Assignment Sample on MMP_7_IMK_2 International Marketing

Introduction

Business expansion strategies adopted by organisations rests upon several factors present in the external business environment that are necessary to be taken into consideration. The macro-environmental factors that affect an organisation’s business operations can have both positive and negative impacts on organisations that have either started operations in a new global market or are planning to expand their existing portfolio. Among the various macro-environmental factors that can affect an organization’s operations, political and economic factors tend to be the most important ones. Therefore, based on macro-environmental factors the case study of Starbucks has been taken into consideration where the organisation plans to expand its business operations in the markets of India. The following report would therefore focus on the macro-environmental factors by utilising the PEST framework and identifying the present challenges and opportunities that Starbucks faces. Furthermore, the report would also justify the decision made by Starbucks to enter the markets of India based on the opportunities that an organisation has availed.

Methodology

The PEST analysis in the following report would be the code method based on which all the findings and analysis would be done. Therefore, a secondary qualitative data collection and analysis method would be adopted along with the information gathered from the case study of Starbucks. Adding to that Ansoff Matrix would also be utilised to evaluate the marketing strategies adopted by Starbucks (Dilip et al. 2021)

Findings

PEST analysis

Political

The Government of India tried to design different trade reforms for the globalization of businesses. From 1991, the government made an announcement of primary trade regulations that contained removing licensing and other barriers of non-tariff category on the imports of all intermediate and capital goods along with reducing tariffs on some imports. It can be stated that Starbucks can get a good opportunity to import goods or coffee beans from other countries worldwide by maintaining their budget properly. On the contrary, it has been seen from the result of a survey conducted by political and economic risk consultancy that India has been ranked among the worst bureaucracy of Asia (Krishna, 2012).

It has been found that the bureaucracy of India is mainly dependent upon complicated rules. It has been evident from the case study that in India, old laws are repealed rarely and it is upon the wish of the government to shut down any company (Krishna, 2012). This contradictory information can make the companies such as Starbucks confused to expand their business in India, as there is a lack of security for a business in this country according to the survey. The instability in the laws and rules of the Indian government can be catastrophic for different businesses. In this way, the company plans to expand into India can face huge losses.

Economic

India is considered the ninth-largest economy of the world that constituted 1.5 % of the world trade in the year 2007. The total value of the Indian Merchandise trade is 294 billion dollars and its service trade is 143 billion dollars. Based on per capita income the rank of India is 140 by nominal GDP and 129 by GDP (PPP) in the year 2011 (Maiden and Singh, 2012). This growth was due to the increase in the size of middle-class customers, a massive labour force, growing sectors of manufacturing, increasing levels of education, high engineering skills and a good amount of foreign Investments. Due to the high labour force companies, such as Starbucks were interested in expanding their business in India the rising education levels in India has made it safer for the companies to invest considerable amounts of money for their expansion into India. The skilled labour force has attracted many foreign investors, which helped international companies such as Starbucks to proceed with joint ventures and gain good market recognition along with high profitability.

On the contrary, it can be stated that despite the growth in per capita income from 46,117 rupees to 53,331 rupees in the year 2011 India had a low per capita income compared to the other emerging markets. On the other hand, it can be said that the retail sector grows at a faster pace in India. According to the Global, retail Development Index 2012 India ranked five among the top 30 emerging markets of retail. Based on the case study, the support of the government for 100% foreign direct investment for multiple or single brands has made it possible for the companies such as Starbucks to make their business grow in India through joint ventures (Maiden and Singh, 2012).

The efforts of the government to make India economically strong have attracted many foreign companies and entrepreneurs all over the globe. Recently, India has become a hub of international brands. The impressive growth of per capita income and the fast pace of the retail market in India has provided opportunities for cafes such as Starbucks, Barista and Cafe Coffee Day to introduce innovation along with providing new products in the market (Zim and Zahan, 2019). The Government support towards 100% foreign investments of multiple brands has been useful for the larger companies to proceed with joint ventures and make India economically strong.

