MARKETING MANAGEMENT & TECHNOLOGY (MRB 2022)

STAR BUCKS

Prem Chelladora, Gan Siong Tuan ,Muhammad Zaki

Table

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Content Page

Introduction………………………………………………………………………………2

Situation Analysis ……………………………………………………………………….3

Internal Environment Analysis…………………………………………………………6

Evaluating Market Strategies…………………………………………………………10

SWOT Analysis…………………………………………………………………………14

Identification of Problem………………………………………………………………19

Development of strategies, Implementation & Recommendation………….……….20

Conclusion………………………………………………………………………..…….26

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Introduction

Starbucks history

Starbucks started operations in 1971 at the Pike Place Market in Seattle. Original

owners were Jerry Baldwin and Gordon Bowker, where their initial aim is to set up a

store and bring high quality whole-bean coffee to Seattle instead of offering coffee by the

cup. In year 1982, the company changed its direction after the recruitment of Howard

Schultz as director of retail operations and marketing of Starbucks. Schultz utilized the

ability of Starbucks and opened a new coffeehouse in Seattle; adapt the Italy espresso bar

concept with varieties of brewed coffee for Seattle coffee lovers. The test was a great

success, but the owner decided not to expand the concept, and this disagreement caused

Schultz to leave the company in 1985 and start his own coffee-bar company, II Giornale

by year 1986 with his partner Dave Olsen. The next year, 1987, II Giornale decided take

over Starbucks with total USD3.8million cost. Schultz had great plans for expansion,

with the based of 11 stores in 1987, Starbucks opened 15 new stores in 1988 and 20 in

1989, total of 165 stores in year 1992. The same year, Starbucks listed on NASDAQ and

the IPO raised USD29million for Starbucks and by the closing bell the company’s market

capitalization stood at USD273million. The growth was estimated 200% per year

increasing after 5 years after Schultz and company bought over. In order to go further

steps of expansion, Starbucks formed more strategic partnerships to gain from their

targeted customer, such as United Airlines flight, Host Marriot, Aramark group, Kraft,

tobacco giant Philip Moris, and many others. In 1996, Starbucks opened its first store

outside US and Canada in Tokyo, this was achieved through joint venture with Sazabu

Inc. Starbucks now operates about 1,200 international outlets, there are 850 Starbucks

located in Fourteen Asian and Pacific, which are:- Japan, Singapore, Philippines,

Thailand, Malaysia, South Korea, Beijing, Shanghai, Hong Kong, Macau, Australia, New

Zealand, Taiwan, and Indonesia. Starbucks’ vision is to establish the company as

most recognized and respected brand in the world. The core value of Starbuck is actually

“relationship”, it creates a great working environment and treat each other with respect

and dignity. Schultz and company strongly believe “relationship” is essential to motivate

the whole company to build a trustful, and long terms relationship with customer and

business partners.

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1 Situational Analysis

1.1. General Environmental Analysis

Economic view

China market recovered rapidly after Asian financial crisis in 1997,

considered the fastest growing market in the world in terms of gigantic population

and the overall rising economic growth. Foreign investment increase drastically

after China entering the World Trade Organization, which occurred because of

cheap labour rates and manufacturing costs, the fast developing economy

attracted investors from various industries in worldwide. And these factors had

created a good Starbucks’ supplier network in China and generate more high-

income potential customers for Starbucks. The demand of China domestic market

is inestimable during that period, and the stable economic environment promises

investor like Starbucks a bright future.

Social view

Globalization on China’s economic development affect the young

generation of Chinese customers have been the most susceptible to the western

trend. Because of the rigid government legislation, which allowed Chinese people

to have only one child, and it caused the purchasing power increased for those

young married couples and willing to spend more money on recreational issue.

The change of culture influences many aspect of people’s life. Nowadays, more

Chinese is pursuing high quality of living environment; the increasingly wealthy

Chinese people are willing to pay more for new experiences and better products

of service. These social facts created a good potential market for Starbucks.

