Category: Starbucks

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.

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 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.

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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.

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.

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

1. Corcoran, E. T. (1968). Reporting of Leases. Financial Analysts Journal, 24(1), 29-35.
2. Rouse, M. (2013). GAAP (generally accepted accounting principles). Retrieved February 4, 2020, from https://whatis.techtarget.com/definition/GAAP-generally-accepted-accounting-principles
3. Starbucks Fiscal Report . (2019, October 30). Starbucks Reports Q4 and Full Year Fiscal 2019 Results. Retrieved from https://stories.starbucks.com/press/2019/starbucks-reports-q4-and-full-year-fiscal-2019-results/

Introduction

The first Starbucks store was opened in Seattle by Jerry Baldrew, Zev Siegl and Gordon Bowker. Harward Schultz joined Starbucks in 1982 and become the head of marketing. He brought the Italian cafe culture in the United States. With his efforts and hard work company expanded to various locations, Starbucks has around 24,464 stores worldwide and is expanding day by day. Extra-ordinary success

Their main focus is on ‘quality’ and ‘goodness’. The mission is ‘ to inspire and nurture the human spirit- one person, one cup and one neighbourhood at a time’ and the company wants to reach as many people it can possibly with this mission. As well as they have their vision ‘ to establish Starbucks as the premier purveyor of the first coffee in the world while maintaining our uncompromising principles while we grow’.

Development of brand image

Starbucks is not just limited to its own store product selling but they also sell their products through other retail store like different restaurants, airlines, with other brands etc. For example, they have joint-venture with the well-known company Pepsi-Cola where they produce packed or bottled frappuccino. This helps the company to form a strong image not just under their own name but through the other channels also. With the introduction of some more exciting features like SVC ( stored-value card) which further resulted wit positive outcomes and there is a significant reduction in the time take for the transactions. Last but not least the relaxing atmosphere adds a more nice texture to their services of the company and hence these all further leads to the smooth functioning of the company and responsible for its success.

The best thing, company not just takes the quality and taste under consideration but also take care of the people’s overall experience. Also, they take time to time steps in order to adapt to the environment and provide the consumer with their best products and services.

A decline in customer satisfaction score

However, the company thinks that they are doing great and meeting the expectations but actually there are customers who are complaining about the company’s atmosphere and cleanliness and level of quality of their products. There are many who believe that the company is just trying to make more and profit, opening new branches, expanding their business. These reasons lead to decline in the satisfaction level of the customers.

Starbucks of 1992 differs from Starbucks of 2002

As mentioned earlier, Starbucks make time to time changes in their function in order to adapt to the new challenges and environment. Ther huge difference can be seen between the years 1992 and 2002. Mostly 50% of the total sales were from the whole bean coffee. On the other hand, it was 77% of sales from the other beverages. Generally 1992, they mostly have whole bean coffee. But in 2002, there was an addition of new items like food and new beverages. As it was just the beginning so in starting they have a lounge with an Italian cafe culture, later in 2002 they have smaller coffee stores than before and without lounging. Initially, the company targeted te mid to upper-class people. Later in 2002, they target young and lower-income people. The process was quite simple in the beginning but in the other hand, it was so complex after (2002). Even a few believe that in beginning customers were goes to te Starbucks but now Starbucks goes to the customers.

Some Suggestions

Studies show that customer satisfaction is a very valuable asset for any company. So in order to satisfy customers, Starbucks should serve according to the requirements of the customers, should speed up their services, there should be an efficient use of present resources and technology and should not harm the environment and should concentrate on sensitive issues like cleanliness for better functioning.

References

1. Starbucks: delivering customer services, Moon, Y., Quelch J. 2018, Harvard School Business https://hbsp.harvard.edu/download?url=%2Fcourses%2F695818%2Fitems%2F504016-PDF-ENG%2Fcontent&metadata=e30%3D

Introduction

The corporate sectors currently become more viable. As per Kim and Mauborgne (2017), the leaders or higher authority of enterprises are altering their methodology to support in an antagonistic corporate sector. The excessive procedure can set the firm on competing for guide however proper implementation can preserve it there as well as the vast majority of the firm battle for enactment by way of the company which over depends on auxiliary alterations like revamping. This essay discusses the blue-ocean stratagem which comprises of perceiving and creating an evident marketplace to satisfy by giving items or administrations in which buyers don’t realize that these enterprises want or need until it is acquainted with the marketplace and produce extensive innovations in fewer time-period. This essay also focuses on boundary activities and boundary objects which shows faster blue ocean innovations in multi-national firms.

