Strategic Issues Facing Starbuck's Entry Into India

Topics: Coffee, Starbucks, Coffee culture Pages: 10 (3457 words) Published: January 27, 2013
The Global Coffee Bean Company (GCB) decided that the Indian Hot Drinks Industry did not represent an attractive market. Following a recent announcement by Starbucks that they intend to enter the market we were commissioned to perform an initial analysis into the likelihood of Starbucks success. This report concludes that Starbucks initiative is sufficiently interesting to warrant a full scale investigation into whether GCB should also enter the Indian market. Introduction

This report is divided into a number of sections:
* Analysis
* Conclusions
* Recommendations
In the analysis section we look at a number of aspects affecting the likely success of Starbucks and GCB. These aspects are: * An identification of the strategic issues facing Starbucks as a company * A PESTLE analysis of trends in India

* A 5 Forces analysis of the Indian Hot Drinks Industry
* An analysis of the consistency of the Starbucks decision with their existing strategy * An examination of the pressures facing the Starbucks/Tata alliance over the next 10 years In the conclusions we consider the likely success of the Starbucks initiative and whether it could be replicated by GCB. Analysis

The strategic issues facing Starbucks
Porter (Porter, 1996) sees strategy as being about making choices about what you do, whereas operations is about doing those things better. Strategic issues are developments inside or outside an organisation likely to have an important impact on its ability to meet or determine its purposes and objectives. Starbucks mission statement can be summarised as creating shareholder value by serving ethically sourced, great tasting coffee in welcoming stores (Starbucks, 2012). Starbucks’ does not always live up to its aspirations but the stated objectives represent a good basis for analysis. We have conducted a brief analysis of recent publicly available data and consider the following to be the main strategic issues affecting Starbucks’ sustainability. * Domestic Market Saturation

* Supply Concerns
* Product Quality
* Threat of Substitutes
* CSR Issues, especially relating to employment in the USA Domestic Market Saturation
Key figures (Datamonitor, 2011, p24):
68.7% of the total revenues during FY2011 were from the US
US growth has slowed to 6.3%, international growth is at 14.7%. Supply Concerns
South American coffee bean production is down and expected to decline further (Datamonitor, 2011, p31). Prices are likely to escalate, especially for premium and Fare Trade beans. Product Quality
Starbucks has been registering increasing instances of product recalls lately (Datamonitor, 2011, p28) Threat of Substitutes
A major substitute for visiting a café is to drink more coffee at home or in the office. In the US Nestlé and Green Mountain are major proponents of this substitute. Starbucks is addressing the market too with its Via Ready Brew, K-cups and Verismo products (Datamonitor, 2011, p30) but these and the competitors’ products risk eroding the core store proposition. CSR Issues, especially relating to employment in the USA

Starbucks’ home page shows that the company currently considers many CSR issues to be of urgent strategic importance. The most visible of these is a focus on jobs in the USA. Trends in India
In this section we analyse the macro-environmental trends in India over the next 10 years and their likely impact upon the long-term profitability of Starbucks’ joint venture with Tata. The PESTLE (OU 2012a) framework represents a simple categorisation which can be used to identify positive trends (opportunities or tailwinds) and negative trends (threats or headwinds). The principle source for our analysis is the latest BMI report (BMI 2012) but we have also referenced additional sociological data (Varman & Belk, 2009). The findings are summarised in Figure 1 and detailed below.

Figure 1 PESTLE Analysis
References on Figure:
1 BMI Page 7
2 BMI Page 10
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