Proposed Expansion Strategies Of Starbucks Into Indian Market Marketing Essay

Proposed Expansion Strategies Of Starbucks Into Indian Market Marketing EssayThe following hatch is based on the proposal for Starbucks Corporation to make a direct foreign investment in India by penetrating its grocery place with its product and services. strategical recommendations for the future course of action is provided in order to achieve market rivalrous receipts.1.0 INTRODUCTIONStarbucks is the worlds leading speciality burnt umber retailer, producing and selling a all(prenominal)-encompassing variety of beverages, as well as pastries and confections, by means of some 8,400 coffee tree shops throughout 30 countries around the world. Starbucks has conveyn to become 1 of the most talked virtually planetaryized brands in recent times. In the four years since going public, the chain of coffee bars has become wildly lucky by turning one of the worlds most pedestrian beverages into a premium product, wrapped in a c arfully cultivated, widely recognized brand name that extends far beyond whats in the instill. It is a brand thats defined as much by attitude as it is by products. The Starbucks experience is about to a greater extent than a daily espresso selection it is about immersion in a politically correct, civilisationd refuge from everyday hassles.Having established itself as a global force, umteen analysts are communicate whether Starbucks fanny continue to go from strength to strength. Sustained success lead require sharp focus on a set of key challenges, including k nowledgeability and experimentation. In order to achieve a competitive advantage, the social club continues to rapidly expand its retail operations and pursue opport unit of measurementies to leverage the Starbucks brand through the cornerstone of unseasoned products and the development of new distribution channels. SWOT analysis is given in Appendix A to high gearlight caller-ups current strategic position.Companys proposed expansion into India is seeming to br ing a strategic challenge for the company. India is seen as having the greatest potential for multinational corporations. India is a highly diversified country. There is, nonetheless, a nub husbandry based on a share religion and political experience. India now has a levying middle separate, an increase in disposable income that is considered or else opportunistic for companys expansion.To give a more in-depth insight into Indian market for Starbucks operations, macro-environmental example is presented in Appendix B, including the analysis of political, economical, social and technological factors that will affect Starbucks proposed operations.2.0 expansion INTO INDIAN MARKETIndia is a mixed economy, where two public and private sector enterprises work together to achieve economic development for the country. India has many macroscopical and dynamic private sector companies which operate in all field of views of economic activity trade, commerce and industry, without mu ch interference from the government.India is a nation of more than 1.03 one million million consumers (The Economist, 2001). It has an expanding middle class of 150-200 million consumers, most of whom are well educated and speak the English language. In the revised per capita income estimates, on the basis of the World Banks acquire power parity (the exchange rate that equates a countrys goods and services with international prices), it is estimated that Indias per capita income is $1,150, with a GNP of a trillion dollars. As a result, India is ranked as the sixth largest economy in the world.India is the worlds largest democratic republic although government bureaucracy does not hasten ultimate control over vocation decisions as in China, it has a lot of influence. Multinationals, much(prenominal) as Starbucks will be seen as vanguards of a new colonialism (Cateora and Graham, 1999), are continually thwarted through such measures as prohibitive tariffs (e.g. on computers and softwares), bans in importation (e.g. automobiles), quotas and early(a) non-tariff measures (Schlender, 1997).In spite of the huge potential of the Indian market, there are various challenges Starbucks expansion will have to face, including six distinct issues concerning the economy, management, merchandising, government, labour and finance. India is perceived to have a more approving general business climate than, for instance in China.At current growth rates, bodily investment in Asia will not have a tremendous impact on the short- or medium-term growth and positivity of multinationals. For Starbucks in particular, it will be just another matter of gaining a broader global representation and greater market share.2.1 Main Investment AdvantagesThe Indian economy, already the fifth largest in the world after US, Japan, China, and Germany, is growing faster now than at any time in the past fifty years. On average, India boasts a GDP growth rate of more than 6 percent annually sin ce 1991 (Panigrahi, Ede and Calcich, 2002).India is fast industrialising and with its vast labour force and talented large number, the Indian government is tenor to make the country an industrial giant within a decade.India, with the largest middle class in the world, similarly