Global Business Management: Analysis Of Starbucks Corporation

Overview of the Company

Starbucks Corporation the premier retailer of specialty coffee was founded in 1971 in the USA. It succeeded in expanding throughout the world countries depending on its expansion and internationalization strategies. Its huge distribution channels, retail stores and its policy of marketing other brands alongside its products accelerated its expansion and growth (Lemus et al. 2015).

The future look at Starbucks business shows that it is likely to achieve more success through its strategic planning for growth, leveraging its brand name and dependency on technology (Starbucks 2017b).

An overview of the company background, the internal and external analysis of Starbucks, identification of company competitive advantage and recommendations based on using strategic analysis tools will be provided in the following section.

Starbucks mission is to inspire the human spirit and the nature of 1 person, 1 cup and 1 neighborhood.  In 1971, Starbucks objective was to continually inspire its customers in each visit to the store through striving to make each experience comfortable. It used to timely respond to customer needs, introduce new products, manage innovative techniques and communication (Strabucks 2017a).

Starbucks workforce recorded about 277 thousand people worldwide in 2017. The majority of the employees work in the US in the stores and the support facilities as well (Strabucks 2017a).

Starbucks considers its customers at the core of its culture, which is clearly disclosed in the company values. It creates a culture of belonging that welcomes everyone, accountable for the results, acting with a challenge to grow the company and assure its transparency (Starbucks 2018).

Howard Schultz, the CEO and Chairman of Starbucks since 1987 could implement his change management idea of opening 125 stores in the market and increasing the investors’ confidence in the company. He kept the brand name for competition purposes. The management team is meant to continue the company expansion by opening new stores globally. Schultz vision aims to encourage the investors and the employees to maintain healthy financial income to the company through venture capital investments overseas. Schultz worked together with senior managers to locate talents capable of managing in a global context (Lemus et al. 2015).

The McKinsey 7s model is a strategic planning tool that the firm uses in its internal analysis, including strategy, structure, systems, shared values, style, staff and skills. The alignment of the 7 interconnected elements together enables the organization to function effectively (Nejad, Behbodi & Ravanfar 2015). The 7s model could be applied to Starbucks, according to Cadet (2015), as follows:

• Shared values: Starbucks promotes fora culture that respects the employees and maintains equal treatment. Also, it manages diversity and fully engages in leadership. In addition, it applies the highest standards of excellence through its value chain and recognizes profitability as the major driver for future success.
• Strategy: The CEO strategy aims to highly increase the sales volume by continually opening new stores.
• Structure: Starbucks functional structure is tall and divisional, it involves, marketing, human resources, public affairs, sales, corporate social responsibility, public affairs and other departments.
• Style and skills: The CEO takes the responsibility for the company failure and success as well. Also, he is a visionary manager that could implement his vision in practice and succeed in fulfilling the company’s long-term goals.
• Staff: Starbucks has a big staff of talented employees worldwide where training and development takes a significant priority.
• System: The operating staff represents the major element in the system function due to the strength of the training and development. Also, the leadership skills maintain the operating system to the highest level of effectiveness.

Internal and External Analysis of Starbucks

Porters’ five forces model involves an analysis of the threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and intensity of competitive rivalry (Tavitiyaman, Qu & Zhang 2011) (Marshall 2013).

• Threat of new entrants:It is considered a moderate level because the barriers of new entrants are not very high to prevent new businesses to enter the soft drink market. Accordingly, the level of market saturation is moderate, but it is accompanied by a monopolistic competition structure. The new entrants will need a moderate level of initial investment. Starbucks enjoys large economies of scale and scope that creates a competitive advantage for it that facilitates their access to raw materials of the finest quality of coffee beans.
• Threat of substitutes:It is considered a high threat level because there exist many substitutes to the soft drinks offered by Starbucks. Also, consumers can make these products at home by using the premium coffee with low cost. In addition, the consumer switching cost it zero.  
• Bargaining power of buyers:It is considered a moderate threat level because different buyers already exist in the market and no one of them can control the market price. Although consumers are attracted to the high-quality premium coffee products.
• Bargaining power of suppliers:It is considered a low to moderate threat level because the suppliers are the source of the premium Arabica coffee planted in selected regions that makes switching between farmers is low. Starbucks business size and scale enable it to take advantage of its suppliers, but its social responsibility led it to implement the Fairtrade certified coffee under its coffee and farmer equity (C.A.F.E) program that provides a fair partnership status to suppliers.
• Intensity of competitive rivalry:It is considered a high to moderate threat level because of the monopolistic market conditions; Starbucks has the biggest market share, the matter that increases the competitive intensity (Geereddy 2013).