Social

The social factors and the society in which an organisation operates play a major role in determining the kind of products and services the organisation would be able to successfully sell. Social factors also determine the culture of the market to which foreign businesses need to adopt in order to ensure their long-term presence and sustainability (Pandey et al. 2021). When it comes to the social aspects present in the markets of India tends to be the most important factors that can affect sales and brand awareness in the market. As per the Case study of Starbucks, it was a scene where the Indian cafe market reached almost 230 million and was decided to achieve a CAGR of 14% (Fischer and Roy, 2019).

This reflects the fact that the number of coffee drinkers in the markets of India significantly increased in the past few years which turned out to be a major opportunity for Starbucks to enter the Indian market. As the organisation was entering the markets of India in a joint venture with Tata, the risks of the organization were considered lower. Moreover, since Starbucks is quite a popular brand in the western culture, the Indian youth and teenagers are verified from India with Starbucks and therefore these individuals emerged to be the most profitable segment after the target customers Starbucks had in the Indian market.

Technological

advancements, as well as the technological infrastructure that is available for organisations to make use of in a particular market, also determine their competitiveness and ability to include or exclude operations in their business management (Bhattacharya, 2019). Starbucks entered the markets of India in 2012 and during that time, the technological infrastructure was not quite developed. Not only that but the customers present in the market in India are also not quite tech-savvy. This event that Starbucks does not have to face in other markets ended up becoming one of its major challenges due to which the company was not able to successfully expand to its initial plan of opening 12 stores in the first year of operation.

Even the technological advancements and the lack of technical knowledge among the target consumers of Starbucks were not identified by the organisation as a major issue. However, the lack of awareness and market communication that was mostly circling around different social media platforms was not enough to generate mass awareness among the general Indian consumers (Gupta et al. 2018).

Moreover, technologies such as diverse digital payment technologies, food delivery services, AI implementation Smartphone applications and other facilities were not present (Volle, 2021). Hence, above are some of the major shortcomings that the organisation faced in the early days of its operations in India. However, with time as more and more people started to use the internet and marketing with the use of social media platforms became much more relevant, Starbucks started to grow. However, another shortcoming of the organisation was that the major competitor Cafe Coffee Day grew in the Indian market in the presence of all these technological shortcomings but was not affected (Krishna, 2018). Meanwhile, Starbucks after realising they were falling much behind their estimated date of expanding into a Pan India coffee shop with 12 outlets was tougher than they thought actually.

However, the organisation has recovered from the slow initial growth as technological advancement in India has taken a major leap forward after the internet infrastructure of other countries was upgraded. This poured in more potential customers of the company within its influenceable abilities of the organisation and thus this allowed Starbucks to start channel business operations a major proportion of its business depends upon the internet (Nair et al. 2021).

Opportunities and challenges

The increase of skilful labourers in India has provided the opportunity to the company for introducing innovation in the fastest possible manner. It can be stated that the rise of technology and infrastructure in India has made it possible for this company to expand their market. Starbucks entered the Indian market through a joint venture. It made an alliance with Tata Global Beverages. It has been done to get hold of technological infrastructure in India. Engineering skills have also increased in India, which has helped Tata Starbucks to recruit talented workers and use the technology efficiently. Based on the case study, it has been evident from some market research that the demand for coffee is tremendous in India (Krishna, 2012). The customers are well informed to some extent and are aware of the global brands. The growth in the economy over the years 2011 and 2012 has given a great opportunity for Starbucks to provide an innovative variety of coffee at a moderate price in a developing country such as India.

Ansoff matrix

Starbucks ensure that the coffee sold by Starbucks suits the requirements and preferences of the consumers to the choice of Indian grown beans sold by Tata coffee itself (Kramer et al. 2020). This not only allows the organisation to utilise that as an existing supply chain but also ensures that the coffee Indian consumers would taste would be familiar with what they have been drinking already.

Hence, based on Ansoff’s matrix, Starbucks utilised Product Development Strategy in the markets of India to ensure that the existing products with which other consumers are already familiar can be effectively marketed and sold to gain competitive advantage (Pradeep et al. 2019).  The product development strategy of the organisation has allowed them to utilise local elements and thereby make changes in their products and service to suit the local needs and requirements of the customers. So far this has been one of the major reasons due to which the organisation has been successfully able to establish their presence in the markets of India even after the presence of competitors like CCD.

