Description
Module 09: Critical Thinking Assignment Hi, looking for support with the following: Read the attached case study and respond to the following : How Starbucks Convinced Indians to Embrace Coffee In Chapters 8 and 9, ( See the slide ) we reviewed several types of global expansion strategies a company can undertake when entering new markets. For this assignment, you will read a case study about Starbucks’ expansion into the Indian market (see the attached case study). A case study is a puzzle to be solved, so before reading and answering the specific questions, develop your proposed solution by following these five steps: Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module, which apply to the situation described in the case study. Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers. Describe in some detail the actions that would address or correct the situation. Consider how you would support your solution with examples from experience or current real-life examples or cases from slide. Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case. Respond to, and make decisions, based on the following questions: What inspired Starbucks to venture into India? What were some of the company’s early concerns and other obstacles? How would you describe Starbucks’ approach to entering India and how Starbucks was influenced by cultural differences to adapt its offerings for the Indian market? Why did Starbucks want to enter India through a joint venture? Specifically, what benefits did Starbucks and the Tara Group both gain by partnering with one another? What synergies were present? What conflicts occurred and how were they resolved? Now, assume the role of the Director of Starbucks’ Indian strategic planning team. You have been tasked to explore the benefits and challenges of expansion into foreign countries through joint-venture partnerships. Describe the opportunities, benefits, and concerns that Starbucks might face by doing so. Summarize the cultural environment, choose an entry strategy from the text, and describe how you would implement this entry strategy. Make sure you are very detailed in your explanation. Based on the lessons learned from Starbucks case study, what lessons would you apply to those implementing Saudi Vision 2030 as the Kingdom of Saudi Arabia embarks on this multi-year strategy to attract multinational corporations? Your well-written paper should meet the following requirements: Be 5-6 pages in length, which does not include the title page, abstract, or required reference page, which is never a part of the content minimum requirements. Use academic writing standards and APA (7th ed) style guidelines. Support your submission with course material concepts, principles, and theories from the slide and at least three scholarly, peer-reviewed journal articles. Plagiarism Must be zero. Your writing should have an instruction, body, and conclusion.
Unformatted Attachment Preview
https://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/21/go
ogles-trust-problem.
47. Kelvin Chan and Raf Casert, “Europe Fines Google $1.7 Billion in
Antitrust Case,” AP, March 20, 2019,
https://www.apnews.com/701658e16440433f840e15869b101fa8.
48. Liat Clark, “Google Launches Global Human Trafficking Helpline
and Data Network.” ARS Technica, April 10, 2013,
https://arstechnica.com/tech-policy/2013/04/google-launches-globalhuman-trafficking-helpline-and-data-network/.
49. “Google Home: Learn,” Google, 2019,
https://store.google.com/product/google_home_learn.
50. Chris Ciaccia, “Google’s Future: Doing the Impossible,” BGR April
19, 2013, https://bgr.com/2013/04/19/google-earnings-analysis-q12013-449971.
