International Expansion and Globalization of Starbucks

2842 words (11 pages) Essay

8th Feb 2020 International Business Reference this

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Globalization: Starbucks

Introduction

Globalization has become phenomenal as companies seek to reach more customers in various parts of the world (Ahmad 2013). The ease to do business in various countries has made it easier for international companies to enter various countries to expand their activities and maximize their profits. Companies such as Starbucks, McDonald’s, KFC, and Domino’s Pizza are in the same industry and have various stores globally.

In this study, the focus was on Starbucks in South Africa. The journey for the company in this country started on April 21st, 2016. The company has since then managed to conquer the market as through its coffee brands enjoyed globally. The first outlet was opened in Rose bank town of South Africa. Since then, the company attracted the attention of many customers and plans have been developing on increasing the number of these stores in South Africa (Locasto, Triplette and O’Rourke 2011). The intention was to have more than 12 stores in the country to it’s over 150 stores globally. The plans were to be executed in partnership with Taste Holdings (Taste).

The study further evaluates various factors such as market entry, competition as well as the opportunities and challenges the company faces in the southern African market. Apparently, the company has been facing various issues and wrangles in the leadership and business running. More so, the competitiveness of the industry has been immense as fast foods, coffee, and soft drinks are opened locally (Mukharji 2016). The affordability of the same products locally has kept the top brands such as Starbucks in a competitive situation. The market entry strategy matters a lot for a brand to make an impact.

Question 1

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The presence of partnering entity in South Africa was a vital basis for the company to establish its presence in the country. In addition, there has been a growing market for coffee and its products in South Africa and other parts of the world. In South Africa, the coffee consumption has been increasing, which could have been among the major driving forces for Starbucks in the country. The demand has been another driving force for the company in the country as the people in the middle and upper level of income gained have developed an attraction to coffee (Grünig and Morschett 2016).  Therefore, it the presence of a good platform and the increasing demand for coffee have remained fundamental drivers in which Starbucks have used to expand its presence in South Africa.

The commonly have its brand name as a global entity that could have highly contributed to its entrance in the South African market. The level of Starbuck and the brand is well known by coffee consumers and it is clear that the intention to venture the South African market was well received by the coffee lovers. In addition, the brand may have eased its marketing efforts because the company has its well-deserved reputation and a global presence that any authority in various countries will be willing to embrace (Facchini, Mayda, and Mendola 2013). As a result, it can be assumed that efforts to enter the South African market were not an uphill task because of the brand presence.

Another driver to the level of globalization of the company is based on the increasing income level of people at the middle and upper bracket (Mendola and Morschett 2016). It implies that people at these levels can now afford to buy coffee as a need or pleasure. In addition, it will increase the purchasing power of consumers. The company can deliver more units and expect the consumers to buy because they are in a better position. Further, it implies that the company can open more store in various parts where the public earns good salaries. Using marketing strategies, it will be easier to reach more consumers and ensure the company makes a huge impact in the South African market.

Starbucks has enhanced the differentiation strategy in the effort to reach more customers. Apparently, the company is known to sell coffee and snacks in their various outlets (Littler 2015). However, the company has come up with a strategy meant to spice up the services offered to the customers. As a result, the stores are well presented and they have free cyber services. The customers can visit the rooms and do their online activities with easer while enjoying the services offered by the company. The cyber office has free Wi-Fi which will help the customers to continue working away from home when in the outlets. Further, the outlets have been stocked with local beverages. This implies the customers can enjoy the Starbucks products as well as other preferences not offered by the company in one room. Space is well kept to ensure comfort, relaxation, and good environment to read.

The company further seeks to engage the people in South Africa by ensuring they offer employment opportunities. The level of employment in the African countries is known to be a major problem. Therefore, the presence of the company is an assurance that there will be some job opportunities for the residents in various positions (Leigh 2018). In addition, the presence of Starbucks will be important in impacting new and better skill to South African people in the coffee specialties. It will be a chance to interact between the coffee specialists in South Africa and other employees from other parts of the world. An exchange program is a strategy that will enable the company to have an ease of doing business in the country.   

Finally, it is expected that the company will use licensing agreements to work in South Africa. In this case, the licensing will be done in partnership with Taste Holdings. It is a market entry strategy that has been used by Starbucks in all the countries it operates apart from the United Kingdom. Working with local companies is a good approach because it eases the need to have to recruit employees in various areas. The presence of local company ensures that transition and establishment are achieved within the shortest time possible.

Question 2

Market entry of Starbucks was met with good reception as customers could be seen queuing for hours to get the products and services. In the initial days, the customers were eager to taste the products and services offered. Being a well-recognized brand globally has been a major driving force that may have helped the company to conquer the market and seems to be doing better compared with the rivals. In fact, Mr. Schultz was once documented when he said that he did not expect the market to expand as much as it was in that time (이광우, and 최현석. 2012). The initial plans were not expected to expand the business in the South African market to that large extent.  This was after some weeks of doing business in the South African market as the sales were more than the expected.