ranks second, after China, in terms of overall universe of discourse (over 1 billion). For example, India has 1.03 billion people and about 170 people per car. The US, on the other hand, with a population of 275 million people, has three people per car.Forecasts indicate that by 2010, only 9 percent of the Indian population will be elderly, while the elderly, by comparison, will make up 19 percent of the US and 30 percent of the Japanese populations. Thus, consumers in India are comparatively unsalted, having a potential to powerfully influence economic growth and consumption patterns.In India, the wit is favorable for companies feelinging to build long-term value and improve manufacturing efficiencies . But Asian markets whitethorn not be the easy answer for companies attempting to boost their short-run growth. By investing in India, Starbucks should take a careful look at what really affects returns to public shareholders. Most investors and executives want a piece of the go Asian market for the right reasons. With vigorous growth in the region, getting into India, and other countries should position companies well for the expected groundswell of shareholder value.Over the past v years, India, the largest democracy in the world, has put in place the foundations of a deregulated market-driven economy. It is hardly surprising then, that a growing mo of US companies, motivated by favourable investment climate and the regions huge reserves for both gentlemans gentleman and natural resources, have begun to seriously consider investing there.2.2 financial Analysis of IndiaFinancial matters in India1are governed through more than 800 decrees and provisional regulations (Belcsk, 2 005). The whole pecuniary system, including banks, pecuniary institutions, and stock markets, is yet to be organised. Simultaneously, in the financial sector, banks and financial markets remain plagued by lack of expertise, government mismanagement, corruption, and unclear legal status. Until recently, virtually all of Indias banks and financial institutions were state-owned, government controlled organisations. However, after the implementation of a liberalisation programme, and imposition of international financial standards, domestic state-owned banks and other financial institutions are less tightly controlled and more professionally managed.India is a functioning market economy with the studyity of companies becoming consumer focus and market driven, getting more and more urbanized, using technology to replace labour, deriving an Asian approach to management as distinct from the same followed by the westernmost and are beginning to establish networks with other nations to face the rest of the world (Marshall, 2005). Many of these trends are applicable to India and it is no wonder that leading multinationals, including Starbucks, are reservation it a point to take care that they have a strong presence in India.In todays context, the wealth of a nation is synonymous with the wealth of its organizations and to ensure that large domestic firms play their due role in the countrys development, the government of a developing country must(prenominal) provide the required support. The Government of India seems now to have understood this important requirement and recently proposed that it would delegate required managerial autonomy to various leading public sector units of the country.A number of recent policy changes have promoted foreign direct investment (FDI). The government has reduced exchange control regulations for companies with significant foreign participation. The 10 percent measure rate on long-term (12 months or more) and the 30 percent ta x rate on short-term (less than 12 months) capital gains are the same for both Indian and foreign firms and investors. Dividends and interest income are taxed at a rate of 20 percent (Country Review, 2005). Article (2005) states that the key at tribute of multinational company, such as Starbucks is not that it engages in foreign production, but that it finances at least part of the production in its home currency. It is suggested that the stronger currency enables companies in the companys area of advantage in investing over weaker currencies, because of investors preference for securities denominated in the stronger currency and hence, a cheaper cost of capital. A strong home currency discourages and weaker currency encourages FDI in the nation.2.3 Coffee Market in IndiaIndia accounts for approximately 4.5 percent of world coffee production and has coffee importing countries, including Italy, Germany, Russian federation, Spain, Belgium, Slovenia, US, Japan, Greece, Netherlands and France (Mulligan and Authers, 2003). The coffee market itself in India is rather fragmented with no evidence of market leaders. Meanwhile with increasing competition amongst different multi-national brands, companies are coming up with added facilities. Coffee shops tend to focus on quality service, providing a cool and soothing ambience.Currently, Indian industry is expecting marginal improvement in price realisation in the global market. The quality and fragrancy of Arabica variety of Indian coffee is much diverse than in other global coffee markets. The Indian Coffee Board is quite sensitive