Page 413
In-Depth Integrative Case 3.1
How Starbucks Convinced Indians to
Embrace Coffee
Through superior product offerings, dependable customer service, and an
emphasis on progression, Starbucks has quickly become one of the world’s
most recognizable coffeehouse chains. Aiding Starbucks’ success is a focus
on global development, which has served as a fundamental pillar of the
firm’s strategy since the opening of its first international location in Tokyo
two decades ago.1 This devotion to global expansion was further solidified in
January of 2012 when Starbucks announced that it would be finally entering
India, the fastest growing market in the world, through a 50/50 joint venture
with Tata Global Beverages.2 After almost five years of unsuccessful entry
attempts, Starbucks and Tata’s groundbreaking partnership would mark the
beginning of a period of taste transitions within the nation.3
This partnership also ignited the blending of American and Indian
preferences and styles within the coffee industry. The westernized Starbucks
image, mixed with the cultural knowledge and products of Tata, created a
unique consumer experience, one that has become particularly appealing to
the rapidly growing Indian middle class. With a 2012 population of over 1.24
billion people, and an average of 66 percent and 54 percent of these citizens
regularly drinking tea and coffee, respectively, the potential for a reliable
coffeehouse chain in India was tremendous.4
Although the Indian coffee market had been attractive for some time,
Starbucks’ delayed entrance can be mainly attributed to the nation’s hefty
foreign restrictions. Even today, a nationalistic sentiment still lingers in the
previously socialist India, and many blockades are put in place to protect
domestic firms. Nonetheless, there have been groundbreaking strides in
liberalization within the past few decades, and only recently have
partnerships such as Tata Starbucks been made possible.5
In one of the first public announcements made by the Tata Group on the
joint venture, R. K. Krishna Kumar, Vice Chairman of Tata Global
Beverages, spoke highly of the synergies present between the two
companies. He noted that, “It (the joint venture) opens up exciting business
opportunities and new formats for Tata Global Beverages. Starbucks brings
unique retail expertise as well as a shared sense of business values. We are
excited about the opportunities the alliance presents to innovate in the retail
space and bring new beverage experiences to more consumers in India,
leveraging the global in-home expertise of Tata Global Beverages and the
global out-of-home expertise of Starbucks.”6
Although India may still be [a] tea drinking nation, coffee culture is
progressing. Guided by young millennials and a westernized push,
coffeehouse experiences have flourished, which in turn have enabled
entrepreneurial partnerships like Tata Starbucks to blossom.7 With such
massive potential within India, and Tata serving as a liaison to these markets,
Starbucks is now primed for rapid growth within the previously locked off
nation. As it stands, Starbucks is positioned to change the mentality and
culture of Indian’s coffee industry.
The Starbucks Experience
The Starbucks Corporation has transformed immensely since its opening in
1971, and the famed café was originally a distributor of roasted coffee beans.
Being entirely operated by three former University of San Francisco
classmates, Starbucks’ original location in Seattle’s Pike Place market did not
actually sell beverages but was solely a roastery. In fact, much of Starbucks’
early influence came from a close friend of the founders, Alfred Peet, creator
of Peet’s Coffee. Starbucks originally received both supplies and techniques
from Peet himself, and as the company progressed, the founders discovered
their own signature roasting styles and blends. The superiority of these
original practices, and an early commitment to an excellent product and
experience, would come to serve as the foundation for the firm’s renowned
brand.8
Although Starbucks quickly gained popularity, location and product line
expansion were never a focus for the original founders. This would change
when Howard Schultz joined the growing Starbucks team as Director of
Retail Operations and Marketing in 1982. Schultz pushed the founders to
transform Starbucks from a roastery to a café, and he even spent time in
Europe observing Italian coffee houses that he hoped the company would
mimic. Shultz would bring these concepts back to Seattle, and in 1984, the
first Starbucks café latte was sold, marking the beginning of Starbucks’
modern menu.9
In 1985, Schultz left Starbucks in order to open his own coffee shop, Il
Giornale, where he had hoped to offer a more formal dining experience with
a wider menu selection. Shultz’s quick success at Il Giornale inspired him to
acquire Starbucks just two years later, and through this acquisition, he gained
access to the company’s name, network, and reputation.10 Following this
acquisition,
Starbucks’
values
were
modified
to
emphasize
rapid