Blue-Ocean Strategy

According to Agnihotri (2016) the blue-ocean stratagem refers to an idea that empowers companies to meditate as well as make advancement in their industry which may support the multi-national firms to the budgetary and monetary regions that occur as the fundamental interest of an enterprise to form reasonable benefit. The objective is to create an opposition superfluous. The technique expresses that if multi-national corporations want their corporations to acquire into the blue-ocean, they involve to make a worth advancement. This advancement will separate an organization from its rivals. The researcher Sitinjak and Gunawan (2018) deliberated that blue-ocean procedure forms key arrangement to make new request as well as create extraordinary expansion for an enterprise. To make such a methodology, there are a lot of systematic instruments and structures utilized in defining and performing it. The most importantly mechanism in esteem advancement and making of blue-ocean system is the canvas stratagem. This strategy is made when an institute accomplishes value-advancement which makes esteem at the same time for both the purchaser and the organization. The advancement in an item, administration, or conveyance needs to increase and make an incentive for the marketplace, while all the while lessening or disposing of structures or administrations which are less esteemed by a contemporary or future marketplace. It energies enterprises to concentrate at the same time on taking out and diminishing, just as levitation and making while at the same time opening another blue sea.

Boundaries Practices and Objects

Blue-oceans’ advancement has no pre-characterized boundaries or restrictions. Ailing in such structures, the blue-ocean planning is regularly deliberated exceptionally hazardous as well as the seawaters of a blue-ocean stratagem are commonly viewed as both strange and obscure. Despite that reality, a large portion of the profoundly effective enterprise and ventures in the present worldwide economy were formerly companies that made a blue-ocean procedure dependent on development and innovativeness as well as building up items and administrations which spoke to new clients and re-imagined their whole enterprises. The author Hanggara (2019) also contends that the organizations ought to rather search for fresh and different market-space as well as approaches to reevaluate the business. To put it plainly, elude no holds barred rivalry and concentrates on innovative development in the company. As indicated by Gündüz (2016) the restrictions practices of a blue-ocean stratagem are for firms to discover and create innovations by means of blue-oceans that involve open and developing marketplace and stay away from the red-oceans flea-market which involves over-developed and immersed marketplace). An organization will have more achievement, fewer dangers, and expanded benefits faster if they implement blue-ocean innovations. The analyst Kodama (2018) contends that the Blue-Ocean modernization approach contends that customers do not need to pick among worth and moderateness. On the off chance that an industry can distinguish what buyers presently worth and, at that point reevaluate how to give that significance, separation, and ease may both accomplished. The Blue-Ocean impression table is a piece of an overall technique and leases enterprises test the corporate suitability of thoughts. This procedure enhances thoughts and distinguishes openings with the possible, limiting danger. Blue Ocean provokes organizations to drive the limits objects of their businesses as well as offering shoppers something exceptional of massive worth.

According to Lee and Chung (2017), the blue-ocean advancement strategy perceives three boundaries practices to consider procedures that lead the faster innovations in Starbuck’s Company. The principal practice is to reclassify an organization and concentrate on non-clients. By making contributions that apply to non-clients, the company may pull in an industry that conventional contenders can’t. The subsequent practice is to make all-out arrangements. The organizations vend items that resolve issues or resource profits. The advantages provided to client issues, clever advertisers might have the option to provide reimbursement to their client’s requirement that rivals don’t give. The objects are named by providing the integral desires of clients. Another practice to make faster innovation is to perceive the adjustments that the merchandise manufacturer aspect. Regularly the harmony between value, highlights, and advantages directs a specific blend for a specific fragment. That equalization depends on customary perspectives on client desires which may never again be significant yet is solidified by features which include in trouble expenses, set up dissemination, and serious movement to increase the company’s innovations. The researcher Van den Burg and Torrie (2019) indicates that the blue-ocean procedure energies their frameworks and organizations into advancement and revelation of unknown domains, it might be hard for built-up progressive frameworks to rethink its haggle to a very surprising heading. The organizations need to proceed with its demonstrated schedule that creates benefit and influence on its upper hand as opposed to getting the vulnerability of things to come by facing the challenge of turning into another mover for growing more competitive force to generate new modernizations in the lesser period.

