Impact Of Globalisation On Business: A Case Study On Starbucks Corporation

Background and History of Starbucks and Tata Global Beverages

Discuss about the Determinants of Commodity Price Risk Exposure.

This report will focus over the impact of globalisation on business in contemporary business environment and under this case; impact of globalisation will be discussed in relevance with Starbucks Corporation. Starbucks is known as the representative of “second wave coffee” and to make a different place in the global marketplace, organization focused over serving great quality and taste in order to enhance customer experience. In this report, organizational collaboration with Tata Global Beverages will be discussed through which Starbucks entered into Indian market in 2011. Further, report will focus over background and history of Starbucks and Tata Global Beverages will be covered along with reasons for globalisation of Starbucks. Next part of the report will include the risk analysis under which potential risk factors will be discussed in relation to the Starbucks operations regarding globalisation. Reviewing the detailed analysis, actions taken by international managers will be discussed in order to cope up with the factors of globalisation in an effective manner. In this part of the report, opportunities and threats generated due to globalised operations performed by Starbucks Corporation. PESTLE analysis will also be discussed in relevance with the organizational operations so that expansion in international market could easily be performed.

When a company expands its business in international market, certain external environmental factors needs to be evaluated in relevance with determining the threats and opportunities in the particular market which has been chosen in terms of expansion of the organization. In this context, PESTLE analysis in relevance with Indian market will be discussed along with this outsourcing activities will be discussed through which organization has attained competitive advantage in the global market. In relation with this, organization has attained several competitive advantages through its unique taste and quality and to compete with Starbucks, competitors needs to spend a huge amount in Research and Development department in order to analyse certain effective and advanced strategies. Apart from this, this will also lead to huge investment of time. Starbucks has several successful outsourcing strategies through which they had attained competitive advantage in the global market. This report will also focus over the resources and capabilities of the organization through which they had attained an effective place in the global marketplace. Last part of the report will focus over determining the internal capabilities along with external threats and opportunities. Internal capabilities will include strengths and weaknesses of the organization while external analysis will analyse the capabilities of their strengths as per external environmental conditions. Further, resource based view analysis will be conducted in order to represent a clear picture relation to the competitive advantage acquired by the organization in the international market. Along with these analyses, significance of outsourcing for Starbucks will be discussed in relevance with the globalisation continuation with their outsourcing partners. In addition to these factors, success and failure will be determined regarding the collaboration made by Starbucks with Tata Global Beverages to enter into Indian market along with IT advancements in globalisation and role of both the companies in globalisation.

Risk Analysis of Potential Risk Factors in Relation to Starbucks Operations Regarding Globalisation

Starbucks was founded in 1971 in Seattle, Washington and it is an American coffee brand situated in various parts of the globe. Starbucks is mainly known for serving great quality coffee such as VIA, espresso, caffe latte and range of teas. Along with this, fresh juices, Frappuccino beverages and varieties of snacks such as chips and unique things on the basis of seasons or as per locality of the store. Apart from this, various Starbucks’ store sell prepacked food items and cold drinks. Starbucks has expanded its product offerings and they also serve alcoholic beverages and customised drinks through “Starbucks Evenings” and these stores are located at specialised locations. At some places, Starbucks’ coffee, bottled coffee and other products are also available at grocery stores (Appendix 1).

Tata Global Beverages is an Indian multinational non-alcoholic beverage company formerly known as Tata Tea Limited. It is a subsidiary company of Tata Group and it was founded in 1964 in Calcutta (Kolkata). Under Tata Global Beverages Limited, various brands exist such as Tata Tea, Good Earth Teas, Tetley and JEMCA. Amongst them, Tata Tea is one of the biggest tea brands in Indian market and Tetley is another popular tea brand which is leading Canadian market along with standing on second position in United Kingdom and in United States. JEM?A is the biggest-selling tea brand in the Czech Republic. In 2012, organization ventured into the Indian Café market. In this context, organization came in 50:50 joint ventures with Starbucks. This way Starbucks entered into Indian market and the coffee shops are operating under the name “Starbucks Coffee – A Tata Alliance”. Coffee beans are sourced from Tata Coffee which is a subsidiary company of Tata Global Beverages (Tata Global Beverages, 2015).

