Module 1: Identifying Global Business Opportunities
Starbucks Corporation is currently reviewing its strategic plan concerning marketing, management policy, expansion and financial planning based on the economic assessment and analysis, market strength, existing opportunities, weak points and threats, with which the corporation is faced while considering the viability of the strategic management plan. This review of international business circumstances leads to seeking expansion into new foreign markets. The mission of Starbucks is to focus on the social responsibilities, to inspire and develop human spirit with the slogan “one person, one cup and one neighbor at a time”.
China and India offer viable business opportunities to Starbucks because of their economic strength and large populations that provide the wide variety of high quality coffee with a ready market, and Starbucks should consider increasing the number of stores in these two countries to increase its market share and to get money out of these large populations. A wide variety of coffee products are beneficial to all market segments such as children, the youth and adults, for example, the youth prefers fast moving food such as hot and cold sandwiches, pastries, snacks, salads, Panini, while the aged prefer drip brewed coffee and other hot drinks. This product diversification assists the company to satisfy perceptions, tastes and preferences of the entire customer base.
Starbucks is described as an international company because of its availability in approximately 55 countries in all continents and operating over 17000 stores. It is also international because it buys its high quality roasted coffee beans at the international market, and meets the requirements and tastes of the whole world population. A wide range of products and the high quality of coffee beans assists the company to gain a competitive advantage over other coffeehouses. Their experienced management staff, which has been in business for decades, provides impetus to the performance.
Module 2: Analyzing International Competitors
Starbucks is faced with a vibrant competition from a number of stores around the world. In China, there are three major competitors such as:
1) Green Mountain Coffee Roasters, which follows the strategy of “Green”, associated with high quality coffee beans. Green Mountain was founded in 1981 as a Vermont café with its headquarters in Waterbury, VT. It currently has more than 8000 stores selling organic lines.
2) McDonald Corporation: this is a renowned fast food shop that runs over 32000 restaurants and stores in over 100 countries, including China. It is currently planning to open 700 stores in China to increase its market share. Alongside fast food and beverages, McDonald offers hot coffee to its customers. This gives vibrant competition to Starbucks, because of its popularity at the world market and the planned increase in stores which may easily neutralize the impact of Starbucks in the market. This is a strong competitor that Starbucks management should carefully monitor and keep in check, not to drive eliminate them from the market. The fact that McDonald also offers fast food means that more customers who prefer taking both fast food and coffee concurrently may prefer McDonald, which they consider as a one stop shop. Starbucks should therefore consider introducing fast foods in their menu to counter McDonald’s popularity and intensify their coffee products campaign as their core products.
3) Costa Coffee: Costa was founded in 1971 with its headquarters in London. It was able to surpass Starbucks in India by its strategy of working together with Indian businessmen and customizing its menu to Indian tastes. Costa had opened approximately 300 outlets in India by 2010, and several stores in China, with the majorly concentrated in Guangzhou, Beijing, Shanghai. It has been expanding at the rate of 2-3 new stores per week in China. The majority of new coffee stores are situated close to the existing branch of Starbucks. The company is expected to open at least 2500 coffee shops in China by 2018. This gives vibrant competition to Starbucks, which is a market leader.
Starbucks management develops the product diversification and market segmentation by offering different products that match the needs of different target groups. It gives them a competitive advantage over other coffeehouses. They also use soft music to appeal to customers, which enjoy their coffee drinks. Being a market leader in China, Starbucks understands market dynamics better than new entrants.
Module 3: Assessing the Economic-Geographic Environment
Chinese economy is one of the fast growing economies in the world with well-developed road and communication infrastructure based on new technological inventions. China also has the largest world population of over 1.2 billion people, which provide a ready market for its goods and services, and the prevailing urban population in those towns, where Starbucks has positioned its stores. Initially, Chinese people were mainly tea drinkers and were unfamiliar with coffee. This made Starbucks develop an upward mobile strategy that is more appealing to young people more interested in foreign consumer products previously unavailable. China has highly populated geographical areas, for example, such as railway and subway stations being transit points for thousands of commuters every day, and key distribution points for coffee houses. Starbucks has several stores at the railway stations of Guangzhou, Beijing and Shanghai, to capture all commuting customers waiting to entrain.