development, expansion, and customizability, and within a decade, hundreds
of new locations and products were being offered. Today, there are over
29,000 Starbucks cafés in 76 countries and the number of Page 414
international locations has surpassed domestic ones as of 2018.11
Starbucks was listed on the New York Stock Exchange in 1992 with an
initial public offering of 17 dollars a share. Starbucks has climbed since and
revenue reached US$24.7 billion in 2018, up 10 percent from the previous
year. With a market capital of over US$81 billion, Starbucks is the world’s
largest global coffee chain.12 Measured by outlet numbers, Starbucks is the
third largest global food chain and is only outmatched by [McDonald’s] and
Subway.13 Starbucks has also grown rapidly in areas outside of its core café
operations, and its volumes rank third in coffee bean distribution and top ten
in domestic tea distribution.14 With operations that encompass over 277,000
employees, each member of the Starbucks team is guided by the mission “to
inspire and nurture the human spirit—one person, one cup and one
neighborhood at a time.”15
Starbucks’ success can be attributed to more than just its product
offerings, and as CEO Howard Schultz explains, “Starbucks represents
something beyond a cup of coffee.”16 While Starbucks is known for its high
quality coffee, the company’s real competitive advantage stems from the
experience associated with its products. Every Starbucks café welcomes its
customers with consistent quality, vast customizability, and a friendly and
engaging workforce. The culmination of these ideas has been termed the
“Starbucks experience” and has made Starbucks the “third place,” a place
that describes a consumer’s third most frequented location outside of home
and work, for many.17 This unique experience has resulted in passionate
customer loyalty, positive brand perception, and a recognizable image.18
Although Starbucks’ growth has been mainly organic, acquisitions have
often been a tactic used to spur the development of lesser established
segments. To expand its product offerings, Starbucks has acquired
companies such as Ethos Water and Evolution Fresh, and the purchases of
these premium water and juice distributors has allowed the firm to gain entry
into markets that present strong synergies and opportunities.19 Similarly, in
2012 Starbucks purchased Teavana for US$620 million. Despite closing all
379 Teavana outlets in 2018, Starbucks has still managed to successfully
funnel former Teavana customers into Starbucks’ cafés by leveraging the
acquired firm’s expertise.20
Starbucks is equally focused on environmental protection. This
emphasis has resulted in organizational practices, including the development
of fully recyclable packaging and the creation of an initiative that would
lower in-store water consumption by over 25 percent within the next ten
years. Starbucks is also a founding member of the Business for Innovative
Climate and Energy Policy (BICEP) and a signatory of the RE100, a
corporate commitment program focused on purchasing 100 percent
renewable energy.21
Starbucks is committed to improving the quality of life of the
communities it operates in, and each year over 50,000 Starbucks partners
participate in more than 2,800 projects during Starbucks’ Global Month of
Service. Starbucks transmits this commitment onto the communities it
sources from, and through a partnership with the Conservation International,
Starbucks has promised to buy 100 percent ethically sourced coffee.
Starbucks also focuses on improving the education, health, and
employability of fledgling farmer populations, and its Global Farmer Fund
Program has invested over US$50 million in financing projects for farming
communities.22 Starbucks’ emphasis on charitable giving has resulted in the
company consecutively ranking among the top ten of the world’s most
admired companies.23
Starbucks’ International Outreach
Starbucks has been sourcing coffee beans from African, Latin American, and
Asian Pacific regions since its founding, but it was not until the 1990s that
cafés begun to open outside of North America. Since then, international
expansion has been rapid, and Starbucks now has locations in every country
it sources from.24 Starbucks’ success stems from its ability to transform the
tastes and preferences of the nation it enters. In Mexico, for instance, coffee
consumption has increased an estimated 100–150 percent since Starbucks’
first appearance in 2002.25
Emphasizing localization has been critical to Starbucks’ expansive
success. Starbucks has adapted and rearranged its offerings and strives to
cater to the unique history and culture of each country in which it operates.
To appeal to French taste preferences, the firm offers unique Viennese coffee
and foie gras sandwiches. In the Netherlands, Starbucks has constructed
stages inside its cafés as this promotion of performance is particularly
common throughout the nation. Even within the UK, Starbucks has adapted
by allowing over 60 percent of all locations to be operated as franchises.
