Business Strategy STARBUCKS COFFEE COMPANY

THE INDIAN DILEMMA

A.

COMPANY BACKGROUND In 1991, three partners, Gordon Bowker, Jerry Baldwin, and Zev Siegel opened a store

in Seattle to roast and sell quality whole coffee beans. The trio had a passion for dark-roasted coffee, which was popular in Europe but yet to catch on in United States. They chose Starbucks Coffee, Tea, and Spice as the name of their store. The name Starbuck was taken from the name of character from the novel Moby Dick. They chose the logo of a mermaid encircled by the stores name. The store offered a selection of 30 different varieties of wholebean coffee, bulk tea, spices, and other supplies but did not sell coffee by cup. In early 1987 the founders of Starbucks decided to sell the assets of Starbuck, including its name. As soon as Schultz came to know about the decision, he decided to buy Starbucks. Over time and with the experience, Starbucks developed a sphisticated store-development process based on a six-month opening schedule. The process enabled it to open a store every day. In 1996 alone, Starbucks opened 330 outlets. It laso refined its expansion strategy.

B.

PROBLEM Starbucks pursued international expansion with three objectives in mind: to prevent

competitors from getting a head start, to build upon the growing desire for western brands, and tot ake advantage of higher coffee consumption rates in different countries. As the worlds second most populous country, with more than 1 billion people and growing at 6% per year, Starbuck see unique and great opportunity for bringing the Starbucks experience to Indias market. In 2004, Starbucks officials visited India but according to sources they returned unconvinced as they could crystallize on an appropriate partner for its entry. What does Startbucks do to entry Indias maret?Methodology for analysis showed on Picture 1.

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CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONAL STRATEGY

IMPLEMENTATION AND CONTROL

EVALUATION AND CONTROL Picture 1 Methodology for Analysis

C.

CORPORATE STRATEGY Internal Assesment CULTURE Starbucks did not sell just a cup coffee but provided a Starbucks experience (S) Starbucks was opposed to the concept of franchising (S) Starbucks maintained a non-smoking policy at all its outlets worldwide (W) Starbucks stores tend to be located in high-traffic location (S) Starbucks has one bisnis that is coffee and the Starbucks organizational structure was functional. (S) RESOURCES Man - Starbucks had employee over 10.000 employee (S) - Starbucks teach their baristas not only to handle the coffee but also how to impart to costumer our passions for our products (S) - The employee were required to refrain from using strong perfumes (S) STRUCTURE

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Material - Starbucks has a selection of more than 15 varieties and blends of the finest Arabica coffee beans (S)

Machine - Starbucks had over 11.000 stores in 36 countries of the world (S) Method - Starbucks did not advertise its locations heavily but relied on the word of-mouth promotions by the consumers (W) - Starbucks develop a sophisticated store-development (S) - Starbucks entered new market either through joint ventures, licenses, or by company-owned operations (S)

Money - The sales of Starbucks in each stores had reached around $500.000/ year (S) - Sales of Starbucks increased almost 300% (S)