to the engage of the countrys coffee industry and has been consistently following accomplishable corrective measures to make the domestic industry feel least impact of adverse international market condition. Majority of coffee shops in India large cities are privately owned and there are only few bi players, such as Tata Coffee, Hindustan Lever, nuzzle India, Barista Coffee.3.0 PROPOSED E XPANSION STRATEGIES OF STARBUCKS INTO INDIAN MARKET3.1 Cultural ContextAccording to Hofstede, national culture plays an important role in individuals behavior and attitudes. It is recognized that individuals behavior in culture groups are strongly influenced by the values held in that society. Some of these values influence consumption patterns. Swaidan and Hayes (2005) pointed out that Indian culture, like many other Asian cultures, exhibits high collectivism and uncertainty avoidance. Similarly, Todeva (1999) found that Asian consumers are less prepared to take the social risk to try new products. On the other hand, the discomfort of being left behind presses them to follow suit if they believe others have tried the product. The innovation curve among Asians is, therefore, steeper and negatively skewed.In India, Venezia (2005) observes, you will find a society that has, like Europes, the diversities of a continent and the unities of a civilization. Such is the measure of the magni tude of the nature of diverseness in Indian society whose features Indian industry had inherited. Societal diversity is not an unmixed blessing for corporations and their management. It is argued that in India, generally speaking, the weaknesses of societal diversity such as caste, for instance, are superimposed on its business and industrial organizations and exacerbated. Collectivism that is highly evident in India, is characterized by a tight social framework, in which people distinguish between in-groups and out-groups.According to anthropologists Kluckhohn and Kroeber, the essential nerve center of culture consists of traditional ideas and their attached values. These values influence how people judge behaviour or situations and shared values direct people of the same culture to react in a similar way to a certain situation (Venezia, 2005). A major study by Hofstede defined business culture as learned assumptions and beliefs, attitudes and values shared by members of a group. India can be considered with a high score, along this dimension reveal a cultures orientation toward the present and past. Having a high Confucian dynamism culture India values the relative importance of personalized steadiness and stability, saving face, respect for tradition, and reciprocation of greetings, favours, and gifts.Understanding of the ethnic norms is a reliable basis for experienceing behavioural responses and outcomes in the international buyer-seller dissolution process. For example, cultural norms operating in diverse culture in India compared with Australia is likely to have a significant influence on the styles of management and communication strategies that are book for managing long-term and cooperative relations pelvic girdles. In particular, India is likely to have a cultural environment that is considerably complex to manage.Globalization has blurred the line between change countries and developing nations by integrating politics and culture into manage ment improvement. Typically, in business relationships in Asia between Asian and Western companies, where both cultures use and understand that management styles should be designed to be high in collaboration and low in assertiveness, we posit that both parties use a cooperative style. Starbucks demand to understand the national culture within which the company plans to operate, and the extent to which it adjust its communications accordingly. It is possible that Starbucks may have an inappropriate evaluation of the host culture of the overseas company in accordance with which it designs its communications.The trend in Indian public administration continues with a rationalist scientific approach that reflects the values of a nation. Hofstede analyzed as having small power distance, weak uncertainty avoidance, strong individuality, and masculine being exported around the world through globalization (Freeman and Browne, 2004). This is possibly due to the political instability. Higher stress, at the national level, is correlated with weak rule orientation and lower employment stability. It is possible India has found its natural balance in relation to its native culture and values.3.2 Strategic Alliances2By entering a new market, Starbucks is likely to spur domestic competition and introduce a more dynamic style and new coffee experience.The company will also generate more labour and promote Western attitudes towards service and its provision.Main barriers to entry, in accordance to Porters competitive forces framework, will include the new power of suppliers and competitors already established supplier relationships and the knowledge of the market. One popular way to become confused in business is through franchising. While franchises are also a popular way of entering some international markets, strategic alliances are increasingly utilized. In fact, strategic alliances are often