The business strategy reflects the organization future long-run direction. The strategic objective is to achieve the organizational goals effectively and efficiently and to satisfy the stakeholders. Porter (1996), as cited in Falamarzi, Alfadhel & George (2016), argued that the strategy involves setting the organization long-term goals and resources allocation to achieve them. Moreover, he identified 3 strategies to achieve a competitive advantage as follows:

• Cost leadership: To achieve high profits with minimal costs.
• Differentiation: To gain high profits by adding value to the existing products that create an advantage for the customer who wishes to pay moderate prices.
• Focus strategy: To concentrate on a specific market segment. Then it could be divided into focus cost leadership or focus differentiation.
• Stuck in the middle: This situation happens when the organization fails to select and adopt a specific strategy and stick in the middle that leads to low profits

The SWOT analysis will be used to analyses Starbucks internal competitive environment before analyzing its adopted strategy. According to Cadet (2015), it is as follows:

Strengths	Weaknesses
· Highest quality product · Strong market and financial positions · Leveraging technology that creates a robust distribution and communication channels. · Best selected store locations. · High knowledge based staff · Consumer loyalty	· Tax evasion in some countries, like the UK left negative image. · Self-cannibalization due to the massive expansion, especially in the USA. · Coffee culture clashes between America and Europe because some countries like the UK prefers drinking tea.
Opportunities	Threats
· Growing presence in major Asian markets. · Expansion in developing economies worldwide · Adopting technology in the selection, communication and payment by using mobile applications. · Entry into the health space.	· High competition in the global markets. · The political conditions and the tax policies in different countries that Starbucks has to comply with. · Success in managing its social corporate responsibility.

Starbucks’ strategy to achieve competitive advantage relies on the differentiation of its products and services from its competitors. Differentiation starts from selecting high-quality coffee beans from farmers in specific regions which costly compared to its competitors’ raw materials. This strategy enabled Starbucks to build its brand worldwide and to operate effectively in 40 markets with more than 13.6 thousand outlets. Starbucks adjusts its products to match the local taste by localizing its products and services that keep it at the core of its customer experience. Creating the customer experience leads Starbucks to do high internationalization efforts and enhance its service quality (Falamarzi, Alfadhel & George 2016).

The core competencies of Starbucks are represented in its organizational capability of leveraging its differentiated core products and services. Core products in the coffee shop are Espresso, Brewed coffee, Frappuccino and coffee beans. Also, the other supplementary products add value to the customers, including special services, like newspapers for senior citizens, free internet access and high-chairs for children. Another core competency is the human resource management that succeeded in building a values-based approach to maintaining a strong communications network with suppliers. These core competencies represent the basis of the company strategy of organic expansion into international markets that creates its competitive advantage. Also, its horizontal integration and acquisitions enables in sustaining the competitive advantage in the long-term (Geereddy 2013; Zhenjia 2012).

Starbucks valuable, rare, inimitable and organized (VRIO) framework could be utilized to provide a detailed analysis of Starbucks competitive position and its strategic presence in the world market (Killen et al. 2012; Agarwal, Grassl & Pahl 2012).

According to Geereddy (2013) and Zhenjia (2012), the VRIO analysis involves,

• Selection of prime and strategic locations that enjoy high visibility and traffic
• The brand name that creates customer satisfaction and determines the company marketing strategy.
• Product and service standardization of excellence accompanied with localization to create the best customer experience.
• The global brand recognition through its huge distribution network and effective communication with customers.
• Large size and economies of scale and scope that resulted in a strong global presence.
• Leveraging technology and mobile outlets that involves utilizing mobile applications and mobile payment that represents service innovation.
• Strong transparent company culture that maintains equality and diversity

Identification of Company Competitive Advantage

Starbucks value chain involves primary and secondary activities. According to Zhenjia (2012), they are analyzed as follows:

• Inbound logistics:Sourcing of premium coffee beans and build up an effective and efficient supply chain
• Operations:Starbucks operates effectively in 40 global markets
• Outbound logistics:The coffee stores are located in selected locations and it provides payment facilities through the point of sales, mobile payments and prepaid Starbucks cards.
• Sales and marketing:High sales volumes and the marketing mix involve moderate and affordable prices, carefully selected places, high product quality and huge promotional activities that utilized the digital media.
• Service:Starbucks maintains service innovation introduced by the staff that caused high customer loyalty.

