quality whole bean coffees. Besides that, it is convenient because it is easy and speed that we can buy it through drive thru, counter and delivery. The President and CEO of Starbucks is Howard Schultz. On the other hand, Starbucks was founded by three local entrepreneur name Jerry Baldwin, Gordon Bowker, and Zev Siegel in Seattle, Washington in 1971.They are teacher before this. Starbucks started its journey from a single store across the street which located at the historic Pike Place Market in Seattle. During this time, the Starbucks corporation only sold fresh whole roasted bean, gourmet coffee beans and brewing and roasting accessories but did not make coffee to sell. In the year 1981, Howard Schultz a sales representative for Hammarplast a Swedish company which sell Starbucks drip-coffee makers, he join Starbucks as the director of retail operations and marketing. Other than that, in the year 1983 the company sent Howard Schultz to Italy then he’s impressed with the tastes of espresso bars in Milan. After the trip to Milan, Schultz determined to bring Italian coffee bars to the United States, but found his boss was reluctant, and being still more dedicated to retailing coffee. As a result, Schultz left the company and he opened his first coffee bar in 1986 Called Il Giornale. After a spring year in 1987, Howard Schultz bought Starbucks Company and He re-branded his own coffee bars Il Giornale, hence started the journey of the brand “STARBUCKS”.

Firstly, Starbucks sales are affected by political factors, directly and indirectly. The patterns of sourcing the raw materials have evolved into a significant political factor that directly affects the business, which has attracted the attention of the politicians in the countries from where it sources its raw materials. For this reason, Starbucks is keen on adhering to social and environmental norms. It is willing to follow appropriate sourcing strategies and it gives importance to fair trade practices. Another political factors that Starbucks need to follow is the laws and regulations of the countries where there it sources its raw materials from. The activism and increased political awareness in the developing countries have made his essential.

Secondly, the economic factors which affect Starbucks could be exchange rates, and interest rates. Starbucks is affected by exchange rates when dealing with international trade if the currency of the country of a coffee supplier falls this enables Starbucks to paid less when importing the goods to their country. So that the saving can be passed along to the customer by cutting down on their coffee consumption are changing to lower-priced which are an opportunity for Starbucks. Besides that, an increase in interest rates means that the firms may delay or cancel their plans to expand as the cost of borrowing money is high for Starbucks and its suppliers. This means that the cost of borrowing increases thus people will borrow less more incentive to save, so the consumers have less income to spend on luxury products such as coffee. This causes Starbucks with customers spending less on their product so the sales will drop.

Thirdly, social factors examine the social environment of the market like cultural trends, demographics, population analytics. Starbucks would like to locate to an area where has high population which has more customer. However, Starbucks should widen their market this is the most profitable way. Due to the social culture, Starbucks can offer cheaper products with the sacrifice of quality.

Lastly, the developments in the technology such as coffee making machines this will enable their worker to work more quickly and this used to lower the labour cost and save time. Nowadays Starbucks uses social networking to advertise through world-wide to reach to people’s minds easily. Furthermore, Starbucks is also doing online delivery of their produced coffee it is convenience for the customer.

There are many challenges that Starbucks face as a high-end coffee shop. Starbucks only purchase the premium quality coffee beans for their product, is the priced that higher than other competitors and this will be giving the competitors a cost advantage over Starbucks so that the sales of Starbuck decreases follow by decreasing profit. This will cause Starbuck to face financing problem. On the other hand, health concerns are another challenges of the Starbucks consumers are aware of obesity with dairy, sugar and caffeine product this may caused some customers to turn to their health option. Starbuck can offer more choices of beverage. Besides that, ethical issues is another challenges of Starbuck is having too much of locations around the world and it often end up with multiple Starbucks Store in one street this will effect on smaller coffees shop. Starbuck to face with their strategy of expanding their company. Furthermore, the main ethical issues that Starbucks faced was the environmental and consumer issues. This will be resulted in profit lost as customer who support Eco-Friendly product.

Starbuck should have a more reasonable price strategy to face with harsh competition of others like Mc coffee or can come out with discounts and promotions to reduce cost this may increase in sales. Starbuck can offer more choices of beverage this will attract the customer and increase in customer loyalty and customer base. Besides that, Starbuck can list out the nutrition facts for the Starbucks coffee menu so that the consumer can use the calorie filter to find the item that best fits their diet and Starbuck can alternate to healthy ingredients. Lastly, Starbucks should be aware of the location and due to the environmental and consumer issues, Starbuck can come out with Eco-Friendly product which can be replace from plastic straw to alternative material straw.