required by some countries, rather than other modes of entry, as they involve lo cal firms directly in the business. Davis (2000) and rise up (2001) suggest that historically Starbucks does not like franchises, which is why the group in order to successfully enter Indian market, might consider this expansion through joint ventures and other partnerships. However, the company should keep in mind that Asian companies have not been particularly kind to minority and public shareholders. Numerous in public listed companies have seen their share price drop amid accusations that the controlling shareholders manipulated the relationship between listed and privately held subsidiaries. Poor governance contributes to market inefficiencies, which in turn lead to vaporific markets that have to make larger corrections periodically in order to adjust for gaps in information and in perception.3.3 Marketing MixFor a successful penetration into the market, Starbucks will have to establish a defined merchandise mix, includingProduct Coffee shops may have their unique character istics, but it also possible to see many parallels between the sector and other retailing and catering sectors. Over the years, Starbucks has grown to become one of the largest purchasers of high-quality arabica coffees. With a growing property of young people in India, the company might put also have in- interpose entertainment facilities and Internet.Place/distribution Starbucks need to place its shops into central locations, as the awkward part of the country still lives in poverty. Customer convenience and service delivery will have to be understood.Pricing As Asia emerges from economic downturn, a growing middle class is willing to spend money. However, Indian population is predominantly characterized by an attitude to save money. The company will have to benchmark its products and prices in accordance to competitors, and also considering the market trends and the consumer incomes.Promotion Starbucks uses various promotional strategies, including catalogs, the Internet, adve rtisements in local media but mostly, it uses word-of-mouth. The very location of its memorys is a strong marketing tactic.To appreciate what is at stake, understand the psychology behind the brand. Advertising has never created Starbucks image. It was built on two things the quality of its product-it really is a better cup of coffee-and the store experience. The retail experience also extends to sparkling service and an unspoken invitation to linger over a cup of coffee in the store. (Donation, 2003)The middle class populations in India will be targeted by Starbucks as potential markets for consumer durable goods. The company might use community events and sponsorships as the most effective marketing tools. Incorporating knowledge of consumer attitudes about the beverage and food industry Starbucks is entering should help in designing strategies to reach target markets. Indian consumers tend to be suasion leaders less loyal to the same food product and more responsive to product p romotions and advertisement. Food prices are of a great importance to all Indian consumers. The company will have to use its ability to market itself as an ideal as much as a product-a caffeine-infused oasis for the hip and trendy.3.4 Strategic ChoicesThere is no best corporate strategy. The main focus of the business-level strategy should be based on how to compete effectively in the market. It is the core issue of how value is realised in a business, after all, value is realised only when a buyer is prepared to pay for the product. The extent to which they are prepared to pay a price which provides profits superior to those of competitors will therefore determine the extent to which that business is highly regarded by its owners and investors.Bases if strategic select need to take account of the environment in which Starbucks operates. It is important, therefore, to recognise the role of organisational resources, capabilities and core competence in terms of the bases on which com petitive strategy and advantage may be built. Porters generic strategic framework enables Starbucks to apply one of three main strategic options in order to achieve a sustainable competitive advantage, that include cost leadership, differentiation, and focus. Sustaining bases of competitive advantage is likely to require a linked set of organisational competences which competitors find difficult to imitate. Strategies of collaboration may also tour alternatives to competitive strategies. In a new uncertain environment, Starbuckss competences need to be found in companys culture and structure, which will encourage speed, innovation and the efficacy to gain business success.The choice of a right entry route is critical to the future success of Starbucks. In accordance to Johnson and Scholes (2002), a unified framework linking country risk, country familiarity, the stage of the countrys development, technology and transaction cost has to be provided that a particular entry decision c annot be viewed in isolation and that such decisions are considered in relation to the overall strategic posture of the firm.The marketplace and workforce in India are becoming more diverse every day. In fact, workplace diversity