Parth Chopra

MS19GF012
COMPANY OVERVIEW

Starbucks Corporation (or ' the company ') is a leading specialty coffee roaster, marketer and
retailer. The company offers a range of beverages for coffee and tea, tea and related products
including packaged roasted whole bean and ground coffees, as well as food and snack
offerings. It also produces and sells a variety of ready-to-drink beverages such as Frappuccino
coffee drinks, Starbucks Double-shot espresso drinks, Starbucks Refreshers beverages, and
chilled multi-service beverages through various channels including grocery stores, warehouse
clubs, convenience stores, specialty retailers, and U.S. food service accounts. The company
operates in North America, Asia , EMEA, and Latin America. The headquarters of Starbucks is
in Seattle, Washington, USA.
For the fiscal year ended September 2018 (FY2018), the company reported revenues of US$
24,719.5 million, an increase of 10.4 percent over FY2017. The operating margin of the
company was 23.3% in FY2018 compared to an operating margin of 18.5% in FY2017. In
FY2018, the company recorded a net margin of 18.3%, compared to a net margin of 12.9% in
FY2017.

COUNTRY PROFILE

With those over 65 years of age rising from 6.2% of the total population to just 8.5% in 2030,
India has a very young population. Indeed, in that timeframe, the old-age dependence ratio
will only rise from 9.3% to 12.4%, highlighting the demographic dividend of the country that
could potentially boost economic development.Keeping this in mind Starbucks saw India as a
potential market and opened its first store in India in October 2012 and now operates over
50 stores across the country through its joint venture Tata Starbucks Limited in Mumbai, Delhi
National Capital Region (NCR), Pune, Bangalore and Chennai. Starbucks store designs reflect
the coffee rituals, history, and local culture of India, with local touch added to each elements.

Customers in India increasingly favored value-added goods and new coffee varieties, coffee
consumption as a beverage registered strong growth in 2017-2018. As natural energy
boosters, coffee is rapidly being consumed. Retail coffee and snacks store industry is one of
the main categories benefiting from India's new tax regime. Tax rates for primary drinks,
including coffee, have been lowered overall. The lower tax rate coupled with goods
transportation facility would help businesses grow within India. As coffee is grown in selected
regions of India, a single tax across the country will help the hot drinks players as logistic
challenges are reduced. Also projected to benefit the customer is the Goods and Services Tax
(GST), as businesses pass on the benefits by increasing the prices of these drinks. Price
reductions would ensure the product's affordability and allow new buyers to be included.
Consumers may also increase the intake frequency of these drinks.
The retail coffee and snacks store industry in India is expected to report growth over the next
two years of the forecasted period as the market expands.

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STARBUCKS IN INDIA

Starbucks is the biggest coffee house company in the world with a presence around the globe
in 65 countries. Starbucks saw the opportunity for growth in developing markets such as
China and India as coffee shops are near to saturation in the US and Europe. Though India is
mainly a tea-drinking nation, Starbucks won over this market with its localization and
customization strategies. Starbucks claimed that, given the size of its economy, increasing
people's spending power, and growing café culture, India provides a good business
opportunity. The company opened its first store in India in 2012. Starbucks ' stores initially
received good response, but then encountered challenges such as competition from organized
and unorganized coffee (and tea) shops, high product prices, getting the right store location
and talent pool. Analysis suggested that Starbucks adapted to the Indian market's
peculiarities. It is possible to adopt a ' Glocalization ' strategy that would use the successful
Starbucks ' strategy used around the world, while taking into account the changes needed to
adapt to the Indian context and that was most important thing for Starbucks to do. Also
Starbucks provided a company's traditional resources reaching emerging markets, such as
technical skills, intangible capital, and willingness to share experience, which was clearly
demonstrated by a strong brand. The advanced technical knowledge of Starbucks in the
design of exclusive shops supported its global operations.

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PESTEL ANALYSIS OF STARBUCKS IN INDIA
( The time period of PESTLE analysis is 2008-2018)

Political Technological

 Political situation in India  Technological breakthroughs in retail coffee

 Promotion of FDI’s from foreign and snacks industry
countries by the government.  Technological innovations in various business
 Sourcing of Raw Material processes
 Rising mobile purchases.

