Answer question #4 at the least page in 300-400 words
Answer question #4 at the least page in 300-400 words
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 coffee-house 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 international locations has surpassed domestic ones as of 2018.11Page 414 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.27Page 415 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 Sells first Cafe Latte. 1985 Schultz leaves Starbucks to open Il Giornale, where all coffee and espresso beverages were made from Starbucks coffee beans. 1987 Il Giornale acquires all Starbucks assets and changes its name to Starbucks. Opens its first international location in Canada. 1988 Offers full health benefits to all eligible full- and part-time employees, including coverage for domestic partnerships. 1989 Opens its 50th store. 1990 Expands its Seattle headquarters. 1991 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 Opens first drive-thru location. 1995 Through a coalition with Pepsi-Cola, Starbucks begins serving Frappuccino beverages. Opens its 500th store. 1996 Begins selling bottled Frappuccino coffee drinks through North American Coffee Partnership. Opens its first overseas locations in Japan and Singapore. Opens its 1,000th store. 1997 The Starbucks Foundation is established. Opens stores in the Philippines. 1998 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 Opens stores in Germany, Greece, Indonesia, Mexico, Oman, Puerto Rico, and Spain. Opens its 5,000th store. 2003 Opens two new roasting facilities in Carson Valley, Nevada and Amsterdam, Netherlands. Opens stores in Chile, Cyprus, Peru, and Turkey. 2004 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 post-consumer recycled fiber. Opens stores in Brazil and Egypt. 2007 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. Opens stores in Argentina, Belgium, Bulgaria, Czech Republic, and Portugal. 2009 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 Opens stores in El Salvador, Hungary, and Sweden. 2011 Starbucks and Tata Global Beverages sign a non-binding 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.Page 416 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. 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 Tata-Starbucks. 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. Opens its 25,000th store. 2017 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 foreign-owned corporations active within India. Today however, there are closer to 4,000 foreign-owned companies and major brands such as Walmart, 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.36Page 417 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 mom-and-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 possible with the support of a local partner.49Page 418 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 cafes, 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 non-alcoholic 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 hurdles, a lack of coordination, and faults in its original partnership plan.56 As a result of mounting stakeholder pressure to quickly enter India, Starbucks sought out new partnership opportunities. This time the firm landed on the Tata Group. The Tata Group, which was founded in 1868 as a textile wholesaler, is now one of India’s largest conglomerates. Ratan Tata, chairman of the Tata Group, has been described as the “most powerful business man in India and one of the most powerful in the world.”57 This presence can be attributed to the firm’s core value of expansion, which had led to the development of over 30 companies across 10 verticals. Today, the Tata Group’s product lines range from cars, software, and steel to chemicals, coffee and consulting.58 The Tata Group’s emphasis on diversification has led to constant acquisition, collaboration, and partnerships. Consequently, the Tata Group has grown into a global company with a presence in over 100 countries and revenues exceeding US$110 billion. Global ventures by the firm have included Jaguar and Land Rover by Tata Motors in the UK and Millennium Steel in Thailand by Tata Steel.59 The Tata Group has seen much success in its diversified ventures. Taj Hotel Resorts is India’s largest hotel chain, Tata Consultancy Service is Asia’s largest software company, and Tata Global Beverages, which operates in tea, coffee, and water, is the world’s second largest maker of branded tea.60 Tata Global Beverages owns most of its vast supply chain network, which consists of plantations, processing plants, and packaging and distribution facilities. Products are sourced from across the world, yet the firm’s most substantial coffee and tea plantations are located within India. The firm’s close relationship with the Indian government and its dominance over the beverage market have led to a competitive edge in resource attainment. Furthermore, the firm’s vision of “being the most admired natural beverages company in the world by making a big and lasting difference on tea, coffee and water” has resulted in a mentality that chases further market dominance.61 For Starbucks, a partnership with the Tata Group would allow the firm to overcome India’s regulatory blockades. The Tata Group had past experience forming foreign partnerships and the company’s established governmental relationships would ensure a smooth entrance process.62 Being an Indian-founded firm meant that Tata Global Beverages would meet all FDI partnership qualifications.63 Page 419 The Tata Group also had the ability to provide the cultural relevance crucial to penetrating the Indian market. Indians are more likely to hesitate when buying foreign goods and more than half of all Indians note that they are more willing to buy a product that they know was produced locally. Placing the well-known Indian name of Tata among the Starbucks label had the potential to create the perfect blend of Western prestige and local cultural significance.64 