Main motive of globalisation for Starbucks is increasing its market presence in international market along with increasing revenues, profitability, etc. Globalisation is directly linked with expansion and business is expanded at national or international level when there is no scope left for the organization for further growth in the existing market. Starbucks is operating across 27,000 stores at worldwide locations and still they are expanding their business at international level with the motive of increasing its global presence through serving unique taste and qualitative coffee and other products. USP of Starbucks is its roasted coffee and demand for Starbucks is increasing rapidly which is another motivation for the organization to expand its business in those places where they are not yet present (Tata Global Beverages, 2015).  

Opportunities and Threats Generated Due to Globalised Operations

There are numerous factors for globalisation such as improved trade, capital mobility and increased labour as well as increased technology. Apart from these factors, there are certain more such as improved transport for example; air-travelling is increasing rapidly which is increasing movement of goods and people across the globe. Technology enhancement is another major factor for globalisation which has made communication easier and faster. Thus, sharing information across the globe is being convenient (Reader, 2017).

Starbuck focuses over enhancing profitability growth of the country of its operations and for this, Starbucks focuses over emerging economies so that effective place could be obtained along with contributing towards development of the economy (Appendix 2).

In India, organization entered through joint venture with Tata Global Beverages and this strategy was selected as per reviewing the demand of Starbucks’ products in the Indian market as well as reviewing the emerging economic conditions of the organization. In 2007, Starbucks tried to enter into Indian market but due to certain reasons, they failed and the reason is not yet disclosed. Their plan to enter into Indian market succeeded in 2011 when Tata Global Beverages ventured with Starbucks in 50:50 joint venture as “Starbucks, A Tata Alliance”. Since then, organization has attained quite effective goodwill along with high profitability in Indian market. From 2-3 stores in 2013, number of stores is increased approximately to 100 in present situation. From this, it could be evaluated the Starbucks’ globalisation strategies’ effectiveness (Lambregts, Beerepoot & Kloosterman, 2015).

Risk assessment is a qualitative and quantitative estimate of risk in relation to well-defined situation and recognises potential threats. It has been reviewed that businesses are directly affected through environment in which they operate. While operating at international level, organization is require assessing potential risks and threats so that progressive measures could be adopted in order to create an effective and safe environment to operate. Starbucks’ managers require analysing various risk factors present in the international business environment so that appropriate measures could be adopted for reducing the impact of risk factors along with attaining desired goals and objectives (Linardi & Rudra, 2015). Following are potential risk factors which need to be analysing by managers of Starbucks before expanding in international market following with external environmental analysis:

• Political: Indian politics is not stable and in relation to this, organization needs to make flexible and dynamic approaches through which all political regulations and policies could be considered along with enhancing organization performance in the target market. Government could implement or change existing policies overnight which may affect organizational performance. Apart from this, slow-down government decisions, unpredictability in foreign investments tax issues, corruption and bureaucratic inefficiency, fluctuations in interest, currency and inflation rates, etc. are major factors through which Starbucks’ performance may get affected in Indian market (Theodore, 2015).
• Cultural: Indian culture is basically a traditional form of culture which is now shifting towards western culture and from ancient times, it is one of the largest tea loving nations but with the effect of western culture, Indians prefer coffee over tea. This is the major reason of emerging growth and demand of coffee in Indian market and with this effect, Starbucks and other international coffee brands are expanding their business in Indian market. In this scenario, disruption could take place because old age people are quite strict in India regarding country’s values, culture, etc. and with the effect of this, situation may arise through which demand of coffee decreases and people again shift towards tea because still there is huge demand of tea in India (Cho, et. al., 2017). This will create an issue for Starbucks’ performance in India and to resolve this issue, they need to make dynamic policies such as increasing range of their menu along with adding varieties of tea to attract large number of consumers.
• Technological: With the rapid innovations, technology is growing in all fields. This has increased the opportunities for local coffee brands in Indian market to compete with Starbucks through producing qualitative as well as unique coffee along with serving various food products and beverages. Local players and other international competitors of Starbucks such as Costa Coffee, Barista Coffee, Café Coffee Day, etc. are increasing risks for Starbucks to make its unique image in the target market.
• Terrorism: India has always been affected by various terrorist attacks time to time and this has affected nation’s economy. India has been significantly impacted by the growing terrorist activities in the valley and tensions with the western boarders. Due to this, country has become cautious on its FDI policies, the country ensures that if focuses on investment from the country’s which has strong ties with India and less affinity towards terrorism activities.
• Global competition: Along with Starbucks, there are number of international café coffee brands such as Costa, Barista, Café Coffee Day, etc. They all have tied up with local companies in Indian market with the motive of leading the Indian market. Thus, Starbucks needs to invest a huge amount in promotional and advertisement strategies in order to maintain its acquired position as well as to enhance its market share in the target market. Aggressive competitive strategies adopted by Starbucks’ competitors affect its operations which require huge efforts to maintain acquired position as well as to enhance its market share in the competitive business environment (Tang, 2015).