Environmental
Economic
 The issues of sustainable future.
 Increasing standard of life in India  The activities of various ‘green’
 Inflation rate in India organisations.
 Decreasing labour costs.  Ban of plastic in India.
 Growing middle class.  Business sustainability trend

Social
Legal
 Changing work patterns in India
 Different consumption pattern of  Introduction of rules and regulations
Indians. concerning retail coffee and snacks
 Increasing health consciousness. industry
 Reforms in consumer rights in India

India is one of the world's most attractive places. It has also grown into one of the most
powerful powers. This rise has boosted business internationally. There has also been
improvement in the legal system. Foreign investors, mainly because of 3 things, are looking
for business in India -:

1) Diversity of Indian market

2) Cheap labour
3) Favourable business condition (ease of doing business)

Political Factors

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1) Strong government conditions in India has resulted in higher growth rates ,lower inflation
and increased FDI’s which will have a direct impact of Starbucks operating in India.
2) Regional convergence in India is a current trend and an internal variable that enables
Starbucks to grow globally. Furthermore, India's government is developing infrastructure,
giving Starbucks the opportunity to access more customers and suppliers.
3) Sourcing of Raw material is also one of the factor that can hamper an organization.

Economic Factors
1) This component of the PESTEL model of analysis refers to the economic conditions and
substantial business changes. In its remote or macro-environment, Starbucks faces the
following external economic factors that includes High growth of developing countries
(opportunity), Decreasing unemployment rates (opportunity) Increasing labour costs in
supplier countries (threat).
2) Developing countries high economic growth and declining unemployment rates provide
Starbucks with opportunities to earn more revenue from different markets around the
world. However, an external factor that threatens Starbucks is the rising labour cost in
developing countries because it increases the company's ingredient spending.

Technological Factors
Starbucks has the opportunity to improve its mobile apps and linked services to gain more
revenues through mobile purchases. The company also has the opportunity to improve its
supply chain efficiency based on new technologies coffee farmers use. However, the rising
availability of home-use specialty coffee machines is a threat to Starbucks because it
increases the availability of substitutes.

Social Factors
Starbucks has the opportunity to increase its revenue on the basis of growing demand for
specialty coffee due to growing coffee culture and growing middle class around the world.
The company also has the opportunity to expand its range of healthier products in order to
attract health-conscious consumers to Starbucks cafes.

Environmental Factors
The business sustainability trend focuses on business processes ensuring minimal impact on
the environment. Responsible sourcing in the supply chain emphasizes corporate social
responsibility. In these places, Starbucks has opportunities to improve its efficiency. Note that
the company's sourcing policies are already responsible. There is also an incentive for
Starbucks to sell more and more. Also ban of plastic products in India may also one reason
Starbucks should think of as this might have an effect on their operations.

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Legal Factors
Starbucks has the opportunity to improve its performance by complying with product safety
regulations and ingredient regulations. In these ways, Starbucks already works well.
However, increasing employment regulation, especially in developing countries, threatens
Starbucks Coffee's access to the labour market.

ANALYZING STARBUCKS ENTRY BASED ON OLI MODEL

Three crucial factors for determining the overseas performance of corporations are -:
Ownership-specific advantages, Location advantages, and Internalization advantages.

1. Ownership advantages
Property-specific advantages are embedded in a corporation's tangible and intangible assets.
Such resources can be seen as having an edge over foreign market rivals and are largely
embedded in a specific company controls and accesses in the advantages. In terms of
ownership advantage, larger firms tend to have more capital than smaller ones. One of the
most critical resource is a trademark. Starbucks is aware of the value of its global brand,
mainly that customers perceive Western brands as offering quality and service, ready to
establish a premium brand in emerging markets. As early as 2008, the brand "Starbucks" was
marked in 10 Indian languages, demonstrating the interest of Starbucks in protecting its
brand-based competitive advantage The cups serve as mobile billboards and additional
advertising items. The overall product is representative of enjoyment from various sensory
modalities, such as the great fragrance of its coffee specialties and offering aurally friendly
retail outlets for relaxation. Starbucks is also offering lifestyle and mentality in a way.
Customers are therefore willing to pay premium prices.

Starbucks is also well known for taking care of its employees, such as supporting baristas by
paying tuition fees, leading to a reputational strategic advantage. Certain incentives include
stock options for companies and products that are free or discounted. Starbucks invests in its
staff, which then reinforces the workforce. Education and training programs help improve the
technique of development. The procedure includes sending the best baristas to new markets
to support the establishment of the Starbucks brand and maintaining the well-known high
quality of international standards.50 With the 87,000 different product types, the entire
production is designed to reduce waiting times due to highly streamlined processes.

The company realized that success is determined not only by price and service, but is, among
other criteria, a function of variables such as location, product quality and interiors. Starbucks
is well known as one of the first companies to accept mobile payments for its focus on
innovation, e.g. the use of apps to pay.