Exploring further opportunities in the markets of India

It has been a great opportunity for this company as they have tried to provide coffee at a moderate price, which is quite cheaper than the other organisations in the foreign chain although it is more expensive than the local company of India such as Cafe Coffee Day (Vattikoti and Razak, 2018). Therefore, the moderate price can attract customers if they provide a wide variety of coffee along with some snacks to the Indian customers. This is because if Starbucks will provide the same products and does not provide any offers then automatically the Indian customers will move to Cafe Coffee Day as that company also delivers authentic coffee products and snacks. The rate of products in Cafe Coffee Day is cheaper than Starbucks. It can be quite challenging for Starbucks to compete with local brands such as Cafe Coffee Day. The instability of the Government and sudden alterations in their trade laws can be challenging for Starbucks, as they need to organise their business model according to the trade reforms (Vattikoti and Razak, 2018).

There is a risk for this company as the Government of India can shut any company according to their wish at any time by giving some kind of allegations (Baas and Cayla, 2020). On the contrary, it is an opportunity for Starbucks to expand their market and use joint ventures or franchising with the help of government regulations associated with foreign investment. The Government of India allows 100% foreign investment of multiple and single brands. This effort of the government has made India economically stronger than in previous years and provided an opportunity for the company such as Starbucks to use technological advancement by utilising the skilled engineers and labourers of India (Reardon et al. 2021). The main challenge faced by Starbucks knows the exact pricing strategies that will attract more customers and gain a competitive advantage over the local companies largely. India is a developing nation and it needs a brand that will provide products, which can be afforded by every section of customers.

There are also persistent challenges that the organisation needs to take into consideration such as changing consumer behaviour. Consumer behaviour is a highly dynamic aspect that has been the reason behind the success of organisations as well as their downfall. Starbucks needs to continuously monitor changing consumer behaviour as well as the current trends present in the coffee market to ensure that they are able to adopt the right strategy to meet to consumer satisfaction. Another significant challenge that has emerged in the markets of India is the increasing competition from other companies as well as small and medium scale businesses that have started to scale up. Along with that, it can be threatening for Starbucks in the coming days is the increase in the number of cloud kitchens that are operating in major cities of India such as Bangalore, Mumbai, Kolkata, Pune and others. Another major competitor of the organisation is Costa coffee has also entered the Indian market has been able to establish approximately 100 with similar aspirations and therefore Starbucks to increase its focus towards a marketing strategy that would allow them to minimise the threat of other global organisations entering the Indian market.

Discussion and Recommendations

Justification of Expanding into the Indian Market

Opportunity to grow their market in India

Starbuck has initiated six-year research based on the Indian market which had initiated them to enter the Indian market with a 50/50 venture between Tata global beverages and Starbucks international. Whereas, the company was struggling to open stores in India since 2005, which had no result, and ended up being a false start. Thus, it has created an agreement with Tata coffee to establish Tata Starbucks Ltd. In the year 2012, Tata Starbucks Ltd. established its first joint venture coffee shop in the month of October in the neighbourhood of south Mumbai. As Starbucks is known as a premium brand of coffee shops, Tata Starbucks has developed the store as around 4000 square feet with two levels of the extravaganza that would attract the customer to the premium coffee shop. Starbucks has chosen Tata to be the joint venture of India as Tata has a unique position in the Indian market.

Most importantly, Starbuck has focused on the values believed by Tata to treat people well and take measures to help the community. Thus, it would help Starbucks to develop a good impression in the Indian community. The high official or the executives of Starbucks stated that the entry into the Indian market has been a great opportunity that would have not become possible without the collaboration of the Tata group. Whereas, the customers in the Indian market were excited with all the foods and beverages that Starbucks has offered in the Indian market. Hence, the food offered to the consumers was different as it was new to the Indian palette.