is considered a major challenge and opportunity for human resource management. It makes integration both difficult and easy depending on how diversity is viewed and used. The sources of diversity and its uses make a difference to what it means and how it impinges on organizational purpose and human behaviour at the workplace and beyond. Workplace diversity in India may have been partly inherited from centuries of customs and practices, partly imposed from colonial heritage and largely acquired through corporate omissions and commissions. They have implications for global competitiveness and for managing human resources/ industrial relations (HR/IR). Clearly analysing cultural norms and attitudes towards management will be beneficial for Starbucks in the lon g-term.4.0 CONCLUSIONStarbucks has become a great successful company in the coffee bean and beverage business. A large part of this success is due to its effective strategy. To merely grow, Starbucks will need to expand further in other areas of the United States as well as internationally. Due to India being one of the largest coffee drinking nation in the world, Starbucks expansion into India market will be an effective expansion strategy. Although, the expansion is occurring at such a rapid rate that investors worrying issue is of over fertilisation. Therefore, Starbucks will have to look into other avenues for maintaining profits and further success. Considering partnerships and venture might be an effective strategy for Starbucks that can reduce the potential threat of the new market.New market penetration is a challenging and uncertain area of business. Hence, for Starbuckss effective market entry, a great emphasis should be given to market analysis. The culture and corporate strategy must also be maintained for success. This will ensure the health of the organization throughout the proposed expansion.APPENDIX ASWOT ANALYSIS STARBUCKS1. StrengthsFinancial resources The company is the worlds number one specialty coffee retailer, and as such is has a greater financial reach than practically all of its competitors. Huge financial resources enable the company to take advantage of market opportunities, investments and expansion activities that are not available to smaller firms with a reduced capital. Starbucks has considerable financial strength. For instance, in fiscal 2003, Starbucks generated tax incomes of $4.1billion, a 24% increase on the previous year. (Company Report, 2004)Global presence Starbucks is a truly global brand. The company has roughly 7,570 retail store locations around the world (as of September 2004), the majority of which are company owned and operated. The company has cast its net across 30 countries in a call to establish a pionee ring image, and although such a strategy has generated limited early returns form its international business, the company has succeeded in developing a truly global brand.A disciplined innovator Starbucks is a disciplined innovator, and good management of its innovation time line is one of the primary reasons behind the companys success in generating consistent high level of same store sales. Starbucks currently has a number of new ideas being tried and tested in its stores. In 2002 the company introduced new Frappuccino Blended Beverages, and in 2003, the Iced Shaken refreshments product line was launched. Starbucks ability to roll out new initiatives and produces relatively quickly is a considerable competitive strength for the company. That is can rapidly fill gaps in its calendar is a by-product of Starbucks company-owned retail structure, vertical integration of many products and relatively simple store operations. Customers are also increasingly drawn to the companys music com pilations, produced for the company by Hear Music.Consistent strength of core product In the survive octonary years, Starbucks has consistently derived increasing proportions of its annual revenue from its beverages business unit. It is good for Starbucks to focus on the beverage market, as this core product division dictates the direction of other units, such as merchandise and food. A continued growth in the beverages unit represents overall company growth for Starbucks, as it shows the consistent strength of the core product.2. Weaknesses trustingness on US market Given the company is an international brand with wide ranging operations, it should be feel to generate a greater proportion of revenues from outside the US. Such is Starbucks reliance on this market, the company entire performance will be materially abnormal should the companys US unit under-perform, as a result of economic conditions or increased levels of competition.Rapid build-out hangover Starbucks based its i nternational strategy on the basis that maximum benefit can be derived from entering markets early to capture a first mover advantage. In accordance with this, the company rapidly cast its net, establishing operations in around 30 countries since 1995, and in doing so, incurring sizeable overhead charges. Also, in the companys haste to increase its scale, some rash decisions were made and some of these mistakes have delayed progress to profitability.Reliance on beverage innovation An important long-term risk to the companys stock is