Analysis of the Starbucks Coffee, Tea and Spice Company

Introduction:

Starbucks is one of Global brand name. Starbucks is a Coffee retailer in the world. Starbucks expanded their business both locally and globally. Global organization expansion involve a set of unique personal and professional skills–hyper-sensitivity to others, capability to convey diverse groups of people together, courage and risk-taking, negotiation and mediation skills, deep cultural knowledge, and strength in mobilizing networks of community resources. Diversification implies new products, services and markets. The extent of the differences implies that the diversification is either related in some way or unrelated.

History of starbucks:

Starbucks is a Coffee, Tea and Spice Company. They have strong balance sheet double digit growth since going public in 1992 .As 2009 December, it operates 16,706 stores, 8,850 company operated stores and 7,856 license stores in 50 countries around the globe. The Starbucks was born and survived the early 1970s. The history of Starbuck starts settle in 1971 by three friends Jerry Balwin, Gordon Bowker and Zev Seigl. They had a passion for dark roasted, European-style coffee, Coffee, gourmet coffee beans. In 1982, Howard Schultz joined in Starbucks as a marketer, that time it had grown sells extremely. He brought the new ideas for the company. In 1985, Schultz opened his own coffee bar where he served Starbucks brewed coffee, espresso coffee. He was interested to this coffee from Italian coffee culture. In 1988, Starbucks comes out their first mail order catalog. In 1991, Starbucks become the first privately owned company in US history.

International Business:

Starbucks has continually succeeded and one of the fastest growing company in the USA. Rapid pace of growth company CEO are looking for expand their business internationally. Starbucks was first begun outside of the America in 1995. The firm subsidiary called Starbucks Coffee International Inc. Starbuck build Starbucks’ business outside North America, Including Company owned, license, and joint- venture-based retail stores in globally. [1] 

Starbucks growth to international market is because of the need to collect and enhance the company’s market share and boost its financial base. Expansion in technology including communication effectiveness and improved international relations has contributed to the support of international trade. Rising competition is that enhanced the Starbuck’s international development. Through its international marketing approaches Starbucks has been capable of meet its objectives. Starbucks management have had an obligation to further drive the company further thus able to create and maintain a strong international marketing culture within itself. (The Wall Street Journal, NOV 6 2001) [2] 

Starbucks Mission statement for diversification:

Starbucks’ corporate mission statement is as “Establish Starbucks as the premier purveyor of the finest coffee in the world, while maintaining our uncompromising principles as we grow” .Starbucks established the following principle that is used to compare appropriateness of diversifications (Robert 125)

Provide a great work environment and treat each other with respect and dignity.

Embrace diversify as an essential component they have done

Apply the highest standards to purchasing, roasting and fresh delivery of the coffee.

Develop passionately satisfied customers all of the time.

Contribute positively to their community and environments.

Recognize that profitability is essential to future success.

Starbucks Commitment:

Starbucks fulfill their mission by commitment to [3] :

To understand the environmental concerns and distribution information with our associates.

Developing innovative and flexible solutions to bring about change.

Determined to buy, sell and use environmentally friendly products.

Recognizing that monetary responsibility is necessary to our environmental future.

Instilling environmental accountability as a corporate value.

Measuring and monitoring our progress for each project.

Encourage all partners to share in our mission.

International Expansion:

To maintain the rapid growth the company begun to expand overseas through Starbucks Coffee International a wholly own subsidiary. Starbucks was first opened non North American store in 1996 in Tokyo, Japan through joint ventures and then it expanded into south-east Asia, Europe and Middle East. When they are expanded their business internationally, they focus on the partnership first then country. They rely on local connection to get everything for business purposes. Starbucks looking for business partners for expansion of their business.

To enter into the international market Starbucks used three methods of market entry as part of their global strategy. These are:

Wholly-owned subsidiaries

Joint ventures

Licensing

Wholly owned Subsidiary:

The company owned operations for approximately 85% of net revenues in the fiscal years 2003. This emphasize the importance of company-owned operations and reinforces the need for these subsidiaries to be located were the company familiar with the market. Consequently, the majority of Starbucks Company owned stores are in the USA, the UK, and Australia. Because the cultures are the similar of these countries easy to concentrate on the market they know.

Joint ventures:

US companies such as Starbucks has been forming joint ventures with international partners at a growing rate of 27% annually since 1985 This emphasize the popularity of this mode of entry into the international markets. Joint ventures enable the company to enter another country with fewer assets at a stake, these experiencing lower risk. In addition, the parent company’s expertise and local knowledge can be joined together.