Political view

China market was slowly opened to foreign trade and investment after

year 1978, Deng XiaoPing controlled the country. Under his rein, China

abandoned the old planning and slowly moving towards globally. In 2001, China

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started to share the same rules as global market after entering the World Trade

Organization (WTO), it also makes the internal policy more transparent in order

to protect the interest of foreign investors. It also helps in reducing government

intervention in privately owned business and attracting more foreign investment

to the country. All these development supplied great opportunities for foreign

investors.

Technological view

Nowadays, computers, Internet, and cell phones have become part of

people’s life in China, the modernization of China’s technology enabled foreign

investors to apply the latest technology to efficiently and effectively operate their

branches in China. With advanced technology supports, companies able to

manage purchasing, control their cash and provide better service to their client

globally.

1.2 Industry Analysis

Economic view

Tea, consist more than 40 percent of total market value, leading the China

beverage market. The competition of both tea and coffee is fierce as both can be

substitute to each other. It faces competition from mainland and also foreign

investor, many direct foreign competitors looking the opportunity and penetrates

into China market, such as Seattle Coffee Chain, Ding Haom and even

McDonald’s is entering coffee business, the amount is increasing from year to

year. Compare to year 1999, there is a increased of 73 percent in China Food and

Beverage industry in 2002, estimated 20 percent growth average from year 1999

to 2002. (chinaknowledge.com).

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Social view

Tea is a tradition beverage in China. Some conservative groups in China

believe that it will be difficult to develop Coffee market and replace Tea. But, the

change of culture have made the difference, an expanding group of wealthy and

young people who an enthusiastic about chasing “taste” and “fashion”. This Petty

Bourgeoisie group not only drink coffee but require high–quality coffee.

They are the typical consumers of foreign brands and it is also the target customer

of Starbucks. To them, coffee means only Starbucks and equal quality assurance.

Political view

Although government function strained by law frame of the WTO, foreign

investors is still facing the unexpected difficulties to apply special government

investment license, in some small cities, bribery is necessary to get the license.

The Sixteenth Communist Conference further ensured that the opening policy will

continue to protect the interest of foreign investor. In terms of leadership changes

and province leaders, who normally held their position until age seventy, were

replaced earlier than usual to maintain the competitiveness and make sure the

decision made is matched with the global requirements.

Technological view

With new technology supports, Starbucks are able to contact with coffee

producers in farthest places of the world, to source the coffee beans from Africa

and selling a unique espresso coffee in China. Meanwhile, Starbucks offers their

client a psychological space with internet access, and provide a ‘third space’ to its

client beyond home and office. Companies easily can get technical supports from

foreign investors such as Compaq, Hewlett package, Dell and others.

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1.3 Market Analysis

After reviewed the findings above, potential customers were classified into two

groups, which were “wealthy and young people group” and “bourgeois group”. “Wealthy

and young people group” – Age (18~28), who are enthusiastic about chasing “taste” and

fashion”, and with high purchasing power. “Bourgeois group” – Age (25~40), whom

required a comfortable space with relaxed atmosphere beyond home and office, for

business discussion or chitchat. With such requirement, high quality products and store

environment is the keys to remain customers’ loyalty.

China market covers a wide geographical area, the unbalanced distribution of

income define the potential market, as the sixty percent civilian wealth in the cities is

owned by nine percent of the population, the social unbalance issue become a criteria

when select the store location. In choosing locations, Starbucks chose the most expensive

locations to maximize brand share, one of the promotion strategies to attract the

bourgeois group customers. To make Starbucks coffee convenience goods in China,

Starbucks applied the same strategy as in US, the coexistence of several Starbucks

branches in the same area, which stimulates consumption.

2. Internal Environment Analysis

2.0 Star Bucks company Mission

Starbucks establish the company as the most recognized and respected brand in the world

between becoming the premier purveyor of the finest coffee by following-:

Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting and fresh

delivery of our coffee.

Develop enthusiastically satisfied customers all the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.

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Mission On the environment

Understanding of environmental issues and sharing information with our partners

Developing innovative and flexible solutions to bring about change

Striving to buy, sell and use environment friendly products.

Recognizing that fiscal responsible is essential to our environment

Instilling environment responsibility as a corporate value

Measuring and monitoring our progress for each project

Encouraging all partners to share our mission.

2.1 Objective

Star Bucks Goal

Continue to rapidly expand its retail operations.

