Starbucks Corporation is a coffeehouse chain based in Seattle United States that is one of the largest coffeehouse company present worldwide. The company was originated in the year 1971 in USA and now holds more than 17,000 stores worldwide. The aim of the organization is to provide best quality and finest coffee in the industry. The report evaluates the analysis of the company Starbucks in the country South Africa. The company entered in the market of South Africa in the year 2016. They found overwhelming response from the people of South Africa due to which they resumed the plan of opening 12-15 stores in the South African market. The company aimed to accommodate large number of stores around 150 in South Africa. The report includes the analysis of drivers of globalization and global expansion strategies used by the company to enter in the market of South Africa. Along with this, it also discusses about the ways in which the company maintained its brand name in the country (Bates, and Buckles 2017). Opportunities and challenges are also analysed for Starbucks while entering in the African continent for long run. More details about the report are discussed below:
Drivers of Globalization for Starbucks in Australia
Many factors acted as a driver for globalization for the company Starbucks in the market of South Africa. These factors are mentioned below:
Increasing Demand of Coffee: The coffee industry is growing due to increasing demand of the customers in the target market. More and more people are connecting to this industry which is insisting the company Starbucks to expand the scope of business in the international market. As the coffee industry is growing so it is attracting the interest of the companies in the market to expand their scope of business and increase the level of profit in the market. Customers present in the South African market have started demanding rich and authentic coffee from the industry (Bezuidenhout 2018). There were few such companies that successfully satisfied the customers in the market due to which the company Starbucks thought this as an opportunity for the company to grow and expand their scope of business in the international market.
Trade Liberalization: The international economic position of the companies is managed by the trade policies and controls initiated by the government of different countries. The government, the import facilities is mainly monitored with strict barriers as well, monitors the import and export facilities of the companies. As an impact of globalization, the companies have started coming in contact with various other companies present in different parts of the world and initiating contract with them. So, liberalization in the trade barriers in the country South Africa acted as an opportunity for the organization to grow and succeed in the environment (Misati, et. al., 2017).
Rapid Change in Technology: Technological advancement in the recent years has initiated a major improvement in many fields that has increased the competence of the companies to act in the society. Technology advancement has given opportunity to the company Starbucks to successfully expand their business by inputting various technological advancement in the business. IT has started increasing the satisfaction of employees and reducing the burden of employees due to which companies have started getting advantage to efficiently expand their scope of business in the international market (Hartmann 2016).
The company Starbucks expanded their scope of business using the franchising strategy with the company Taste Holdings (Taste). The company is involved in providing Starbuck’s coffee to the customers in the target market. Further, below mentioned are the global expansion strategies used by the company after analysing franchising as the market entry mode used in South Africa:
Vertical Growth in Low Cost Countries: as discussed above that the coffee industry is growing day by day which is increasing the opportunities for the company Starbuck in the market. For the purpose of globalization, the company entered in a low cost country that is South Africa with basic menu and services as well. The company has a positive and strong brand that helped them to vertically spread their scope of business by providing high value products at nominal rates. Due to this aspect, the company earned better that expected response in the market that insisted them open more stores in South Africa (Alon, et. al., 2016).
Using Experienced Employees: Further, it should be noted that no organization is good enough without loyal and experienced employees. So, the company utilized the experienced staff present in the industry to work with them and initiate their sales as well. Employees are the biggest asset for any organization, so the company made use of similar strategy to make sure that they successfully grow profitably in South Africa. The employees helped the company to analyse the potential market growth that the company achieve and then helped them to attain the same (Solberg 2017).
Differentiate and Use High Brands: Currently the coffee industry is at its peak with high degree of competition as well. Resulting in which, it emerged as a need for the companies present in this industry to differentiate their products and services in the market and grow. Thus, the company in South Africa started their business by serving basic products and ended with initiating diversification as well (Schuler, Khilji, and Ruël 2015).
Diversification to related business: The Company is involved in the business of coffee making which that made them completely dependent on single product. So, with this expansion, the organization aimed to increase their diversification in related products so that their dependency on single product can reduce. Providing passterries and cookies along different kinds of beverages initiated the sales of the company from different direction (Welsh, and Alon 2015).
The market of South Africa is considered as a difficult market where many companies have failed to create their foot impressions. Companies like Zara, McDonalds and Burger King struggled in initiating their success in the market of South Africa however, Starbucks managed to create their position in the market due to various activities that they initiated in the environment (Hoffman, Watson, and Preble 2016). Further, the ways in which the company managed their growth in the tough market of South Africa are discussed below:
Strong Market Entry: The Company strongly presented themselves in the market of South Africa by making use of franchise mode of entry. Before actually entering in the market of South Africa, the made the market presence by posting their thoughts on social media. Everybody make use of social media in the current environment due to which, it acted as a strong tool to prepare people for the entrance of the company in the market. Further, franchising strategy of the company helped them to grow with the help of the company Taste that was already a part of the industry (Glowik 2017).