In October 2011, Starbucks opened the seventh store at the Beijing capital international airport's terminal No 3, and the international departures hall, making the company's 500th store in China. Airports are very strategic geographical points because of the large number of people, including tourists from other countries, which prefer taking a drink before heading for their hotel rooms. Sea ports are also strategic zones that receive tourists. The shipping crew has been already occupied by Starbucks. Starbucks is aimed at opening of 1500 coffee stores in China by 2015. However, their locations should be transport terminals, since they admit a large number of people. The management should consider offering fast food together with coffee drinks to sustain competition pressure exerted by McDonald, which offers both food and beverage drinks.
Module 4: Assessing the Socio-cultural Environment
China’s population has increased for the last several decades to over 1.2 billion. However, the main concern is the trend of elderly people population. It is estimated that by 2050 there will be over 397 million people above the age of 60. This problem refers to the current total population of Italy, France, Germany, Japan and the United Kingdom, which need pension to maintain such people. This trend has long-term economic effects since the dependency ratio will increase substantially, and will make the government maintain the unproductive big population exerting pressure on the diminishing productive population.
The history of Chinese people is that they have been culturally tea drinkers, but not coffee drinkers for the last 5000 years. This has created a challenging business environment in China for Starbucks for the last decade. The company has spent a lot of money to gradually inculcate coffee drinking culture in China. Chinese people are also very reserved concerning their culture and for this reason they kicked out Starbucks from the Forbidden City in 2007. This was when Rui Chenggang, China's biggest TV network anchorman, claimed that Starbucks stores operating in the 600-year-old city broke Chinese culture. As a result, nowadays China limits the entry and expansion of stores into certain parts of the country. Therefore, Starbucks is faced with the need to conduct research into the tastes of Chinese people in order not to make a mistake that will cost them their investments. China also has a working culture making it a manufacturing country with literacy rate of 85.2%. This gives China an advantage to read, understand and compare their beliefs with what international companies offer.
Module 5: Assessing the Political-Legal Environment
Political stability in any country is a major determinant building investor’s confidence to venture into their market. It involves the type of government structure and the level of corruption in a country. Equally, a company may be faced with a number of business regulations when doing business at international markets, since a restriction differs depending on a country. Chinese market offers unique restrictions to American-based companies like Starbucks. For example, Starbucks was kicked out of the Forbidden City of China as a result of the claim that they interfere with Chinese culture.
When Starbucks entered China in 1999, the company was barred from owning its stores, until 2004 when Beijing lifted the limitations on foreign companies’ ownership in the retail sector as a condition for its entry into the World Trade Organization. This made Starbucks increase its equity position in Shanghai and Taiwanese by acquiring 50% ownership interest in its Shanghai joint-venture together with the President Enterprise Corporation, and 50% ownership interest in its Taiwanese joint-venture together with the President Chain Store Corporation. Starbucks has been still using joint-venture and licensing strategies to gain an entry into markets and to keep cost down. The government of China levies two taxes on foreign companies to standardize the national tax treatment both for foreign and Chinese enterprises. Foreign companies are charged with operations, which the construction tax and education have been effectively surcharging since November 2010. This move equaled most of taxes levied on international and domestic companies and became a motivating factor for international investors to venture into Chinese market without the fear of uneven competition. Starbucks management should consider the possibility of opening more stores in China since governmental restrictions concerning ownership and taxes levied have been reduced and resulted in the increase of profitability.