The Rules of Financial Reporting and the Starbucks Corporation

Accounting standards of a company such as Starbuck were set by the Financial accounting Board’s Standard’s Board’s accepted accounting principles or GAAP. The main aim of these principles is curb fraud and errors that may prejudice the financial statements of a company. In accordance with an organization’s rules and regulations, incompetent employees can be identified, protection of company’s assets and reduction of cases about its loss can only be achieved through internal control. Assurances regarding dependable financial Statement made under the GAAP guidelines comprises company’s system of Internal Control Over Financial Reporting (Rouse, 2013).

However, frequent monitoring of the Internal Control should be done for the sake of quality outcomes. This is achieved through separate evaluations, ongoing monitoring activities or combining them. As operations fair on, ongoing monitoring can be administered. It generally entails activities of supervision, regular management and other activities that one usually undertakes as he / she performs the daily task.

Starbuck Fiscal 2019 Report states that disclosure controls and procedures should be maintained as they are designed to ensure that material information that is needed to be revealed in their periodic reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the specified period of time in the SEC’s rule and forms. The Management, Principal executive officer and the principal finance officer should be presented by the information disclosed by the company’s disclosure control as per the Exchange Act. The responsibility of management of establishment and maintenance of internal control over financial reporting is indicated in the annual report in accordance with the accounting principles that are accepted in the United States. This is inclusive of accurate maintenance of reasonable detailed records that is a fair reflection of their transactions; provide quality assurance that receipts and expenditure are processed according to authority from the management and finally ensuring that any acquisition, use or disposition of company assets that is not authorized and might impart a material effect on their financial statement to be blocked or detected within a certain time frame. A code of ethics has also been adopted by Starbuck beside these guidelines. These codes intend on covering corporate based governance for the chief executive officer, chief operating officer, chief financial officer, controller, and other leaders of finance (Internal Control – Integrated Framework ,2013).

A publicly held entity exemplified by Starbuck also requires segment information besides the internal control procedures. Public providence of the performance of the company is the sole reason behind business segment reporting to its stakeholders. For it to assess profits or risks that can be incurred, the management uses it to evaluate each segment’s income, expenses, assets or liabilities. Reports of the operations of the company in the disclosure that is accompanied by financial statement is what we term as Segment reporting. An operating segment engages in business activities from which it may earn revenue and incur expenses. It has discrete financial information which is available and regular viewing of the results by the entity’s chief operating decision maker of performance and allocation of resource decisions. This is as per the GAAP

Starbuck’s Fiscal Report of 2019 states that Americas (U.S., Canada, and Latin America), China/Asia Pacific, EMEA (Europe, Middle East, and Africa), and a Channel Development segment (including roasted whole bean and ground coffees, premium Tazo teas, Starbucks and Tazo-branded single-serve products, a variety of ready-to-drink beverages, such as Frappuccino, Starbucks Double shot and Starbucks Refreshers beverages) are the three segments that are considered reportable. The results of operation by segments from segment information in the annual fiscal report include; net revenues (company-operated stores, licensed stores, and foodservice and other), operating expenses (cost of sales including occupancy costs, store operating expenses, other operating expenses, depreciation and amortization expenses, and general and administrative expenses), and operating income (including income from equity investees where applicable) (Starbucks Fiscal Report , 2019).

The price one will receive to sell an asset or pay to transfer a liability between participants is what is referred to as Fair Values as per the Starbucks. It determines fair values based on 3 level inputs. The first will put into use prices that have been quoted for similar assets to determine value in active markets. The second level will be applicable when the prices are not available and will be based on the factors such as quoted marked price of assets that are similar or cash flows on discount models using market data that are available readily.

Finally, an organization also requires reporting of leases. A lease is an arrangement where the lessor agrees to allow the lessee to use an asset for a stated period of time in exchange for one or more payments as per the international Financial reporting standards. Classification of payment as rental expenses is something that must be done by a company that leases an asset under the operating leasing arrangement. The company records credit to the cash account and debit to the lease payment account Once the periodic lease obligation is paid. For instance, Starbuck is under operating lease. This is because most of Starbucks’ “lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions. It leases retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes under operating leases (Corcoran, 1968).

References

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