There are many organizations successfully expanded their companies into foreign market, however, there are also some businesses facing failures of expanding. Wrong timing? Entering into wrong market? Is the decision making so important? In fact, it really does. Before an international company expand their business to other foreign countries, the company must take some factors into consideration such as which foreign market to enter to, in what financial situation to enter and what economic scale (“Modes of Entry”, n.d.)
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Starbucks Coffee Company was starts in Seattle in 1971 by Jerry Baldwin, Zev Siegl and Gordon Bowker. Currently are the leading retailer, roaster and brand of specialty coffee in the world, with more than 15,000 retail location around the world. Starbucks entered Indonesia through a joint venture with the PT Mitra A Diperkasa in May 2002. By using joint venture strategy entering Indonesia, Starbucks are able to access to the local partners’ knowledge easily and sharing development costs and risks besides politically acceptable (Speiser, 2003).
The strong recognition Starbucks brand makes Starbucks developed easily in Indonesia market. In Indonesia, Starbucks are being categorized in growth but nearly maturity, since it still expanding their company, but it is the market leader in the coffee store industry. According to Farah Milda, General Manager of Sari Coffee Indonesia, currently there are 125 outlets and they are aiming to have 150 outlets in the country this year. The target market of expansion includes Surabaya, Bandung, Jakarta and Surakarta. Besides the department store or entertainment area, a new branch was opened at Cikampek highway as the first drive through in South-east Asian in year 2005.
Starbucks Indonesia customer is not price sensitive and high consumerism, this is an opportunity in expanding their business. Starbucks see the opportunity in changing Indonesia citizen to consume healthy coffee and make it as part of their life. Other than that, there are high economy growth and market growth, especially in urban areas. The democratic economy policies make it easier for Starbucks to expand their business in Indonesia. On the other hand, there are some of the Starbucks coffee beans are harvested in Indonesia island of Sumatra and Sulawesi. Starbucks Indonesia is able to purchase high quality coffee beans at a premium prices while helping the farmers to support their families and invest in a sustainable production, it is a low cost strategy to expanding in Indonesia (Starbucks Product Life Cycle, SWOT Analysis, Strategy and Tactics).
According to an article, Starbucks Product Life Cycle, SWOT Analysis, Strategy and Tactics, Starbucks has a strong market based in Indonesia, there are several competitors in Indonesia, but the competitors seem to hardly fight Starbucks domination. This is where Starbucks become star and a fast growing brand in Indonesia. Starbucks Indonesia creates programs aim to build and maintain relationship with the customer by arranging a seminar in the café or in the loyal customer offices. In Jakarta, Indonesia, Starbucks has been part of metropolitan lifestyle. Indonesia citizen positioned Starbucks places as one of the best meeting point.
2.0 Analysis of Starbucks, Indonesia
Starbucks Indonesia, whose coffee shops are a common sight across shopping and office areas in Indonesia. Based on the survey conducted in 12 Asia-Pacific countries, Starbucks Indonesia has been ranked the No. 10-brand in the country in The Nielsen Company and Campaign Asia’s Top 1000 Brands report on 2012. Starbucks is the only food and beverage (F&B) brand to make into the list, making the coffee shop the most recognized F&B brand in Indonesia. (Jakarta, 2012)
Coming to the end of the year 2012, Starbucks Indonesia celebrate Christmas by launching a special menu consists of three coffee drinks with combination of peppermint, chocolate and cranberry. However, these three coffee drinks only available for specific period of time due to the limited ingredients. Thus, many coffee lovers grab the chance before getting out of stock. Besides that, paper cup with red colour or red cup becomes the special feature of Starbucks for celebrating the coming of Christmas (Nelly, 2012).
