Starbucks Strategy for Indian Market

Starbucks Case

"We built the Starbucks brand first with our people, not with consumer- the opposite approach from that of the crackers and cereal companies."

Howard Schultz Starbucks Chairman& Visionary

This case is about Starbuks international Expansion in Indian market

* Corporate Governance

Corporate governance: the relationship among the board of directors, top management and shareholders in determining the direction and performance of the corporation

As part of the Starbucks mission they are committed to maintaining uncompromising principles while they grow.

In this regard, Starbucks Board of Directors has adopted governance principles, committee charters and policies to lead Starbucks governance practices.

Currently, Starbucks board has 11 directors, a substantial majority of whom meet all of the independence requirements of NASDAQ® and the U.S. Securities and Exchange Commission.

Of the nine members of Starbucks board, one is Latino, two are African American (one of which is female), and one other female also serves on the board. Starbucks president and CEO Howard Schultz chair the board.

PEST Analysis

Political-Legal Forces

* Moderate stability of Government polices

* Red Tape Risks: India's red tape is the worst in Asia (Hong Kong's political and Economic Risk Consultancy PERC, June 2010)

* Corruption Risks: According to published Corruption Perception Index (CPI) 2010 by Transparency International, India was ranked 87th of 178 countries with a score of 3.3. Compared with CPI 2009 with 3.5 (rank 84th), it indicates that corruption in India is worsening

* Regulation / Law Risks: Even though the Indian market has been liberalized, some industries maintain approval requirements to foreign investment. For example, foreign investment proposals in 34 high-priority industrial sectors cannot exceed 51% as directed by the Indian government.

* After the 2008 financial crisis, Indian government increased taxations in order to support a huge deficit in its budget (ISH Global Insight, 2009).

* Attitude toward foreign companies: Starbucks is an American-based firm hence If it enters India, it should be aware of possible problems caused mainly by cultural differences.

* India has adopted the Geneva Convention and is bound to enforce international legal proceedings.

* The Indian judicial system remains largely free from the political interference and pressures that other institutions in the country are subjected to.

* Moreover, enforcement of copyright laws and trademark protection is questionable as in spite of improvement in the system over the years piracy is widely prevalent (www.businessmonitor.com).

* No specific tax incentives exist to attract foreign investment.

Economic Forces

* Increased spending on food and beverage

* Management guru, Peter Drucker sees India as an economic powerhouse, and the risen GDP supports his argument.

* India has the third highest GDP with increased trends

* Foreign direct investment rose in the fiscal year ended September 2009 to about US$ 10.532 billion.

* The Indian economy has been growing at an average of 7 % for the last decade and has maintained an above average growth despite the global financial slump (www.cia.gov).

Socio-Cultural Forces

Age structure:

0-14 years: 29.7%

15-64 years: 64.9%

65 years and over: 5.5% (2011 est.)

Median Age:

About 26 years

(CIA fact book)

* The increasing number of educated youth in India has also fuelled the skilled English speaking services sector

* Increased per capita GDP and improved living standards for the people.

India's per capita GDP (PPP) was estimated to at $ 2800 for the year 2008 compared to $ 2700 for 2007 (www.cia.org)

* Coffee consumption has increased from 59 % in 2003 to almost 65 % in recent times (www.indiancoffee.org).

* India has been a well-known country for tea leaves and also for its Indian tea, but there is a recent shift in the youth of this generation to follow the culture of the Japanese and German into the coffee drinking culture

Technological Forces

* Use of technology can improve operational efficiencies

* India has a favorable cost and high quality of telecom infrastructure

* India 3G technology starts with a heavy infrastructure for bandwidth.

* BSNL and Reliance have more covered city by optical fiber.

* India has many Technological Projects.

* India is a big market in mobile sector here 5-6 player operators and new operators launch their services soon

Porter's Five Forces Model

Porter's Five Forces of Starbucks

Analysis of Starbucks Using Porter's Five Forces

1. The Threat of Substitution

Substitutes (Products)

- Other beverages apart from Starbucks coffee and tea - Examples include soda, fruit juice, smoothies, water, beer