Porter Five Forces for Starbucks in India
r Michael Porter’s 5 Forces Analysis (Past)
My analysis begins with a thorough breakdown of the competitive environment which surrounded Starbucks Corporation in 1987, when it was first acquired by Howard
Schultz. Michael Porter, author of Competitive Strategy, uses a five forces model to analyze an industrial environment and to develop an optimum strategy for success within a given industry based upon specified parameters. The five variables responsible for the forces analyzed using this model are the industry suppliers, buyers, potential new 8 entrants, substitute products and the competition among existing firms. Applying this model to Starbucks’ formative years, I will concentrate on the examination of the competitive environment in which Starbucks was created and will generally omit consideration of social and macroeconomic forces that were present at the time.
Industry Rivalry
At the center of the five forces model is industry competition arising from the rivalries among existing firms. Defining an industry can be described as drawing a line between the established competitors and the substitute products offered by competitors outside the industry. (Porter, 1998, p. 17) The assumption is that the relevant industry is confined to the competitors within the specialty coffee segment; thus, any reference to competition from outside of the specialty coffee segment, say from basic coffee companies such as Folgers, by definition, should be considered competition from a substitute product category. However, given the difficulty in defining the boundary of the specialty coffee industry, I will analyze the effects of some basic coffee competitors attempts to enter the specialty coffee industry not as sources of potential new entrants but rather as a force adding to the rivalry among existing firms. This general competition, created by rivalry between established competitors, ultimately drives down the rate of return on invested capital
My analysis begins with a thorough breakdown of the competitive environment which surrounded Starbucks Corporation in 1987, when it was first acquired by Howard
Schultz. Michael Porter, author of Competitive Strategy, uses a five forces model to analyze an industrial environment and to develop an optimum strategy for success within a given industry based upon specified parameters. The five variables responsible for the forces analyzed using this model are the industry suppliers, buyers, potential new 8 entrants, substitute products and the competition among existing firms. Applying this model to Starbucks’ formative years, I will concentrate on the examination of the competitive environment in which Starbucks was created and will generally omit consideration of social and macroeconomic forces that were present at the time.
Industry Rivalry
At the center of the five forces model is industry competition arising from the rivalries among existing firms. Defining an industry can be described as drawing a line between the established competitors and the substitute products offered by competitors outside the industry. (Porter, 1998, p. 17) The assumption is that the relevant industry is confined to the competitors within the specialty coffee segment; thus, any reference to competition from outside of the specialty coffee segment, say from basic coffee companies such as Folgers, by definition, should be considered competition from a substitute product category. However, given the difficulty in defining the boundary of the specialty coffee industry, I will analyze the effects of some basic coffee competitors attempts to enter the specialty coffee industry not as sources of potential new entrants but rather as a force adding to the rivalry among existing firms. This general competition, created by rivalry between established competitors, ultimately drives down the rate of return on invested capital