Strategic Management - Analysis of Starbucks External Environment - Essay Example

STRATEGIC MANAGEMENT‏ Table of Contents Table of Contents Analysis of Starbucks’ external environment 3 Macro-environment 3 Economic analysis 3 Political and Legal Analysis 3 Social and Cultural Analyses 4 Technology 5 Micro-environment 6 Industry rivalry 6 Potential for New Entrants 6 Substitute products 7 Suppliers Bargaining Powers 7 Bargaining Powers of Buyers 7 Critical success factors 8 Global Hot Drinks Market Value 8 Task B: analysis of Starbucks strategic capability 8 Threshold Resources and Competences 8 Distinctive Resources and Competences 9 Value Chain and Value Network Analysis 10 Weakness and Strengths 10 How are Starbucks’ strengths and weaknesses matching the opportunities and threats in the external environment? 11 To what Extent is Starbucks Matching the CSF identified in Task A? 12 Summarise of Overall Strategic Fit of Starbucks, Highlighting Any Special Strengths/Weaknesses and Opportunities/Threats 12 Strengths 12 Weaknesses 13 Opportunities 13 Threats 13 Appendix 15 Introduction At present, Starbuck is one of the leading coffee industries in global market. The company is as well universally known for bringing into the global market innovative and new products in an easily accessible and convenient location. The Starbucks was introduced in 1971 in Pikes Peak market in settle, Washington. The company was founded by Gordon Bowker and Jerry Baldwin. The Starbuck Company was originally referred to as Starbucks Coffee, Tea and Spices. In early 1980’s, the company expanded within Seattle area by opening four additional outlets. In 1987, the company unveiled a five years plan which was aimed at opening more than 125 stores in new areas at a cost of $ 60 million (My Starbucks Idea 2012, par. 7). To attain the required resources to open new outlets, the company introduced an Initial Public Offering in 1992. The success of the offers enabled the Starbuck Company to unveil other very intricate expansion programs. To fit in the contemporary competitive market, the company has continued to come up with strategies that are aimed at expanding its business into other global markets. Currently, the company is one of the most successful coffee industries in global market. Due to economic and technological development, the Europe continent is one of the most competitive coffee markets in the world. This is due to the presence of large coffee industries in the continent. Therefore, for Starbuck Company to prosper in the European continent market, it ought to come up with exceptionally effective market plan (Gulati, 2007, p. 99). The essay below will offer a detailed evaluation and analyses of the Starbucks external markets in Europe. The essay will as well analyse the Starbucks strategic capability as well as the company’s strategic fit analysis. Analysis of Starbucks’ external environment Macro-environment Economic analysis The European economy is in most cases affected by some external factors such as economic recession. The economic recession and other economic factors have over years brought about severe impact in the operation of Starbucks Company. For instance, the 2008 and 2009 global recession increased the operational cost of the company thus lowering its profit margin. On the other hand, the 2008 recession as well played an awfully critical role in reducing the number of the company’s customers. This was due to the facts that, despite of the high cost of the products in the continent, the level of unemployment remained high with very limited wages. Moreover, the Starbucks Company competes at two main levels in the European market, the Italian-style coffee beverage and undifferentiated traditional coffee (Harding 2000, p. 97). Therefore, by producing both low cost coffee to fringe customers and high cost options to more affluent clientele, the Starbucks Company is in a position to meet the interests of all its customers. However, although the company productivity was to some extent affected by the 2008 financial crisis, the company was still in a position to make adequate profit due to the popularity of the company’s brand Political and Legal Analysis Starbucks Company has over years faced critical legal and political predicaments in their macro-environment. The Starbucks Company import their coffee bean from different countries which have diverse tariff and custom regulations. In some instance, the Starbucks Company business is severe affected by severe legal and political requirements in some countries. However, for the country to operate well in international scale, Starbucks Company has gathered adequate information on legal and political requirements in different countries. The Starbucks Company popularity in European coffee market is as well brought about by the company’s gained expertise on the most effective ways of importing beans from several countries. The company is as well in a position of keeping detailed information on policy changes, political upheavals in different countries. On legal issues, the Starbucks Company have fulfilled all legal requirements in European market. The company has as well filled all the necessary permits and legal forms which authorises local and international business operations. To effectively operate in European market, any local and international business is expected to fill factory leases form, tax form, legal contract form, and business entity application. Moreover, a company is as well expected to fully comply with federal and local government business regulations and laws. The Starbucks Company has so far fully complied with European labour laws, Business Practice Restriction Laws as well as Food Handling Regulations (Michelli, 2007, p. 267). Social and Cultural Analyses Socio-cultural aspects deals with customers demands and forces