Assignment Sample on MMP_7_IMK_2 International Marketing

Introduction

The concept of international marketing is extensively crucial for the expansion of any company in the international market. International marketing can also be referred to as the trading of services and goods among several different countries around the world (Market finder, 2021). Through this study, a brief analysis will be presented in regards to the entrance of Starbucks in the market of India. Primarily a basic background will be portrayed through which the position of the company can be understood, later, analysis of SWOT and PEST will be shown which can assist extensively in getting the knowledge about their internal and external situation of the company and the market respectively. Starbucks is a company that operates in several locations, however, the benefits of the decision of Starbucks to enter the Indian market by establishing a partnership with TATA will be seen in detail. Furthermore, the Indian coffee market will be analysed alongside the competitive rivalry and consumer behaviour of India.

Methodology

The method of case study analysis has been taken into consideration for this study. The history analysis has helped in identifying various aspects linked with Starbucks and its operations as well as the various opportunities and challenges it has in the markets of India. The case study has also held in identifying the macro-environmental factors based on which a pestle analysis has been done. Furthermore, to evaluate the company’s key strengths and opportunities a SWOT analysis has also been conducted in the following research. More information linked with the decision-making aspect of Starbucks to choose India as a market has also been identified with the help of a case study helping to justify their strategy (de Vries, 2020).

Findings

Company background

Figure 1: Company logo

(Source: Starbucks, 2021)

Starbucks Corporation is an American multinational chain of coffee houses alongside roastery reserves with its headquarters in Seattle, Washington. The company was founded by Jerry Baldwin, Zev Seigel and Gordon Bowker in 1971. Till the present time, Starbucks is the world’s largest chain of coffee houses. The industry under which the company operates is coffee shops. Starbucks serves around 83 countries with 33,295 locations as of 2021 (Starbucks, 2021). Furthermore, key people associated with the company are Howard Schultz as the chairman, Mellody Hobson as chairperson and Kevin Johnson as the president and CEO. The products which are the core focus are beverages of coffee, tea, smoothies, baked items, and sandwiches. The number of employees employed by the company is 349,000 as of 2020 (Starbucks, 2021). Moreover, the revenue generated in 2019 is US$26.50 billion. As of 2021 November, the company had 33,833 stores in around 80 countries out of which 15,444 stores were in the United States. Out of all the stores in the US, about 8900 stores are company oriented and the rest are licensed (Starbucks, 2021). The rise of the second wave coffee culture is extensively attributed to Starbucks as the phenomenon occurred due to the introduction of a wider variety of coffee experiences.

Starbucks SWOT 

Strength

It has been identified as per the case study that Starbucks has expanded their business by integrating a joint venture with Tata group, which is well known in the country, India. Starbucks itself is a huge brand, which is operating globally along with acquiring a value of $11.7 billion, which makes it a strong brand among the population (Gupta, 2018). Moreover, Tata Group is also a big organisation due to which the expansion has become smooth and accessible. Furthermore, due to the huge brand image, the corporation has been loved by many of the Indian population due to its delicious coffee offerings.

Weakness

After venturing with Tata, Starbucks has settled their first store in South Mumbai, which is comparatively a posh area and cannot be accessible for those who have low incomes. For middle tiers the offerings become too costly (Gupta, 2018). The culture of the organisation with elegance in their store has made a perception into the mind of the population about the products being too pricey. This statement can be justified with the case scenarios where they aim of building 50 stores by the end of the year and later acknowledged that the Indian market is much tougher than the other international ones. Furthermore, there are several organisations that are offering the same products as Starbucks, which makes it imitable.

Opportunity

Starbucks has started to recognise the market of India and due to which they have changed their pricing strategy, which allows the organisation to attain more customers towards them. Eventually, it has opened the door of opportunity for diversification and embracing the latest trends. However, due to the pandemic, online channels are one of the most influential opportunities for Starbucks to prosper (Soto-Acosta, 2020).

Threats

There are several small local stores that offer coffee at low prices, which can become a threat for Starbucks. However, there are huge competitors as well like Cafe Coffee Day, Barista Lavazza, Gloria Jean’s Coffees as the big outlets in India. Furthermore, the rise of Arabica coffee beans has been estimated to have a growth of 80% in the past year, which can probably become a threat for Starbucks (Morris, 2021).