Blue-Ocean Innovations in Starbucks Company

Starbuck a multi-national enterprise, has made another interest in an espresso marketplace and opened an alternate desire for a product-item. As per Gupta and Malik (2018) Starbucks concocted another point of view that altered from simply drinking espresso to appreciate drinking espresso through creating it proficient concentration on an enthusiastic environment. Starting from within an organization, the Starbucks appeal workers fulfillment by setting up great remuneration strategies and expansive advantage bundles under the conviction in which an organization’s prosperity ought to be communal amongst an individuals who support its development, thusly creating them to consider and go about as proprietors also, pointing the preeminent for an industry. According to Rahma and Choudhury (2019), this blue-ocean stratagem has prompted extraordinary client care as well as it has facilitated them to accomplish a first-class brand acknowledgment. The company has concentrated more on enlightening the quality of their items and the brand-name itself than making items to assault the opposition. The researcher Nakamori (2020) expressed that the principal key activity for a blue-ocean procedure is to make evident market-space. To make an obvious space for the market which creates an opposition immaterial. Starbucks Company has had the option to execute this procedure and attract another bunch of clients who were customarily non-buyers of the business, for example, non-espresso consumers. They were attracted to outlets that proposing an extensive assortment of beverages, nourishment, tidbits, teacups, and different things, as well as the loosening up environment it gives. Hence, they were set up to follow through on a few times more than the cost of having espresso at somewhere else to have a Starbucks involvement. The researcher Alam and Islam (2017) argue that Starbucks has kept up an upper hand since making its unique blue-ocean system of carrying superiority, tastes, and value as well as bistro-style espresso decisions to the majority. To remain existing it should concentrate on its center capabilities as well as make new worth advancement by upgrading the client knowledge by putting resources into online substance and intelligence. As opposed to making all the more new items, people deliberate that their quality deceits in their image and by upgrading the association with their devoted clients, which the company will isolate themselves from others.

The researcher Todd (2016) proposed another boundary practices which Starbucks adopted to produce faster blue-ocean innovations through dispensing with the requirement to convey money, currency alteration problems, learning problems, decreased the time consumed on requesting and manufacturing espresso, read-out the list of food options and experiences espresso varieties, deals as well as recompenses accessible, elevated the client pleasure, reliability, and prizes, quantity of new clients, customer’s visits and made another income basis for an organization, facilitated in getting fresh and different clients and made an obvious space in an advanced folder marketplace. The researcher Lohtander and Ratava (2017) states that the eradicate increase diminishes and produce brace and incentive demonstrates the way that Starbucks is effectively safeguarding its blue-ocean marketplace as well as utilizing the procedure to keep up its upper hand and the prevailing situation in the business. Starbucks is as yet keeping up the market prevailing situation through quicker blue-ocean development and troublesome advancements.

Conclusion

In conclusion, the essay discussed that blue-ocean innovation in regions that are unrestricted of contenders. They are market-spaces made by organizations to keep away from contenders. This strategy provides the chance of benefits and achievement as well as extraordinary consumer loyalty. These tactics deliver vehemently in which organizations may regulate their field of rivalry and make a new request by altering the premise of rivalry. To ensure the faster innovation in the company then they have to build up plans of action in less time-period. This essay takes an example of Starbucks Company which implements the blue-ocean strategy to retain its upper-hand pressure and innovative development in their organizations. The limitations practices of a blue-ocean stratagem are for Starbucks Company is to discover and create innovations through blue-oceans that involve an open and developing marketplace and stay away from the red-oceans market which involves over-developed and immersed marketplace.