Module 6: Establishing a Global Company Structure
Starbucks uses hierarchical management structure with members board at the top headed by the Chief Executive Officer and further to departmental heads .This structure can be retained, however, directors in different countries should be empowered to make high level strategic decisions applicable in their market environment, caused by the fact that Starbucks branches run in different political, socio-cultural, economical, and technological environment. This means that centrally-made decisions may be inapplicable at different markets and cannot be fully implemented to achieve the desired results. On the other hand, it empowers several country branches within a common block to form a division in such a way, that the decision-making hierarchy can be shorter for a faster implementation of regional strategies. For example, the creation of North American, Asian, Latin American and African divisions will encourage regional decision-making. The mission of Starbucks is to attract people by providing quality services by means of sourcing quality coffee beans and using the joint-venture strategy to enter markets and to help reducing establishment costs.
Starbucks strategic plan is to increase the number of stores to 1500 by 2015, to continue offering quality and diversified products aimed at all market segments both the youth and elderly people, and to pay personalized attention to all customers to maintain the leadership position of the company. Starbucks employees are among the best paid in the industry, being satisfied by their work for the company. Social contributions improve community relations. For example, on June 30, 2010, Starbucks participated in the model project of flower and shrub planting that was led by a representative of the Ohio EPA. This activity brought together community members and their families, as well as local and federal officials and other dignitaries, and contributed to a positive customer response. This strategy needs to be replicated in China to prove that Starbucks is a socially responsible company thinking about the needs of the society.
Module 7: Financing Sources for Global Business Operations
China’s economy has been one of the fast growing in the world in the last decades as a result of the increased manufacturing. The population of 1.2 billion people also provides a market for its goods and services. The level of infrastructure development is high with a good road network, speed trains connecting major cities, world class bridges and developed ICT. China is also engaged in trade where it exports cheaper products as compared to American or European ones.
Start-up costs for new stores should be financed by the profit gained by the existing stores in Shanghai, Guangzhou and Beijing. The entry technique to be adopted is a joint venture where Starbucks will combine resources with another interested company to share the start-up cost. Start-up costs include premises, fittings, kitchenware, marketing, initial stock and staff costs that are very costly. With the market aim to open 1500 stores in China by 2015, Starbuck management can also consider seeking the increase of capital from the financial institutions.. This may include investment bank loans.
The cheapest method of financing the expansion, which Starbucks management should prioritize on, is the profits from existing stores and the use of joint venture technique to raise costs. However, it is noted that Starbucks is also faced with economic challenges as a results of the American financial recession that led to the ruction of the number of clients and the closure of 600 stores in 2008, thus affected their ability to raise expansion capital.
Module 8: Creating a Global Management Information System
The development of information technology has made monitoring of businesses very easy. This has strengthened the significance of information for decision-making and management processes of all companies. To make a right decision in relation to specific locations, to open new stores, Starbucks needs have demographic data of the area, additional sources of coffee beans, competitor analysis reports, economic performance and purchasing ability of consumers (Sedoglavich Hill & Field, 2008). The company also needs to analyze the trends of historical financial performance in relation to sales, to be able to forecast its sales when stores are opened. The company also needs to consider marketing techniques used acceptable by clients, for example, the use of social media which reaches more people nowadays than several years ago, the mass media, and the use of company websites. This information can be accessed through competitor’s websites, international organizations like the WTO and by means of the field research in order to have a true picture of what is distinct in relation to customers’ expectations, their level of demand and preferences and governmental releases about the national economy performance. The information about tax margins and governmental legal restrictions helps the management of the company make well-researched decisions (Sedoglavich Hill & Field, 2008).
Therefore, Starbucks needs to have the management information system that can be used to monitor the performance of all regions and stores in order to ensure profitability of all stores. This can be done by means of the use of software, other than website updates of all transactions made on a daily basis and can be accessed by the top management both at headquarters and at regional levels by means of the controlled login passwords for decision-making and evaluation in the areas of financial planning, human resources management, marketing management and inventory management (Sedoglavich Hill & Field, 2008).