Elsewhere during winter season, Starbucks Indonesia invites special guests to represent some of their new products. Even Indonesia does not have winter season, Starbucks will still introduce new products every season worldwide. The new products introduced during winter season include Starbucks Fruit Toast which cost IDR 19,000, Mango Lychee Layered Cake which cost IDR 30,000, Tokyo Cheese Danish which cost IDR 21,000, Chicken Ceasar Wrap and Tuna Tomato Wrap which cost IDR 33,000 (citation). The price of the products is affordable and worthwhile for customers. Thus, Starbucks Indonesia has large customers base (.V.L, 2012)
Starbucks Indonesia targets adult by organizing activities to support youth education. With celebrating 10th anniversary, Starbucks Indonesia collaborates with Flink magazine in launching an ongoing social program. This program had successfully fulfilled the wishes for 136 children, and Starbucks Indonesia is planning to organize it the second time by granting the wishes of more children. It builds up a good image and reputation towards Starbucks Indonesia (Drop of Hope – Starbucks Indonesia helps fulfill the dreams of children, 2012).
In 2013 winter season, Starbucks Indonesia will bring back their “Hojicha” tea, but with a different twist. It is good news for those non-coffee lovers but still want to hang out at Starbucks. The products launch in this winter season not only include Hojicha, Green Tea Latte with Espresso, Verona Cake with IDR 22,000, Smoked Chicken Croissant with IDR 23,000, Tuna Cheese Whole Wheat Panini Sandwich with IDR 35,000, and the tumbler for celebrating Chinese New Year are included too. Starbucks is using promotion strategy to attract more customers and this promotion is only available during specific times (Natasha.V.L, 2013).
At June 2011, Starbucks promised that more aggressive expansion plan will be executed in the future when International coffee and coffeehouse chain Starbucks celebrated the opening of its 100th outlet in Indonesia (Christie, 2011). In conclusion, Starbucks decided to enter Indonesia in year 2002 was a smart decision as Starbucks gain a positive income and good reputation. Starbucks currently has more than 125 outlets in Indonesia and aim to have 150 more outlets this year (Retail, 2012).
Besides the positive side of having Starbucks in Indonesia, there also face some shortcomings. Starbucks faced country risks such as economic condition, government policies, political conditions and security factor. It was observed that Starbucks was unable to earn more revenue from its international operations due to its complex joint ventures with PT Mitra Adi Perkasa and licensing agreements with PT Sari Coffee Indonesia. While the company invested huge amounts in imparting training to the employees and promoting its products, it earned only a percentage share in total profits and royalty fees. The company might not have any control over the operational costs.
One of the potential problems of expanding into other countries is overcoming the cultural barriers. Different countries may have different traditions and practices forming different culture; thus, Starbucks cannot predict accurately citizens’ preferences. Before getting involved in another country, it makes sense to do some market research so that Starbucks can minimize this risk. (Speiser, 2003)
When expanding into another country, Starbucks have to consider the financial risks as a business owner. For example, the exchange rates between currencies could lead to an unfavorable return on your investment. Starbucks may have a hard time in getting access to the supplies and products that they need in any other countries. Some countries charge tariffs and fees to ship products in, which could make your business less profitable. (Speiser, Business Internationalization, 2003)
Furthermore, Starbucks are just a new franchising organization in Indonesia and the growth needs includes desires to be innovative, productive and effective in performing their tasks. Organizations need their employees in increasing their sales and operation of the business. Employees’ needs are prior to Starbucks as Starbucks provide training and education which include “coffee education”, “learning of lead” and “business and communication”. The training and education cost to employees is increasing because the employees always play important role for the success of organization (Starbucks Motivational Principles, 2005).
Starbucks has to plan well with their strategies when they need to enter a new country and make sure they have competitive advantages compare to other competitors. These competitive advantages will be written on the recommendation part.
3.1 Threat of Rivalry
For the third problem as mentioned in the analysis part, indeed, threat of rivalry has really made Starbucks fall into a competitive world of business. Since Starbucks is still in a growing stage in Indonesia market, they are facing a plenty of competitions which the two main rivals of Starbucks in Indonesia are undoubtedly McDonald’s and Dunkin Donuts (Spring, 2007)
As a fresh business in Indonesia, Starbucks needs to work harder and smarter in order to sustain in the market where is full of competitiveness. Since year 1971, Starbucks coffee had already considered as a high quality of product, so the only problem about its product is the way to continuously maintain the quality, so called product’s quality control. On the other hand, there is an important factor which Starbucks really needs to focus in today’s business world is the quality of the customer service.