PEST Analysis 

Political 

In terms of the political environment, it can be stated that to some extent in the political environment of India is stable for foreign businesses to invest and enter the markets of India. The Government of India extensively supports FDI which is a major opportunity for companies like Starbucks to invest and start their business in the Indian markets (Pandey et al. 2021). Based on the case study it has also been seen that India has been ranked as one of the worst political countries to have a higher rate of bureaucracy. This can be a major challenge for companies like Starbucks as the complicated rules and regulations established by the government can be a difficult aspect to follow (Case study).

Economical 

In terms of the economic environment, it has been seen that the GDP of India has been consistently growing over the past few years which is a major opportunity for companies like Starbucks. GDP has been consistently growing since 2014 and reached its peak in 2019. Growth in the GDP of India indicates the increasing purchasing power of consumers which is another opportunity for companies like Starbucks to enter the market of India.

Figure 2: Growth of India’s GDP

(Source: Trading economics, 2021)

However, there are also challenges linked with the economic environment of the Indian market which is the increasing inflation rate as well as uneven wealth distribution. Uneven wealth distribution in India indicates that a very small proportion of the Indian consumers accounts for the majority of GDP while a major population is a very low-income rate. This can be a challenging aspect for companies like Starbucks where the organisation follows an opinion pricing strategy for most of their products and services (Chengappa et al. 2018).

Social 

In terms of environment, it has been seen that the majority of the population involved in the consumption of brewed beverages prefer tea over coffee. However, over the past few years, India’s coffee consumption has increased with a growth rate of 6% whereas the growth of tea drinkers has only increased by 2%.

Figure 3: Coffee drinkers and tea drinkers in India

(Source: Promarconsulting, 2021)

The increase in the number of coffee drinkers in the markets of India reflects the potential of growth and opportunity for companies like Starbucks, Costa coffee and cafe coffee day (de Luca).

Technological 

Terms of technological aspects that have been seen that technological developments have seen quite a growth in the markets of India due to which the organization can effectively implement and utilise their omnichannel business model. The utilisation of Omnichannel business can allow Starbucks to cater to a large number of consumers in the markets of India. Furthermore, the number of social media users have also significantly grown in the Indian market which also created opportunities for utilizing social media marketing to promote their products and services over various social media platforms (Ranjan Jena and Grote, 2017). However, there are also challenges that are linked with the technological environment in the markets of India one of which is the lack of infrastructural development. Adoption of technology in the markets of India has been growing at a slower rate compared to other markets which can be a challenging factor for Starbucks where the company might not be able to implement some of the key technological strategies that it utilizes in other markets. Considering the growth of technological advancements and the adoption of such technologies by most of the competitors and businesses in the markets of India for gaps can be marginalised in the near future.

Discussions and Recommendations

Justification of market entry

Analysis of the Indian coffee market

According to the study by Technopak advisors in September 2012, the cafe market of India was estimated at $230 million and furthermore, the market is set to grow at a compounded rate of 13-14% annually (case study). According to the prediction of the study, the cafe market would grow to $410 million by the year 2017 (case study). The Indian market is a vast market of coffee with a huge number of consumers aware of several national and international brands of coffee. In India, there are about 2000 coffee shops in recent times which is forecasted to grow up to 3,000 by the near future (case study). From the perspective of making an entrance into the Indian market, it is considered to be one of the more complex and expensive markets. One of the major challenges of operating in the Indian market is acquiring and securing real estate. Adding to that, the Indian market is ferociously competitive with several competitors perceiving to operate and succeed in the same market. On the other hand, it can be said that several competitors of coffee in India are remarkably doing well in their fields posing massive competition to the other competitors (Rosiana et al. 2018). Additionally, market research has shown that there is a tremendous demand for coffee among consumers.

Before the entrance of Starbucks into the market of India, there were other local giants of coffee along with a few other foreign companies were fighting for the market share such as Cafe Coffee Day (CCD) being the market leader with 1350 stores, Barista being the second with 315 outlets, Costa Coffee with 100 and several others (case study). Furthermore, these three key players of coffee have stated that they were unaware of the entrance of Starbucks into the Indian market with competitive prices. However, as per the marketing president of CCD, their pricing strategies will not change because of somebody else’s pricing. Furthermore, despite the steep competition, Starbucks entered the Indian market in 2012 establishing a 50:50 partnership with Tata and eventually opened more outlets each year. As of 2021, Starbucks has opened a total of 221 stores which can be seen in the figure ( Statista, 2021).

