CASE STUDY: STARBUCKS (HTH668)

1. What are the greatest challenges in the broad environment that Starbucks will face when expanding into the Chinese market? What should Starbucks do to overcome these challenges?

According to Enz (2010), the broad environment will be define as forms the context in which the firm and its operating environment exist, including socio-cultural influence, global economic influences, political or legal influences and technological influences. Due to the Starbucks case, the greatest challenges in the broad environment that Starbucks will face when expanding into the Chinese market are socio-cultural influences, economic influences, technological influences and political influences.

The first challenge is in the socio-cultural influence, which are the influences and trends that come from groups of individuals who make up a particular geographic region. The greatest challenge that Starbucks will be facing when expanding into Chinese market is the attitude of the people in the China. The Chinese people prefer to drinks tea than coffee. So, the challenge that Starbucks here is how they want to change the attitude of people and attract them to drinks and try to consuming coffee. This is important to Starbucks to ensure that customer preferences could not shift from coffee to the other beverages. In order to overcome this challenge, Starbucks should do the maximizing the market penetration and offer high quality of products. Starbucks also do research and studies the socio-cultural of Chinese market first before enter the market. The studies found that, Chinese people also prefer to drinks coffee with foods such as curry puff or other pastries. Michael Wu, 34, the managing director of Maxim’s Caterers, Starbucks’ joint venture partner in Hong Kong, Macau and southern China, supported this statement.

The second challenge is in the economic influences, which are the influences, and trends that associated with domestic and global economies. The greatest challenges that Starbucks will face when expanding into Chinese market are changes in the disposable income of market could influence purchase levels of coffee and if the economic conditions is not good such as during recession or inflation may make consumers unwilling to pay high prices. This is because the price of Starbucks product is high relative to competition with other brand or organization. Therefore, Starbucks will reduce their price of product depends on the economic conditions or by reducing the cost of production in order to attract consumer to buy their products. They also will do the marketing strategies such as advertisement and offer good quality of service and product to ensure that customer will loyal with their products brand.

The third challenge is in technological influences, which are influences and trends related to the development of technologies both domestically and internationally. The greatest challenges in the technological influence that Starbucks will face are new products and new production process that they want to develop should be accept with the local market that is Chinese consumer. They should refer to the customer preferences or target market before do the new product development. Other than that, Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time. In order to solve this problem, Starbucks will do the current process-research effort and current product-research effort to ensure that the product will accept by the customer. They also will use other technologies such as machine for brewer the coffee and try to maintain the quality of coffee to ensure the operational efficiencies will be improve.

The last challenge is in political or legal influence, which is influence and trend associated with China government and other political or legal entities and political forces. The greatest challenges in the political influence that Starbucks should facing when enter the Chinese market is international pacts and treaties which are Entry, Country Development and Global Integration. The first phase challenge in political influence is Entry, this need Starbucks to determine the right business model to use and establish presence in the Chinese market or based on the China country. The second is Country Development that is Starbucks need develop their market by expanding to several localities, and build brand awareness with customer based on knowledge and research conducted during the Entry period. The last phase is Global Integration, which needs Starbucks to align with the management and goals of the parent company or China country. In order to overcome these challenges, Starbucks should follow all the legal regulations and law of the Chinese market itself. The Starbucks Company also must well know about the ‘One Face to China’ principle in which foreign companies reconcile their company goals with the goals of their host country.

As a conclusion, Starbucks Company must have good analysis of the broad environment that they will face when enter the Chinese market. This is important to them in order to gain profit and become the first well-known company that produce coffee product to the Chinese customer. All the challenges that they are facing must have ways and strategies to overcome it from influence the business operation.

2. Identify and how could Starbucks make its competitive advantages sustainable overtime?

What is the definition of competitive advantage? According to Enz (2010), the competitive advantage is exists when a firm has a long-lasting business advantaged compared to rival firms that is a significant edge over the competition. In the other words, the firms will do something competitors cannot do. Starbucks apply many competitive advantages in the Chinese market such as strong brand name recognition, large retail distribution system, quality product, extensive product list, good supplier relationships, strong financial history and strong human resources.

The first point is brand name recognition. Starbucks is a well-known branding of coffee product company. According to Venkatraman and Nelson (2008), Starbucks is an iconic emotional brand. These emotional brands become meaningful in part because they become interwove with the narratives of people’s lives. Starbucks create their brand name with offer good environment of store’s which is captured by four themes such as “Starbucks as Home;” “Starbucks as a Constellation of Personal Spaces;” “Starbucks as Exotic;” and “Starbucks as a Bridge between Cultures” (Venkatraman & Nelson, 2008). These entire themes will create good brand name within the customers.

The second point is large retail distribution system. Nowadays, Starbuck is one of the companies that expand their business to the other country such as in China. It becomes the first mover in the coffee business in China market. This situation will create competitive advantage for Starbucks because they were the first company that successful for enter the coffee business market in the China. The large retail distribution system also helps Starbucks increase their revenue and profit. They do the franchising their company to the other country over the world.

