Starbucks: Entry Prospects in India

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STARBUCKS IN INDIA: THE TIME IS JUST RIGHT

4th May 2009

An OLI-PESTLE Analysis
The paper analyses the entry prospects of Starbucks Coffee into India. The analysis is based on the framework provided by the Eclectic Paradigm and the PESTLE analytical structure and shows that in spite of previous setbacks the current conditions in India are highly conducive for the likes of Starbucks to set up shop and be successful.

Bhooshan Parikh Copenhagen Business School Full Time MBA 2008-09

INTRODUCTION India has a population of nearly 1.2 billion people and a majority of this falls into the age bracket of 15-60 years of age, making it one of the youngest countries in the world with a median age of just above 25 years (www.cia.gov). Compared to this, the median age in the US and China is 37 years and in Japan it is 45 years. The per capita GDP in India has seen a constant rise and with the booming IT/ Software services industry, India’s average economic growth over the last decade has been an impressive 7% (www.cia.gov). With almost 29% of the population living in urban areas (and an annual urbanisation rate of 2.4%) (www.cia.gov), the Indian consumer market holds immense potential for most businesses. Improved political and legal reforms since the beginning of the 1990s have made it increasingly attractive for Foreign Direct Investments (FDI) inflows into India and equally easier for foreign companies to set up shop in India. Starbucks Corporation (Starbucks), the owners and makers of the world famous Starbucks Coffee opened its first shop in Pike Place, Seattle, US in 1971 and since then has become the fastest growing coffee chain in the world with over 16000 retail outlets in more than 40 countries worldwide (Starbucks Corporation, Annual Report 2008). It was only a matter of time that India would see its first Starbucks, especially when the coffee consumption in India was also rising along with the economical growth. However, in 1999 (www.starbucks.com) Starbucks decided to enter China and put the Indian plans on hold for the next few years. This could well have been a big mistake by Starbucks as the coffee revolution in India had already begun and local chains like Barista and Cafe Coffee Day (CCD) were mushrooming in every part of the country with almost one new cafe every day (www.businesstoday.intoday.in). Since 2006, Starbucks has had a series of failed attempts to enter India starting with the joint venture with India’s RPG Enterprises to begin operations by mid-2007 (www.seekingalpha.com). Unsure of its strategies, the coffee giant pulled back only to enter again along with Future Group, another Indian conglomerate, through a joint venture (New Horizons Retail) with its Indonesian franchisee (www.economictimes.indiatimes.com). This time it was the Indian government and the Foreign Investments Promotion Board (FIPB) that played the spoil-sport and the company was asked to re-submit its proposal through a FDI route instead of a franchisee. With the Indian FDI regulations allowing only up to 51% investment in a single brand at that time (www.economictimes.indiatimes.com), Starbucks joined the likes of Tesco and Carrefour and decided to wait for the changes in FDI to take effect. By the end of 2007, Starbucks entered into a distribution tie-up with a leading multiplex operator PVR Cinemas for its select products on an experimental basis. However, with unclear evaluation of the demand for Starbucks in India, PVR Cinemas was cautious in rolling-out the coffee stores at its multiplexes (www.financialexpress.com). Martin Coles, President of Starbucks Coffee International, once said, "Without sounding arrogant, Bhooshan Parikh CBS FT MBA 2008-09 Term Paper-International Business

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we're looking at our own strategy. There's nothing that keeps us doing business in India." (www.cnnmoney.com). However, it does not seem to have worked out that easily for Starbucks, because as of today, much to the dismay of many...
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