With an abnormally high number of franchises in this region, Starbucks
hopes to align itself with the UK’s cultural preference for independent, local,
and self-sufficient cafés.26
A strategic focus on café location and a careful adjustment of product
offerings has allowed for smooth market penetration by Starbucks
throughout the world. “Starbucks remains highly respectful of the culture
and traditions of the countries in which it does business,” explained Howard
Shultz. “We recognize that our success is not an entitlement, and we must
continue to earn the trust and respect of customers every day.” Localizing
offerings has allowed the company to gain this trust, and in turn, has changed
foreign perspectives of Starbucks.27
Starbucks Milestones
1971 •
Starbucks opens its first location in Seattle’s Pike
Place Market.
1982 •
Howard Schultz joins Starbucks as director of retail
operations and marketing.
1984 •
1985 •
Sells first Caffe Latte.
1 Page •
9 415
87
•
1988 •
Il Giornale acquires all Starbucks assets and changes
its name to Starbucks.
Schultz leaves Starbucks to open Il Giornale, where
all coffee and espresso beverages were made from
Starbucks coffee beans.
Opens its first international location in Canada.
Offers full health benefits to all eligible full- and parttime employees, including coverage for domestic
partnerships.
1989 •
Opens its 50th store.
1990 •
1991 •
Expands its Seattle headquarters.
Becomes the first privately owned U.S. company to
offer a stock option program that includes part-time
employees.
•
Opens its first airport store at Seattle’s Sea-Tac
International Airport.
•
Opens its 100th store.
1992 •
•
Announces initial public offering (IPO).
Partners with Nordstrom and Barnes & Noble to open
cafés near their locations.
1993 •
Opens its second roasting plant in Kent, Washington.
•
Opens its first location on the East Coast in
Washington, D.C.
•
Opens its 250th store.
1994 •
1995 •
Opens first drive-thru location.
Through a coalition with Pepsi-Cola, Starbucks begins
serving Frappuccino beverages.
•
1996 •
Opens its 500th store.
Begins selling bottled Frappuccino coffee drinks
through North American Coffee Partnership.
•
Opens its first overseas locations in Japan and
Singapore.
•
1997 •
•
1998 •
Opens its 1,000th store.
The Starbucks Foundation is established.
Opens stores in the Philippines.
The Starbucks brand begins selling in grocery stores
across the U.S.
•
Launches Starbucks.com.
•
Opens stores in England, Malaysia, New Zealand,
Taiwan, and Thailand.
1999 •
Acquires TazoTea.
•
Partners with Conservation International to promote
sustainable coffee-growing practices.
•
Opens stores in China, Kuwait, Lebanon, and South
Korea.
•
Opens its 2,000th store.
2000 •
Establishes licensing agreement with TransFair USA
to sell Fairtrade certified coffee across North America.
•
Opens stores in Australia, Bahrain, Hong Kong, Qatar,
Saudi Arabia, and United Arab Emirates.
2001 •
Introduces ethical coffee-sourcing guidelines
developed in partnership with Conservation
International.
•
Introduces the Starbucks Card.
•
Opens stores in Austria, Scotland, Switzerland, and
Wales.
2002 •
•
2003 •
•
2004
Opens stores in Germany, Greece, Indonesia, Mexico,
Oman, Puerto Rico, and Spain.
Opens its 5,000th store.
Opens two new roasting facilities in Carson Valley,
Nevada and Amsterdam, Netherlands.
Opens stores in Chile, Cyprus, Peru, and Turkey.
•
Begins sourcing coffee from India through Tata
Coffee.
•
Introduces Starbucks Coffee Master Program.
•
Opens stores in France and Northern Ireland.
2005 •
Acquires Ethos Water.
•
Opens stores in Bahamas, Ireland, and Jordan.
•
Opens its 10,000th store.
2006 •
Announces interest in expanding into Indian.
•
Launches industry’s first paper cup containing
postconsumer recycled fiber.
•
2007 •
•
Opens stores in Brazil and Egypt.
Indian expansion is delayed due to governmental
obstacles.
Opens stores in Denmark, the Netherlands, Romania,
and Russia.