The third point is quality of product. All of products that Starbucks offer to the customer have high quality of item. Starbucks establish their own Total Quality Management System in order to provide and control the quality of product that they sell to the customer. They also have corporate headquarters that exercises controls over individual sites. Other than that, they also have internal controls for the store that is managing by the manager.

The fourth point is extensive product list. This is one of the competitive advantage of Starbucks because the product that they produce is always be consumed by the customer. This is because the demand for food and beverages is constant. Therefore, the extensive product list of Starbuck will help them to compete with other company that in the same business.

The next point is good supplier relationship. This is important to Starbucks in order to produce their product. Starbucks is one of company that cooperates with the other company in order to receive raw material for their products. They have lack of their own coffee farms. Therefore, to ensure that all the raw materials for their production are being supply, they build good relationship with their supplier. Therefore, this will overcome their problem.

Besides that, Starbucks also is a company who has strong financial company. This is because Starbucks was starts operated in many years ago and has good financial management and strategies. They will achieve strong financial in company because they have largest market share in the industry. They also expand their business to the other country and do joint venture with local business partners to help recruit talented individuals and maintain financial control.

The last point is strong human resources who is the employee and staff that working in their company has good skills such as production skills, marketing skills, managerial skills and others. The most important skills in Starbucks is people skills and drink preparation ability. In order to maintain and control the quality that product that they produce, all the employees will give training to learn about products, brewing methods and sales techniques. They also giving rewards to their staff in order to encourage them work in a good performance.

As a conclusion, there are many competitive advantage that Starbucks have for competed with other company. Nevertheless, the most important things are they must have a good missions and visions of their company that lead them to achieved good performance in business. They also must create positive value with their customer to ensure that customer will loyal with their products.

3. What strategies (at business and corporate level) could Starbucks implement in China considering the income discrepancies of that country?

What is the meaning of strategy? Strategy is a plan for pursuing the mission and achieving objectives. Business strategies is the direction and scope of an organization over the long-term which is to achieves advantage for the organization through its configuration of resources with challenging environment, to meet the needs of markets and to fulfill stakeholder expectations. The business level strategy is the plan for managing one line of business. While corporate level strategy is the plan for managing multiple lines of business.

There are many strategies that Starbucks will implement in China considering the income discrepancy of that country. They will use corporate level strategy which is growth strategies. Starbucks should be concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is the most important level because its will influenced investors in the business to invest. In order to growth their market, they should be well in mission statements. The corporate level of company must establish good mission statement and planning for the future of company. This will be guide to others members in the company to achieved and followed.

Starbucks expand their business to the foreign country because of the reason to growth. This is because in United States coffee bar market was saturation. So, they believe that there have been some consolidations as bigger players snap up some of the smaller bar competitors. They also note that Starbucks store base is maturing, leading to the slowdown in the growth of their unit volume and the firm’s profitability. This led them to enter the foreign markets for continued growth.

The other strategy is business strategies. Starbucks’ strategy is simple which is blanket an area completely even if the stores cannibalize one another’s business (Anonymous, 1996). The approach that they apply is “Starbucks-everywhere” which is they cuts down on delivery and management costs, shortens customer lines at individual stores, and increases foot traffic or all the stores in an area. According to Zhang (2006), even in down economy, Starbucks store traffic has risen between 6% and 8% a year. So, these types of strategy also will be implementing in the China country whether the income in the country is discrepancies.

Other than that, Starbucks also will implement joint venture and licensing strategy in China country. The joint venture will help Starbucks to exercise greater control over the growth strategy in that country. Starbucks also will focus on their target market of their product. They will provide the products that meet the customer preference, needs and wants. Therefore, these strategies will help them attract the customer to buy their product or menu items. The income discrepancies in China will not influence their business if they implement this strategy.

The last strategy for business that Starbucks will implement is offer the good and quality service experience to the customer. People do not go Starbucks for the coffee but for the different experience. So, in order to deliver the good service to the customer, Starbucks should focusing on the development of employees such as giving service training to ensure they will deliver the service in a good way. As conclusion, Starbucks have better strategies in business level and corporate level. Therefore, they must maintain the performance in provide the good service and product to customer.

REFERENCES

Anonymous. (1996). ‘Starbucks rides the caffeine wave: Brooke McCurdy’ , Chain Store Age, 72 (4), 2. About us-Starbucks Coffee Company. (n.d.) Retrieved September 7, 2003, from http://www.starbucks.com/aboutus/default.asp

Dess, G.G., Anil, G., Hennart, J., & Hill, C. W. L. (1995). Conducting and integrating strategy research at the international, corporate, and business levels: Issues and directions. Journal of Management, 32 (3), 357-393.

Enz, C. A. (2010). Hospitality Strategic Management: Concepts and Cases (2^nd Ed). New Jersey: John Wiley & Sons, Inc.

Venkatraman, M., & Nelson, T. (2008). From Servicescape to Consumptionscape: A Photo-Elicitation Study of Starbucks in the New China. Journal of International Business Studies, in press.

Zhang, Z. (2006). International Expansion of Starbucks under the Background of Global Tourism Development. Canadian Social Science Journal, 2 (1), 17-21.