Proposed Expansion Strategies Of Starbucks Into Indian Market Marketing Essay

Proposed Expansion Strategies Of Starbucks Into Indian provender merchandise Marketing EssayThe following report is based on the proposal for Starbucks Corporation to knead a direct foreign enthronisation in India by penetrating its securities industry with its yield and works.Strategic recommendations for the future words of action is returnd in nightclub to fulfil commercialize war-ridden advantage.1.0 accounting entryStarbucks is the balls premise-in speciality hot chocolate retailer, producing and selling a wide variety of boozings, as well as geniustime(prenominal)ries and confections, with approximately 8,400 cocoa shops passim 30 countries some the world. Starbucks has upgraden to become one of the most talked ab push through globalized brands in recent times. In the four years since going public, the twine of umber bars has become wildly successful by tour one of the worlds most pedestrian crapulences into a premium fruit, wrapped in a c bef ully cultivated, widely acknowledge brand name that extends far-off beyond whats in the cup. It is a brand thats defined as a lot by attitude as it is by products. The Starbucks experience is about more than a daily espresso infusion it is about immersion in a policy-makingly correct, kitchen-gardeningd refuge from e very(prenominal)day hassles.Having established itself as a global force, many analysts atomic number 18 asking whether Starbucks can continue to go from strength to strength. Sustained success entrust require sharp centralize on a set of key challenges, including innovation and experimentation. In mark to achieve a competitive advantage, the come with continues to rapidly fan out its retail employment operations and pursue opportunities to leverage the Starbucks brand through the introduction of sunrise(prenominal) products and the development of novel statistical distribution channels. SWOT analysis is given in Appendix A to noblelight beau mondes cu rrent strategicalal position.Companys proposed magnification into India is believably to bring a strategic challenge for the ac partnership. India is seen as having the greatest capability for multinational corporations. India is a super diversified rustic. There is, nonetheless(prenominal), a marrow squash coating based on a sh ard religion and policy-making experience. India now has a ontogeny middle caste, an increase in available income that is considered rather opportunistic for companys expansion.To give a more in-depth insight into Indian tradeplace for Starbucks operations, macro- surroundingsal framework is presented in Appendix B, including the analysis of political, economical, social and technical factors that allow affect Starbucks proposed operations.2.0 EXPANSION INTO INDIAN MARKETIndia is a compound economy, where both(prenominal) public and private firmament enterprises work together to achieve economic development for the country. India has man y large and dynamic private sphere of influence companies which operate in all argonas of economic activity trade, commerce and industry, without lots interference from the political relation.India is a nation of more than 1.03 billion consumers (The Economist, 2001). It has an runing middle class of 150-200 million consumers, most of whom be well educated and speak the face language. In the revised per capita income estimates, on the radix of the World Banks purchasing cater parity (the exchange rate that equates a countrys goods and services with global bells), it is estimated that Indias per capita income is $1,150, with a GNP of a trillion dollars. As a dissolvent, India is ranked as the sixth largest economy in the world.India is the worlds largest democratic republic although g all overnment bureaucracy does not strike ultimate crack over government note decisions as in China, it has a lot of tempt. Multinationals, much(prenominal) as Starbucks go out be see n as vanguards of a rude(a) colonialism (Cateora and Graham, 1999), are continually thwarted through such measures as prohibitive tariffs (e.g. on com clotheers and softwares), bans in importation (e.g. automobiles), quotas and bracing(prenominal) non-tariff measures (Schlender, 1997).In spite of the huge capableness of the Indian market, in that respect are various challenges Starbucks expansion lead fuddle to face, including six distinct returns concerning the economy, straining, marketing, government, jade and finance. India is perceived to allow a more favourable general strain climate than, for instance in China.At current reaping rates, corporeal investment in Asia forget not let a painful impact on the short- or medium- marge harvest and profitability of multinationals. For Starbucks in crackicular, it will be just an other(a) matter of gaining a broader global theatrical and greater market share.2.1 Main Investment AdvantagesThe Indian economy, already the 5th largest in the world later on 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 per centum yearly since 1991 (Panigrahi, Ede and Calcich, 2002).India is fast industrialising and with its vast labour force and talented people, the Indian government is striving to make the country an industrial giant inwardly a decade.India, with the largest middle class in the world, also ranks second, after China, in hurt of overall population (over 1 billion). For example, India has 1.03 billion people and about one hundred seventy people per car. The US, on the other hand, with a population of 275 million people, has lead 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 youn g, having a potential to powerfully influence economic growth and consumption patterns.In India, the outlook is favorable for companies flavour to build long-run value and improve manufacturing efficiencies. But Asian markets whitethorn not be the easy answer for companies attempting to boost their short-term growth. By investing in India, Starbucks should bring a careful look at what really affects returns to public shareholders. Most investors and executives want a piece of the comfortable Asian market for the right reasons. With vigorous growth in the region, acquiring into India, and other countries should position companies well for the expected groundswell of shareholder value.Over the past five 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 number of US companies, do by favourable investment climate and the regions huge reserves for both human and natu ral resources, have begun to seriously consider investing there.2.2 pecuniary Analysis of IndiaFinancial matters in India1are governed through more than 800 decrees and conditional regulations (Belcsk, 2005). The whole monetary system, including banks, financial 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-own, government cont scented organisations. However, after the execution of instrument of a liberalisation programme, and imposition of international financial standards, ho white plague servant state-owned banks and other financial institutions are less tightly controlled and more professionally managed.India is a functioning market economy with the study(ip)ity of companies becoming consumer focused and market driven, getting increasely urbanized, using technology to replace labour, deriving an Asian approach to management as distinct from the same followed by the air jacket 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 making it a point to ensure that they have a robust presence in India.In todays context, the wealth of a nation is correspondent with the wealth of its compositions and to ensure that large domestic firms play their due graphic symbol in the countrys development, the government of a developing country moldiness provide the required support. The Government of India seems now to have understood this important emergency 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 tax rate on long-term (12 months or more) and the 30 percent tax 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 healthfuler 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 embody of capital. A strong home currency discourages and weaker currency encourages FDI in the nation.2.3 Coffee M arket in IndiaIndia accounts for approximately 4.5 percent of world deep brown tree 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 down and soothing ambience.Currently, Indian industry is expecting marginal improvement in price realisation in the global market. The quality and aroma of Arabica variety of Indian coffee is much