External Assesment PESTEL Political Legal - The opportuniti of FDI is opened by the goverment of India (O) - Perceived stability of goverment policies is medium, this is can change the policy what has assigned (T) - The transparation of business policy, so that resulting in rejection of FDI proposal (T) - The goverment policy is not transparancy (T) Economics - The growth of GDP (O) - Lower inflation (O) - Annual income for the people who the age of 36-70 years, is growth (O) Socialcultural - Starbucks has joint venture with TATA Coffee for the supplier robusta coffe which is TATA coffee produce the best Robusta coffe in the world (O)
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- Consumer spending rises for 2001 2005 for the segment of food (T) - Population or demographic is big for the age of 15 59 years who the main of segment for target market (O) - At India the lifestyle of drink the coffee has there (O) - The consumption of coffee is growth (reaching 85,000 tons in 2005) (O) Technological - Perceived operational risk is high enough (T) 5 PORTERS Threat Of New Entrance High(T) Starbuck has a lot of competitors in India. Culture at starbuck that prohibiting the smoking area in each store will be more easier for new competitors to replicate cultures of Starbuck. The entry barrier for the coffee industry is relatively high because Australia-based Gloria Jeans also plan disclosed its plans to enter India and set up 20 outlets in seven large cities in India by 2006. Bargaining Power Of Buyers Low (O) The buyers did not really have bargaining power when it came to premium coffee such as Starbucks. The sheerscale of Starbucks business reduces the bargaining power of any single group of buyers. Threat Of Subtitutes Products Or Service High (T) The population of India is more inclined to like to drink tea. Therefore, the substitution of goods in India will be higher chances for products of Starbucks. Bargaining Power Of Suppliers Medium (O) Notmuch bargaining power for coffee bean suppliers due to the importance of Starbucksbusiness to any individual supplier, and the fact that Starbucks probably accounts for a large percentage of any individual suppliers sales. This gives Starbucks the ability to dictate the price of coffee bean sales. Rivalry Amongst Competing Firms High (T) We know that in this case a lot of competitors in India starbuck in India (Coffee Cafe Day, Qwickys and Barista Coffee).
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IFAS showed on Table 1 and Table 2

Table 1 IFAS

Table 2 EFAS

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Business Strategy Table 2 EFAS (Countinued)

From Table 1 and table 2, we can conclude that the starbucks was in growth criteria (Showed on Picture 2).

Picture 2 IFAS EFAS Criteria

D.

BUSINESS STRATEGY Based on the corporate strategy, Starbucks was in growth criteria so we will choose two

option, that are: 1. 2. Concentration growth Diversification We use QSPM (Quantitave Strategic Planning Method) method to choose the best option that showed on Table 3.
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Business Strategy Table 3 QSPM

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From the result in Table 3. We choose concentration growth. Based on the opportunity market in Asia, special for Indian we will do horizontal growth to expand market.

E.

FUNCTIONAL STRATEGY We choose Indian market to expand market or horizontal growth so that we must do

functional strategy to Indian Market. Before we determine functional strategy through TOWS Matrix, we can make SFAS (Strategic Factor Analysis Summary) Matrix. SFAS Matrix showed on Table 4.
Table 4 SFAS

Next step, we use TOWS Matrix to analyze functional strategy. TOWS matrix for Indian Market (especially) showed on Table 5.

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Business Strategy Table 5 TOWS Matrix for Indian Market

S1 S2 S3 S5 S6 S7 S8 STRENGTH Provided a Starbucks experience Opposed to the concept of franchising Starbucks stores tend to be located in high-traffic location Maintained a non-smoking policy at all its outlets worldwide Teach their baristas not only to handle the coffee but also how to impart to costumer our passions for our products The employee were required to refrain from using strong perfumes WEAKNESS W1 Relied on the word of-mouth promotions by the consumers

INTERNAL FACTOR

O1 O2 O3

O4 O5 O6 Population or demographic is big for the age of 15 59 years who the main of segment for target market O7 At India the lifestyle of drink the coffee has there O8 The consumption of coffee is growth (reaching 85,000 tons in 2005) O9 The sheerscale of Starbucks business reduces the bargaining power of any single group of buyers (Bargaining Power Of Buyers) O10 Importance of Starbucksbusiness to any individual supplier (Bargaining Power Of Suppliers) THREAT ST STRATEGIES WT STRATEGIES New Products Beverages (S10, T4, T6) Maintain customer relationship (W1, T1) T1 Perceived stability of goverment policies is medium The transparancy of business policy, so that resulting in rejection of FDI Implementation of GCG Program (S12, T2, T5) T2 proposal New varians of drinks (S11, T7) T3 The goverment policy is not transparancy Increasing the quality of human resources (S10, S5 , T5) T4 Consumer spending rises for 2001 2005 for the segment of food Contribute to India in return of the market share we could generate in India T5 Perceived operational risk is high enough (S11, S12, T3) Australia-based Gloria Jeans also plan disclosed its plans to enter India Educate the market about the 'uniqeness' of starbuck (S1, S4, T8) T6 (Threat of new entrant) The population of India is more inclined to like to drink tea (Threat Of Award and bonuses to employees who give their best effort (S5, S6, T5) T7 Subtitutes Products Or Service) A lot of competitors in India starbuck in India (Rivalry Amongst Competing Extra features at the stores (S9, T7, T8) T8 Firms)