in the market. The ever-increasing customers’ demands on quality products and services have forced Starbucks Company to improve their operation practices. To effectively position itself in European market, the Starbucks Company has introduced the CAFE program which is intended at expressing its social responsibility in facilitating sustainability in coffee bean growers. The program is as well aimed at improving the quality of the coffee beans which is supplied to the company. Due to its effective social responsibility, the company has acquired several rewards including Organic Certification, Rainforest Alliance Certification as well as Fair-Trade Certificate. Moreover, as customers’ become more informed and concerned about their health, the Starbucks Company has as well introduced a plan which is intended at monitoring the market environment in order to come up with products which can meet the customers’ demands. For instance, initially, the Starbucks Company was resistance to include milk products in their coffee. But due the pressure from their customers the company has incorporate a 2% milk product in its coffee brand (Koehn 2005, p. 99). Technology Technology is one of the most essential microenvironment factors to any coffee industry. Technologies facilitate effective interaction between customers, products services, innovation as well as customers’ ambience. The Starbucks Company new technology has enabled the company to directly market its new products by the use of online services such as emails, text messages as well as social network. The adopted modern technology has also proved to be cost effective compared to traditional means of advertisement. Moreover, products innovation has also confirmed to be very helpful in Starbucks Company. The technology has allowed the company to introduce new and quality products in the market. In addition, the modern technology has also improved the manner in which Starbucks Company produces its product by using a more effective process and new machines which results to improved quality of the products as well as facilitating effective service delivery to the customers Micro-environment Michael Porter’s 5 Forces Model Industry rivalry The Starbuck industry has over years experienced significant changes in the dynamic of industry rivalry. Contrasting to earlier days when Starbucks Company used to compete with small-scale specialty coffee retailers, the company is current faced with severe competition from large companies. The Starbucks Company is a result forced to restructure its operation to effectively position itself in European market. More the Starbucks Company is also competing with other small companies in their area of coverage. Some of the main Starbucks Company competitors are Caribou Coffee Company, The Canadian-Based Company, AL Van Houtte which operates over 100 Corporate Outlets and Franchise, Peet’s Coffee and Tea Company, McDonald’s Restaurants as well as Dunkin Donuts Company. In general therefore, the existing industrial rivalry forces in European coffee market are very high as compared to the last twenty years when Starbucks Company expanded rapidly. Instead, the growth of Starbucks Company has slowed down while the number of competitors has significantly increased. Potential for New Entrants The current analysis of the current operation environment of Starbucks Company has confirmed a significant change in potential for new entrants since the late 1980’s. The increase in top players in coffee market has as well resulted to the increase in the economies of scale. Most of the Starbucks Company competitors have effective distribution channels of their products at a low price. Moreover, a good number of Starbucks Company competitors have the capability of economising their accounting operations and marketing spending. Furthermore, to reap economies of scale, Starbucks Company competitors are in a position to negotiate long term contracts with coffee farmers thus complicating the Starbuck operations in European coffee market. Substitute products The recent years have witnessed a decreases in forces created by substitute products in specialty coffee industry in Europe. Many companies which have over years been creating threat through substitute products have now completely entered into the market by offering premium coffee selection. However, the only substitute product which is posing threat to Starbucks Company is caffeinated soft drinks which are produced by Coca-Cola and Pepsi Company (Lee, 2007, p. 254). Suppliers Bargaining Powers Due to the ever-increasing development in specialty coffee industry, suppliers bargaining powers have changed in several ways. Initially, farmers who sell their coffee to Starbucks Company were unconnected. At present, farmers are united through Fair Trade Certified Coffee. As a result of this, Starbucks Company is forced to buy its coffee beans to democratically owned cooperatives at a high price. Therefore, the bargaining power of modern suppliers is higher compared to the 1980s suppliers bargaining powers. This is due to the increased unity among suppliers (Grant, 2008, p. 67). Bargaining Powers of Buyers The availability of information on the marketing price, suppliers’ costs and demand through World Wide Web has increased the buyers bargaining powers. By having accurate information, buyers are in a position to ensure that they get high quality products at favourable prices at any time. Moreover, the accessibility of information regarding Starbucks Company market variables has as well increased the buyers bargaining powers. In broad-spectrum therefore, the identified opportunities of Starbucks Company are its effective technology which has helped in the production of high quality products and services. Despite of its popularity, the Starbucks Company is as well faced with a