Module 9: Identifying Human Resources for Global Business Activities
Human resources are core for the success of international business. This is because these are people, which implement set objectives and company’s mission, by availing products to customers and play an integral role in gaining and retaining customers. Without employees and managers, an enterprise is not more than raw materials, supplies, unfinished goods and unsold inventory. Starbucks has a history of hiring well-trained staff to manage stores and handle customers. Starbucks duties require that staff, which is knowledgeable in managing stores finances and preparing financial records, experienced customer service team offering quality service to customers, professional chefs being able to roast coffee beans and prepare high value brand coffee products for all customer segments. Recruitment should be done at the local level to minimize relocation costs that may be incurred by international employees. The experienced staff of Starbuck existing stores in China should be allowed to manage newly-opened stores as long as they qualify. House training programs, for example, seminars and conferences should be organized periodically to equip employees with new skills and approaches to be used when handling a new economic challenge. This should be done is a decentralized manner to cut on costs.
Ethnocentric staffing is not welcomed by Chinese government, since it promotes racism and cultural myopia among people at the level of stereotypes, which have very negative impact on the internationally cosmopolitan market. Many local customers being the majority may avoid stores thus reducing performance. Polycentric staffing supports hiring of host-country nationals for managers and employees. The geocentric approach of staffing, when any person is hired taking into account his or her qualification, is the best staffing approach to be used in China to win Starbucks an international fame (Sedoglavich Hill & Field, 2008). However, there is a need to ensure that there are Chinese nationals hired to assist in the interpretation of languages in case indigenous customers do not understand English.
Module 10: Managing International Finance and Business Risks
Corruption is a widespread vice in China and offers a serious threat to Starbucks business. Among such practices, there are the following: bribery, tax evasion and payment of commissions. Corruption may affect company’s operation either being a result of denied or delayed service provision.
Ethnic conflict may also cause the closure of stores. Nowadays there is a conflict in Tibet, where local people struggle for the autonomy from the People's Republic of China. This has made such an international community as British encourage the Government to negotiate with the representatives of Dalai Lama, to try to reach a solution of ethnic tension. Any company including Starbuck needs to invest in this area and to seek alternative places to avoid the eminent risk of social unrest.
Terrorism threat is another risk associated with Islamic extremist groups named the East Turkestan Islamic Movement (ETIM). People were faced with it in August 2008 when Olympic Games were hosted by Beijing. ETIM was responsible for attacks in the province of Xinjiang. If the security is not strictly maintained, Starbucks may become a casualty.
Cultural differences are another risk that Starbucks face in China. The company was thrown out of the Forbidden City with the claims that it did not respect Chinese culture. This was a big failure for Starbucks. The company must be cautious not to meet such resistance.
World economic meltdown also causes uncertainty in the future business returns with the increase in fuel prices leading to the rise in the cost of supplies and subsequent possible increase in prices for coffee products. Therefore, Starbucks should use the avoidance and reduction as risk management techniques, fully avoiding opening stores in conflict areas and reducing the risk of impacts taking measures to minimize it.
Module 11: Product and Target Market Planning
Starbucks offers a wide range of coffee products including brewed coffee, coffee beans, snacks, hot and cold sandwiches, espresso-based hot drinks, salads, panini, other hot and cold drinks, pastries and other items like mugs and tumblers. These products are made from high quality coffee beans to match the tastes and preferences of all customers. The target market is family households with children, the youth and adults. For example, these are children and the youth that like such products as snacks, pastries, salads, sandwiches and Panini, while hot drinks, brewed coffee are mostly preferred by elderly people. This product differentiation strategy ensures the satisfaction of customers’ needs. The product branding also ensures preliminary attraction to the product. This strategy works being used for children and the youth.