International managers need to enhance their understanding level so that they could predict the future business environmental conditions. Predictions will be done on the basis of current business environmental conditions along with determining the pattern of rapid changes. This will help the organization to enhance its effectiveness as well as efficiency so as to comply with the contemporary business environmental conditions along with optimum utilisation of available opportunities in the market along with mitigating the impact of future threats. Manager should take measures to create a progressive and successful environment in order to enhance the growth of organization along with gaining competitive advantage in the market (Gonsalves & Dias, 2015).

PESTLE Analysis in Relation to the Indian Market

Starbucks make it unique from other coffee serving venues by serving roasted and varieties of coffee with taste and quality so that customer experience could be enhanced. Organization’s speciality is darkly roasted coffee along with varieties of food items. This has helped the organization to acquire a huge customer base in the global market along with acquiring the leading position in the global coffee market. Organization has adopted competitive strategy under which differentiation product strategy is being applied with the view to differentiate the company’s products from others. The same strategy is being applied while entering into a different country with the objective of gaining competitive advantage.

In the context of Indian market, Starbucks has collaborated with Tata Global Beverages with 50:50 profit margins. In relation to this, organization does not import the coffee beans and other products from its headquarters; it has contracted with Tata Coffee Ltd. which is a subsidiary company of Tata Global Beverages. Tata Coffee provides quality coffee beans to Starbucks, A Tata Alliance in Indian market in order to acquire an effective place in the target market along with gaining competitive advantage. Apart from this, there are numerous products such as water bottles; coffee mugs, etc. are being outsourced to other companies by Starbucks. This has been done with the view to increase their profit margins as well as to focus over maintaining and improvising the quality of coffee and other products served at Starbucks in order to gain effective image amongst the competitive business environment (Berger & Blake, 2016).

In order to compete with Starbucks, existing players in Indian market such as barista, Costa coffee, etc. requires adopting adequate strategies through which they could acquire Starbucks’ market share so as to gain competitive advantage. They are also required to adopt differentiation strategy so as to make their products unique and different from Starbucks’. Tata Coffee is one of the biggest coffee brand in Indian market and Starbucks is outsourcing coffee beans from that company for maintaining the quality of their coffee, thus, it is required for the other companies to tie up with some effective coffee producing companies so that the brand identity could be enhanced along with making an effective image in the target market. Starbucks not only serve coffee and other international items in Indian market, they has customised its menu and enhanced their menu range as per target audience’s requirements to gain brand loyalty as well as to develop an effective brand reliability amongst the target audience. These strategies show the capabilities and core competencies of organization through which they had developed its unique image in the target market.

Starbucks’ Resources and Capabilities

RBV analysis is an approach to determine organizational competitive advantage and this determines organizational core competencies which include strengths and competencies through which competitive advantage could be gained. In scenario of Starbucks, its tangible strengths are wide range of products, huge capital investment, IT advancements and talented human resources and its intangible resources and core competencies are brand identity, goodwill and brand loyalty amongst target audience. Organizational capabilities are uniqueness along with wide range of product serving, taste and quality (Yang, et. al., 2017). Apart from this, organization moulds its menu range as per market trends and target customer’s requirements. This is done to enhance customer satisfaction as well as to uplift organizational goodwill in the target market. Organization could easily enhance its reputation along with the development of an effective brand image through which competitive advantage could easily be attained (Greer, 2018).