threat of lacking an effective marketing strategy to counter their competitors in the European market Critical success factors Starbucks Company has adopted an incredibly effective technology mechanism of marketing its products. The company is currently using internet and mobile communication apps to access its customers. The Starbucks Company has also embarked on offering effective and quality services to its customers. Starbucks Company as well has strong network of distributors. Finally, compared to other competitors, the Starbucks Company has very effective production line. Global Hot Drinks Market Value Year $ in Millions % Growth 2005 58,862.3 - 2006 60,728.9 3.2% 2007 62,950.8 3.7% 2008 65,406.2 3.9% 2009 68,030.9 4.0% CAGR 2005-2009 3.7% Task B: analysis of Starbucks strategic capability Threshold Resources and Competences Compared to its competitors in European market, Starbucks Company has numerous threshold resources and distinctive competences. The company has one of the most effective market leadership in global coffee market. The company as well has superior real estate location and very effective supply chains. Due to its popularity in European market, the company is as well in a position of shaping the industry trend. The company excellent retail location has also given the company the power to control the operations in global market. The company’s stores are as well located in areas which have better demographic composition. Due to its high visibility which is linked with premium retail location, the promotion cost of the company is as well very low (Gaffen, 2008, p.126). As opposed to most of its competitors, the company has one of the strongest supply chains of operation. The Starbucks Company has more effective services than its competitors due to several primary reasons. For a starter, Starbucks Company has one of the best transportation rate compared to its competitors. The company’s bakery distribution model as well as its sophisticated forecasting process has helped the company to effective identify when and where coffee is urgently needed. Immediate identification of the areas where coffee is in high demand have assisted the company to make on-time and appropriate deliveries. Compared to its competitors, the Starbucks Company multifaceted distribution and manufacturing process has enabled the company to maintain effective and string inventory turns. In addition, the Starbucks Company is also known for its ability to protect the integrity of their coffee from oxygen effects through closed loop packing system. Distinctive Resources and Competences The company’s culture has enabled it to eliminate barriers and improve its efficiency. The Starbucks Company culture is guided by six key principles, embracing diversity, nurturing of dignity and respect, recognise success and profitability, create satisfied customers, apply the highest standard of operation and contribution to the environment and community. The Starbucks Company has as well adopted an administrative power structure with top to bottom movement of information. In store level, Starbucks Company has employed a modular system where employees are effective trained on the main operational aspects. Employees have freedom of making decision on behalf of the company. The use of modular system has also enabled the company to maintain homey atmosphere in its stores (Blumenthal 2007, P79). The customers’ perception of the Starbuck Company as a company which offers quality and affordable products have also increased the company’s advantages over its competitors. The company involvement on social responsibility has as well played a very essential role in improving its image over its competitors. Value Chain and Value Network Analysis The Starbucks Company buys coffee beans directly from farmers. The company does not rely on middlemen thus reducing its operation cost. Some of the Starbucks Company main suppliers are Pacific Rim, East African countries as well as Latin America countries. The Starbucks Company also oversees all facets in the value system. Effective evaluations of its value chain and value network have helped the company to produce and distribute some of the highest quality coffee in global market. The Starbucks Company has as well created very close relationship with coffee export by directly working with them and offering them the required training. The company’s decision to produce quality coffee is always made within its effective structures and infrastructures. The company has very effective information management systems, quality control structures as well as well monitored financial and planning systems. To effectively compete in the contemporary market, the Starbucks Company has also created very effecting value network with all its players. Starbucks Company oversees all the activities and operations that take place in all its production line. The aim of this plan is to facilitate the production of quality products as per the market demands (Mankiw, 2007, p. 247). Weakness and Strengths In the light of the above analysis, it is clear that, Starbucks Company have one of the most effective structures to facilitate production of quality products. The company has as well established effective value network which has facilitated effective interaction between all players. The company’s leadership is as well effective and relevant in the modern market. However, a part from its encouraging strategies the company has failed to fully incorporated all players in their decision making process. The top executive officers are in most cases the main decision makers. Task C: Strategic Fit Analysis How are Starbucks’ strengths and weaknesses matching the opportunities and threats in the external environment? The Starbucks Company are designed effective strategies to deal with possible threats in the