Challenges in the External Environment of Starbucks

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Choose an international business that interests you. Identify challenges in its business environment that are of current strategic importance. How, in your opinion, should the international business you have chosen respond to those challenges?

An international business, often referred to as an MNE (Multinational Enterprise) is one which has a wide-reaching approach and will operate in more than one country. Recognisable international businesses include the likes of McDonald’s, Apple and BP. Although these colossal businesses operate overseas and therefore have vast markets, it doesn’t go to say that they don’t face similar problems to localised businesses operating in smaller market segments. The best way to analyse an international business’ external environment and the problems they face is probably to look at the PESTLE factors. PESTLE will mostly focus on a business’ external environment looking at political, environmental, social, technological, legal and economic issues. Also of importance when evaluating an international business’ environment is a method called the SWOT matrix. This method allows an insight on the company as a whole, allowing the user to gain understanding of the internal and external business environment. As both PESTLE and SWOT are being used, more than one concept of the external business environment can be collected. To add further analysis, Porter’s Five Forces (Michael Porter, 1979) will be used to measure the competiveness in the coffee market enabling me to see whether or not any change of strategy is needed. Through this essay, PESTLE, SWOT and Porter’s Five Forces will be put in place to explore the problems of Starbucks’ business environment that are of current strategic importance. Starbucks’ was originally set up in Seattle, USA by Jerry Baldwin in 1984. It began its expansion in 1996 when they opened a store in Japan, their first outside of North America. Since then, Starbucks took off and have now expanded into over 50 different countries including the likes of the UK, Brazil, China and Russia.

Operating in such a vast amount of countries, Starbucks is bound to face some problems in its business environment. One of these current problems could be the fact that worldwide, the average age is rising. From 2005 the median age has risen from 24.3 years of age to 28.4 years of age worldwide (CIA, 2012). This is of strategic importance to Starbucks because it means that, the current goals put forward may need to change because the age of the consumers is increasing. Having concentrated on offering an in store environment that caters for a younger age segment, Starbucks may have to change the strategy that will also satisfy the elder population. Another problem that could possibly be a challenge in Starbucks’ business environment is the recent expansion in South Eastern Asian countries such as China. Asserting its dominance in the coffee market, Starbucks now operates globally and is seen as the biggest of its kind. The problem faced when expanding into countries like this is the cultural change however. For instance, in China coffee doesn’t appeal to the vast majority of the residents. In America however, it is drunk on a daily basis. This could prove to be a vital problem in Starbucks’ strategy. So much so, that on average the Chinese drink three cups of coffee a year. Furthermore, the fact that the average worker in China would have to work 1.3 to 1.9 hours to be able to afford a cup of coffee (Inquisitr, 2012) shows that social problems are bringing up challenges in Starbucks’ business environment. Starbucks seem to have run into more cultural problems in China. The low wages combined with high product prices has resulted in the Chinese using the stores to socialise in. At first glance this would seem to be a good thing for Starbucks; however as explained before the high prices means that the Chinese bring their own food, and refuse to pay for coffee which they believe to be...
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