•
Open its 15,000th store.
2008 •
Howard Schultz returns as chief executive officer.
•
Acquires Coffee Equipment Company and Clover
brewing systems.
•
Establishes social media presence through Twitter,
Facebook, and independent online community called
My Starbucks Idea.
•
2009 •
Opens stores in Argentina, Belgium, Bulgaria, Czech
Republic, and Portugal.
Introduces first iPhone app with Starbucks card
mobile payment option.
•
Opens roasting plant in Sandy Run, South Carolina.
•
Opens stores in Aruba and Poland.
2010 •
2011 •
Opens stores in El Salvador, Hungary, and Sweden.
Starbucks and Tata Global Beverages sign a nonbinding Memorandum of Understanding.
•
Launches first annual Global Month of Service to
celebrate the company’s 40th anniversary.
•
Opens stores in Guatemala, Curacao, and Morocco.
2012 •
Announces 50/50 joint venture with Tata Global
Beverages.
•
Opens its first Indian café within the historical
Elphinstone Building of Mumbai’s Horniman Circle.
•
Announces progressive pay and benefit structure for
all Indian employees.
•
Opens Starbucks Soluble Plant in Augusta, Georgia.
•
Opens stores in Costa Rica, Finland, India, and
Norway.
2013 •
Starbucks and Tata Coffee open joint roasting and
packaging plant in Kushalnagar, Karnataka.
•
Expands Indian presence by opening cafés in New
Delhi.
•
Enters Pune and Bengaluru, India.
•
Expands into Gurgaon, India’s epicenter for financial
and industrial business.
•
Begin servicing in New Delhi’s Indira Gandhi
International Airport and Mumbai’s Chhatrapati Sivaji
International Airport.
•
Creates specialty Indian sourced coffee, named India
Estates Blend, to celebrate one year in India.
•
Introduces most popular drink, Salted Caramel
Mocha, in India.
•
Opens farming research and development center in
Costa Rica to strengthen ethical sourcing efforts.
•
Opens stores in Vietnam and Monaco.
•
Opens its 30th store in India.
2014 •
Begins selling Pour-Over Sets within India in order to
expand its in home presence.
•
Enters Chennai, India.
•
Establishes its first Indian month of community
service in September.
Page 416
•
Launches My Starbucks Rewards loyalty program
throughout India.
•
Reaches 1,000 partners within India.
•
Opens stores in Brunei and Colombia.
•
Opens its 20,000th store.
•
Opens its 50th store within India.
2015 •
Announces that India has become its fastest growing
market.
•
Begins working with the Food Safety and Standards
Authority of India (FSSAI) to ensure and improve
quality standards of Indian offerings.
•
Hosts first Coffee Championship within India.
•
Sumi Ghosh is elected chief executive officer of TataStarbucks.
•
Reaches 99 percent ethically sourced coffee
milestone.
•
Announces the Sustainable Coffee Challenge at the
U.N. climate negotiations in Paris, which would make
coffee the world’s first sustainably sourced
agricultural product.
•
Opens stores in Azerbaijan, Cambodia, Kazakhstan,
and Panama.
•
Opens its 75th store within India.
2016 •
Makes single origin coffee from India available in
Starbucks Reserve Roastery.
•
Introduces Tata’s Himalayan water throughout all
Chinese and Asian Pacific regions.
•
Introduces coffee aboard Vistara flights.
•
Begins the development of two new Indian
plantations.
•
Announces five-day work schedule for all Indian
partners.
•
Opens stores in Andorra, Luxembourg, Slovakia,
South Africa, and Trinidad and Tobago.
•
2017 •
Opens its 25,000th store.
Announces commitment to becoming the “employer
of choice” in India.
•
Introduces Teavana specialty tea across India.
•
Introduces Starbucks’ mobile app across India.
•
Employees become eligible for the Tata Strive
program.
•
Begins offering specialty Nitro Cold Brew products
throughout India.