Indian market is the 9th largest economy in the world

Indian market growth has increased rapidly from 2007 to 2011 as stated by the IMF. The growing market of India has resulted in the nation’s rank to 140th by nominal GDP and 129th by GDP (PPP). Hence, it attracted many international organizations to establish their business in the Indian market. Thus, it led to the huge growth of middle-class consumers, growth in the manufacturing sections of the country, and foreign investments. The Indian cafe based market was estimated to be $230 million in September 2012 and it was growing at a rapid rate of 13-14%. India was becoming an expensive and complex market to enter for the new foreign brands. Hence, the collaboration with Tata gave huge benefits to Starbucks international to establish their market in India. The research, which was being implemented by Starbucks, stated that there was a high demand related to coffee in the Indian market and the consumers were aware or attracted towards the global brands. The three competitors of Starbucks were Café Coffee Day, Barista Lavazza and Costa Coffee. Hence, it encouraged a price war among the other competitors in the market as Starbucks entered the Indian market. Though Starbucks had competitors in the market, the Indian consumers were attracted towards the premium coffee which was being offered by Starbucks in the Indian coffee market.

Influential companies such as Tata global beverages in India and the huge demand for coffee in India

Starbucks used the market development strategy from Ansoff Matrix and proceeded by putting their existing product in the new market of India. It has also selected joint ventures as its market entry strategy in India. The demand for coffee is huge in India, which is evident from market research. Therefore, the population of highly skilled labourers and the demand for coffee products has attracted companies such as Starbucks to expand their business in India. The alliance of Starbucks with Tata Global Beverages has provided an opportunity for Starbucks to leverage their sell and take branded coffee from India to other nations of the world in future. The import-export taxes was not a concern for this company as Starbucks has planned to sell coffee in India with the help of the beans grown and roasted in this country by Tata coffee.

Starbucks tried to use a market development strategy after doing proper market research of India and providing their specific coffee products and snacks according to the mindset of the local people (Paul, 2019). The market development strategy of Starbucks has been beneficial due to the high population of India and its talented workers. Starbucks has understood that in order to utilise its market development strategy in India, it needs to make an alliance with an influential company such as Tata Global Beverages (Hardaker, 2018). Tata brings a unique perspective associated with the capabilities of the real estate acquisition system it has provided the opportunity of integrating into Taj Hotels for Starbucks due to the demanding market of coffee in India. Starbucks has made plans for creating a good value proposition and increasing the accessibility of its products to the Indian customers at a moderate price.

It can be said that a competitive pricing strategy has been followed by Starbucks to win the competition with the local companies as well as the companies of the foreign coffee chain. The enriched labour market of this country can be a proper justification for the expansion of the business into India. Therefore, Starbucks tried to focus on the youth segment of customers by providing affordable prices along with the other sections of customers by providing innovative products and some side dishes (Roodagi, 2020). This company got a good partner, which has decreased their chances of facing loss due to the trade laws. It has also made it clear for Starbucks to assure the authenticity of the product and remove any kind of Trust issue for the local customers. This is because Starbucks is venturing with a local and influential brand.

Another justification that can be included to support the decision of Starbucks to enter the markets of India can be the opportunity of a joint venture with the Tata group. Tata group has a significant position and plays in the Indian market and is one of the most trusted brands among Indian consumers. Therefore settling down for a joint venture with the Tata group has been one of the most important decisions that have helped Starbucks to successfully survive in the market India.

Recommendations

• Considering the above macro-environmental factors of the organisation technological opportunities that are present for Starbucks can be taken into consideration such as the increased number of internet users in the markets of India.
• The increasing number of internet users has created the opportunity of the omni channel retail service which Starbucks is currently operating in the Indian market and has led to the development of a new revenue stream.
• Furthermore, technological advancements and digital transformation in the markets of India has led to the entry of several food delivery companies such as Zomato, Uber Swiggy and others who can further increase the profitability and ability to scale Starbucks’s operations in the Indian market.
• The company can also adopt AI and ML for improving the in-store experience of the customers.

Conclusion

Based on the case study of the organisation in the above report it has been seen that the Indian markets in which Starbucks started its operation had a higher rate of euro to see which reduced the organisation’s control over its regular operations to some extent. Similarly considering the entry of the organisation in the Indian market social preference and lack of consumer awareness slowed down the growth rate of Starbucks. Furthermore, during the early days of operation lack of technological infrastructure within the markets of India also turned out to be a major challenge. Available with improvements in technology and Government support such as reduced tax and tariff Starbucks has revived to a better position in the Indian coffee market with the support of the Tata group and its supply chain and other relevant resources.

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