Apart from this, organization has outsourced activities such research and development, personal relations with customers, etc. in order to focus on quality of the product offerings by organization. This helps the organization to reduce its cost of production along with enhancing profit margins. This is another significant factor to attain competitive advantage as well as to make effective relations with the target audience in terms of developing brand royalty. With the help of these resources and capabilities, organization could easily develop an effective image in the global market and in terms of expanding business in Indian market, organization adopted joint venture strategy to enter into Indian market and their joint venture with Tata Global Beverages has generated various positive results along with gaining leading position in the target market (Mason, Cole & Goza, 2017).

Starbucks, A Tata Alliance outsource coffee beans from Tata Coffee which is a subsidiary company of Tata Global Beverages and this has helped the organization to serve great taste and quality in order to satisfy Indian’s needs in relation with coffee. Taste, quality and customer satisfaction are certain significant USPs of the Starbucks and organization has managed to serve their speciality roasted coffee along with these USPs. This has helped the organization to expand its business in the international market. Apart from this, strategies adopted by Starbucks in relation with entering into international markets have also helped the organization to successfully expansion in the international markets along with gaining an effective image along with leading position in the competitive business environment (Das, Eisner & Korn, 2015).

Internal and External Analysis to Determine Strengths, Weaknesses, Threats, and Opportunities

Starbucks tried enter into Indian market in 2007 but they did not get success. Organization did not cited any reason for their withdrawal but according to various business experts, Starbucks withdraw to enter into Indian market because they did not found any expert who could help them to successfully set up their business in Indian market (Rajasekaran, 2015).

In 2011, Tata Global Beverages agrees to come into joint venture with Starbucks in 50:50 profit ratios to enter into Indian café market under the name of “Starbucks, A Tata Alliance”. Tata Global Beverages was chosen because of its popularity in Indian market. Indian market is one of the tea loving nations and Tata Global Beverage is the largest quality tea producer and supplier in Indian market. This is the major reason why Starbucks had chosen Tata Global Beverages to enter into Indian market in order to gain success. This helped the organization to successfully set up their business and from 2 stores in 2013, more than 100 stores has been opened across the globe till 2017.

Collaboration among Starbucks and Tata Global Beverages is successful and this could be determined by the expansion of this collaboration across the India. This collaboration was formed in 2011 and the first store opened under the name “Starbucks, A Tata Alliance was opened in 2012 and since then this collaboration is continuously growing and expanding. Under this joint venture, approximately 100 stores exists across India and they are planning for further expansion in those parts where still Starbucks is not present (Appendix 3).

IT is growing in every field and it plays vital role in terms of making an organizational operations smooth and effective. In the context of coffee industry, IT has played crucial role from extracting coffee beans to its processing. IT has also lead the globalisation grow as it has smoothen communication process, advancements in IT ensures that geographic barriers are losing their relevance gradually, Difficult to maintain secrecy, Information readily available but does not always facilitate informed and accurate decision making, etc. (Gorla & Somers, 2014). Apart from this, IT has leaded the companies to gain information about the emerging economies along with the internal as well as external factors of business environment which could affect organizational performance. With the help of this analysis, organization could make decision making process easy and effective in relevance with globalisation through which desired goals and objectives could be attained easily and effectively (Runar Edvardsson & Durst, 2014).

Starbucks’ Globalisation Strategies’ Effectiveness

Conclusion

From the aforesaid information, it can be concluded that globalisation has taken an important place in business environment. Business enterprises are majorly focusing towards expanding their business in international markets rather expanding in domestic markets. This is due to emerging economic conditions as well as due to various opportunities in developing countries to acquire an effective market share. Under this report, impact of globalisation has been discussed along with the collaboration of Starbucks and Tata Global Beverages in India. In relevance to this collaboration, several factors such as risks analysis, PESTLE analysis, SWOT analysis, Resource based view analysis, etc. has been conducted so as to analyse the impact of globalisation over Starbucks. As per current revenues and profitability of Starbucks, organization has acquired sustainable growth and development.

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