References

1. Agnihotri, A., (2016). Extending boundaries of blue ocean strategy. Journal of Strategic Marketing, 24(6), pp.519-528.
2. Alam, S. and Islam, M.T., (2017). Impact of blue ocean strategy on organizational performance: A literature review toward implementation logic. IOSR Journal of Business and Management, 19(1).
3. Gupta, P., Nagpal, A. and Malik, D., (2018). Starbucks: global brand in emerging markets. Emerald Emerging Markets Case Studies.
4. Gündüz, Ş., (2016), October. How to make blue ocean turning into red ocean blue again: A case study of a room escape game. In Proceedings of ADVED 2016 2nd International Conference on Advances in Education and Social Sciences (pp. 10-12).
5. Hanggara, F.D., (2019), November. Development Of Business Strategy Through Blue Ocean Strategy Model (BOS)(Case Study: Resto X, Batam). In 2019 1st International Conference on Engineering and Management in Industrial System (ICOEMIS 2019). Atlantis Press.
6. Kim, W.C., and Mauborgne, R.A., (2017). Blue Ocean Strategy with Harvard Business Review Classic Article ‘Blue Ocean Leadership'(2 Books). Harvard Business Press
7. Kodama, M., (2018). Boundaries Synchronization and Capabilities Congruence: Discussion and Implications. In Collaborative Dynamic Capabilities for Service Innovation (pp. 271-333). Palgrave Macmillan, Cham.
8. Lee, Y.L., Wang, W.S. and Chung, S.M., (2017), May. The Blue Ocean Strategy applied in a flood control product development. In 2017 International Conference on Applied System Innovation (ICASI) (pp. 1961-1964). IEEE.
9. Lohtander, M., Aholainen, A., Volotinen, J., Peltokoski, M. and Ratava, J., (2017). Location-independent manufacturing–Case-based blue ocean strategy. Procedia Manufacturing, 11, pp.2034-2041.
10. Nakamori, Y., (2020). Innovation Theory. In Knowledge Construction Methodology (pp. 1-17). Springer, Singapore.
11. Rahman, M.H. and Choudhury, S., (2019). The Influence of the Blue Ocean Strategy on Organizational Performance. Global Disclosure of Economics and Business, 8(2), pp.49-62.
12. Sitinjak, M.F., Pramawijaya, K. and Gunawan, A., (2018). ICanStudioLive use of Blue Ocean Marketing Strategy for Value Differentiation. Pertanika Journal of Social Sciences & Humanities.
13. Todd, L.A., (2016). An exploration of Blue Ocean Strategy’s capacity to sustain small businesses: A qualitative study (Doctoral dissertation, Capella University).
14. Van den Berg, S.W.K., Aguilar-Manjarrez, J., Jenness, J. and Torrie, M., (2019). Assessment of the geographical potential for co-use of marine space, based on operational boundaries for Blue Growth sectors. Marine Policy, 100, pp.43-57.

Starbucks’ recent decision to emphasize on non-dairy options for using as alternatives to milk has brought about a great tension in the dairy industry of the US. However, the decision tends to act as a driving force for other food services and agricultural industries, thereby adding fuel towards the use of nuts, soy and other beverages in the foodservice sectors. Pertaining to the notions of the socio-psychological concept of consumer attitudes, it can be stated the decision of Starbucks tend to have a strong and powerful impact on the thinking and behavior of consumers along with marketers.

The consumer behavioral outcomes reveal that the decision of customers regarding the purchase or use of a product not only depends upon the quality, tangibility, and benefits provided to the individual self but also its impact on the environment and society. In this regard, it can be said that Starbucks’ decision to shift towards non-dairy options may be well-accepted. It is found that in total, dairy use resulted in about 21% of the global carbon footprint of Starbucks in 2018 and thus, the company has aimed in reducing carbon consumption to promote sustainability (Bloomberg.com, 2020). However, dairy-free drinks tend to cost more than that of the dairy-drinks. In this context, the attitudes of consumers towards milk appear to be strong. Raising the prices of the drinks may turn off customers if the competitors continue to sell dairy-drinks at low prices (Insider, 2020).

