THE INTERNATIONAL UNIVERSITY VNU-HCM

SCHOOL OF BUSINESS PRINCIPLE OF MANAGEMENT

STARBURKS

THE INTERNATIONAL UNIVERSITY VNU-HCM

SCHOOL OF BUSINESS PRINCIPLE OF MANAGEMENT GROUP PROJECT

Group members:

Student Number 1. BAFNIU11033 2. BABAUN11067 3. BAFNIU11110 4. BAFNIU11021 5. BABAIU11298

Surname Nguyn Trng Hong o Hi Dng Dip Cm V Bo Lm Th Tr Phc Bnh Thanh Uyn My

Given Name

I. How would cultural factors influence Starbucks strategy?

Starbucks has been operating extremely successful in United State. Until the mid-1990s, Starbucks has had tremendous growth but operating only in United State is not enough for the company to maintain its growth. Therefore, Starbucks decides to go international. In 1995 Starbucks establishes Starbucks coffee International to control its international expansion. Sustaining its high grow is the major reason for Starbucks to initiate international expansion. So Starbucks has invented and opened many branches in the world. Starbucks is also set to open the first store in Ho Chi Minh City Viet Nam in February 2013 and Vietnam just became number 62 in terms of countries Starbucks is operating in and number 12 in terms of Starbucks operation in the Asia Pacific region. Going Vietnam has posed both challenges and opportunities to the company. Accordingly, Starbucks face challenges of culture different and competition on traditional product in Vietnam. Before Starbucks formulating an international strategy in Vietnam, Starbucks has focused on researching on Vietnamese local market to determine the degree of market acceptance. Consequently, the company has decided on the specific entry mode, through which it would enter in the respective market. Starbucks have to focus on the culture of Vietnamese, most people in Vietnam, especially young person they like to be fashionable, live a Western lifestyle and enjoy brand name. So maybe the first time when Starbucks come to Vietnam will be successful, but probably in the short-term. Because then they would return to the traditional coffee cheaper. Therefore Starbucks have to conduct some promotions and discount to suitable with the pocket of Vietnamese and Starbucks have to identify the object of their customer is teenagers and young persons. About Vietnams coffee culture: Consumption of the drink in Vietnam jumped 65 percent between 2008 and 2011, according to the International Coffee Organization. Today, Vietnam is one of the top coffee growers on the globe, exporting between 1.5 and 2 million tons of beans a year. Moreover, Vietnam also have a long-standing tradition of dripping coffee through the phin has taken on a deeper meaning. So if Starbucks want to win in Vietnam, they need to offer some tailor made coffee to Vietnamese taste. With some basic culture of Vietnamese mention above, Starbucks should proceed with the right strategy and different with others countries. Starbucks could introduce better-divided marketing campaign, targeting younger crowd and appealing for a healthy coffee- drinking experience, in other to increase the sales. It may also enhance customer service in its Vietnam store to deliver the same quality it is associated with in the US. Moreover, it could introduce a more complex service including coffee service and coffee delivery, where the Vietnameses customers want it.

II. Please explain Starbucks organizational structure in Vietnam.

Here are the Starbucks organizational structure in Vietnam: (by charts)

I.

Organizational struture: Organizational structure is depicted through its organizational chart and recognizes concepts of differentiation and integration (Anthony, Gales & Hodge, 2003). Its a formal composition of tasks, workflows, reporting and communication chanals that link together the works of diverse individuals and groups. Starbucks uses a matrix structure by combining divisional and functional structures. 1. Strengths: a. High vertical and horizontal complexity, high formalization, high centralization, narrow spans of control, and high standardization: Because of the complexity structures, Starbucks has worked to create a more efficient and streamlined structure where information can flow freely from customer and low-tier employee to the corporate level. b. Avoid the communication breakdowns: Starbucks utilizes its matrix structure to avoid the communication breakdowns that can occur in an organization that uses vertical differentiation, as the number of levels of authority increase the more vertical the organization. Starbucks divides its labor into cross functional work teams, which allows employees to report to multiple supervisors. This structural behavior has allowed the corporation to have successful communication upward, downward and