Creation of Brand Presence: Starbucks is an expensive brand whose products every person wants to have. The strong brand position of the company in the international market base, insisted the customers to purchase the products from the company. Further, the products served by the organization are true to their value, thus it can be said that the quality of the products also instigate the customers to initiate sales for Starbucks. Promotional strategies of the company also acted in favour of them in the South African market (Oetzel, and Miklian 2017).
Decreasing in Product Prices: This is one of the most important strategy that helped the company to increase its sales in the target market. The company is known for its artisan product and premium quality values as well. Being a premium product company, the amount of the products also increases in the market. So, the company initiated the strategy of decreasing the prices of their products in South African market so that people can purchase products from them. The company relatively reduced the prices of the product due to which customer initiated sales for them even when the competitors were serving the same products at lower rate (Spillan, and King 2017).
Working under un-captured market: The market of South Africa only has local companies working with the people. There is no international brand as such present in the coffee industry due to which the company gets the opportunity to capture the un-captured market. It gives the opportunity to frame the interest of the customers on the basis of products and services that they provide in the environment. This aspect will help the company to increase the sales in the market and make people choose their product as the first priority. Working under the un-captured market helps the organizations to mould the interest of the customers according to the products that they provide in the environment (Hansen, Jensen, and Petersen 2016).
Strong Brand Value Attracting Customers: As discussed above, that the company has a strong market presence that attracts the customers to the maximum level. From the time when the company circulated the news that they are come in South Africa, the people became very excited. The brand is famous worldwide, so it eventually attracts the interest of premium as well as normal income level customers in the market. Strong brand image acts as an opportunity for the company to enter in the un-captured market and initiate sales just by the name of the company only (Burns 2016).
Diversification opportunities: The company Starbucks attains the opportunity of diversification with the expansion strategies in the country. With the expansion in the South African region the company gets the advantage to attract people from that region and people present in neighbouring countries as well. This aspect also promotes the brand name of the company in the target market. The coffee market of South Africa is small and basic that gives an advantage to the company to enter in this market and upraise the taste of coffee lovers in the South African region.
Small Customer Segment: there is small customer segment in the South African market due to which the company gets less number of people to target. One of the report stated that there are around 250,000 people only in South Africa whom the company can actually target. Having such small target market initially will increase the sales and profit margin of the company but it will subsequently decrease. If the premium client will purchase coffee from the company on daily basis then also the company will face problem after a specific period of time (Parboteeah, and Cullen 2017).
Short-term growth and High Competition: There is short term growth in the market because after that the customers will think of their pocket while purchasing the products from the company. The products offered by Starbucks are not economic so the customers cannot purchase it on a daily basis. So, the company will ultimately face crunch after a specific period of time. Apart from this, there are many baristas present in the market along with local café that are ready to capture the market of Starbucks. Surviving in highly competitive market is one of the biggest challenge for the company Starbucks (Glowik 2017).
Conclusion
Thus, in the limelight of above mentioned events, the fact should be noted that the report explained the growth strategy of the company Starbucks in the market of South Africa. Starbucks is a profound company that entered in the coffee industry of South Africa by the way of franchising. The report evaluated the market entry features of the company along with drivers of globalization and global expansion strategies as well. It further evaluated the ways in which the company maintained their growth in the South African industry. Opportunities and challenges of the company for entering in this are also evaluated. The report adequately satisfies the requirements of the task.
References
Alon, I., Jaffe, E., Prange, C. and Vianelli, D., 2016. Global marketing: contemporary theory, practice, and cases. UK: Routledge.
Bates, M.O. and Buckles, T.A., 2017. An examination of market entry perspectives in emerging markets. International Journal of Business and Economic Development, p.20.
Bezuidenhout, S., 2018. Should you buy a franchise?. DIY Trade News, 2018(Oct 2018), pp.17-21.
Burns, P., 2016. Entrepreneurship and small business. UK: Palgrave Macmillan Limited.
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Glowik, M., 2017. Global Strategy in the Service Industries: Dynamics, Analysis, Growth. UK: Taylor & Francis.
Hansen, M.W., Jensen, P.D.Ø. and Petersen, B., 2016. 10. drivers and strategies of international service firms in emerging markets. Handbook of Contemporary Research on Emerging Markets, p.223.
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