How Starbucks Convinced Indians to Embrace Coffee
In Chapters 8 and 9, we reviewed several types of global expansion strategies a company can undertake when entering new markets. For this assignment, you will read a case study about Starbucks expansion into the Indian market (p. 413 in the textbook).
A case study is a puzzle to be solved, so before reading and answering the specific questions, develop your proposed solution by following these five steps:
Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module, which apply to the situation described in the case study.
Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
Describe in some detail the actions that would address or correct the situation.
Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
Respond to, and make decisions, based on the following questions:
What inspired Starbucks to venture into India? What were some of the companys early concerns and other obstacles?
How would you describe Starbucks approach to entering India and how Starbucks was influenced by cultural differences to adapt its offerings for the Indian market?
Why did Starbucks want to enter India through a joint venture? Specifically, what benefits did Starbucks and the Tara Group both gain by partnering with one another? What synergies were present? What conflicts occurred and how were they resolved?
Now, assume the role of the Director of Starbucks Indian strategic planning team. You have been tasked to explore the benefits and challenges of expansion into foreign countries through joint-venture partnerships. Describe the opportunities, benefits, and concerns that Starbucks might face by doing so. Summarize the cultural environment, choose an entry strategy from the text, and describe how you would implement this entry strategy. Make sure you are very detailed in your explanation.
Based on the lessons learned from Starbucks case study, what lessons would you apply to those implementing Saudi Vision 2030 as the Kingdom of Saudi Arabia embarks on this multi-year strategy to attract multinational corporations?
https://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/21/go
ogles-trust-problem.
47. Kelvin Chan and Raf Casert, Europe Fines Google $1.7 Billion in
Antitrust Case, AP, March 20, 2019,
https://www.apnews.com/701658e16440433f840e15869b101fa8.
utlet, Starbucks was primed for Indian entrance in the early 2000s,
something which would have not been possible 20 years prior.39
To Starbucks, the appeal of India was not solely based on relaxed
regulations. The profitability potential of the nation was also a tremendous
factor to be considered. India’s average national income, which peaked at 9.6
percent growth in 2007, had averaged around 7 percent growth during the
first decade of the twenty-first century. This rising rate of personal wealth,
mixed with an increasingly westernized attitude, propelled Starbucks’
interests in the Indian market further. Additionally, international
development, expansion of product lines and experiences, and diversification
of customers had always been some of Starbucks’ core values. India
presented the ideal mentality, opportunities, and population for Starbucks to
live out these values and aid in its mission of converting consumers into
coffee lovers.40
Since the 1990s, middle class wealth within India had been growing
alongside a falling population age, and these demographics aligned well with
Starbucks’ typical consumer base. Starbucks generally attracts younger
consumers, and over one third of its customers fall into the 18 to 29 age
range.41 With around 40 percent of Indians being under 18 and over 65
percent being under 35, Starbucks should be able to retain, attract, and grow
from the consistently young population that is expected to permeate into
India’s future.42
Prior to Starbucks’ entrance, India’s food service market was valued at
US$41 billion and was expected to grow at a rate of 11 percent through
2018. India had become the second largest producer of food next to China,
and food production was estimated to double within the decade.43 This
increase in production was matched with higher consumption, and the
market for retail food outlets, such as Starbucks, has been rapidly growing.
Aiding in this market growth was the growth of the coffee industry, and
coffee consumption within India doubled between 2002 and 2012. While
Indians may not have been drinking coffee at the same rate as Americans, the
sheer volume of possible consumers, mixed with definitive future growth,
was highly appealing to Starbucks.44
While India was becoming increasingly attractive, growing domestic
competition also pushed Starbucks to look for opportunities beyond its
established markets. Within the U.S., Starbucks had been facing competitive
growth from both cheaper national chains, as well as newly emerging momand-pop cafés. For instance, in the 1990s Dunkin’ Donuts shifted its focus to
coffee and the America runs on Dunkin’ tagline pushed consumers to try a
cheaper alternative with a similarly extensive product line. Similarly,
McDonald’s $1 coffee had gained interest from consumers who saw no value
in Starbucks’ premiums. Although Starbucks remains a clear market leader,
over the last few decades, domestic consumers have gradually reevaluated
the higher price for quality payoff that Starbucks presents.45
Starbucks’ motivation to enter India was further influenced by the
success and profitability that the firm had already seen in Asian markets.
During a shareholders meeting, Howard Schultz had noted that, Asia and
the entire Pacific Rim present one of the most significant growth
opportunities within Starbucks Coffee Company. India being at the core,
along with China.46 Prior to Starbucks’ Indian entrance, China, and the
Asian market as a whole, had become Starbucks’ most rapidly growing
segment. In 2012, Asia has surpassed EMEA in profitability, and this region
contributed to more than 10 percent of global revenue.47 With Asia holding
more than half of the world’s population, and India retaining some of the
most densely populated regions, Starbucks had hoped to enter the nation in
order to replicate past successes and to take advantage of the synergies and
insight learned from previous Asian expansions.48
While India did display countless opportunities and large synergistic
potential, Starbucks’ delayed entrance was the result of many uncertainties
that nonetheless persisted. Regulatory transparency was Starbucks’ greatest
obstacle. While there had been groundbreaking strides in India’s
liberalization, the unpredictability of the Indian government presented a
major threat. In addition to formal barriers, informal perceptions rooted in a
xenophobic past remained a challenge for Starbucks as it would be difficult
for the firm to overcome nationalistic opposition to a completely foreign
product. Blockages and barriers deferred early entrance attempts, and the
company quickly realized that breaking into India would only be Page 418
possible with the support of a local partner.49
Irregular and excessive supplier restrictions presented yet another
challenge for Starbucks. Starbucks has generally sourced its high-quality
coffee beans from secure locations in Africa, Asia, and Latin America.50
However, Indian restrictions tightly regulate what countries specific products
could be sourced from, and India’s tariff system has been defined by its lack
of transparency. Tariff calculations are multi-tiered and fall into four
segments with certain products facing additional tariffs from each segment.
By emphasizing the protection of the domestic agricultural industry, India
has instilled tariffs as high as 100 percent on specific agricultural products
like coffee and tea. These excessive fees would make it too costly for
Starbucks to source from their typical suppliers, and thus, the firm would be
challenged to invest in costly alternatives.51
Despite the fact that Starbucks had hoped to enter India in o