laterally with its employees (Successful Application of Organizational Behavior: Starbucks, 2009). c. Improved decision making: Better Starbucks encouragement of open communication between employees, higher management, and executives allows innovative ideas, problems and solutions to be heard in a timely manner. d. Better customer services : they maintain effective communication, especially , customer loyalty and ownership is promoted by soliciting customer feedback on a regular basis through a social networking site which helps ignite an emotional connection with customers, builds a network of loyal and dedicated clientele, allows an open forum for ideas and discussion, and enables customers to provide ideas on products and services. Thus, great product development, efficient production, and exemplary customer service as a result. 2. Weaknesses: a. Two-boss system: when functional supervisors and team leaders compete eagerly with others to do or achieve something such as exercise authority, resources, ...etc, it has negatively impact on relationship among groups or teams. In addtion, matrix members may be frustrated because of task confusions and conflicting work priorities. b. Time consuming for team meetings. c. Loss of focus on the whole organizational goals : some teams may develop a strong loyalties which encourages to emphasize on only the group goals, not the larger organizational goals. d. Increasing operational costs: Matrix structure requires to add more team leaders which causes the increase in operational cost. The organizations ethical framework is based on its mission statement, which is the guiding principle and filter for decision making (Hammers, 2003). This mission statement includes the goals of providing a great work environment through treating employees with respect, commitment to diversity, contribution to community and the environment, providing the best coffee and products, and achieving profitability. Starbucks promotes ethical, local and global responsibility. Ethical responsibility includes sourcing coffee, tea, cocoa and store products ethically and providing farmer support. It also entails being environmentally aware by recycling and reducing waste by offering reusable cups and providing a line of environmentally friendly products through their Green Store. Locally, Starbucks has established community service programs, youth programs, foundations and the Ethos Water Fund. According to the Starbucks Official Website, their goal is to engage 50,000 young people, who will in turn innovate, take action and inspire 100,000 individuals in their communities by 2015 (Starbucks Corporation, 2010). Starbucks uses technology, marketing tactics, and employees to communicate its goals and visions to the public. Its organizational goals are laid out in its mission statement, which acts as a

guide, provides motivation, legitimacy, and standards (Anthony, Gales & Hodge, 2003). Starbucks takes it upon itself to get involved with local efforts to bring people together and create positive change (Starbucks Corporation, 2010). The organization is finding ways to minimize its environmental footprint, tackle climate change, and inspire others to do the same (Starbucks Corporation, 2010). Starbucks is also committed to buying and serving the highestquality, responsibly grown, ethically traded coffee to help create a better future for farmers. Though the organizational official goals are broad, they accurately depict the philosophy of the organization; to always act ethically. In summary, Starbucks effectively utilizes its organizational structure, communication methods, decision making process, and organizational goals to maintain its status as one of the most successful corporations in the world. It utilizes a matrix structure, which facilitates communication outward to customers and upward, downward and across between employees. Its communication methods ensure an open communicative environment, promoting innovation and teamwork. Starbucks also has an extensive decision making process that ensures ethical practices and organizational goals that also reinforce the importance of ethical behavior. The process of researching Starbucks has revealed how the organization functions in terms of organizational behaviors, values, and communication methods. Its organizational goals appear to coincide with its values and practices; a feat that other corporations would do well to model. What you see is what you get with Starbucks. The organization promotes innovation and teamwork and creates a positive, friendly environment for employees and customers. It prioritizes its goals, putting ethical behavior at the forefront and uses communication effectively to encourage customer and employee satisfaction. After going to Starbucks this morning and having another wonderful experience, the inevitable conclusion is that Starbucks success is due to savvy corporate policy, innovative structure and the quality of its people.

III. The competitive advantages of Starbucks Vietnam:

In 42 years from its first store at Seattle, Starbucks has grown from 1 to 18 thousands stores covering in more than 60 countries. From 1990 to 2000, the franchise went from having 84 locations to 3,501. It was an impressive decade, but nothing exceptional compared to the additional 13,500 stores that have opened since the 2000. While the number of coffee shops, coffee brands keeps increasing, Starbucks still holds its throne as most favorite Coffee Corporation in the world. Let consider the reasons of Starbuck success in general, and its competitive advantages in Vietnam market. Competitive advantage is defined as an advantage, which over competitors and gained by offering consumers greater value, through lower prices or by providing more benefits that justify higher prices (Johnson & Scholes, 2002; Kotler et al., 2003). However, competitive advantages are relative, not absolute, thus if a company want to against competitors, it is the must to find and build the right advantages and have a strategic plan to sustain it. Starbuck has used its marketing so well that more and more loyal customer is continue to be drawn.

What customers say about Starbucks is that it gives them a comfortable place to drink their coffee. Moreover, Starbucks is unique from other coffee-bar shops because of their wide selection of products. Starbucks sustains competitive advantage by looking for new ideas, new products, as well as new experiences for customers by holding many special offers and events. In Vietnam, Starbucks has many competitors such as The Coffee Bean and Tea Leaf, Highlands, Gloria Jeans, Trung Nguyen, and some smaller coffee stores which also serve the take away coffee like Passio, Urban Station, etc. These are competitors which have a longer stand in Vietnam market, and also have a competitive price in compare to Starbucks. However, Starbucks is confident to expand their market to Vietnam because of these competitive advantages that are going to be discussed below. 1. Brand name: Brand perception is a big impact to the decision- making of customers in Vietnam. Starbucks has a global reputation and had soon well-known before it reaches Vietnam. The positive image of the company that is spread by tourists and travelers has raised the desire to experience Starbucks flavor among young Vietnamese (which occupy more than a half of Vietnams population). 2. Service quality and consistency: Quality is the key factor to attract more loyal customers and good services keep customers satisfactory in order that they would raise high perception about Starbucks, hence adding more value to the company. Understand the important of services, before launching new stores, Starbucks had hired their staff and trained them for months to ensure an excellent front-end staff that will serve not only high quality cups of coffee but also cautious and comfortable environment exactly the same as in the home country. 3. Location: since the first day (2/2/2013) of launching the very first store in Vietnam, Starbucks is now having three stores in Ho Chi Minh City. The first store in New World Hotel, the second store at Nguyen Du St., District 1 and the third is at Nguyen Hue St., also in District 1. These are location at the main traffic road of the city, where most skyscrapers are built and very convenient for workers, employees to stop by at break time. Good location is a significant for the stores success and Starbucks has seized it. 4. Employee satisfaction: the company really takes attention to Human Resources Management and Strategy because they believe that happy employees will produce higher efficient result, bringing higher satisfactory for customers. The staffs are encouraged to remember loyal customers names, be friendly, and always try to help customers choosing the best coffee according to their own taste. Starbucks has a training and rewarding strategy that would motivate employees, and at the same time would attract talented people.