Companies having business agreements with Starbucks must be able to contribute to their mission. To ensure the correct selection, Starbucks, has set standards that potential international partners must comply with. These are:

Comparable philosophy of shared values, corporate citizenship and commitment

Multi-unit restaurant knowledge

Quality knowledge

Financially strong to expand their business rapidly

Strong knowledge to pick up location

Knowledge of the retail market

Loyal staff for the business

In early 1990’s Howard Schultz was interested in the Japanese market. IN 1996 they entered the Japanese market when they formed joint ventures with Sazaby Inc. forming Starbucks Coffee Japan Limited. Joint ventures were an idea mode of entry for Starbucks as the potential popularity of their product unknown. The joint ventures Starbucks to be involved in the Japanese market while continuing to specialize where were most competent in the US market. For Starbucks the alliance created lower risk for entry the new country and insight the local knowledge. (Starbucks, 2006)

Licensing:

Starbucks international strategy was to license the reputable local company, who will able to operate the Starbucks stores successfully. Due to rapid expansion Starbucks and development of Starbucks business experiences, variety of deal Starbucks able to sells coffee and develop new product. Starbucks strategy was to licensing agreement to enter the international market rather than franchising. Licensing means is that renting the brand as for fee. Starbucks has a more control of the licensing rather than the franchising. Starbucks first made the license agreement with HMS host. Nowadays, they have 7,856 license stores in the world including airports, Barnes & Noble bookstores and various market stores. In 1993 they realize that books and coffee best fit. Barnes & Noble opened a Café which was license by Starbucks. [4] In 1998, company agreement was started to open stores in Taiwan, Korea

Franchising:

Franchising is other method used in Starbucks. But franchising strategy was not preferred model for Starbucks. But due to the business needs some of the store are franchising. Company made the franchising agreement to be placed in airport, college, university campus, bookstores.

The growth of International Business:

Rapid economic development in China, Indian and other Asian countries is transforming them into major player in the world trade. For products that are high in value low in weight the world is one of the potential increasing both growth and competition.

Starbucks Five forces Analysis:

Rivalry among competing seller industry:

Main competitors are Peet’s coffee and tea, Caribue coffee, Dunkin Donat. Currently they have moderate competition. Starbucks now enjoy competitive branding advantages while competitors compete with other for pricing.

Threat of new entrance:

Threat of new entrance is for the Starbucks innovativation or new product. May be controlled over the distribution channel.

Threat of substitute product:

Includes other drinks item such as teas, juices and colas that are sold and prepared in retail market and home. Threat is moderate.

Power of Supplier:

Suppliers include coffee and dairy product. Starbucks is sensitive for pricing and supply. However. Company tightly relationship with vendors and negotiated better contract. Threat is moderate to high.

Power of Buyers:

Buyers have little power over Starbucks because number of buyer is unlimited, for all principal purpose.

SWOT analysis for Starbucks:

Strength:

strong brand name

Large retail distribution system

Good relationship with supplier

Strong human resource

Strong financial history

Weaknesses:

Depending on single source of income

Price relatively high

Strong dependencies on supplier

Opportunities:

Expansion of brand name new product

Expansion of overseas market

Threat:

Economic condition may make consumer unwilling to pay

Political conditions may limit overseas expansion

May be reaching saturation point in US market

Starbucks Completive Strategy:

Focused isolation:

provide the niche buyers than rivals

to be profitable for growth

resource and competence to serve in attractive niche

Starbucks Corporate strategy:

Take advantage of the market penetration

Provide reliable working atmosphere

Propose high quality of product

Offer attractive social environment

Attain profitability

Speedy store expansion strategy:

Domestically open more store

Internationally expansion

Development and training program for employee

To pick up prime store

Strategy for coffee purchase

International Strategy for expanded the business

Business Strategy:

International Business focuses on reducing costs to give the low

prices; this will help in entering new low cost markets and gain more

profits. Also alliances in countries to reduce management focus and concentrate more on the Domestic Market.

Functional strategy:

Marketing:

Starbucks continuing their existing market strategy and make a strategy to enter the new market.

Research and Development:

Starbuck could continue in their innovation and development strategy by being the Technological leader in the coffee retail business.

Operation Strategy

Starbuck could continue in the current strategy for depending on

employees in management and to make good deals with suppliers to

reduce costs.

Human Resources:

The company strategy for HR in developing and motivating employees as they are their best assets

Information Technology:

Starbucks all time up to date the Information system.

Starbucks Strategy Unrelated development:

Starbucks planned to open 2,400 stores internationally in fiscal 2007. It also raised its long-term store count target to 40,000 worlds wide, an increase of 10,000 locations over its previous target. Starbucks plans to have 20,000 locations internationally. By 2011, it expects to be more than 50 countries. It also plans to roll out warm breakfast items about 65,000 stores by October 2008. Starbucks has a goal of expanding areas other than refreshments. It has also working on this goal by launching its Starbucks Entertainment division and hear music brand and has entered into an agreement with Apple to have its hear music catalog displayed on the iTunes store. (Management Fundamentals: Concepts, Applications, Skill Development By Robert N. Lussier 2008)

Issues faced and tackled in globally:

Japan:

Opponents warned that the Japanese never like to take coffee in paper cups to take away or believe the inner non-smoke policy

Starbucks prove it wrong for the Japanese because 30% of Japanese they take-away coffee in paper cups

China:

Starbucks are trying to sell coffee aggressively because the china coffee culture is drinking tea.

Starbucks success to sell beverage in middle class people, it displays that it is Affordable Starbucks coffee.