Grow its Special Operations.

Selective pursue other opportunities to leverage the StarBucks brand through the introduction of new products and the development of new distributions channels.

Starbucks retail goals:

Becoming a leading retailer and brands to the targeted group by selling the finest quality

coffee and related products and provide superior customer service in which fosters a high

degree of customer loyalty. Starbucks strategy of expanding its retail business is to

increase its markets share in existing markets and to open stores in new markets where

the opportunity exist to become the leading specialty coffee retailer.

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2.2 Evaluating of the functional Area

Marketing

Starbucks managements realized that by selling high quality coffee would be able

to compete in the current market. As for start the journey the first step is to market brand

name, that is Starbucks and associate it with high quality coffee.

Starbarks also believes the way to give great impact during advertising is to express it via

“latest jokes”, latest music and the latest personalities within the politic, literature, sports

and culture trend. Selecting popular advertiser plays important roles on sending the

message to the world. Bedbury chose Goodby, Silverstein and an award winning San

Francisco agency that had created “Goat milk” Starbucks had spend very little on

advertising and that helps on the growth of the industry.

Besides that, Starbucks also had conducted research on their customers to understand in

deep the actual needs of them. Questioned been asked “why people come to

Starbucks”.”How do they envision an ideal coffee house”? Knowing your customer’s

needs and fulfilling it, will become a best marketing strategy. Customers are been treated

as family members and given the top most priority in serving their needs.

Through the years, the Starbucks Coffee Company has been known to think up

creative and innovative ideas to add to their products or services. They’ve added different

flavors to their coffee, more food on their menu.

Starbucks Coffee Company has been known to create strategic partnerships that

demonstrate the fact that another way to grow your business is to partner smart. Over the

years, the Starbucks Corporation has greatly increased sales just by using this strategy.

As example a joint venture between PEPSI in order to promote a bottled version of

coffee. Besides that, Starbucks also formed more strategic partnerships to get excess to

more of their targeted customers. On top of that, they also had marketed their products to

other level, like penetrating into groceries shops and also airlines.

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Finance

Starbucks was viewed as one of the great growth story. It managed to soar more

than 2,200 percent over the decade from 1992 to 2001. Earnings per share increased from

$0.03 to $0.46 during 1992 to 2001. However, Starbucks has never given out dividends,

instead reinvesting all profits into the business and this was aligned with their goal which

they need to continue expand rapidly retail operations. Starbucks‘s sales have increased

with an average of 20 percent annually since 1992, hitting $2.6 billion in 2001. In 2001,

Starbucks had a debt/equity ratio of 0.4 and a return on equity ratio of 14.4 percent. From

1997 to 2001, revenues grew at 31 percent, net income at 61 percent, and assets at 21

percent.

Production/operations

Starbucks stores are typically clustered in high-traffic, high-visibility location in each

market. Stores vary in size, with an average of approximately 1,500 square feet. Since the

Company is able to vary the size of its stores, Starbucks stores are located in a variety of

settings, including office buildings, downtown and suburban retail centers, airport

terminals, and kiosks located usually in building lobbies. Whatever location the company

chooses to be in, its focus will be on attracting high pedestrian street traffic. The product

mix in each store varies depending on the size and location of the store. Starbucks takes

great care in picking the right location.

Human Resources

Starbucks had a strong believe that in order to do to build respect and confidence;

the company had to build the confident and the respect on toward their customers. Hiring

quality manpower played the most important role. Core strategies was been planted in all

the employees heart, that is “Treat people like family, and they will be loyal and give

their all. Stand by people and they will stand by you.

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The employees were well trained in subtleties of coffee tasting. By doing this, the

employees are eager to channel their passion towards coffee in the same time share

information with their customers.

Direction was been set to all the staffs to be aligned to same goal by opening

forum worldwide. Everyone was given a chance to express their feeling on their

management, between Starbucks was open to discuss about their strategies and next level

of the business directions.yer of choice.

Starbucks also, keen to be branded as employer of choice. Employees been treated

best way by offering high wages compared to other restaurant or retail stores. This will

attract more knowledagble and eager personal to duty. Other benefit that was not offered

elsewhere was health benefit for part time and also full time workers.

