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How Starbucks Can Reduce Risks Marketing Essay

1043 words (4 pages) Essay in Marketing

5/12/16 Marketing Reference this

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Multi National Companies go through severe research process before enlarging their business activities to other countries. By opting the appropriate mode of entry to international market companies can capture the market easily and reduce the risk associated with it. Starbucks, being one of the largest coffee shop in the world has opted Joint ventures, licensing and wholly owned subsidiaries to expand their business globally. They started expanding their activities in 1996 by entering through Joint ventures in Japan and through wholly owned subsidiary in Canada followed by Southeast Asia, Europe and Middle east. These strategies along with product innovations are the main reason for the success of Starbucks coffee globally. They have modified their product line up and offer 30 blends of coffee, bottled Starbucks Frappuccino, Green Tea Frappuccino, curry puffs, meat buns, sandwiches and salads to meet the needs and requirements of the consumers in particular market.

Starbucks have opted a better and efficient way to expand their international activities. They expanded their business activities through Joint ventures in huge market of Japan, Greece and other big countries where as they have owned subsidiaries in some of the low risk countries like Canada and Ireland. They have also expanded their activities through licensing in countries like Malaysia and New Zealand. Starbucks studies the market first and then open few stores at trendy places. After successful marketing test and training of brew masters, it also ensures that similar coffee beverages and “No Smoking” rules are applied all over. They have been growing rapidly from 17 stores in Seattle to 19,972 stores worldwide mainly attracting youngsters. Their expenses on marketing is very less as they mainly rely on “word of mouth” advertising. They have come up with different kind of services like Starbucks Express, Automated espresso machines, and self service for their customers, which are also the reason for their huge success worldwide.

Sources: International Management, Managing Across Borders and Cultures, Sixth Edition, Helen Deresky, ISBN: 0-13-614326

Careful analysis and management of risks not only mitigate losses but also provide superior returns. In the light of this statement do you think Starbucks did not analyze and manage the risks involved in the different markets it entered?

Yes, I believe that Starbucks did not analyze and manage the risk involved while operating in different markets. They have mainly focused on increasing the number of stores worldwide to achieve market dominance but ignored the fact that most of their stores are running in losses. They are facing many challenges in US and overseas market by their competitors like Nestle, Tim Hortons and Dunkin Donuts.

Starbucks is facing many internal and external issues like change in economic conditions, change in taste and preferences of customers, huge competition, high business development costs, etc. They also have been facing several problems due to economic crisis in several countries and had serious political problems in Middle East, which led in closure of their several stores in Iraq and Israel. Starbucks mainly focused on its expansion and ignored the competitors around them. They are facing stiff competition in Germany and France from local coffee shops. Their prices were high as compared to the local shops offering the same taste of coffee.

It is right that they have come up with different range of products for different markets but failed to come up with appropriate strategies for same market. They were not able to analyze properly the opportunities and threats available in a particular market and failed to relate them with their strengths and weaknesses. They lacked product differentiation from competitors thus were not able to capture the target market. Political, Environmental, Social and Technological factors had also its impact on Starbucks internal business activities.

Thus I feel, Starbucks could have done better with their expansion strategy If they would have focused on SWOT analysis and PEST factors influencing their business activities. They have to do immense research on market growth and market share of their future projects and opt for the beast available option.

Sources: International Management, Managing Across Borders and Cultures, Sixth Edition, Helen Deresky, ISBN: 0-13-614326

Question 3

A company faces diverse set of risks in international markets. What were the risks faced by Starbucks in its international operations? Explain how Starbucks can reduce risks in its international business.

Companies operating on international level faces several risks while doing business. Starbucks, being one of the largest chain of coffee shop is also facing several problems in home as well as in abroad. Although Starbucks has expanded enormously during its earlier stage is facing now stiff competition from its competitors. They also have employees disappointment and are not able to provide satisfaction to them. Payments made to the employees does not match with the work load they have to suffer at work. Due to their aggressive marketing strategies they have grown their rivalry and lost potential customers. Japan, which was the largest overseas market for Starbucks followed by United Kingdom started facing decline in their profit rates.

The main reason for the declining profit rate for Starbucks is due to mismatch of their policies with customers expectations. Starbucks thinks that they can increase their profit by increasing their stores day by day but they fail to provide customers satisfaction. Their prices are still high than of the competitors and they failed to satisfy the newer generation.

According to me Starbucks have to adjust its policies and reposition its product line up according to the market in which they are dealing. They also have to come up with new and better line up for customers as their taste and preferences keeps on changing. Starbucks have to try to increase the level of employees satisfaction by increasing their salaries, providing initiatives, bonus and other allowances. They have to study the controllable and uncontrollable factors that they face while entering global market. “Innovations” and “Investment” are the key factors for them in the long run. Through study of PEST and SWOT analysis can be very effective in maintaining their leadership worldwide.

Sources: International Management, Managing Across Borders and Cultures, Sixth Edition, Helen Deresky, ISBN: 0-13-614326

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