Further, the company has maintained its growth in the South African market based on the entry strategy that was used. Initially, the company was eager to attract customers using low prices. This was a good idea given that the level of income in the region was low. Therefore, the decision to have a cheap process attracted customers who were eager to start the products under the Starbucks’ brand.   About US$2.10 (U.S.) was the cost for a grande latte (Otubanjo 2011). The process is relatively cheap compared to other markets such as in Canada where the same goes for about double price.

The strength of the company that has kept it doing better than its rivals such as Zara, Burger King, and McDonald’s has been its decision to offer standard products (Šarić 2012). It is possible to have similar coffee enjoyed in Canada while at South Africa. The quality remains for all users and it has helped the company to maintain its global standards as the quality remains the same. In addition, it has embarked on the integration of local drinks in their menu. As a result, customers can get rooibos cappuccino. This is a local favourite drink for the people, which is prepared from some bush plants found in South African.

The company has beaten all the odds to make an impact in the market unlike Zara, Burger King, McDonald’s, among others. Some of these competitors had to close the shops in South Africa and some have managed to come back. For instance, Dunkin Donuts had terminated their functions and came back in 2013, whereas Burger King came back same year under Grand Parade Investments. 

Question 3

The company has been doing well but there has been social media uproar on possible neo-colonization. Regardless of a few protestations on South African, a considerable lot of the nation’s middle-class shoppers have turned out to be attracted to the U.S. brands (Friedrichsen, and Mühl-Benninghaus 2012). At the point when the main outlets of Burger King and Krispy Kreme Doughnuts opened in Cape Town and Johannesburg based on the recent data that showed many people lining up for a considerable length of time. The opening of Starbucks in South Africa also led to the opening of Domino’s Pizza in 2014, and the main Dunkin’ Donuts stores were underway to be finalized and start working in the midway of the same year.

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However, the economy witnessed in South Africa dropped to a development of simply 1.3 per cent a year ago and is anticipated to become simply 0.8 per cent of the following year. However following quite a while of political and monetary separation, which finished simply after the fall of politically-sanctioned racial segregation known as apartheid in 1994 (Akinkugbe 2013). There is as yet a repressed interest for the most renowned worldwide brands, regularly observed as intriguing oddities here. Starbucks, concentrating much on promoting the market demands in Asia and Europe as of late, has been ease back to achieve Africa. In the same way as other different multinationals, it is assumed that South Africa would play a major role in getting to the African market based on the increasing demand and market presence in the country as the middle-income earners increase.

There is Higher Wage Payment needed to expand the business add costs of have been due to the increased raw materials (Kimball 2016). The company has been known to offer better payments to the employees as opposed to other companies that seek to keep it at the minimum payments as prescribed in the South African laws. As a result, the company has had to incur many expenses that have constrained its functions. Subsequently, it is assumed that any plans by the government to increase and review the least wages will just enhance and encourage Starbucks efforts, by affecting its rivals antagonistically.

There has been an issue of the increasing costs of the coffee beans, which are vital in the products sold by the company. The increasing costs of Espresso have affected many companies in the industry after it had registered a drop in prices sometimes back. The fluctuating prices have not been well received by the company whereas the sellers have enjoyed a better bargaining power. As a result, companies are reducing their stocks to match the current market process o of espresso that has witnessed changing fortunes in the last years. 

The changes of the Current CEO Schultz caused a transitional issue.  Change of CEO Howard Schultz with Kevin Johnson provoked a 4% drop in offer cost. Going to the newly appointed CEO Johnson known for his involvement in innovation may have revived the hopes as stakeholders can expect an enhancement in the technological advancement and application to assume a lot greater job in the subsequent stage in the inexorably digitizing world (William 2016). Other different difficulties included an excessive number of areas, firm rivalry, retail issues, and expanded expenses

Conclusion

Based on the study, it was evident that globalization has its opportunities and challenges depending on the locations. In this case, the efforts by Starbucks to venture the South African market have not been a smooth flow. However, the company has managed to use the available strategies to ensure the market entry was not marred with many challenges that led to the closure of other competitors such as Burger King.

The choice of the pricing, differentiation, and maximization on the increasing demand for coffee were vital strategies that helped Starbucks to enter the South African market. The presence of middle-class income earners in the location implies that the company had enough customers. More so, the cheap price of the coffee helped in attracting the increasing population looking forward to tasting the American brand.  Presence of Wi-Fi and the cyber office has helped in easing customers’ need to respond to various online prompts. 

On the other hand, it was evident that the continued growth of the South African market has been contributed to the fair prices and standardized products. More so, the customers can get other products when at Starbucks’ outlets.

Finally, the brand has been a major driver for the company in its efforts to have a competitive advantage in the market. The challenges include the wage increase, change in management, retailing, costs of production and increasing costs of coffee.

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