Selection of more than 15 varieties and blends of the finest Arabica coffee beans S9 Over 11.000 stores in 36 countries of the world S10 Develop a sophisticated store-development Entered new market either through joint ventures, licenses, or by S11 company-owned operations S12 Sales in each stores had reached around $500.000/ year S13 Sales increased almost 300% OPPORTUNITY SO STRATEGIES WO STRATEGIES Opening new stores in high-traffic location (S3, O1, O7) The growth of GDP Increasing advertising (O2, O3, W1) New varians coffee (S5, O5, O8) The opportunity of FDI is opened by the goverment of India Increasing service quality (W1, O6) Keep selective In order to use the best coffee bean for top quality product Hosting event community (W1, O7) Lower inflation (S6, S7, O5) Joint Ventures (S2, O9, O10) Annual income for the people who the age of 36-70 years, is growth Reason andRobusta Feeling selling method (S1, S7, O5) Joint venture with TATA Coffee for the supplier robusta coffe which is produce the best coffe in the world

EKSTERNAL FACTOR

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After analysis strategies according to TOWS Matrix, the functional strategy generates from the TOWS matrix, as follows: 1. Marketing Strategy a. Reason and Feeling selling method. b. Increasing advertising. c. Hosting event community. d. Maintain customer relationship. e. Educate the market about the 'uniqeness' of starbuck. f. Opening new stores in high-traffic location. g. Extra features at the stores. 2. Financial Strategy a. Joint Ventures. b. Increasing margin. 3. Research and Development (R&D) Strategy a. New varians coffee. b. New Products Beverages. c. New varians of drinks. 4. Operations strategy a. Different room for smokers. b. Keep selective In order to use the best coffee bean for top quality product. c. Increasing service quality. 5. Human Resources Management (HRM) Strategy a. Award and bonuses to employees who give their best effort. b. Increasing the quality of human resources. c. Implementation of GCG Programe. d. Contribute to India in return of the market share we could generate in India.

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F.

IMPLEMENTATION AND CONTROL

Organizational Life Cycle

Stage I INTRODUCTION Market growth rate Number of segments Intensity of competition Overall objective Corporate Strategy Business Strategy Likely structure Major functional area(s) of concern Emphasis on product design
Low Very few Low Increase market awareness Concentration in a niche Differentiation Entrepreneur dominated R&D Low Very large Some Increasing Create consumer demand Horizontal Growth Vertical Growth Differentiation Functional management emphasized Sales and marketing Low to moderate

Stage II GROWTH

Stage III MATURITY

Low to moderate Many Very intense Defend market share and extend PLC Concentric Diversification Conglomerate Diversification Differentiation Overall Cost Leadership Decentralization into profit or investment centers Production High Negative Few Changing

Stage IV DECLINE

Stage V DEATH

Consolidate, maintain, harvest or exit Profit strategy followed by Liquidation or Bankruptcy Retrenchment Overall Cost Leadership Focus Structural Surgery General management and finance Low Dismemberment of structure

Implementation of Planning

FUNCTIONAL STRATEGY
Objective
Marketing
Brand awereness (coffe cafe= starbucks) Pull Strategy Increasing advertising. Educate the market about the 'uniqeness' of starbuck. Opening new stores in high-traffic location. Hosting event community. Extra features at the stores. Reason and Feeling selling method. Maintain customer relationship.

