Critical Evaluation Organization's Resources and Capabilities of Starbucks in China - Coursework Example

? Critical evaluation of organization’s Resources and Capabilities - Starbucks in China. Table of contents 0 Starbucks’s Resources strategy 3 1 Tangible Resources 3 1.2 Intangible Resources 3 1.3 Human Resources 4 2.0 Starbucks’s Capabilities strategy in term of Value chain 4 2.1 Inbound Logistics 5 2.2 Operations 5 2.3 Outbound Logistics 6 2.4 Marketing and sales 6 2.5 Service 6 3.0 Conclusion 7 4.0 References 9 1.0 Starbucks’s Resources strategy Different approaches can be used in order to measure the performance of a particular organization. In the context of the Resource-based theory, a firm is able ‘to develop a competitive advantage only if its resources are unique’ (Sehgal 2010, p.43). Two are the key characteristics of a unique resource: ‘a) it is rare and b) it cannot be duplicated, at least not easily’ (Sehgal 2010, p.43). In the case of Starbucks an effective Resources strategy should focus on the employment of unique resources so that a competitive advantage is acquired towards the firm’s major competitors. The potentials of Starbucks to develop such advantage is analyzed below by referring to the firm’s performance in regard to each of the elements of the Resource-based theory. 1.1 Tangible Resources The tangible resources of organizations are assets that have a physical existence; the buildings in which business operations are developed and the cash available to the business are assets of this kind (Sehgal 2010). In China, as in all countries worldwide, Starbucks is characterized by specific features as of the style/ decoration of its stores and the dinnerware sets/ cups used for serving the customers (Starbucks Coffee International 2013). However, these features are not unique since they can be identified, with differentiations, in other brands operating in the same sector. According to Wang (2012) the interior of Starbuck’s stores across China is unique not only in regard to decoration but also as of the chairs available to customers and the style of music chosen; in this context, it is noted that the stores of Starbucks in China offer to the business a unique competence towards the competitors (Wang 2012). 1.2 Intangible Resources The intangible resources of a business do not have a physical existence; intellectual property rights that the business have in regard to its products and the brands that the business owns are common examples of intangible resources (Sehgal 2010). For achieving a high competitiveness through its intangible resources, a firm needs to periodically update those resources, according to the market trends. The example of Toyota that developed Lexus as a separate brand so that it is able to increase its competitiveness in the luxury cars sector is important for understanding such practice (Sehgal 2010, p.44). In the above case, Toyota would not be able to enter this sector without the employment of a unique resource, such as the new brand (Sehgal 2010, p.44). 1.3 Human Resources Human resources can also lead to competitive advantage if they are unique (Rao and Sivaramakrishna 2009). The uniqueness of these resources would be related to a variety of issues, such as the quality of training, the hiring/ selection process or the performance appraisal (Rao and Sivaramakrishna 2009). In Starbucks employees are given the training that it is commonly available to the sector’s employees; also, no unique feature seems to exist in regard to the firm’s selection/ hiring process or the skills/ competencies of employees (Starbucks Coffee International 2013) 2.0 Starbucks’s Capabilities strategy in term of Value chain At the next level, the Capabilities strategy of Starbucks should be also reviewed. Porter’s Value Chain model could be used for evaluating the specific strategy of Starbucks. According to Porter (2008) the activities of each organization contribute, more or less, to the development of products/ services that ‘are valuable to their buyers’ (Porter 2008, p.38). These activities can be categorized into ‘primary and support activities’ (Porter 2008, p.38). Each of these categories is further divided into sub-categories, as presented in Figure 1 below. In the relevant graph (Figure 1), primary activities represent those activities that are most critical in the development of products while the support activities, as their name denotes, have to support the primary activities in regard to all their parts (Porter 2008). As for margin, the specific term is used for showing ‘the difference between the total value and the cost of performing value activities’ (Porter 2008, p.38). Figure 1 – Porter’s Value Chain model (source: http://www.mindtools.com/pages/article/newSTR_66.htm) The various parts of Porter’s Value Chain model are analyzed below by referring to the relevant activities of Starbucks in China. 