In addition, Starbucks is seen by the management as an experiential provider, instead of a

coffee shop. Outlets offer convenience and an environment that leverages customer pull
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across different store formats. Starbucks regularly surveys its customers to improve their
experience. Part of the experience is the customer-friendly design. Tables are round so that
lonely drinkers do not feel alone.

The company is actively leveraging adaptation and is able to gain in-depth knowledge.
Starbucks adapts to the local culture in every country but retains its simple global business
model. In India, tables consist of solid local teak, hand-carved wooden display screens, Indian
paintings, etc. High entrepreneurial skills, such as knowledge in real estate, help the company
to set up new unique outlets, what impacts the customer experience. We may thus conclude
that Starbucks has the skills and superior resources to earn economic rents that are sufficient
to counter the expenses.

2. Location advantages
Location advantages are mainly related to financial, political, and institutional factors in the
targeted countries, such that countries draw businesses there to conduct value-added
activities. The more these benefits add up to a company's ownership advantage, the greater
the likelihood of the company investing in the country. Growth and scale market potential is
one of the primary elements of productive overseas operations. The opportunity to establish
a sustainable market presence in an emerging market has made Starbucks an attractive goal
for India. Certain factors are Westernization and a shift in consumption habits. Starbucks was
able to exclusively win many Tata companies as suppliers to India and thus gained access to
raw materials. This is consistent with the trend to increase the internal value chain, increasing
uncertainty and promote a sustainable competitive advantage. In India, compared to the
relatively high price charged for a cup of coffee, the level of wages for staff is low. This results
in lower expenditure on personnel costs and leverages higher returns from the business itself.

3. Internalization advantages
In the OLI model, the internalization effects focus primarily on transaction costs. The
fundamental issue is outsourcing or internalizing a system. It is often used because company
issues arising from external contractors are feared when control modes are poor and the
operational climate in the target country is difficult, mainly based on transaction cost theory.
Especially when the compliance of outsourcing agreements is enticing and costly, businesses
are watching that transaction costs associated with issues related to the principal agent. The
business model of Starbucks is more focused on service than development, transferring its
core skills to expertise. Nonetheless, if a subsidiary is operating in a highly risky and difficult
environment, collaboration with a local company may be of value. In this case, Starbucks
brings some internalization advantages, while Tata brings market knowledge, such as how to
run a business in India, as well as a strategic network.

Ownership Internationalisation Location

Advantage Advantage Advantage
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 Licensing YES NO NO
Export YES YES NO
FDI YES YES YES

(Form of market entry vs Categories of Advantage)

EPRG MODEL OF STARBUCKS IN INDIA

Wind, Douglas, and Perlmutter created and implemented the EPRG Framework, which
focuses on the company's international marketing activities and the various attitudes
towards the company's presence on the front line of international marketing processes and
climate.

The whole EPRG framework and its stages is divided into 3 parts :

1) Ethnocentric Orientation
2) Geocentric Orientation
3) Polycentric Orientation

Starbucks implemented EPRG model by following ways -:

Ethnocentric Orientation: Starbucks does not own a small business, but in the global context
Starbucks has chosen an ethnocentric approach. All major managerial decisions are taken in
regional offices (head offices) under this approach, and management positions are also held
by staff of the regional office.

Geocentric Orientation: Geocentric approach which accounts for “Think Global ,Act Local”
was very well understood by Starbucks in India where the coffees and snacks they served were
in line with the Indian Taste so that is how they got hold of this geocentric orientation and
also it benefitted them because it became the most popular coffee house.

Polycentric Orientation: When Starbucks came to India back in 2012 they did a joint venture
with TATA Starbucks ltd in Mumbai which helped them understand the Indian market better
and that is how it helped them a lot in India. This approach provided a strong foundation for
each subsidiary to develop its unique marketing and business strategies for success and gave
equal importance to the domestic market of the country.

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Source -: http://educationisforall.com/eprg-framework/

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REFERENCE

1) Rajasekaran, R. (2015). Starbucks' Entry into Tea-Drinking India. IUP Journal of Brand
Management, 12(3).
2) Gopalakrishna, P., Victor, R., & Fleischmann, D. (2016). Starbucks In India. Journal of
Case Studies, 34(2), 92-101.
3) Berger, K. A., & Blake, L. J. (2016). Starbucks Enters India: The Indomitable Competitor
or Underdog?. Journal of Case Studies, 34(2), 75-91.
4) Yoffie, D., & Tahilyani, R. (2015). Coffee Wars in India: Starbucks 2012.
5) Zerrillo, P. C., Mathur, S., & Joshi, H. (2013). Brewing the Perfect Blend: Starbucks
Enters India
6) Fischer, D., & Roy, K. Market Entry in India: The Curious Case of Starbucks.