Strategy

Program

Sales significant increasing each year

Product modification

Sales in each store withouth significant growth will be Hierarchy of needs in the minimum value USD.350,000/year

Financial
Credit Rate Increase Asset increasing each year Market share growth up to 50% Dividen annually growth 5% Long-term asset management strategy Joint Ventures

Divident strategy Defensive R&D Adjusting in India tastes

Increasing margin New varians coffee. New Products Beverages (India Tea) New Products Food (Prata, Canai Bread, Indian culinary) Keep selective In order to use the best coffee bean for top quality product. Increasing service quality.

Research and Development (R&D)

Market share growth up to 50% Sales in each store up to USD.750,000/year Competitive advantage

Operational
Provision expense reduction 5% Sales in each store up to USD.750,000/year Quality Control Effeciency

Human Resources Management (HRM)

Sales significant increasing each year Competitive advantage Risk exposure decreasing Sustainable position Compensation strategy Training Development Standardised Company Performance Corporate Social Responsibility Award and bonuses to employees who give their best effort. Increasing the quality of human resources. Implementation of GCG Proggrame. Contribute to India in return of the market share we could generate in India.

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Matching manager to the strategy Executive type: Executives with a particular mix of skills and experiences.

Action Planning-Estimated Timeline-Staffing

Objective
Brand awereness (coffe cafe= starbucks)

Program
Increasing advertising. Educate the market about the 'uniqeness' of starbuck. Opening new stores in high-traffic location. Hosting event community. Award and bonuses to employees who give their best effort. Extra features at the stores.

Timeline
6 Months 6 Months 1 year periodically (2-3 times/year) the end of year 2 weeks 6 Months periodically (2-3 times/year) 1 year Anytime 1 year Marketing Marketing Marketing

Staffing

Sales increasing 30% each year

Store Manager Human Resources Marketing Marketing Human Resources Human Resources Marketing Finance -

Sustainable position

Reason and Feeling selling method. Contribute to India in return of the market share we could generate in India. Implementation of GCG Proggrame. Maintain customer relationship. Joint Ventures Implementation of GCG Proggrame. Joint Ventures

Risk exposure decreasing Asset increasing each year

Dividen annually growth 5%

Increasing margin

quarter/semester/annual accounting period

Finance

Market share growth up to 50%

New varians coffee. Increasing service quality. Joint Ventures Increasing the quality of human resources.

3 Months 6 Months 3-12 Months

R&D Operation HR & Outsources R&D Operation

Competitive advantage

Provision expense reduction 5% Sales in each store up to USD.750,000/year

New Products Food 3 Months Keep selective In order to use the best coffee bean for top 3 Months quality product. New Products Beverages. 3 Months Increasing service quality.

6 Months

R&D -

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Assessing strategy-culture compatibility Current Cultures in Starbucks: Starbucks did not sell just a cup coffee but provided a Starbucks experience Starbucks was opposed to the concept of franchising Starbucks maintained a non-smoking policy at all its outlets worldwide Starbucks stores tend to be located in high-traffic location The current culture of the company is still compatible with the planned strategy, especially the point Starbucks maintained a non-smoking policy at all its outlets worldwide , because culture in India consider smoking in the open area is taboo, its not appropriate action. Organizational Structure Next, those successful at implementing strategy give thought to their organizational structure. They ask if their intended strategy fits their current structure. And they ask a deeper question as well... "Is the organization's current structure appropriate to the intended strategy?" Yes, Starbucks current structure fit into Starbucks business activity. Starbucks planned strategy was implementation GCG which need some additional structure and job desks in the main office, that Strabucks did not have yet, such as risk management, etc. Human Resource Factors Organizations successful at strategy implementation consider the human resource factor in making strategies happen. In order to provide this implementation and make it successfully happen, the company already allocated some funds to provide human resources to be ready to make this implementation success. The company also using GCG implementation management to help this strategies have more successful chance.

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