•
Begins offering specialty Indian Spiced Majesty
Blend tea.
•
Expands hiring commitment to include 10,000
refugees by 2022.
•
Kevin Johnson becomes chief executive officer while
Howard Schultz transitions to executive chairman.
•
Opens stores in Jamaica.
•
Opens its 100th store within India.
2018 •
•
Enters Kolkata, India.
Opens Starbucks Reserve Roastery locations in Milan
and New York.
•
Opens first Signing Store in Washington, D.C.
•
Howard Schultz retires from Starbucks and becomes
chairman emeritus.
•
Opens stores in Italy.
India’s Changing Marketplace
As a result of British colonization and a socialist mentality that lingered after
independence, India remained isolated from most of the world during the
majority of the 20th century. Up until the early 1990s, strict nationalistic
regulations were implemented in order to protect local firms and achieve
productive self-reliance. The promotion of centralized planning within India
led to governmental manipulation of company initiatives and firm successes.
The Indian government also strictly blocked foreign competition, and
obstructive custom barriers were implemented in order to deter widespread
importation and entrance by foreign firms. According to scholars on the
subject matter, “In this post-colonial context, the development model of
import substitution consisted of four main measures: A large public sector,
centralized planning in which industry and agriculture were favored, high
trade barriers, and a restrictive system of administrative authorization.”28
In 1973, the Indian Parliament solidified its protectionist mentality
through the passing of the Foreign Exchange Regulation Act (FERA). Under
this ordinance, any foreign owned company within India was required to sell
the majority share of its equity holdings to Indian shareholders. Not only did
this deter entrance by foreign companies, but it also led to the withdrawal of
many already established firms such as Coca-Cola and IBM. FERA
effectively placed both multinational corporations and local Indian
companies under the control of India’s central bank and therefore made
foreign entrance undesirable and nearly impossible.29
As India’s policies became more protectionist, its economy faltered and
annual growth stagnated at around 3 percent during the 1980s. Decades of
poor policy decisions lead to an inability to pay debt, a lack of foreign
investment, and ultimately, a balance of payments crisis. In an effort to
generate relief funding, India began implementing economic liberalization
reforms in 1991. These reforms were meant to globalize the economy and
lessen the government’s control over the private sector. In less than a decade
following these reforms, tariffs had fallen by 120 percent and exports had
more than tripled.30 Similarly, economic liberalization also led to the
undoing of FERA policies and some foreign firms were now eligible to enter
India through joint ventures in which the firm could retain a 51 percent
majority equity stake.31
In the decades following liberalization, India’s economy has flourished.
The nation has consistently recorded annual GDP growth rates of over 7
percent, and India is now projected to become the world’s fastest growing
economy.32 While many Indians may still live below the poverty line,
poverty has nonetheless seen a 10 percent reduction since 2010 and India’s
GDP per capita is up 6.5 times since liberalizing.33 In recent years, India has
become a highly targeted market due to its expanding wealth and population
of over 1.3 billion people. With one of the most rapidly growing middle
classes in the world, India will be the third largest consumer market by 2025.