Thus, by applying the theory of motivation proposed by Maslow, it can be said that Starbucks may fail in meeting the safety needs of consumers by increasing the prices of the dairy-free drinks. However, pertaining to the long-term relationships developed by Starbucks due to the best quality of its coffee, it is found that the company has managed to provide a sense of community and belonging to the customers (Kumar, 2016). This may prevent them from switching to other brands if prices increase, Moreover, the company has attempted to delve into a sustainable cause to switch to non-dairy alternatives. On the contrary, the innovative farm practices and use of the latest technology have caused the ecological footprint of the coffee industry to shrink. The attitude strength of consumers is determined by their knowledge about the products and the extent to which they care about (Wu et al. 2016). The planet-friendly approach of Starbucks is appreciated since, in the 21st-century business market, the concern for environmental sustainability is increasing. Considering this fact, it can be said that the attitudes of consumers towards milk are strong since the production and use of dairy products tend to bring an increase in the emission of greenhouse gases, thereby harming the planet. The cognitive appraisal approach is based on emotions underlying the motivational roots for explaining their impact on consumer behaviors. This approach has gained popularity since its promising ability to study consumer emotions. Using this approach in the case of Starbucks, it can be stated that ‘outcome desirability’, referring to the outcome of the decision appears to be positive since it will assist the company in achieving the benchmark of achieving environmental sustainability.

References

1. Bloomberg.com. (2020). Bloomberg – Are you a robot?. [online] Available at: https://www.bloomberg.com/news/articles/2020-01-21/starbucks-taking-aim-at-milk-is-latest-blow-to-beaten-up-dairy [Accessed 24 Feb. 2020].
2. Insider. (2020). Vegans are holding sit-ins at Starbucks because dairy-free drinks cost more. [online] Available at: https://www.insider.com/vegans-protesting-starbucks-extra-charge-nondairy-milk-2020-2 [Accessed 24 Feb. 2020].
3. Kumar, K., 2016. An Analysis on Brand Loyalty: A Case Study on Starbucks.
4. So, J., Kuang, K. and Cho, H., 2016. Reexamining fear appeal models from cognitive appraisal theory and functional emotion theory perspectives. Communication Monographs, 83(1), pp.120-144.
5. Wu, T.J., Tsai, H.T. and Tai, Y.N., 2016. Would corporate social responsibility affect consumers’ attitudes towards brand and purchase behavior? Buyer-seller guanxi as the moderator. Revista de Cercetare si Interventie Sociala, 53, pp.272-287.

Rules for financial reporting are the standard requirements that public companies must conform to under the generally accepted accounting principles (GAAP). These standards are created by the Financial Accounting Standards Board (FASB) and enforced by the Security and Exchange Commission (Carlson, 2019). This report covers the rules of financial reporting followed by Starbucks.

Control Procedures

The reporting of control procedures is required by the U.S. government for public companies, such as Starbucks, as is required under the Sarbanes-Oxley Act (SOX). A provision of the SOX act indicates that companies must provide an internal control report that is evaluated by an outside auditor for soundness (Harrison, Horngren & Thomas, 2015). These controls are implemented to prevent fraud and clerical errors that may compromise the accuracy of a company’s financial statements (Sullivan, n.d.).

Starbuck’s internal control procedures, as well as the independent audit statement conducted by Deloitte & Touche LLP, are explained under Item 9A in the FY19 annual report. The audit affirms that Starbuck’s internal control procedures were effective and sound as of September 29, 2019 (Starbucks, 2019). Starbuck’s internal controls over financial reporting include maintaining records that accurately and fairly reflect transactions, provide assurances that transactions are recorded for the preparation of financial statements, that receipts and expenditures are made in accordance with management authorization, and that unauthorized acquisition, use, or disposition of company assets that have a material effect on financial statements would be prevented or detected on a timely basis (Starbucks, 2019). These control procedures assure investors that Starbuck’s financial statements are reasonably accurate.

Segment Information

Segments are a company’s subset of business operations and divisions that directly earn revenue for the company (Harrison et al., 2015). The FASB requires that public businesses report financial and descriptive information about its reportable operating segments (Financial Accounting Standards Board, 1997).