Starbucks also open their share to all the employees indirectly they become a

business part, and make sure the foundation on which the building the company linked to

everyone. By doing this, employees get self motivated to achieve profits and satisfied

their customers.

3 Evaluation of Marketing Strategies

3.0 Target Market

A Target Market is defined as a specific group of consumers where a company aims their

product and services. This group of consumers also can be defined as market

segmentation which consists of geographic segment, demographic segment and

psychographic segment.

Starbuck’s Target Market for geographic segment is China; they are targeting big cities

such as Shanghai, Beijing and etc. The Next one is demographic segment where

Starbuck’s try to attract young married couples and young working adults as their main

consumers, these act has been resulted changes in the social and economic structure of

china and resulting higher level of disposable income and also greater interest in

Starbuck’s product and merchandises. Lastly, as for psychographic segment, its takes

place when these young adults in china are trying to pursue western lifestyle by using

western products. The newly emerging Chinese middle class see Starbucks as a trendy

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place to present themselves as affluent and sophisticated.

3.1 Product Strategies

Market Penetration

The extent to which a product is recognized and bought by customers or consumers in a

particular market, market penetration also is one of the fourth growth strategy of the

product-market growth matrix define by Ansoff. In this case study, Starbuck’s penetrate

the China markets by identifying and implementing Cultural Penetration. The main

cultural penetration aspect or preference in China is they drink tea rather than coffee; they

are gradually changing the Chinese perceptions toward coffee through lifestyle approach

among the young generations. This approach are very effective due to several reasons,

one; youngsters are the people who are the one seeking for a new identity and they are

changing identity while preserving the quality of high determined of curiosity that brings

these youngster to experimenting new things and the way different from what have their

predecessors been practiced . This is where the lifestyle commercial promotions take

place thus lifestyle promotion is a powerful marketing tool as it uphold some certain

image as well as prestige among the youngsters. Two, youngster are raw and potential

material which can literally make changes.

Market Development

In China, Starbuck develop their business by increasing the number of store in China to

cover major cities. Starbucks added eight or nine store all over China by the end of each

year; end up with more than 400 stores all over China.

Product development

This is the strategy where the products play the main role in increasing the sales for

Starbuck. Starbucks serves a variety of beverages including brewed coffee, hot chocolate,

espresso, teas, Frappuccinos and ice blended drink mix with vanilla and coffee and etc.

Starbuck’s improved it’s menus from time to time, to attract more customer.

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3.2 Pricing Strategies

Starbucks implemented a few strategies when it comes to pricing but the strategy which

we want to explain here is Best-Value Offering Strategy. By pricing its coffee

competitively with the current prevailing high-end coffee prices; Starbucks managed to

attract Chinese. Starbuck's have come out with attractive combination of price, features,

high quality of coffee, good services, affordability and other attribute.

3.3 Distribution Strategies

Starbuck's has a competence distribution system which being implemented to make sure

the supply of coffee or other product available all the time, especially when it comes to

China where China geographical topology is vast and it need a very high degree of

competency in deliver the goods.

3.4 Promotional Strategies

3.4.0 Advertising Strategies

Starbuck’s has a very creative idea in advertising, the strategies which they implemented

to attract customer is by In-Store Customer Experience, Starbucks envisions its outlets as

a "Third Place" (besides home and work) to spend time, and store design is intended to

achieve this, The cafe section of the store is often outfitted with comfortable sofa and

tables. Most stores provide free electricity for customers, and many stores also provide

wireless Internet access. This strategy is effective in the process of promoting in China

due to large population. This strategy provides the customer the experience of

comfortable space for them to relax and enjoy their coffee.

3.4.1 Selling Strategies

Selling strategies is one of the important factors in promoting Starbuck. The only way for

Starbuck to sustain the company growth rate is to open more shop, expand their product

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into supermarkets. Formed a strategic partnership with companies, hotel, airlines and etc,

expand the food menus, drink menus into variety of choices.

3.4.2 Public Relation/Publicity Strategies

Starbuck believe that core value of the company is “Relationship”, it’s include the

relationship between customer, employees, supplier and business partner.