Indeed, the quality of the product is the main idea of a business. However, a good product without a good quality of service is considered nothing. According to the Paryani (2011), Starbucks itself has a guarantee statement where posted in every store in the sentence “Our Promise: Your drink should be perfect, every time; if not, let us know and we will make it right”. Based on this statement, if the customers unable to satisfied with a drink, they will be given another cup of coffee until the one that able to match them. Through this action, we can totally understand that Starbucks has the intention in serving the best to its customer. This high quality of service is considered a “differentiator” and “defender” strategy which may help Starbucks maintain a secure position in Indonesia (Mullins, 2009). Moreover, differentiating themselves successfully from the competition may able to generate a competitive advantage for Starbucks in Indonesia. In addition, customer were educated about coffee will lead to a value-added service at Starbuck in Indonesia too.
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Furthermore, another competitive advantage of Starbucks coffee is the human capital, the baristas. Schultz and Jones (1997) said “The coffee drinks are inert”. In the other words, a good quality of coffee drink needs a good baristas. Therefore, a barista is expected to be more than transaction handler and the skill involved is required. Since Starbucks Corporation does not needs to aggressively market the company or their product due to their good reputation and image of company, the only things that really need to be concerned is the result if the company’s hard work, attention to detail and customer experience, ethical decision-making and employee training. These are ranking as “one of the most valuable global brands” (Theodore, 2002, p.62). Applied to the baristas of Starbucks, the baristas in Indonesia must be well-trained so that they able to manage problems in different situations. For example, the barista asked for the customer’s name and repeated it with the drink order. This action is easy and whenever a customer name has being called by the barista, the customer may felt that they are being appreciated by Starbucks. In addition, Howard Schultz who is the founder of Starbucks has stressed that this action, in turn, has had a positive impact on improving market share. So, if Starbucks in Indonesia manages to train their workers to do such friendly action, Starbucks in Indonesia may be more sustainable in the market.
As the service provided is higher than the customers’ perceived value, meanwhile, customers’ satisfactory is being fulfill, eventually, positive word of mouth will be given. A positive word of mouth is invaluable, it is essential with the growing competition on price and product for Starbucks in the niche coffee industry. Lastly, in order to sustain in the giant industry of coffee product in Indonesia, Starbucks does really need competitive advantages to differentiate themselves with other competitors.
3.2 Cultural Barrier
In the analysis part, we have talking about the cultural differences may bring the lost to Starbucks company. According to Starbucks official website, we know that aside from extraordinary coffee, Starbucks has made a business out of human connections, community involvement and the celebration of cultures. They are committed to upholding a culture where diversity is valued and respected. “So it’s only natural that as a guiding principle, diversity is integral to everything we do.
In order to solve the citizens’ preferences problem, Starbucks has specially launched two types of coffee at Asia-pacific, “West Java Indonesia” and “Blue Java Indonesia”. This two-religion coffee blend is produced on smallholder farms in the villages of Kayumas and Curah Tatal in East Java and on the north side of Bandung, the capital of West Java. To increase the customer satisfaction, Starbucks suggested the citizens who drink “West Java Indonesia” can enjoy with wild mushroom and herb soup, for a warm break from a chilly day, while the “Blue Java Indonesia” drinker can enjoy with molten chocolate cake, since the taste is like sweet herbal and milk chocolate. Unique products are always the best way to gain competitive advantage.
Culture differences may also reflect the relationship of employees and workers in which individuals from different countries have their certain behaviors and ways of thinking. They will influence the ability of companies to transfer work practices and methods from one country to another (Quer, Claver & Rienda, 2007). To overcome the conflict between employees, Starbucks focusing on partner (employee) development by educating and engaging with partners. As a globalization company, Starbucks employees may be come from anywhere. It also included the management team. On the way to educate them, Starbucks should focus on the topic of “working with multicultural groups and teams”. A successful manager should understand the country and play as a local role.