2.1 Inbound Logistics The term inbound logistics is used for showing the business activities related to the management of goods importing in the organization (Needle 2010, p.275). In Starbucks there is a standardized process for managing importing goods, so that delays in responding to the orders of customers are avoided. In 2008 the company’s senior vice president was asked to proceed to the reorganization of existing supply chain management system so that costs are reduced and time in transporting goods to the firm’s stores worldwide to be reduced (Cooke 2010). The creation of a ‘global logistics system’ (Cooke 2010) for all the firm’s stores has significantly helped to the achievement of the above target. 2.2 Operations In Porter’s value chain model operations are usually related to the various needs of business activities, mostly the costs involved in each phase of these activities (Zhang 2010). One the most important challenges that the firm has to face in regard to its operations in China is the high price of its products. In fact, the oppositions towards the high prices of Starbucks’ products have been high, both by consumers and by the government (Schuman 2013). 2.3 Outbound Logistics In regard to its outbound logistics, i.e. to ‘the processes for bringing its products to the customers’ (Needle 2010, p.275), Starbucks perform quite high. Customers are quite satisfied by the quality of services in Starbucks’ stores across China, a fact that has made Starbucks quite popular in the particular country (Wang 2012). It should be made that outbound logistics of the firm’s stores across China are based on the global logistic system of the business, like inbound logistics also. This fact minimizes the time required for bringing products to customers and helps to identify risks early. 2.4 Marketing and sales As of marketing and sales, the effectiveness of Starbucks in regard to these sectors cannot be denied. According to Wang (2012) Starbucks has managed to attract the interest of Chinese consumers and change their traditions; indeed, for Chinese culture tea has been an indispensable part of daily life. By avoiding developing an opposition with existing culture in regard to tea, managers in Starbucks were able to attract, gradually, the interest of Chinese consumers and to gain their loyalty (Wang 2012). This target was achieved mostly by focusing on ‘high traffic locations for promoting brand image’ (Wang 2012). 2.5 Service In Starbucks in China emphasis has been given not just to expansion but mostly to’ the commitment in the long term’ (Wang 2012). Employees in the firm’s stores across China are quite cheerful and friendly helping the customers to feel quite welcomed (Wang 2012). In the literature it has been revealed that employees’ skills can be considered as core competencies which can lead to sustainable competitive advantage (Ashraf 2010, p.11). 3.0 Conclusion The competitiveness of Starbucks in China has been analyzed using two theories/ models: the Resource-based Theory has been employed for evaluating the firm’s competences and Porter’s Value Chain has been used for checking the firm’s capabilities. In terms of its resources Starbucks can be considered as having a competitive advantage towards its competitors: the competitive advantage of Starbucks is mainly related to its brand name, i.e. to an intangible resource. In customers’ mind Starbucks, as a brand name, reflects the availability of products of a unique characteristic, meaning especially the coffee mix on which most of Starbucks’ products are based. From this point of view, it could be stated that Starbucks has managed to develop a distinctive capability, i.e. its reputation, which enhances the firm’s competitiveness in the market (Stonehouse and Houston 2013). On the other hand, by deploying just a unique resource, i.e. the brand name, the firm cannot secure its future competitiveness in the Chinese market. Moreover, as Tallman (2010) notes that using effectively existing resources or employing unique resources are not criteria for securing the competitiveness of business. Rather, emphasis should be given on the ability of a firm to develop ‘stocks of resources and capabilities