Starbuck realize that one of the most important resources contributing to success is their

employees or “Partners” as been referred to the company. Starbuck plant this value into

the company culture. They practically use this value to provide the employees a sense of

meaning to their work even if it’s just pouring a cup of coffee.

Starbuck’s provide medical, dental and vision coverage to all employees, even for the

part timers. The part timers also eligible for the company stocks program “Bean Stock

Program”. The purpose is to instill in its “Partners” a sense of purpose, commitment,

loyalty & enthusiasm (www.starbuck.com).

3.4.3 Sales Promotion Strategies

In order to survive tough competition from global names such as McDonald’s, Nestle and

others in China, all of which have been distributed their coffees through supermarkets,

Starbucks selling its coffees in supermarkets. Starbucks coffee sold in supermarkets with

very elegant packaging; outstanding positions in grocery stores; and the same premium

quality as that sold in its own stores.

Starbucks implements its global marketing strategy while also adapting to local market.

In China, it mainly promotes itself through office visits and free sample to customers but

seldom does it spend on advertisement. Besides, it offers seasonal promotions based on

holiday themes. During Chinese New Year, for example, staffs usually decorate the store

with red lanterns and decorate it in red, as the Chinese like red when it comes to

celebration.

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4 SWOT Analysis

Strengths

Well Know

Product

Starbucks managed to market their name for selling the best coffee. Starbucks buys the best quality coffee beans from Africa, South America, and Indonesia without regard about the price. New products with different flavours been introduce in order sustain the sales and also attract customers.

Marketing

The combinations of good marketing strategies that made the company well know before venturing to China. For example the advertising strategies that managed to establish the stand of the company.

Strategic Partnership

Had join venture with other famous brand, for example “MCDONALDS” to market Starbucks brand.

Company’s Directions

Core values

The company have their objective, mission & vision in place to motivate the whole organization aligned to the same direction. All the employees are committed and understand their roles & responsibilities.

Human recourse

Employees

Hiring a quality employee that has passion and knowledge helps the Starbucks to grow. Employees been paid well and given benefits much better compared to other other competitors. This directly attracts more knowledgeable employees to Starbucks.

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Employees were given the opportunity to invest on the company between voicing out their needs openly.

Cash Flow

InvestorsStarbucks committed to their investor with a good returns, this had attracts more investor in. Starbuck was financial strong and stable before moved to China market.

Cash Cash been managed properly for further development/RND on the product and also the technology improvement.

Technology

OperationsStarbucks was the pioneer to start up with wireless network. Starbucks worked with other high technology company such us “Compaq” to improvise their stability on technology.

ProductionStarbucks had invested on high technology brewing machine for coffee processing. This has contributed to better productive lead time.

Supply Chain

SuppliersWell organized with local and foreign suppliers and also maintained the quality. This made Starbucks spreads their business rapidly without any obstructions.

Weaknesses

Limited customer group

High cost products and unbalanced distribution of income limit the expansions of

Starbucks Coffee in China market. Starbucks chose the most expensive location while

other competitors focused on less expensive venue. It caused Starbucks lose the

advantage in pricing competition with other competitors.

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Limited Menu

Many Western companies have been entering China food industry, such as McDonald’s,

KFC, and Pizza Hut. These fast food restaurants provide more alternatives and selections

in the food menu, while Starbucks’ retails stores were offer only Coffee.

Workforce

China local workforce is short of knowledge and skill in food chain store management.

Engage more experienced workers and training is needed before Starbucks enter into

China. Coffee knowledge and the coffee making process are essential for Starbucks, in

order to serve customer with high quality products. All above issues create a limitation

for Starbucks before entering into China beverage market.

Procurement, supply chain :

To serve customer the best, Starbucks depend outside brokers for the supply of

best coffee bean from Africa, usually a bit higher in price and longer the lead time

compared to other competitors and higher the risk of keeping inventory in local

warehouse.

No direct marketing experience in China, no pilot trial done yet :

Less experience in China market, in terms of marketing, communication,

government rules and regulations, and without any pilot trial created a high risk

investment for Starbucks. High research and development cost incurred and it

required experienced employees to lead the company. Huge investment cost

involved in local employment and store renovation, it might affect Starbucks cash

flow, and financial status in short term.