The customer service is a key area for the management to ensure that all customers are attended and the clientele is retained. Customers’ expectations are usually to receive a quality product and service, the value of money charged, availability and sustainability of service in an organized favorable atmosphere. The management should develop prompt feedback mechanisms to get to know the opinions of customers. This aids the corporation to realize new trends and expectations of customers’ needs and to identify the areas, which are to be improved, in order to satisfy fully these emerging needs. Starbucks also plays soft music in its stores that entertain customers enjoying their cups of coffee and it is very exciting especially for the youth in the evening after long tiresome work. Therefore, the management should ensure that all the staff dealing with customers’ orders is to be well-trained, groomed and ready to go extra mile while serving the customer. This can be achieved by means of periodic trainings of the staff on customer care skills.
Module 12: Designing a Global Distribution Strategy
The movement of goods and services between the producer and consumer is a very important element of global marketing activities that ensures that products reach the target customers in their right places. Distance from the source and legal documentation procedures at the ports can make this time consuming and costly. Before choosing the channel of distribution, Starbucks should consider aspects such as middlemen services, costs and margins , channel length which refers to the number of intermediaries between producer and consumer, line breadth, nonexistent channels, blocked channels, power and competition in terms of how much the competitors pay when importing their coffee beans and stocking capacity. The distribution channel should also consider customer characteristics and culture such as the demographic and psychographic factors when making channel design decisions. These include customer numbers, coffee consumption habits, income levels of the target groups and geographical distribution.
Starbucks in this case should use the retail pattern strategy, where coffee beans are bought directly from the producers. This importation can be done by the country regional office, which then distributes to the different coffee houses in the country according to their orders. This strategy will help reduce duplication of legal documentation at the ports and eventually cut the cost of supply.
Chinese infrastructure is well-developed to support international business corporations and it is internationally accessible through the well-developed road network, high speed trains, sea and air transport. This makes inland cost of distribution to the coffee stores cheaper and faster to meet the customer demands. In the beverage industry, a distribution strategy is applicable to the provision of coffee supplies and input factors. Coffee beans are imported to Chinese port and transported to coffeehouses. This helps to boost the economic relationships within countries and each party can get an income net profit. Thus, they are in win-win situation.
Module 13: Planning a Global Promotion Strategy
The global promotion strategy is aimed at creating awareness, educating and convincing members of the public to consume Starbucks coffee products and to make Starbucks products be the number one choice in the minds of Chinese people when it comes to the coffee consumption. The marketing plan is to be the one that reaches many people at once, both international and national recipients. Marketing decisions are to be made at the national level in the countries where stores are located. This is because there are different cultural beliefs and advertisement restrictions imposed by the laws of different countries. What is acceptable in one country may not be acceptable in the other. In this case the management of China stores should formulate marketing principles acceptable in China.
Quality positioning: the quality of coffee products is a major driving element for the success of products, since many consumers value the quality of the product or the service they receive. Quality of coffee products and services has been the major strength of Starbucks Corporation in the international markets, making it the market leader. Starbucks must guarantee the quality to customers in the new stores.
Pricing: because of the economic meltdown, consumers all over the world want quality products, however, at an affordable price that is commensurate to the benefit they receive in return. Stores perceived by the public as expensive ones normally lack customers.
Distribution: the plan to open 1500 stores in China by 2015 will ensure customers to have access to Starbucks products from their local nearest stores.
Packaging: neat packaging for sandwiches tell customers about the brand. This should be with full knowledge of the target market.
Internet marketing should reach as many people as possible in China using such social media as Twitter and Facebook. Television mass marketing can also be used but it should be customized for a national market with the approaches culturally acceptable in China.
Module 14: Selecting an International Pricing Strategy
Prices are mostly influenced by product costs, potential market demand, actions of competitors and government regulations. When the company determines the unit cost of the product then adds a markup percentage, then such cost is referred to as a product cost. It is a commonly used strategy. Demand and supply factors of the free market allow the company to change prices depending on the production capacity against demand. This strategy is affected by the economic performance of the country, when lower purchasing power leads to lower prices. Government regulatory factors usually encompass price control restrictions on basic goods on which the majority depends (Sedoglavich Hill & Field, 2008). For example, the government may restrict the increase of oil prices by retailers to avoid inflation. Thus, domestic and international pricing has been differentiated. International pricing with centrally set prices is not recommendable for local markets.