The changing of lifestyle is making coffee shops as a place for customers to relax, especially Starbucks is known as a place to socialize. Therefore, not only the back office, the front office which provided service must be in accordance with existing standards. Thus, Starbucks waiters should always maintain their quality of service. To improve customer loyalty and satisfaction, Starbucks can try the suggested way. Send a birthday card and invite people come to Starbucks store have a free cup of coffee. This will be look upon as warm action in customers’ perspective.
3.3 Financial Risk
As stated in the analysis part, by embracing expansion strategy to low-cost countries, Starbucks is vulnerable to financial risks. Financial risk is defined as the probability of loss inherent in financing methods which may impair the ability to provide adequate return, in Business Dictionary.
According to a research done by Aberdeen Group (2005), low-cost country expansion is not a quick fix. Everything takes longer when a company deals with expansion to low-cost country, from supplier assessment to sourcing to supplier development and supply lead times, to realization of cost savings. Therefore, joint venture is highly recommended as a solution to the problem. A joint venture is a strategic alliance between two or more individuals or entities to engage in a specific project or undertaking. Joint venture offers many advantages such as, sharing of risk, legal expertise, technology, knowledge of local culture and language, understanding of local competition and last but not least, less interference from the Government.
Despite all the advantages a joint venture boasts, it was observed that Starbucks was unable to earn more revenue from its international operations due to its complex joint ventures with PT Mitra Adi Perkasa and licensing agreements with PT Sari Coffee Indonesia. While the company invested huge amounts in imparting training to the employees and promoting its products, it earned only a percentage share in total profits and royalty fees. It was further felt that the company did not have any control over the operational costs. The need to revise the joint venture arises in this case. A simplified joint venture with effective communication process will be a good change for Starbucks. This will help to cut down cost and enable a rapid flow of information. Also, an increase in percentage share of total profits or increased royalty fees in compensation of the enormous amount of money spent by Starbucks in imparting training to the employees and promoting its products will lead to higher revenue.
General economic conditions in the markets in which Starbucks operates must be monitored at all times. Interest rate, exchange rates, change in consumer purchasing power, commodity costs for commodities that cannot be effectively hedged, such as fluid milk, and to a lesser extent, high- quality Arabica coffee, are amongst the things that are to be monitored constantly. Changes are to be made from time to time to cater to the situation in order for Starbucks to profit from their business.
It is also vital that Starbucks foster better ties with financial institutions to facilitate financial transactions, loans, refinancing, and liquidity of asset. This could provide Starbucks an upper hand over competitors.
Due to the trend of globalization, many companies actually decided to expand their business across national boundaries. Starbucks has taken great opportunities to increase their global market shares through various expansion strategies. As a conclusion, Starbucks Indonesia has established a strong market base in the short period of ten years. With the realization that Starbucks Indonesia has performed well in the recent years, the company put much effort in term of innovation, differentiation, research and development, consistency ate the factor to evolve the company.
As the president of Starbucks Coffee China and Asia Pacific, John Culver was focusing on building brand awareness by leading his team in creating a strong foundation that helped fuel Starbucks international growth. Different strategies need to be implementing to adopt and built according to different nature of business in different countries. The terms and conditions contractual for joint venture can be renewing in order for Starbuck gain a better profit in the Indonesia market besides sharing development cost and risks with the PT Mitra A Diperkasa.
A different cultural context leads to the communication challenges in the workplace. Starbucks employees may comes from vary backgrounds, cultures and believes. The basic understanding of cultural diversity is very important key to the effective cross-cultural communications. The management team or the leader plays an important role in developing an effective organizational culture. He or she must be mindful of the culture differences and work to keep everyone involved aware and respectful of difference culture.
In addition, Starbucks can recommend the meal set packages as to compete with the competitors such as McDonald. As an example, Starbucks can offer a breakfast set or tea-break set with the combination of drink and food. Nowadays, consumers are likely to choose combo set; a cup of coffee with a piece of muffin can be easily matched in a combo set for consumers.
Different cultures, rules and regulations may cause problems, but it may just well turn out to be profitable and educational in a long run. All these strategic movements of Starbucks are well thought and planned which lead the company to a greatest success.
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