This presents immense opportunities for consumer products such as
Starbucks’ coffee.34
India’s increasing growth and fading regulations have led to mounting
foreign interest. For instance, prior to 1991 there were less than 500 foreignowned corporations active within India. Today however, there are closer to
4,000 foreign-owned companies and major brands such as Walmart, Page 417
Dunkin’ Donuts, and General Motors are all actively fighting to gain
a foothold in this high potential market.35 India now ranks as one of the top
ten most highly invested in countries, and the nation received over US$40
billion in 2018 investments, up from as little as US$100 million three
decades ago.36
In a foreign market survey conducted by EY analysts, India was titled
the world’s most attractive market. According to this survey, over 60 percent
of corporate partners possess a strong interest to expand into India, and 86
percent of respondents referenced that India’s cheap, skilled, and trainable
labor force was their main driver of interest. However, over 50 percent of
respondents noted that the nation’s legislative and administrative
environment was their biggest deterrent.37 While it is clear that India’s
business environment is making significant developmental strides, moving
ahead 28 positions in the 2018 Ease of Doing Business indicator report, the
nation, which ranks 77th overall, still has many hurdles to overcome.38
Starbucks’ Mounting Interest
Policy reform and economic liberalization allowed Starbucks to consider
entering India, and the rapidly growing market that resulted from these
reforms furthered the appeal of entrance. In 2006, the year Starbucks first
announced its interest in India, the Indian government had relaxed
regulations so that single brand retail outlets could maintain a 51 percent
majority hold over their investment. In 2012, the year of Starbucks entrance,
India fully opened its market to foreign investors, now allowing a 100
percent investment in this same context. By being classified as a single brand
retail outlet, Starbucks was primed for Indian entrance in the early 2000s,
something which would have not been possible 20 years prior.39
To Starbucks, the appeal of India was not solely based on relaxed
regulations. The profitability potential of the nation was also a tremendous
factor to be considered. India’s average national income, which peaked at 9.6
percent growth in 2007, had averaged around 7 percent growth during the
first decade of the twenty-first century. This rising rate of personal wealth,
mixed with an increasingly westernized attitude, propelled Starbucks’
interests in the Indian market further. Additionally, international
development, expansion of product lines and experiences, and diversification
of customers had always been some of Starbucks’ core values. India
presented the ideal mentality, opportunities, and population for Starbucks to
live out these values and aid in its mission of converting consumers into
coffee lovers.40
Since the 1990s, middle class wealth within India had been growing
alongside a falling population age, and these demographics aligned well with
Starbucks’ typical consumer base. Starbucks generally attracts younger
consumers, and over one third of its customers fall into the 18 to 29 age
range.41 With around 40 percent of Indians being under 18 and over 65
percent being under 35, Starbucks should be able to retain, attract, and grow
from the consistently young population that is expected to permeate into
India’s future.42
Prior to Starbucks’ entrance, India’s food service market was valued at
US$41 billion and was expected to grow at a rate of 11 percent through
2018. India had become the second largest producer of food next to China,
and food production was estimated to double within the decade.43 This
increase in production was matched with higher consumption, and the
market for retail food outlets, such as Starbucks, has been rapidly growing.
Aiding in this market growth was the growth of the coffee industry, and
coffee consumption within India doubled between 2002 and 2012. While
Indians may not have been drinking coffee at the same rate as Americans, the
sheer volume of possible consumers, mixed with definitive future growth,
was highly appealing to Starbucks.44
While India was becoming increasingly attractive, growing domestic
competition also pushed Starbucks to look for opportunities beyond its
established markets. Within the U.S., Starbucks had been facing competitive
growth from both cheaper national chains, as well as newly emerging momand-pop cafés. For instance, in the 1990s Dunkin’ Donuts shifted its focus to
coffee and the “America runs on Dunkin’” tagline pushed consumers to try a
cheaper alternative with a similarly extensive product line. Similarly,
McDonald’s $1 coffee had gained interest from consumers who saw no value
in Starbucks’ premiums. Although Starbucks remains a clear market leader,
over the last few decades, domestic consumers have gradually reevaluated
the higher price for quality payoff that Starbucks presents.45
Starbucks’ motivation to enter India was further influenced by the
success and profitability that the firm had already seen in Asian markets.