Penetration pricing: prices for products are artificially lowered in order to gain market share. This strategy can be used by Starbucks, especially when opening a store because there are major competitors like McDonalds. However, the strategy should be exercised with caution especially during the transition period from the low prices to the market prices, not to lose the gained market.
Premium pricing: high prices are charged for an exceptional product or service. This methodology is employed in case the company enjoys competitive advantage. Starbucks may employ penetration pricing strategy only to gain a market entry into a competitive environment, and later to premium pricing after building brand loyalty.
Module 15: Determining Organizational Financial Results
The financial performance is compared with the projected performance and means that the company meets set targets. The profit margin, the market share and the return of investment are common measurements used to assess business success. The 2010 annual financial performance reported the increase in net revenue by 9.5% to $10.7 billion as a result of the increase in equivalent store sales by 7%, driven by a 4% and the increase in customer traffic.
The U.S. stores registered the increase in sales by 7%, as a result of the 3% increase in customer’s traffic and the 4% growth in average ticket, while International store sales grew to 6%, propelled by the 5% upsurge in customer’s traffic and the 1% increase in average ticket.
Earnings per share (EPS) also increased by 138% to $1.24 billion from $0.52 billion in 2009. Operating cash flow totaled $1.7 billion, while free cash flow surpassed $1.2 billion. Starbucks gave back approximately $460 million to shareholders through share repurchases and dividends.
Starbucks total revenue also grew by 10% in May 2011to $ 2.8 billion in the first quarter irrespective of economic challenges, which is the 12% increase from the 2010 performance, which collected total revenue of $ 2.5 billion. Considering this projection and the increase in stores for the next three years, Starbucks will be confident of a stable growth of not less than 12% in the first quarter, which is always the lowest. This projection can be achieved when marketing cost is minimal, by increasing the 2006 marketing expenditure of $ 87 million, with not more than 15%. The management should also seek direct supplies to reduce the cost by at least 20% by means of the direct purchases of coffee beans from their manufacturers. This will ensure sales increase by 33% per annum for the next three years.
Module 16: Measuring International Business Success
International business success is measured by the following parameters: financial performance, economic and social influences and environmental effects. Community relations technique influences the society to be identified with the company. Whenever the society accepts the company, it is considered successful, for example, on June 30, 2010; Starbucks participated in the model project of planting flowers and shrubs, an exercise that was led by the representative of the Ohio EPA in the United States. This activity brought together community members as well as local and federal officials and other dignitaries who planted flowers and shrubs as a part of the celebration. The project also included renovation work that turned the Haley’s Ditch into a natural stream, by excavating the stream, adding stones and woody debris to form natural vegetation in the water and planting indigenous grasses, trees and shrubs to create an ecosystem that can attract a range of animals. This strategy of involvement the public created a positive image to the public and made many people be loyal to Starbucks products, because the company was seen as being environment-friendly. The jobs created by Starbucks also have positive economic effects on citizens.
The trends of financial performance indicated by the 2010 annual report and the quarterly releases 2011 show continued growth. The sustained vigor and the planned international expansion are expected to maintain the revenue growth momentum of at least 10% for the next four tears. China and India markets are expected to be major drivers of growth because of their large populations and the economic growth. Thus, the U.S. tries to deal with economic challenges that have forced Starbucks to close 600 stores in 2008.
Starbucks is one of the 500 fortune companies in the United States that deals with coffee products. The current economic recession that has affected the U.S. led to the closure of 600 stores in 2008, and for this reason more stores should be opened at the international markets. China and India offer the best markets for Starbucks because of their big populations and economy. Starbucks produces diversified quality products, has a social responsibility platform to gain a competitive advantage, and plans to open 1500 stores by 2015 to boost their global performance. The success of international business is measured by its financial performance, economic and social influences and environmental effects.