France:

Starbucks had to deal with France to initial acceptance of the café culture with older purchaser scowling on big US coffee house with standardize disposable glass.

Younger coffee drinker embrace the Starbucks caramel coffee

England:

England is the second biggest overseas market of Starbucks. Trying to increase the market share.

Italy:

Popularity of local brand because of low price

Starbucks had a demand to serving food with coffee

Core Competencies:

Creating competitive circumference

Tangible resource:

Large number of outlets

Hi-tech coffee machines and equipment.

Operating 50 countries

Intangible resource:

Idea for roasting and brewed coffee

Large number of customer

Status for finest coffee maker in the world

Good relationship with staff

Human resource:

Starbucks has a skill employee

Starbucks provide training for the employee

Diversification strategy:

Starbucks already reached in saturation stages in the US market. It is very risky stay in same market without diversification. Due to this reasons Starbucks diversified their business in other country and stay in profit level by product defrays.

Establishing Global brand:

Due to the success in Japan and other country Starbucks thinks about acquisition of image. Schultz goal is for to be one of the respected brands in the world. The Early expansion in the Japanese market, the pace of international expansion has picked up significant. In 1998, Starbucks attained Seattle Coffee Company in United Kingdom. They maintain the growth and implemented talent leadership to become a respected global brand. According to the Business Week (2002), they published that Starbucks was the one of the fastest-growing global brand in survey of Business Week August 5, 2002 one of 100 global brands published. Global expansion creates huge risk for the Starbucks. In some cases it makes huge loss that reduce company share 20% to 50%.

Development method for Starbucks:

Starbucks has preferred the correct development method that aligns with its goals, strategies and practices. Starbucks considers that looking for licensees in markets that are unknown to company and where there are restrictions that may delay success and growth is the most appropriate strategy for international expansion. Licensing is an efficient strategy given that Starbucks needs to support its service and product quality. Starbucks also employs an international joint venture strategy in which Starbucks makes partnership with local companies in order to enter different markets. In Starbucks’ business expansion it has been seen that Starbucks builds partnerships with local firms. This is helpful as these local firms have more knowledge regarding the market and the demands of the local consumers saving Starbucks time and effort. Starbucks also maintain its high standard in every aspect of the business. This is the strategy what makes Starbucks’ success its capability to unite the market knowledge and local expertise of its partner or licensee with Starbucks’ operational expertise, management excellence and quality products. To use the appropriate method for the Starbucks needs to use the environment analysis for that country. To expand the business internationally Starbucks requires to analysis country’s political, economic & social situation and industry structure , cultural analysis, foreign economic conditions and its expansion is possible or not. Overseas market entry strategy Starbucks uses the appropriate method which one is efficient for the company. Starbucks combines it different strategy to uphold their business success. Their strategy licensing is use for the expanded the business overseas and development method is joint ventures. The development strategy is used by the market spread for Starbucks. [5] 

Strategic alliance:

Starbucks combines the license and the joint ventures strategy to enter into the international market. This is their strategy because it is the easy way to enter into the international market with less risk and acquire success. By this way they gather about the cultural knowledge and other force on the company.

Assessment of HRM:

Every employee needs training to develop their skills and capability. Starbucks understood that without skilled staff it is impossible to achieve goals and staffs are the resource for the organizations. For this reasons Starbucks arrange the mandatory training for the new employee and also provide training to improve the quality of work and gather new knowledge which is very important for the organizations. Starbucks treat with the employee with dignity and respect. Starbucks HRM treat with all the employee as well as part time staff like important part of the organization so employee becomes a loyal for their whole job life. They arrange rewards for who are doing well. [6] 

Conclusion:

Starbucks has the fastest growing company in the United States. Due to rapid grow Starbucks has entered into the international business uses different entry modes. The market development strategy used by Starbucks market broaden, which is very efficient to continuing the business expansion. Starbucks expand their international business with license and joint venture as well as wholly owned subsidiary. Starbucks human resource very strong so they gain success and take care of people with respect. In future their target is gain the strong financial growth and firm liquidity.

My Research:

In my research I found that currently Starbucks operated 7,856 license stores and 8,850 company own operated stores, 50 countries in the world. Their global responsibility is doing their business socially, environmentally and economically. In fiscal year 2009, by explicitly exposure on their performance. They engage the community, make good relationship with farmers and reduce the carbon emission and will work for climate change. They will work for environmental change by recycle the disposable cups. Starbucks has continuing the business strategic alliance with joint ventures.

BIBLOGRAPHY & REFERENCES:

Lussier N R (2008),”Management Fundamentals: Concepts, Applications, Skill Development “4th , edition South-Western Corporation, p.128

Clarke A., & Chen W. (2007), “International Hospitality Management Concepts and cases” Butterworth-Heinemann

http://faculty.bschool.washington.edu/skotha/website/cases%20pdf/starbucks_Intl%20copy.pdf

http://www.article-buzz.com/Article/Starbucks/533473

http://www.facebook.com/topic.php?uid=22092443056&topic=12212

http://ivythesis.typepad.com/term_paper_topics/2010/06/going-international-the-starbucks-way.html

www.Starbucks.com

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