diverse than in other global coffee markets. The Indian Coffee Board is quite sensitive to the plight of the countrys coffee industry and has been consistently following possible 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, Nestle India, Barista Coffee.3.0 PROPOSED EXPANSION STRATEGIES OF STARBUCKS INTO INDIAN MARKET3.1 Cultural Context fit 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 set 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 weapons-grade collectivism and un veritablety 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 temper of world 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 magnitude of the nature of diversity in Indian society whose features Indian industry had inherited. Societal diversity is not an uncompounded 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 blood line and industrial organizations and exacerbated. Collectivism that is exceedingly evident in India, is characterized by a tight social framework, in which people distinguish amongst in-groups and out-groups.According to anthropologists Kluckhohn and Kroeber, the essential core of culture consists of traditional ideas and their attached values. These values influence how people judge behavior 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 advertise a cultures orientation toward the present and past. Having a high Confucian dynamism culture India values the relative importance of personal steadiness and stability, obstetrical delivery face, respect for tradition, and reciprocation of greetings, favours, and gifts.Understanding of the heathen norms is a reliable basis for understanding behavioural responses and outcomes in the international buyer-seller dissolution process. For example, cultural norms direct 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 enchant for managing long-term and cooperati ve relations hip to(predicate)s. In particular, India is likely to have a cultural environment that is considerably complex to manage.Globalization has blurred the line among industrialized countries and developing nations by integrating politics and culture into management 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 needs 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 valu es 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 entangle the new power of suppliers and competitors already established supplier relationships and the knowledge of the market. One common way to become involved in business is through franchising. succession 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 local firms directly in the business. Davis (2000) and Welles (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 fit chances 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 volatile markets that have to make larger corrections periodically in order to adjust for gaps in information and in perception.3.3 Marketing meltFor a successful penetration into the market, Starbucks will have to establish a defined marketing compound, includingProduct Coffee shops may have their erratic characteristics, 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 proportion of young people in India, the company might put also have in-store entertainment facilities and Internet.Place/distribution Starbucks need to place its shops into central locations, as the rural 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 a ttitude to save money. The company will have to bench mark 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, advertisements in local media but mostly, it uses word-of-mouth. The very location of its stores is a strong marketing tactic.To appreciate what is at stake, understand the psychology behind the brand. advertizement 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 twinkle 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 confederation events and sponsorships as the most rearive marketing tools. Inc orporating knowledge of consumer attitudes about the beverage and food industry Starbucks is entering should help in designing strategies to murder target markets. Indian consumers tend to be opinion leaders less loyal to the same food product and more responsive to product promotions 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 digest for the product. The extent to which they are prepared to pay a price which provides sugar 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 choice 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 call of the bases on which competitive 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 conjugated set of organisational competences which competitors find operose to imitate. Strategies of collaboration may also introduce 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 might to gain business success.The choice of a right entry track is critical to the future success of Starbucks. In accordance to Johnson and Scholes (2002), a merge 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 cannot 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 end 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 larg ely 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 in force(p) for Starbucks in the long-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 elevate grow, Starbucks will need to expand still 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 vividness. Therefore, Starbucks will have to look into other avenues for maintaining profits and further success. Considering partnerships and venture might be an effec tive strategy for Starbucks that can reduce the potential threat of the new market.New market penetration is a ambitious 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 revenues of $4.1billion, a 24% increase on the previous(prenominal) year. (Company Report , 2004)Global presence Starbucks is a truly global brand. The company has more or less 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 bid to establish a pioneering 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 trailblazer 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 cons iderable 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 simplistic store operations. Customers are also increasingly drawn to the companys music compilations, produced for the company by Hear Music.Consistent strength of core product In the last eight 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. WeaknessesReliance on US market Given the company is an international brand with wide ranging operations, it should be looking to generate a greater proportion of rev enues from outside the US. Such is Starbucks reliance on this market, the company entire performance will be materially change 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 international 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 thrill to increase its scale, some rash decisions were made and some of these mistakes have detain 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 Group of Israel. chase this decision, Shalom Coffee Company, the joint venture between Starbucks Coffee International and the Delek Group, disagreeable 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 expedient indicators for the respective performances of Starbucks other operations in Europe and Asia.Grow th 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. Starbucks 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 endorse 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 accessories. (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.Cl ustering 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 device driver of business is the convenience of the companys outlet location, Starbucks has looked to cluster its units so as to triumph 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 reverse lightning 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 reaching 30-year lows during 2001 by pass 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, saturation 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 expansio n.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 time and compete directly against the company. Starbucks must be certain of competition on all levels and maintain its operational performance if it is to refrain 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 touch on 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 pa st essay to influence prices of green coffee through agreements establishing export quotas or constrictive global coffee supplies. The actions of these associations could cause a degree of costly fault to Starbuc