market and to utilise the available opportunities to meet its objective. The company has as well leveraged its strengths to overcome future threats in the market and realise the potential opportunities. To enter into other global markets such as China, Starbucks Company has maintained the high quality of its brands. As a result, Starbucks Company brand has emerged to be very strong competitor in global market. The renowned strength of the company brand has as well enabled the company to effectively market its product in new markets. To counter, the ever increasing market competition, the Starbucks Company has as well improved the reputation of its products in global market. Moreover, to guarantee it positions in global market, the company has as well maintained effective store operation and has an effective financial performance. To effectively penetrate in new global market, the Starbucks Company has instituted a plan to sell its product by using retails stores. With its current over 17,000 retail locations, Starbucks Company is able to expand its market and increase its market shares. To minimise over-dependent on United States market, the company should utilise the available opportunity and open more business outlets in other areas such as China and Middle East countries. To improve its shares in the global market, the company ought to undertake intensive evaluation to identify potential threat and the most effective way of dealing with the identified threats. To what Extent is Starbucks Matching the CSF identified in Task A? To adopted effectual technology mechanism of its products, the Starbucks Company is currently relying on social media services and other technological services to interact with its customers and market its brands. The company is currently using internet and mobile communication apps to get feedback from its customers. Use of technology has played a very essential role in improving company’s reputation in global market. To match with the identified CSF, the company has also introduced effective network to link all players in the organisation production line. The Starbucks Company has as well embarked on offering effective and quality services to its customers. The plan is as well intended at marching the company’s intension of expanding its business operations to other parts of the world. Moreover, Starbucks Company also has strong network of distributors to facilitate effective distribution of the company’s products. Finally, compared to other competitors, the Starbucks Company has very effective and a collaborative production line (Argenti, 2004, p. 91). Summarise of Overall Strategic Fit of Starbucks, Highlighting Any Special Strengths/Weaknesses and Opportunities/Threats The Starbuck company main plan is to remain one of the most competitive players in coffee market. The company also plan to expand its operation to other parts of the world. However, to achieve its goals, the Starbuck Company ought to evaluate and consider the following strengths, weaknesses, threats and opportunities. Strengths The Starbucks Company’s strengths aimed at helping the company to achieve its goals. The Starbucks Company has a wide range of products compared to its competitors. The Starbucks Company has a global reputation for offering quality products and services. The company also has effective financial performance compared to its competitors. To offer effective distribution mechanisms, the company has also opened several outlets in numerous parts of the world Weaknesses The company overlies on United States of America markets. Due to overreliance on United States of America market, the company has very low market shares. Over years, the Starbucks Company has encountered a recalled of some of its products due to its poor quality. This has also led to weakening of customers royalty and trust on its products. Opportunities The emerging economic development in Russia, China, and Brazil has given Starbucks Company a chance to expand in these new markets. Starbucks Company is as well utilising strategic growth initiative to advance its marketability and brand awareness to new customers. The company also has effective third place experience in global market. Threats If the Starbucks Company continues to saturate its operations in the United States of America, then it’s likely to continue losing its market shares. The emergence of new regulations is also likely to interfere with the Starbucks Company operations. On the other hand, Starbucks Company has a very loose relationship with United States of America federal government. References Argenti, P. A 2004, “Collaborating with Activists: How Starbucks Works with NGOs”, Berkeley: Haas School of Business. Blumenthal, K 2007, “Grande Expectations: A year in the life of Starbucks’ Stock”, New York, NY: Crown Publishing Group. Gaffen, D 2008, “Starbucks Jolted by Hope and Caffeine. Retrieved 12TH December 2012, from Wall Street Journal: http://blogs.wsj.com/marketbeat/2008/01/08/starbucks-jolted-by-hope-and-caffeine/ Grant, R. M 2008, “Contemporary Strategy Analysis”, Malden: Blackwell Publishing Gulati, R 2007, Silo Busting: How to Execute on the Promise of Customer Focus. Boston: Harvard Business School. Harding, V 2000, “The Starbucks Effect”, Boston: Harvard Business School. Koehn, N 2005, “Howard Schultz and Starbucks Coffee Company” Boston: Harvard Business School. Lee, H 2007, “Starbucks Corporation: Building a Sustainable Supply Chain”, Stanford: Stanford Graduate Business School. Mankiw, G 2007, “Principles of Economics, 4th Edition”, Mason: Thomson South-Western. Michelli, J. A 2007, “The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary”, New York: Mcgraw-Hill. My Starbucks Idea 2012, Retrieved December 12th, 2012, from www.mysatrbucksidea.com: http://mystarbucksidea.force.com/ Appendix Appendix 2 Read More