• Organization infrastructure: Represented in the pleasant store design and well organized departmental activities that maintain the system of operation at the highest optimization level.
• Human resource management:It introduces a diversified bundle of benefits to assure employee empowerment and maintain the corporate culture.
• Technology development:Starbucks invests in innovative technologies to keep up to date with the customer demand.
• Procurement:Starbucks conducts long-term contracts with selected suppliers to maintain the level of quality of raw material and a constant stream of supply.

The Ansoff matrix is a tool used to achieve strategic growth. It targets existing or new customers and whether the existing products are useful or it is necessary to develop a new product. It involves 4 options of strategies. On the other side, the Boston Consulting Group (BCG) Matrix focuses on positioning the product. Starbucks is recommended to use both of the tools to achieve an accurate analysis.

According to the Guardian (2014), as cited in Haskova (2015), Starbucks plans to increase its evening sales by adding alcohol beverages to its menu. By applying the Ansoff Matrix, these products could represent a strategic transformation towards becoming an evening bar business that represents a new product development strategy as shown in figure (2).

Markets	Products
Present	Present	New
Market penetration	Product development
New	Market development	Diversification

Starbucks localization strategy dove it to create a strategic unit to be specialized in tea to satisfy consumers in the UK. According to the BCG Matrix, coffee represents the Cash Cow strategy that brings profits without the need for extra efforts. The introduction of another product like tea represents a question mark strategy with high potential growth rate and low market share as shown in figure (3) (Haskova 2015).

According to Bowman’s Strategy Clock, as cited in Wright, Paroutis & Blettner (2013), moving to an enhanced step in strategic development requires helping managers to bring new ideas and at the same time, providing them with the required information and analytical tools to make better decisions. Accordingly, Starbucks is recommended to encourage its management staff to develop new ideas that enhance the organization’s position and satisfies the stakeholders.

Mergers and acquisitions (M&A) are considered the quickest ways for organizational growth and expansion in the existing and new markets. The history of Starbucks provides evidence of adopting these strategies, for example, the acquisition of Coffee Sereia in Brazil and Coffee France SAS, also, it had an agreement with SSP to open 150 stores in the European markets (Hawkins 2011; Kim & Zheng 2014).

Starbucks also adopts the internationalization strategy since 1996, which acts for strengthening its brand and enhance its global reputation. It aims to earn customer trust every day and anywhere (Falamarzi, Alfadhel & George 2016). This strategy is highly recommended to continue in the future.

The high intensity competition resulted in a competition strategy called the red ocean (Aithal & Kumar 2015). Starbucks is already acting according to this strategy, it clearly understands the rules of the game and acts accordingly. It could successfully outperform its competitors in the US market through the exploitation of existing demand, strategic alliances, M&A and alignment of its strategic choice with differentiation. Accordingly, Starbucks is recommended to continue adopting this strategy that proved its effectiveness.

Recommendations Based on Strategic Analysis Tools

The high reliance on business and individuals with new technology implies that adopting an innovative strategy is an obligation not an option for a large company like Starbucks. Its hat size is big and it realizes this fact that is why the style, function and design of the organization enable it to adopt a variety of techniques (Lawrence 2007; Welch & Buvat 2013). Starbucks is recommended to contentiously introduce innovative ideas for the satisfaction of its stakeholders.

Conclusions

Strategy involves setting the organization goals on the long-term and resources allocation to achieve them. Starbucks’ strategy to achieve competitive advantage relies on the differentiation of its products and services from its competitors. It enjoys large economies of scale and scope that creates a competitive advantage for it that facilitates their access to raw materials of the finest quality of coffee beans.

Starbucks size and scale of enable it to take advantage of its suppliers, but its social responsibility led it to implement the C.A.F.E program to gives suppliers fair trade status.

References

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