IV. Do you think Starbucks Vietnam is a failure? What would be the reason(s) and what should be done to overcome?
In the February 2013, Starbucks- one of the most successful enterprises in worlds coffee market, officially entered Viet Nam. However, the opening of the second and the third shops of Starbucks did not attract attention like the first shop did, and the number of everyday guest in each store is considered as not much and they are mostly foreigners, or oversea Vietnamese-

according some newspapers as Vietnam.net, Tri Thuc Tre. Moreover, the situation that it cannot attract majority of young Vietnamese- focused segment of Starbucks- as well as it cannot grow fast in this market or it has to choose low development method to keep the Starbucks brand on the market and planned for development in the coming years, can be considered as a failure of Starbucks now- following Vu Tuan Anh Director Vietnam Institute of Management. The importation reason of this picture is that there are differences among Viet Nams coffee and Starbuckss coffee. Vietnam's coffee market is considered to be strongly influenced by the coffee cultures ingrained Vietnam it is famous for strong coffee flavor and is often mixed with condensed milk, it means Starbucks has a sensitive problem must be solve with the Viet Nam customers loyalty in their traditional coffee taste. Additionally, as the recommends of many young people that the high price can be an obstacle between majority people here and Starbucks while income per capita of Vietnam is still low. For example, Mai Huong, a 22-year-old customer, said after visiting the first Starbucks store in HCMC: "It's a new experience and fun. I love this place, but coffee prices are slightly higher than in other places ". Moreover, the existences of big global brands in Vietnam market, such as Coffee Bean & Tea Leaf American or Australian Gloria Jean's Coffees or Central Highlands and local chain coffee as Trung Nguyen also make the market more competitive. However, Starbucks still have high capacity or probability to overcome these difficulties through its strengths and improvement in the weakness. Firstly, it has abundant financial resources which can help them keep its presence of stores to serve branding, customers loyalty and held Vietnam market through that. Secondly, the advanced in human resources management and strategy of international enterprises give them advantages compare to their competitors. Attracting and retaining good employees is a difficult problem in Vietnam but Starbucks is professional about its training, treating, and rewarding its staff as compensation & benefits package, training opportunities. Moreover, Starbucks has brand perception and philosophy, its brand is recognized around the world as well as in Viet Nam whereas its philosophy that is Pour Your Heart Into It with the training courses free of charge to consumers about how to enjoy coffee, from the distinction of taste, smell to the combination of bread, fruit and its preparation is a promise place for good coffee, Wi-Fi, conversation, working all day. On the other hand, due to the feedbacks that the primary cause makes customers in Vietnam unacceptable Starbucks now is the taste, this problem can be solve by continuing to improve it and give more coffee that have Viet Nams features but still remain Italian style as Asian Dolce Latte classical coffee is popular in the first shop with inspiring blend of rich coffee from Vietnam; combine with using training course or introduction activities to help young customer who looking for new experiences to enjoy coffee to be acquainted with Italian coffee. The other problem is high price also can be ignored by high quality in production and free service as Wi-Fi, training course or brand differentiation-due to counting combine their value. Generally, Starbucks still have many advantages and is viewed as the most strong company in the Viet Nams coffee market. Using legitimate plans with these strengths in long time to affect the young customer who is in large cities and is the majority of Viet Nams

population, easy to accept all the difference in cultural backgrounds can be the key to help Starbucks overturn the situation in this market.

References: http://vietnamnet.vn/vn/kinh-te/147065/ga-khong-lo-starbucks-dang--chet--guc-o-viet-nam-.html http://gafin.vn/20130520051210434p64c72/starbucks-mang-van-hoa-cua-minh-den-vietnam.htm http://baodautu.vn/news/vn/doanh-nghiep/dien-dan/starbucks-co-phan-boi-truyen-thong.html http://nuocmy.net/triet-ly-starbucks-rot-ca-tam-hon-vao-day-coc/NI222X/ http://marvinchai91.blogspot.com/ http://www.forbes.com/sites/rachelhennessey/2012/08/06/3-reasons-why-starbucks-still-shinesdespite-market-shortcomings/ http://www.starbucks.com/careers/working-at-starbucks http://www.ukessays.com/essays/marketing/starbucks-against-vietnamese-coffee-culturemarketing-essay.php