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Opportunity

Economic Forces

“Since the reformed of 1978, China overall economic performance has been remarkably

improved. Average annual GDP (Gross Domestic Production) growth rate reached 9.4%

between 1998 till 2004. The economic growth has been resulted the increment of Chinese

people’s income.” Globalization and Economic Growth in China,

Volume 1, Year 2005

The economic growth has also increased the purchasing power, so the demand on

investment in domestic market increased due to tremendous amount of population in

China and the fact that peoples income increase.

Sociological Forces

There are a few opportunities which can be determined by looking into sociological

factors. One; In China, the Chinese tends to liked Western culture. Because of this

Chinese’s mentality of “wanting to be westernized,” many areas have adopted the

“Starbucks” as their “Third Home”, resulting in a massive rise of Starbucks in the Asia

continent. This westernization has hit young generation in China to try a new culture by

experiencing it in Starbuck.

Two; China government legislation, which allowed Chinese people to have only 1 child,

this rules has been implemented because they want to control the population in China,

this rules had massively increased the income of young married couples. By

implementing these rules young Chinese people purchasing power also increase.

Furthermore, the living standards in China also improved and that’s one of the reasons

why Chinese are slowly accepting westernization which portrayed a higher living

standards.

Political Forces

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The main reason why Starbucks managed to penetrate China market is because of the

WTO accession that being agreed by China government. According to WTO accession

agreement, China needs to provide foreign companies investing in the country with full

access to the domestic market. China has the largest and fastest growing domestic market

in the world which attracts Starbucks to open their new market in China.

Threats

Legislation issue

Although China has entered the World Trade Organization, investors will still be met

with unexpected difficulties. Example, bribery is necessary when applying for a special

government investment license even in the small cities.

Environmental

Environmental effects would favor larger competitors, especially China, foreign

investment increased rapidly after Deng XiaoPing controlled the country. Competitors

came from inside and outside China, example, Taiwan Wang Wang and Zhen Guo

Coffee, offer lower price coffee to gain more market share. It considered a big threat for

Starbucks in long terms view.

Substitute products

Tea, the classic Chinese beverage, some conservative groups in China believe that it will

be difficult to develop coffee market in China as tea leading China beverage market,

represent more than 40 percent of total market volume. The competition is fierce since

tea and coffee can substitute for each other.

Procurement, Supply chain risk

Starbucks might face difficulties when dealing with outside brokers for the supply of

coffee beans, due to long leading time requested in order to get the material available. To

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localize the supplies, Starbucks might face inconsistent of quality provided, and it would

affect the company reputation.

Copycat brand and concept

Asian markets are littered with cheap knock-offs and copycat brands, in long term view;

Starbucks might face competition from the copycat brand after the brand is developed.

Many customers will get confused and conned; it will also affect the growth of Starbucks.

5 IDENTIFICATION OF PROBLEM

Procurement and supply chain

Starbucks depend on outside brokers and direct contact exporters from Africa, South

America, and Indonesia for their supply of high quality coffee bean. Long shipment lead

time and high cost incurred might be an issue when Starbucks set up operations in China.

These issues can be a major obstacle when Starbucks first penetrate into China markets.

It affected not only the cost, but also the supply ability issue. In the meantime, Starbucks

would be facing high risk of inventory lost and huge investment cost of high level

inventory if keeping their inventory in local warehouse.

Human resource management

Starbucks need experience of the for them locals to penetrate China market and handling

the negotiation job with local employees and government, due to unfamiliar with China

policies and culture. China official language is Chinese, local management is essential

especially for foreign investors, such as Starbucks. Lack of qualified and experienced

workers may also cause slow down of progress in China. Yet local management plays an

important role when Starbucks expand business in China

Cultural Influent

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There are few issues involved in Cultural influent toward penetrating China Market.

These issues must be identified before Starbucks must forward and get involved in their

cultures.

Initially most Chinese people are tea drinker; tea is part of their culture. This habit has

been with them for generations. For instance, before Starbucks penetrate China market,

the existence of coffee is by afar.

Competitors

On the year of 1998, Zhen Guo Coffee a Japanese chain had ventured in China market.

