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Starbucks in China Case Solution
It is suggested that if certain problems and challenges are addressed appropriately and carefully, the move can surely be a successful one. The company can make a mark in the local market if it allows itself to carry on the joint business ventures by giving other companies the license to buy or run the Starbucks coffee shops. However this approach is contrary to the domestic plan of the business where most of the businesses are owned by the corporation itself, but it might prove beneficial to a foreign market like China because the company can progress with the help of the experienced local partners. These locals might assist the company by tracking locations, handling the taxation and making it popular among the people. Moreover, once the business flourishes, Starbucks shall be able to buy a controlling interest. It will allow the company to have the power and control of the overall business (Yan, 2016).
Following questions are answered in this case study solution:
What is the purpose of the move both strategically and economically?
What risks should management be concerned with and why? How can the firm mitigate these risks?
Should the firm adapt existing strategies and, if so, how? And, if not, why not?
What are they doing or planning right thus far? What should they be doing differently?
- What is your assessment of the move? Will it succeed or fail and why?
Case Study Questions Answers
1. What is the purpose of the move both strategically and economically?
The strategic purpose of this move is to create a brand name, and the economic purpose is to gain profits from the stakeholders. The current move into China is being made to build Starbucks into a life brand that Chinese consumer desires. There is a remarkable prospect to build on this expansion move and make their business successful in the diversified Chinese market. The Chinese middle class is perceived to be quite brand conscious in China what loves coffee. It is true especially for the younger generation who are replacing tea with coffee over the passage of time (Rein, 2012).
This move will allow Starbucks, a global brand, to gain local support either through joint ventures and the opening of new stores. This move will also increase the customer base and will add to revenues produced by Starbucks further paving the way towards grabbing greater market shares in the long run (Law, 2014).
2. What risks should management be concerned with and why? How can the firm mitigate these risks?
Starbucks’ management should be concerned with the following types of risks:
This risk might occur due to the breakdown of apparatus used in the company, problems in supply and distribution channels and the reduction of inventory. This type of risk can be mitigated by bringing efficiency in operations, by reducing costs and by increasing productivity and quality standards.
Change in the socio-economic and political processes of China can have an impact on sales and operations of the firm. Government policies, rules and regulations, as well as the legal status of the firm, can create problems for Starbucks. Minimizing this type of risk is beyond firm's control, therefore, company policies must be flexible enough to adjust to the changing circumstances within the country (Schultz, 2003).
Since the Chinese community is greatly concerned about environmental sustainability and the impacts of operations on the climate, Starbucks will have to mitigate this risk by reducing environmental damage through internal regulations, use of safe products and harmless machinery.
All multinational firms face strategic risk in global environments. When entering a new country, the threat of new entrants, similar products and other rivals are the most important factors that are likely to affect the sales and revenues (Schultz, 2003). To overcome these risk factors, Starbucks should introduce some diverse products and also by gaining customer loyalty.
3. Should the firm adapt existing strategies and, if so, how? And, if not, why not?
It might be reasonable for the company to adopt the existing strategies and continue with them because those strategies are usually based on excessive market research and practical information. An entry strategy was articulated by the Starbucks that was expected to address the leading markets of the China. Furthermore, the authorities designed the strategy such that it might not contradict with the Chinese values and offend the locals. Contrary to the conventional method of using rigorous advertising and promotional packages, Starbucks developed their stores in some of the places with a huge traffic or attraction of the people (Wang, 2012). Hence, it is observed that when Starbucks open a store in an emerging industry like China, they make sure to give it a head start. They send out their best baristas for the launch of the store and for the training of the new baristas who are supposed to carry on and run the store after that.
Therefore, the competitive advantage of the Starbucks focuses on the service, product and attributes of the brand that are believed to be important for the Starbucks' customers according to the market research.
4. What are they doing or planning right thus far? What should they be doing differently?
It is a target of the Starbucks to inaugurate 500 new stores in a calendar year as they look forward to establishing a strong network of 3400 coffee stores in the country for the next four years. The expansion is a huge figure of 70 percent as compared to the 2000 shops that are operating in 100 Chinese cities now. In China, Starbucks offers all the items that a café is supposed to offer like scones and lattes. Moreover, it also presents a good range of local food and beverages like sausage buns, mooncakes, Frappuccino and traditional sweets. It is inferred that drinking Starbucks is considered a symbol of status for many Chinese as people there can have a dinner or a cup of coffee for a few bucks usually. Hence, it is fruitful on the part of the company to open new stores in the country and develop loyalty among its customers (DeVault, 2015).
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