Figure 4: Number of Tata Starbucks Private Limited stores from financial year 2013 to 2021

(Source: Statista, 2021)

The Indian market is seen to be struggling immensely due to the emergence of covid-19 pandemic; however, surprisingly despite the uncertain situation, Starbucks managed to open a store in Lucknow in 2020. Furthermore, the company intends to innovate its products as per the taste and preferences of the Indian consumers to gain competitive advantages.

Consumer behaviour 

Since the beginning of the 21st century, meanwhile, coffee has become a much more popular beverage. It is currently delightful and fashionable liquor, rather than a common beverage. Understanding consumer behaviour is the most important segment that needs to be undertaken before entering the market with the products. It has been stated that the consumption of coffee is accounted to be 1,170 thousand 60 kg across India (Statista, 2021). Coffee consumption in India is estimated to jump over the next six years, with consumption out of the home driving the increase.

Figure 5: Indian coffee intake

(Source: Coffee Business Intelligence, 2021)

As the above figure reflected, the urban consumption of coffee is dominating the coffee market in comparison to the rural ones. 73% of the total is being consumed by the urban areas. Moreover, this is one of the advantages for Starbucks as they are majorly focusing on the urban areas and due to this, their sales will initially start to increase. The above-mentioned figure also highlighted the South part of India where Kerala is the most important reason where the organisation needs to improve their positioning as they are attaining most of the share of coffee consumption (Coffee Business Intelligence, 2021). Furthermore, it has been estimated that 16.6 cups of coffee are being consumed by Indians and due to which the number of coffee shops and stores are increasing with the passing time. Consumer behaviour trends have changed over the period as it has shifted its love of tea towards drinking coffee.

India has rapidly driven the increase of coffee chains such as Cafe Coffee Day, Costa Coffee, Barista and many more. With approximately 150 million tons of milk produced each year, India is the world’s greatest producer of milk, accounting for roughly 19% of the overall dairy production (Coffee Business Intelligence, 2021). In addition, the nation is the globe’s 6th largest coffee grower. As a result, it is reasonable to believe that now the nation’s availability including both dairy and coffee has developed in a wide range of coffee drinking consumer possibilities. Furthermore, since the beginning of the century, coffee demand in the country has increased at a rate of roughly 5% each year (Coffee Business Intelligence, 2021). Thus, the market entry of Starbucks can be justified effectively as India will be an opportunity to have business growth efficiently.

Competitive rivalry 

Competitions in business prove that there are potential opportunities in the marketplace and the best provider will be able to retain their customers along with building a strong base for the business. As per the case study, there were some of the coffee chains that were operating in the marketplace of India such as Cafe Coffee Day, Barista Lavazza and Gloria Jean’s Coffees. Moreover, with 1,350 branches, Café Coffee Day leads the market, next is Barista Lavazza with 315 spots and Gloria Jean’s with 17 stores. Barista Lavazza, first entered India in 2000. This Italian firm is credited with being the first to introduce café culture to India. Barista Lavazza now has a pricing policy that depends entirely on the store type and is therefore not based on rents. Barista Coffee Company plans to expand to 300 locations and unlike its rivals Cafe Coffee Day, which concentrates on small villages, Barista Lavazza emphasises on major cities. Furthermore, the corporation owns all of their locations. Cafe Coffee Day and Barista Lavazza are the major and the biggest competitors of Starbucks in India.

The coffee market of India is growing due to the love of coffee lovers, increased demands among the young population, global lifestyle, and corporate culture (Gokavi and Kishor, 2020). Cafe Coffee Day is a local organisation in India, which reflects that the organisation will automatically have strong consumer loyalty and market share. Along with this, Cafe Coffee Day has its focus on small cities, which are generally not being forced by the light foreign organisation. Due to this approach of being accessible in the small cities, the organisation can gain the trust and loyalty of the consumer of the middle tier as well. The growth can be reflected through being available in 208 cities in India along with 1,192 cafes (Statista, 2021). Furthermore, the case of Barista Lavazza is also competitively the same as it has been operating in the country since 2000, which makes the store able to emotionally connect with the consumers. Barista Lavazza has 15% of the share in India and it has been expected to increase by the next few years with a hike of 25% (Business Standard, 2021). Therefore, it can be stated that there is high competition in the marketplace of India and Starbucks needs to strategies their plans and approaches to settle down in India effectively.