A partnership with Tata Global Beverages would also mean access to all other business lines within the Tata Group conglomerate, which would open the door to seemingly limitless synergistic potential. For instance, Starbucks could easy find retail space within the lobbies and outlets of Tata’s Taj Hotels.65 Similarly, the partnership would also mean the mitigation of many of Starbucks’ supplier concerns. Tata Global Beverages owns 19 coffee plantation estates in southern India alone. It also owns water processing facilities and multiple tea plantations. Having a domestically established supplier as a partner would provide Starbucks with cheap sourcing alternatives.66 Finding a partner who shares similar values was another key consideration for Starbucks as the firm’s progressive, opportunistic, and excited personality had the potential to cause friction with less open-minded companies. Starbucks and Tata Global Beverages both share very similar positions on societal giving, ethical sourcing, sustainability, and employee rights and improvement. Both firms also follow similar practices when conducting business, and they each operate with very similar considerations in mind.67 Prior to Starbucks’ entrance, R.K. Krishnakumar, Chairman of Tata Coffee, noted the parallels between the two companies’ aspirations by saying, “we welcome Starbucks’ entrance into India because of both its unique experience and its commitment to the societal values that we share.”68 Presenting a Joint Venture Proposal Starbucks had been sourcing from India prior to its market entrance. In 2004, Starbucks and Tata Global Beverages established a long-term sourcing agreement in which Starbucks had promised to regularly purchase an undisclosed amount of raw coffee beans from Tata’s Indian plantations at 40 cents over market price. This supplier customer relationship would come to define how Starbucks would later enter India and this agreement established the Tata Group as a reliable partner early on.69 Less than a decade after Starbucks agreed to purchase coffee beans from Tata Coffee, the two firms decided to further their relationship. In January of 2011, Starbucks and Tata Global Beverages signed a non-binding Memorandum of Understanding.70 This agreement created areas for collaboration and noted that upon Starbucks’ entrance into India, the firm would exclusively source from Tata’s domestic plantations and roast green coffee beans within Tata’s Indian facilities. The arrangement also established avenues to focus on societal cooperation, and the two would jointly invest in the development of agricultural communities by promoting responsible agronomy practices and offering training opportunities to local farmers, technicians, and agronomists.71 After nearly 5 years of repeated attempts, in January of 2012, Starbucks announced that it would be finally entering India through a 50-50 joint venture with Tata Global Beverages. Through an initial investment of US$80 million, Starbucks had opened the door to India’s US$667 million coffee industry and US$140 million café landscape. John Culver described Starbucks’ anticipated strategy within India as, “moving as fast as possible in opening as many stores as we can” and the joint venture, officially labeled Starbucks Coffee: A Tata Alliance, had planned to open its first store in Mumbai by the end of the year.72 With a population of 18.4 million people, Starbucks would soon be located in India’s largest city and planned on quickly embracing the rest of the nation.73 Just weeks prior to Starbucks’ joint venture announcement, the India government had declared that it would be revoking the FDI ownership limits on foreign retail outlets, meaning that Starbucks would have had the opportunity to operate in India without a partner. When asked why Starbucks would enter with a partner given India’s relaxation of FDI regulations, Howard Shultz responded by saying that, “India is like no other market in the world. Tata’s position in India is very unique. It is a company that has unique capabilities in terms of infrastructure. But mostly their values were so consistent with ours, building a company with a conscience, treating people well, taking care of the communities, and we thought this was an opportunity to do something together that we just could not do ourselves.”74 While Tata Global Beverages had been supplying Starbucks with coffee beans since 2004, the joint venture agreement called for a modification of how Starbucks typically sourced its beans. Starbucks had usually leveraged its global supplier network and multiple international roasting facilities in order to deliver unique, high-quality blends to its customers. However, under this joint venture agreement, Starbucks agreed to purchase all coffee beans for Indian cafés domestically, and Starbucks’ Indian operations mark the only instance in which the company exclusively sources and roasts the majority of its beans locally. In over four decades of operations, this was the first time an outside party would roast Starbucks coffee.75 In order to support new Indian demand, Tata Global Beverages agreed to fund the creation of an improved coffee roasting facility in Coorg, Karnataka. This new facility would have the capacity to supply an additional 375 tons of roasted coffee beans. With the ultimate goal of combining the Starbucks experience with an India product, this supplier network would result in Starbucks being able to expand its capacity through signature Tata blends.76 Other aspects of the agreement focused on building upon the shared synergies and mindsets of the two companies. Given the breadth of the Tata Group, the two firms had hope to take advantage of overlaps such as food production and outlet space. Additionally, Starbucks and Tata Global Beverages wished to further invest in India through both Tata-owned plantations and local farming communities. Both companies planned on working together