Zhen Guo was well establishing in a town called Yi Wu, Zhen Guo managed to captivate

the Chinese people and other coffee companies. Besides Zhen Guo, there were other

coffee stores such as Yi Shi, Xian Zong Lin of Taiwan and Jie Rong of Hong Kong.

There was even an American company (Seattle Coffee Company) interested to expand

their market in China. In May 2001, Taiwan Wang Wang Group and Taiwan Seattle

Supreme Coffee aligned to invest in Chinese mainland. Even McDonald’s stated selling

their coffees. Choosing a right location became the main strategy when coffee war

abrupt. Guo coffee preferred less expensive while Starbuck goes for high class areas.

6 DEVELOPMENT, EVALUATION OF STRATEGIC ALTERNATIVES,

RECOMMENDATION AND IMPLEMENTATIONS

6.0 Procurement and supply chain

1. Long-term fixed price contract with suppliers

Pros

- Build-up strong relationship with suppliers, to get longer payment terms and

ensure the constant supply.

- Ensure an adequate supply of quality coffee bean over extended period of

time.

- Constant pricing, easier for costing management.

Cons

- Too much depend on individual supplier, high risk if facing inconsistent

supplies.

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- Might not able enjoy low price during down season or economic recession

year.

2. Formed strategic partnerships or joint venture with suppliers:-

Pros

- To further build the customer base, and access to more of target customers.

- Diversify the business, selling not only cup but also other related products.

- Ensure the constant supply and quality assurance.

Cons

- Might neglect the quality of “Starbucks Coffee”, if business diversified.

- Short of manpower and experienced worker, due to new operation set up in

China

- Limitations of the expansion, unable to centralize the power of control.

Recommendations

Both strategies are recommended. For short term, we propose fixed contract price with

oversea supplier, easier for cost control and to ensure the supply ability. For long term,

we propose diversify the business by forming strategic partnership or joint venture with

other company, when the business becomes stable.

Implementations

Develop a new set of sourcing business guidelines and annual audit to be conducted. To

ensure the products quality supplied. Set the criteria when choosing the partners,

company image and strong financial background is important when appointing suppliers

and choosing the cooperative partner. Share the company culture with partners, to get the

mutual understanding between both parties before enter into partnership.

6.1 Human resource management

1. Outsourcing local workers, especially managerial level:-

Pros

No training required. Lower the training time and costs.

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Understand the country culture and policies, reduce the development time

frame.

It helps Starbucks in identifying the market trend and positioning themselves.

Cons

- Too much depend on individual ability might be a threat if top management

resigned from company.

- High labor costs incurred. Increase the investment budget.

- No loyalty.

2. Conduct training programs for pioneer batch workers:-

Pros

- Training program gives trainees knowledge to answer any questions about

coffee or a company, include products expertise and more understand about

company core value, vision and mission

- High loyalty, it helps company in long term business growth.

- Build-up a strong teamwork within the group.

Cons

- It required longer period to train the workers.

- Huge development cost incurred and might not able to get the return

Recommendations

Both strategies are recommended. At the initial stage, Starbucks may outsource the

experience staffs from China, help and set up the operations in China. And conduct on-

job training for inexperience workers. In long term business strategy, a group of

managerial workers is needed for future expansion, hence, training is important when

Starbucks intend enter into bigger market.

Implementations

Develop new sets of training programs, based on China culture and policies, for future

development in China market. Require all employees to complete the training programs

before entering the assigned store. Continuous training is needed for all employees, and

continuous improvement of training programs is essential to increase the employees’

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values. Set up a training center, required all employees from different location to attend

the training programs together, to build up the connection within company.

6.2 Cultural Influent

The first option in developing strategies to overcome cultural issue is to promote the

product and advice them the benefits behind it, a lots of promotion indeed needed for

exposing it to Chinese people. The Second option is by partnership with local companies,

which they will help to present an insight view and experience of coffee tasting. The

reason to go for partnerships with local companies is because they are part of them;

nonetheless they know them well, so it’s easy to persuade or to attract them. When time

goes by, Starbucks will eventually learn the culture of targeted market. The Third option

is to increasing their variety of product, whereby they can include tea as one of their

menu. Since the majority of people in China are tea consumers.