Benefits of a joint venture with TATA 

Tata is considered one of the top companies in the Indian market operating in the Indian sector under the Conglomerate industry. The brand image of the company is immense as it was founded in the year of 1868 and has been operating since then in the market, contributing extensively to the GDP of the country. Starbucks therefore, after research and analysis of the Indian market, had entered establishing a joint venture with Tata coffee in order to create Tata Starbucks Ltd. with a venture of 50/50, the entrance of Starbucks in Indian was established in 2012 with their first store in Mumbai (Vattikoti and Razak, 2018). The venture was formed between Starbucks Coffee International and Tata Global Beverages Ltd with the purpose of roasting coffee produced in the estates of the company using the technology and know-how of the global coffee major, Tata. Primarily, in order to establish the presence of any company in an international or foreign country, it is crucial to understand the taste and preferences and market demand of that specific market (Krishna, 2018). Moreover, in order to grasp or incur the authentic report, a collaboration with a company of the foreign country can be massively beneficial.

The joint venture between Tata and Starbucks can be said to be very beneficial in respect to several aspects. Adding to that, tata is a unique company in terms of its position in the Indian market with unique capabilities of the infrastructure. Most importantly, the values of both the companies are congruent with one another, which are building a company with a conscience, taking care of the communities and treating people with respect (case study). Furthermore, the importance of the joint venture was recognised by one of the executives of Starbucks stating that the entry to the Indian market would never have been an opportunity that could be achieved without the partnership of Tata. Moreover, Starbucks will be an immensely profitable situation with extensive knowledge of the Indian consumers and the competitors. Along with that, through the brand image of Tata, the company can also get promoted in the market without having many issues. Adding to that, Starbucks has other plans as well of expanding its brand around the globe with the partnership of Tata (Glowik, 2017). After the meeting with the executive of Tata, Starbucks realised that their assets were extensively complementary with those of Tata, with the opportunity to integrate Starbucks to Taj hotels of Tata and bring food from the Taj to the store of Starbucks and other capabilities which would not have been possible without the partnership (Glowik, 2017).

Recommendations 

Expanding social media marketing

The marketing strategy of Starbucks has been favourable towards the company; however, the reach could be further extended to a huge extent by the application of marketing through social media sites. Through social media marketing, the consumers can be made more aware of the company along with its products and prices and can extensively get triggered into purchasing contributing to the escalation of the company’s revenue.

Using omnichannel business 

Starbucks has seen to be marketing in a very general and restricted way which attracts a very limited number of consumers. The attention could be further drawn towards the company through the utilization of omnichannel marketing. Through this strategy, the brand can reach several consumers through several mediums such as emails, digital advertisements, content marketing and SEO and others.

Improvement of services based on consumer preference 

The taste and preferences of the consumers are changing with the changing times. Therefore, the company needs to consider the ever-changing consumer preferences and need to mould its business services and processes in order to satisfy the consumers.

Diversifying products as per market needs 

As the preferences and choices of the consumers are evolving, Starbucks needs to bring upon diversified products to attract a variety of consumers from different areas. With the extension of different varieties of diversified products, a huge range of consumers can be attracted while satisfying all their taste buds and other preferences.

Conclusion

In the context of overall understanding, it can be stated that international marketing is the most important segment that needs to be considered by businesses. In this relation, Starbucks has been taken into consideration. From the case study, several ideas have been generated which has helped the study to compete effectively. In the marketplace of India, there are several opportunities as well as competition, which will allow Starbucks to strengthen their position in the country. The venture with the Tata group can be termed as the most beneficial venture for Starbucks. Even though there are several competitive rivalries, this will eventually become the plus point for Starbucks to learn and act from their mistakes. After the analysis of the coffee market of India, it can be stated that the decision of entering the market will reflect positive advantages for the business. Furthermore, several sets of recommendations are also provided which will help the business to flourish better in the country.

References

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