to promote the Indian coffee industry as a whole.77Page 420 With the Tata Group as a guide, Starbucks finally had the opportunity to enter Asia’s fastest growing market. The joint venture benefited Starbucks beyond simply granting entrance and this agreement would also lead to the mitigation of supplier barriers, the lessening of governmental restrictions, and the adding of cultural and regulatory knowledge. The extent of the Tata Group’s landscape posed many opportunities for Starbucks to easily integrate into the retail landscape of India.78 Tata Starbucks Takes Off In October of 2012, Tata Starbucks opened its first Indian café. Located within the historical Elphinstone Building of Mumbai’s Horniman Circle, the 4,500 square foot outlet would serve as the company’s flagship store and would be used as a baseline for the image Starbucks wanted to create in India. As a result, this location was decorated in a way that would parallel upscale Indian culture, and the décor included hand carved wooden pillars, tables made out of Indian teak, and decorative vintage trunks. Howard Shultz, who was in attendance for the nation’s grand opening, stated that Starbucks’ original Mumbai outlet was, “the most beautiful, elegant, and dynamic store Starbucks has ever opened.”79 With people lined up outside the store and queues described as being “miles long,” the excitement around Starbucks’ initial opening attracted thousands of customers in just the first day. Tata Starbucks would quickly expand its Mumbai presence and within a week, two additional stores had opened. These outlets included a 1,500 square foot café located in the Oberoi mall and a third café situated within the Tal Mahal Palace Annex, a luxury hotel owned by the Tata Group. The success of these proceeding openings mimicked the first, and in an earnings call that occurred two weeks after Starbucks’ expansion, Howard Shultz described Starbucks’ initial Indian success as “exceeding the firm’s loftiest expectations.”80 Although Starbucks did not publicly comment on the initial financial success of their Indian expansion, Forbes retail experts estimated that the company’s Horniman Circle outlet was generating around Rs 8.5 Lakh a day (over US$11,000). To put this into perspective, even the most established Indian coffee chains, such as Café Coffee Day, were only generating sales averaging around Rs 1 Lakh a day. While this initial success may have been inflated due to the excitement generated over the newness of Starbucks, it is nonetheless evident that Starbucks had quickly integrated itself within Indian society.81 Due to initial positive reception, Tata Starbucks quickly expanded its operations and within a year, over 30 unique outlets had opened. Starbucks cafés rapidly permeated shopping centers, airports, malls, and hotels, and by 2017, the firm had opened its 100th location. With over 45 years of experience, Starbucks’ growth within India has been unprecedented, and India is now regarded as Starbucks’ fastest growing market.82 As of 2018, Starbucks had expanded into over 125 locations within 7 cities, including Mumbai, Hyderabad, Chennai, Delhi, and Bangalore, all which have populations exceeding 5 million people.83 Tata Starbucks’ success within India can be attributed to how the firm has modified its accommodations in order to assimilate within Indian society. By customizing product lines, interactions, and store atmospheres, Starbucks has encouraged the subtle promotion of Indian culture within its cafés. The incorporation of societal twists are most clearly seen through menu offerings, and the Indian menu has been adapted to honor both local religious and cultural preferences. Starbucks cafés within India include both foreign themed dishes and standard products, and items such as Elaichi Mawa croissants and tandoori paneer rolls are exclusively served within Indian outlets. As a result of menu modifications, food sales in India are larger than anywhere else in the world and make up nearly 25 percent of total sales. Due to the cultural importance of food, emphasis on how coffee can be paired with particular menu items has been encouraged throughout Indian cafés.84 In addition to product offerings, both store atmospheres and customer interactions have also been modified to meet Indian expectations. For instance, Starbucks locations within the U.S. have increasingly highlighted small, quick, and convenient interactions where customers can swiftly grab a cup of coffee before work or class. In India, however, this mentality has been refined and there is less emphasis on the product and more emphasis on the atmosphere.85 Starbucks within India have become a place for customers to relax and hang out, and while people may come for the coffee, they typically linger for the experience. Starbucks cafés within India are built to feel cozy and homely. This adjustment explains why Starbucks invests so heavily in the decor of Indian cafés, why these cafés are typically larger than their American counterparts, and why food sales are much higher in India. Starbucks has become more of a cultural phenomenon than a coffee chain, and cafés serve as a place to socialize, do business, go on a date, or simply get away from home and work life. Starbucks cafés within India have quickly become “the third place” for many.86 An Expanding Relationship In 2016, Starbucks announced a set of initiatives aimed at further strengthening its relationship with the Tata Group. This development would begin with Starbucks selling Indian coffee in its esteemed Roastery Reserve location in Seattle. The Starbucks Reserve is known for selling the world’s finest coffee blends, and the contribution of an Indian blend would promote the image of Indian coffee. Howard Schultz noted that, “Starbucks Reserve Tata Nullore Estates, highlights the deep coffee heritage and expertise of Tata to source, roast, and distribute the finest-quality Arabica coffees and