Does the External Environment Determine the Success or Failure of an Organization?

Topics: Starbucks, Coffee, Environment Pages: 5 (1418 words) Published: December 4, 2012
The external environment can be defined as forces and factors outside the organization affecting the overall company’s performance directly or indirectly. It can be divided into two components including specific environment and general environment. Specific environment refers to the unique factors of each company that directly relevant to the achievement of goals and affect managers’ actions and decisions directly including suppliers, customers, pressure groups and competitors. General environment refers to the broad conditions that may affect the company, in which includes political or legal environment, economic environment, sociocultural environment, technological environment and demographic environment.

Background Information
Starbucks is a famous recognized company selling coffee and food. In 1980s, Starbucks maximized market in coffee and has become the leading seller in North America. In 1971, it started running business in Seattle and grown from 55 stores in 1989 to now 2200 today. According to Schultz (1997), Starbucks founders learned to darkly roast Arabica beans from Alfred Peet introducing this technique to the U.S. It also provided a relaxing, attractive social atmosphere and offered high-quality Products and created a great working environment for its employees. Knowing the basic history, it is important to analyze the performance of the company.

Legal-political environment

It means that the business operates in the relationships between government and coffee producing nations and it offers the frameworks. The review should include public policies and political about private enterprises, states and local government control and regulation. Government subsidies or taxes have influence on the cost of running the coffee shop.

In July 2002, The U.S. declared that a war outbreak on Iraq. The tensions between the Middle East and the United States had been increasingly volatile. Arab people boycotted the American services and goods because of the worsen relationship between Israel and the United and States. The U.S. companies were boycotted including Starbucks, Coca-Cola and Burger King. This policy issues created serious financial problems for Starbucks. The sale performance of company has been decreased 30% in 2003. There are rumors that Starbucks donated money to Jewish community against Pelestinian crises. Six Starbucks stores were shut down because of the security threats. The worsen business environment make Starbucks failure in Israel.

In addition to these threats, changing rapidly in import laws has great influence on Starbucks operations. Due to the Fair Trade policy, the price of imports coffee beans was required not to lower than the minimized price. Starbucks find difficulty in running business because the cost of imports coffee beans has increased. Ultimately, Starbucks have no choice but to increase its selling price 15% for Starbucks coffees. Since 2001, Starbucks are facing two class action suits. The first lawsuit is about Carr verse Starbucks. The second case is Starbucks verse Sheilds. Starbucks was accrued of violating hour and wage laws in California. In order to not involve in any protracted action, Starbucks agreed to settle the claims. However, these lawsuits destroy the company reputation. Many people lost confidence in Starbucks.

Economic environment
It set the fundamental rules to operate business. The economic condition in Hong Kong is guided by the free private enterprise systems. When planning to enter in other countries, the company should take into account of the long-term viability of the planning. It can also be reviewing by the following aspects. Economic growth and stability including situation about employment, fiscal policy and government monetary will affect the demand for food and beverages. The competition condition affects the coffee market. Inflation or deflation and changes in disposable income could influence the cost and purchase...
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