During a shareholders meeting, Howard Schultz had noted that, “Asia and
the entire Pacific Rim present one of the most significant growth
opportunities within Starbucks Coffee Company. India being at the core,
along with China.”46 Prior to Starbucks’ Indian entrance, China, and the
Asian market as a whole, had become Starbucks’ most rapidly growing
segment. In 2012, Asia has surpassed EMEA in profitability, and this region
contributed to more than 10 percent of global revenue.47 With Asia holding
more than half of the world’s population, and India retaining some of the
most densely populated regions, Starbucks had hoped to enter the nation in
order to replicate past successes and to take advantage of the synergies and
insight learned from previous Asian expansions.48
While India did display countless opportunities and large synergistic
potential, Starbucks’ delayed entrance was the result of many uncertainties
that nonetheless persisted. Regulatory transparency was Starbucks’ greatest
obstacle. While there had been groundbreaking strides in India’s
liberalization, the unpredictability of the Indian government presented a
major threat. In addition to formal barriers, informal perceptions rooted in a
xenophobic past remained a challenge for Starbucks as it would be difficult
for the firm to overcome nationalistic opposition to a completely foreign
product. Blockages and barriers deferred early entrance attempts, and the
company quickly realized that breaking into India would only be Page 418
possible with the support of a local partner.49
Irregular and excessive supplier restrictions presented yet another
challenge for Starbucks. Starbucks has generally sourced its high-quality
coffee beans from secure locations in Africa, Asia, and Latin America.50
However, Indian restrictions tightly regulate what countries specific products
could be sourced from, and India’s tariff system has been defined by its lack
of transparency. Tariff calculations are multi-tiered and fall into four
segments with certain products facing additional tariffs from each segment.
By emphasizing the protection of the domestic agricultural industry, India
has instilled tariffs as high as 100 percent on specific agricultural products
like coffee and tea. These excessive fees would make it too costly for
Starbucks to source from their typical suppliers, and thus, the firm would be
challenged to invest in costly alternatives.51
Despite the fact that Starbucks had hoped to enter India in order to free
itself from competitive hurdles, the firm would nonetheless have to face
already established coffee and tea shops within India. Companies such as
Café Coffee Day and Barista dominated the Indian market. For instance,
Café Coffee Day had been present in India since 1995 and had over 1,000
outlets prior to Starbucks’ entrance. These retailers had been investing in the
Indian market for years and initiatives such as setting up smaller kiosk
locations and offering hot coffee through vending machines had resulted in
already established ubiquitous brands. In addition to its full-service cafés,
Café Coffee Day alone had set up over 600 kiosks and 30,000 vending
machines.52 While the coffee market may have already had established
players, the greatest competitive force working against Starbucks was chai
tea, as chai accounted for an estimated 79 percent of all nonalcoholic
beverages consumed within India. Many local cafés begun to establish
themselves due to the dominance of the tea market and the growth of coffee,
and this growing saturation of cafés within India added to Starbucks’
challenges.53
Race for a Strategic Partner
In 2006, Starbucks officially announced its intentions to enter India, and
while the firm had hoped to be established within the nation by the end of
2007, early governmental blockades delayed progression. Starbucks’ original
entrance strategy was to set up a network of franchises. However, due to
strict franchisee regulations, the Indian government suggested that Starbucks
enter under the FDI model instead. With a more definitive approach,
Starbucks submitted an entrance proposal to India’s Foreign Investment
Promotion Board (FIPB) in early 2007. Unfortunately for Starbucks, the
FIPB immediately rejected the proposal, citing a “lack of clarity,” and the
firm would spend the next five years reevaluating potential partners and
entry strategies before sanction would be granted.54
In order to meet FDI guidelines, Starbucks initially planned to partner
with Kishore Biyani, managing director of India’s Future Group, and V.P.
Sharma, operator of Starbucks Indonesia franchises. The firm had hoped to
leverage Sharma’s experience of Starbucks in Asia and Biyani’s knowledge
of Indian FDI regulations to gain entrance.55 Nonetheless, Starbucks’
following entrance proposal was rejected. This time, the FIPB claimed that
the combined stakes of Starbucks and Sharma breached the 51 percent FDI
limit that foreign owners of a single branded retail venture could hold. A
revised proposal where Starbucks noted that it would not hold any direct
equity in its Indian operation was subsequently rejected. By the end of 2007,
Starbucks had announced that it would be delaying its Indian entrance due to
consistent