1. Promotion, education & advertisement

Pros

- Starbuck’s can increase their targeted group of consumers.

- Starbuck’s can enter new potential market for their benefit.

- Starbuck’s can implement new culture by drinking coffee instead of tea.

- To introduce new culture of westernization by drinking coffee.

Cons

- They might find some resistance in Chinese culture to adapt westernization

from older generation.

- There are cost involve in advertisement.

2. Partnership with local companies

Pros

- Easy to attract their targeted market.

- Starbuck’s use this opportunity to understand Chinese Culture.

- To offer partnership to other nature of business.

Cons

- A lots of investment need to be done.

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- The profit has to be shared.

3. Increase in product menu with variety of choice by including tea.

Pros

- Starbucks can widen their scope of targeted market.

- Include tea as one of their important menu.

Cons

- Cost involve in research and development of new product.

-

Recommendation

As for Cultural issue, we would suggest to choose promotion, education and

advertisement as part of the strategies. By conducting this strategy, it will save us lots of

times, because we can use technology as one of the tools to spread the information

effective and it’s fast and reliable. This information will help us to educate and introduce

the coffee culture to Chinese people and it will be resulted from experiencing the product.

Implementation

Promotion, advertisement and education option can be done such a way we will

see some coexist in each one of them. Promotion will lead to advertisement,

advertisement leads to curiosity to know more, and curiosity leads to education. These

step by step approach will make this strategy easy to adapt and easy to understand by the

Chinese people.

6.3 Competitors

Starbucks face real threat from some of the coffee companies’. Starbucks needs to

focus on pricing, RND and buy competitors.

1. Focus on Pricing

Starbucks coffees more expensive compared to other band coffee store. Due to

that they only managed to target rich population. Try finding alternative way to reduce

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prize by buying local coffee beans. Importing quality bean was the main contribution for

high selling price, inclusive the transportation fee.

Pros

- The price will be affordable by throughout the population, in the same time

will able be compete will the entire competitor.

Cons

- Buying local coffee can reduce the cost but there are some negative aspects.

The originality of Starbucks will get tarnished. Starbucks is well known for

their quality of the coffee beans. The climate in China, limits it to produce a

better quality coffee.

2 Focus on RND

Conduct more RND to add up more varieties in coffee flavor. They had succeeded in the

first trial by introducing Frappacino.

Pros

- A success in the RND will bring massive sales to the Starbucks. This is not in

China but the whole Starbucks stores worldwide. Customers will have much

more choice to order.

Cons

- To conduct RND, Starbucks need to have allocation money on the main

power (RND Expertise) and Technology. Success is not a guarantee; it might

turn down by the customers.

3. Focus on Buy competitors

With the steady financial, and trust investors Starbucks can consider buying over

competitors.

Pros

- A success is acquiring will reduce the competitive immediately. Starbucks

may have more supply chain. They might not only acquire the company but

the new technology and other business strategies.

Cons

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- Buy competitor needs very large amount of investment. Longer time period to

acquire for stabilized the management and the system. Old staffs need to be

trained to the new environment.

Recommendations

Pricing of the coffee could not reduced by purchasing local coffee and it will jeopardize

the name and also the quality of the production.

RND have to consider as a must task. Looking at positive side, for long run it only

improvise the selling of coffee.

Buy competitors is a good strategy that will give an immediate impact to the growth.

With the buying power of Starbuck, there is no hindrance in getting the deal done.

Implementations

Since the coffee bean could not be localized, Starbucks can zoom into other area that

contributes to higher selling of coffee. Study the usage and the criticalness before it to be

confirmed.

Hiring a full time researcher under Starbucks will help in RND. The researcher needs to

be given privilege and provide necessary technology for the project. There must be a

consistent allocation of money for this group performs their duty. Starbucks must hesitate

on investing on new equipment.

Deal need to be agreed upon the owner of the competitors. Assurance to keep the top

management in the driving sit will make the deal closed easily. Marking a high buying

price, promising management and long term plan needs to be eye catching.

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7 CONCLUSION

Starbuck’s is a strong company, when it comes into branding, financing and operation

system which provide them with a solid chance on surviving and growing in China

market. China with its growing population and economics provide Starbuck’s with a wide

and promising market.

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