a lower valuation caused by a slowdown in US sale store growth. Starbucks store sales growth has been largely driven by beverage innovation, but there are questions over how long this can last. Diminishing return from beverage innovation, one of the companys competitive strengths, would have a significant adverse effect on the companys performance.Performance of International operations unit Starbucks International operations division has faced problems of expansion, with a number of openings failing to be successful. In 2003 Starbucks Coffee International ended its joint venture with the Delek radical of Israel. Following this decision, Shalom Coffee Company, the joint venture between Starbucks Coffee International and the Delek Group, closed its six Starbucks stores in Tel Aviv.3. OpportunitiesInternational operations By the end of fiscal 2004, Starbucks international business should finally achieve profitability. About 23% of the companys stores are located outside North America. Key markets include the UK and Japan, which should provide useful indicators for the various(prenominal) performances of Starbucks other operations in Europe and Asia.Growth market The specialty coffee sector accounts for roughly 15% of the US retail coffee market, which is already worth $21 billion. By 2005, the retail coffee market is expected to be worth $22 billion, and the specialty coffee sector will grow to account for 41% of this market. Starbu cks has a market share of over 40% of the specialty coffee market, and the anticipated growth in this category will offer the company considerable opportunities for further growth and expansion in the near future.Starbucks Visa Card The Starbucks Visa Card is likely to bolster revenues in 2005. During 2004, the companys retail sales mix by product type was comprised of approximately 78% beverages, 12% food items, 5% whole bean coffees and 5% coffee-making equipment and penetrationories. (Company Report, 2004) By diversifying its revenue streams Starbucks should be able to both increase the stability of its financial position by reducing its reliance on certain product lines, and also grow its revenues.Clustering of company units With the continued growth of the coffee market, the company has looked to expand its business, including those areas where it has an established presence. Working on the basis that a key driver of business is the convenience of the companys outlet location, Starbucks has looked to cluster its units so as to dominate particular areas. The financial reward derived from this practice has been found to be considerable, as new outlets have not been found to eat into the business of existing outlets. A continued strategy of unit clustering, and a focus on stores that have convenient access for pedestrians and drivers, represents further opportunity for Starbucks to capture an increasing share of the coffee market.4. ThreatsSupply risk Starbucks is dependent on trading companies and exporters for its supply of green coffee. The company is looking at securing long term supply contracts, and in some cases has had to pay inflated prices in order to obtain such contracts. Starbucks responded to world coffee prices hit 30-year lows during 2001 by offering suppliers more money to guarantee supply, and as such the risk of non-delivery on such purchase commitments is low. However, the nature of the business dictates that the companys dependency on suppliers does put it at risk.Slowing US retail sales Long-term concerns regarding US store growth potential still remain. If current growth continues, intensiveness levels within the North American retail division will be reached inside five years. This represents a considerable concern for Starbucks, given that over the last two years, domestic retail has been the source of about 75% of the companys revenue growth and an even greater proportion of profit growth. Before they reach saturation point, US retail sales growth will slow considerably over the next three to five years, further increasing the pressure on the international division to justify the companys investment in expansion.Competition The global coffee market is a very competitive sector, and Starbucks must compete against the likes of restaurants, coffee shops, and street carts. A major competitor, with substantially greater financial, marketing and operating resources than Starbucks, could enter this market at any t ime and compete directly against the company. Starbucks must be aware of competition on all levels and maintain its operational performance if it is to retain its status as the worlds leading specialty coffee retailer. volatility of market Starbucks is at risk to the volatility of the supply and price of coffee. The companys search for superior standard coffee means it can be adversely affected by multiple factors in the producing countries, including weather, political and economic conditions. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of organizations and associations that have in the Starbucks Corporation past attempted to influence prices of green coffee through agreements establishing export quotas or restricting global coffee supplies. The actions of these associations could cause a degree of costly disruption to Starbuc