for keeping its competitiveness in the future’ (Tallman 2010, p.127). Under these terms, it could be supported that the Resources-based theory may not be appropriate for evaluating the potentials of Starbucks to keep its competitive advantage towards its rivals. Another challenge that managers in Starbucks in China would face when trying to use the Resource – based Theory for increasing the firm’s competitiveness is the following: Chinese consumers have not the same behaviour and culture with Western consumers (Mourdoukoutas 2013). In fact, Chinese consumers have their own cultural characteristics, a fact that it is revealed to their strong opposition towards any increase of Starbuck’s prices in China (Mourdoukoutas 2013). Also, media in China is differentiated from western media (Mourdoukoutas 2013). In fact, Chinese media is strongly depended on government’s decisions, a fact that can set obstacles to the efforts of foreign businesses to secure the uniqueness of their resources. The strong complaints published in the state media in regard to the high prices of Starbuck’s stores in China (Burkitt 2013) verifies the pressures that Starbucks in China could face by state media. In regard to Porter’s value chain model as a tool for identifying the core competencies and capabilities of Starbucks, the following problem seems to exist: in China the Political and Social environment is quite different from the Western ones, as the PESTEL analysis developed for Starbucks in China has revealed. This means that the identification of strategies that could secure the profitability of Starbucks in the long term could be quite difficult (Stratton 2009). For Merchant (2012) the lack of flexibility of Porter’s value chain model significantly reduces the model’s effectiveness in evaluating the competitiveness of businesses in the modern market. In this context, the use of strategic tools, such as Porter’s value chain or the PEST analysis for checking and evaluating the competitiveness of Starbucks in China could not help to identify all challenges that the firm would have to face while operating in this country. However, by combining the findings of these tools and by keeping costs low, could help managers of Starbucks in China to avoid risks and to keep performance at a standard level; gradually, expansion could be achieved by following the practice that the firm has used up to now in China, as the path dependency theory suggests (Townsend and Wilkinson 2011). 4.0 References Ashraf, Y., 2010. Business Process Management - A Comparison Between the Change Initiative Business Process Reengineering and the Continuous Improvement Method Six Sigma. Norderstedt: GRIN Verlag. Burkitt, L., 2013. “Starbucks Is Criticized by Chinese State Media for Higher Prices.” October 21, 2013. The Wall Street Journal. Available at . Cooke, J., 2010. “From bean to cup: How Starbucks transformed its supply chain.” Supply Chain Quarterly, Quarter 4, 2010. Available at . Merchant, N. 2012. “Why Porter’s Model No Longer Works.”February 29, 2012. Harvard Business Review. Available at . Mourdoukoutas, P., 2013. “Two Things Starbucks Shouldn't Take For Granted In China.” October 26, Forbes. Available at . Needle, D., 2010. Business in Context: An Introduction to Business and Its Environment. Belmont: Cengage Learning. Porter, M., 2008. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon and Schuster. Rao, C. and Sivaramakrishna, K., 2009. Strategic Management and Business Policy. New Delhi: Excel Books India. Schuman, M., 2013. “How a Starbucks Latte Shows China Doesn’t Understand Capitalism.” October 24, 2013. The Time – Business and Money. Available at . Sehgal, V., 2010. Supply Chain as Strategic Asset: The Key to Reaching Business Goals. Hoboken: John Wiley & Sons. Starbucks Coffee International, 2013. Organizational website. Available at . Stonehouse, G. and Houston, B., 2013. Business Strategy. London: Routledge. Stratton, W., 2009. “Can Value Chain Analysis lead to Business Transformation?” Journal of Management Excellence: Business Transformation, Issue 7, pp.15-17. Available at . Tallman, S., 2010. Global Strategy. Hoboken: John Wiley & Sons. Townsend, K. and Wilkinson, A., 2011. Research Handbook on the Future of Work and Employment Relations. Cheltenham: Edward Elgar Publishing. Wang, H., 2012. “Five Things Starbucks Did to Get China Right.” Forbes. October 8, 2012. Available at . Zhang, H., 2010. “Research Hewlett Packard through its Value Chain.” International Journal of Business and Management, 5(8): 179-190. Read More