Starbucks (2019) gives information regarding its financial segments under Item 1 of the FY19 annual report. Starbuck’s three operational segments include the geographical locations of the Americas (U.S., Canada, Latin America), International (Asia, Europe, Middle East, and Africa), and a consumer package goods division called Channel Development. Revenues for Starbuck’s operating segments as a percentage of total net revenues for fiscal 2019 were: Americas (69%), International (23%) and Channel Development (8%) (Starbucks, 2019). In depth segment financial data is reported under Item 7 (pg. 27-29) in the FY19 annual report.

Estimates

A statement about estimates and assumptions is required in the preparation of financial statements to be in conformance with GAAP (GCA Savvian Advisors LLC, 2015). This statement declares that the values of assets, liabilities, revenues and expenses reported within a company’s financial statements may be estimated and may differ from actual results.

Starbuck’s statement of estimates and assumptions can be found under Note 1 of the FY19 consolidated financial statements. In this note Starbucks declares that estimates may be applied (but not limited) to inventory reserves, asset and goodwill impairments, assumptions underlying self-insurance reserves, income from unredeemed store value cards, stock-based compensation forfeiture rates, future asset retired obligations and the potential outcome of future tax consequences of events that have been recognized in financial statements (Starbucks, 2019). This statement disclaims that estimates and assumptions are used in the FY19 report and that reported values may not completely reflect actual results.

Investments and Fair Value

Assessing and measuring fair value reported on a company’s financial statement is required by the FASB in order to comply with GAAP. It is defined under topic FASB ASC 820, which states that “fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” (Minotti, 2016). This fair value measurement consists of a three-level hierarchy for reporting. Level 1 fair values are the quoted prices directly comparable to identical assets in an active market at the measurement date, level 2 values are the significant observable inputs that are not quoted prices, and level 3 values are the significant unobservable inputs unique to a company (‘Fair value hierarchy leveling’ n.d.).

Starbucks statement of fair values is found in Note 1 of the FY19 report, where the company policy for each hierarchy is defined in detail. Financial values and further explanation of level 3 assets and liabilities are found in Note 4 of the FY19 report. The total asset fair value balance in 2019 is $3016.0 million and the total liability fair value balance in 2019 is $18.2 million (Starbucks, 2019). These total values are broken into the three-level hierarchy and reported under Note 4.

Leases

In 2016, the FASB implemented a new standard that requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases (‘Leases,’ n.d.).

Starbucks (2019) states that their leases consist of retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes under operating leases. Values for lease amounts are reported under Note 10 of Starbuck’s FY19 consolidated financial statements. Total rent expenses were $1666.0 million in 2019, and $1625.2 in 2018 (Starbucks, 2019).

References

1. Fair value hierarchy leveling. (n.d.). Retrieved from https://data.bloomberglp.com/professional/sites/10/Fair-Value-Hierarchy-Leveling-Fact-Sheet.pdf
2. Financial Accounting Standards Board. (1997). Disclosures about segments of an enterprise and related information. Retrieved from https://www.fasb.org/summary/stsum131.shtml
3. GCA Savvian Advisors LLC. (2015, December 31). Notes to financial statements. Retrieved from https://www.sec.gov/Archives/edgar/data/1254219/000125421916000005/notes1.pdf
4. Harrison W., Horngren C. T., Thomas C. W. (2015). Financial accounting (10th ed.). New York, NY: Pearson Education
5. Leases. (n.d.). Retrieved from https://www.fasb.org/leases#section_2
6. Minotti, S. (2016, July 6). Understanding FASB ASC 820 – and important proposed changes. Retrieved from https://blog.skodaminotti.com/understanding-fasb-asc-820-important-proposed-changes/
7. Starbucks. (2019). FY19 annual report. Retrieved from https://s22.q4cdn.com/869488222/files/doc_financials/2019/2019-Annual-Report.pdf
8. Sullivan, D. (n.d.). GAAP Principles for Internal Control Procedures. Retrieved from https://smallbusiness.chron.com/gaap-principles-internal-control-procedures-63102.html