elevates the story of India coffee for Starbucks’ customers.” This introduction would build upon the legitimacy of Indian coffee, while also adding to the credibility of Tata’s global coffee image.87Page 421 In addition to introducing select Indian blends within U.S. tasting rooms, Tata Global Beverages and Starbucks have established additional collaborative efforts to build upon many of the synergies present between the two companies. For instance, Vistara Airlines, a joint venture between the Tata Group and Singapore Airlines, has recently begun selling freshly brewed Starbucks coffee on all Indian flights. Vistara Airlines is India’s fastest growing full-service airline and it runs more than 450 weekly flights. As of 2016, Vistara has serviced more than 2 million travelers. The exclusivity of selling Starbucks coffee on these flights not only adds to the airline’s image, but also opens Starbucks’ blends to thousands of new potential customers.88 Further collaborative efforts have resulted in the development of additional product lines within India. Specifically, in 2016, specialty Teavana tea started being sold across all Indian locations. Through cooperative efforts, Tata Global Beverages and Starbucks developed signature Indian flavors, and the firms hope to attract the majority of Indian consumers who still prefer tea over coffee.89 Similarly, Starbucks also started selling Himalayan Mineral Water across all Indian and Singaporean outlets. This mineral water is bottled by Tata Global Beverages, and Starbucks plans to expand its international presence by introducing these bottles throughout its China and Asian Pacific regions.90 Starbucks and the Tata Group have also begun collaborating on societal interests. In addition to joint investments in Kenyan and Sumatran production locations, the two firms have ensured that they will further work together to promote farming communities and the cultivation of sustainable coffee from new and existing plantations. In 2016, the Tata Group also announced that it would be opening its STRIVE program, an initiative that empowers struggling Indian youth with career development opportunities, to Starbucks employees. By expanding this developmental program, Tata estimates that an additional 3,000 people will be impacted by 2021. John Culver was eager to announce that “this partnership underscores the collective commitment to lifelong learning and revenant career skills development” that both firms share.91 While new collaborative efforts will help ensure the future success of Tata Starbucks, the two firms must continue to monitor and mitigate current threats. The expansion process within India may take twice as long as compared to the U.S., and the cost of establishing these locations has been the company’s biggest challenge in generating sustainable profit.92 Additionally, crafting an Indian Tata Starbucks image has required considerable investment, and continuous development of this brand is required for further success. There persists a constant threat that Indian consumers will fail to adopt Starbucks’ modified image or may stop finding the company culturally relevant altogether.93 While these threats may pose mounting challenges, Tata Starbucks is nonetheless excited about the future prospects of the company within India. During a 2018 interview, Sumitro Ghosh, Chief Executive of the Tata Starbucks joint venture, was eager to announce the firm’s enthusiasm over future expansion plans. He stated that, “we [Tata Starbucks] are happy with the growth we are witnessing in India. This year, we’ll open more stores than the previous year. Every market is different, and each market takes its time to mature. We are here for just five-and-half years, and we are already looking at newer cities, especially tier-II and those with population less than five million for new stores. We’re confident India will be among the top five markets in the longer term.” Currently, Starbucks’ top five markets include the U.S., China, Canada, Japan, and the United Kingdom, with the UK having over 900 cafés. Starbucks India, with just over 100 cafés, will have to continuously develop, innovate, and expand in order to reach its top five market goal.94 In the few years since Starbucks entrance, the increased presence of foreign and local cafés has transformed the Indian coffee market. Analysts estimate that this industry will experience annual growth of around 18 percent over the next five years, and the overall coffee market is projected to be worth US$855 million by 2025. Due to the firm’s current success within Indian and sales growth that reached 28 percent in the last quarter of 2018 alone, Tata Starbucks hopes to rapidly expand its Indian presence. Starbucks now serves over 2.7 million Indian customers every week, and it aims to grow this number by expanding into 25 new locations in 2019. While Starbucks already has locations in India’s five largest cities, the firm hopes to gain a foothold in smaller cities and suburbs with populations under 5 million. In order to meet these expectations, Starbucks anticipates that it will double its number of employees within the next five years.95 What Lies Ahead Indian liberalization has intensified since Starbucks’ entrance, and reforms have been particularly concentrated during recently elected Prime Minister Narendra Modi’s term in office. Since 2014, Modi has executed 37 reforms aimed at easing India’s constrictive FDI policies.96 Modi has targeted historically protected sectors such as insurance, railways, and retail ecommerce, and he is pursuing initiatives that would allow FDI investments greater than 50 percent in these sectors. Modi has also pushed for the increased relaxation of FDI regulations on single and multiband retail outlets, and he wants to further reform policies that were already restructured in 2012. Modi’s administration hopes to eliminate limiting clauses such as those that force foreign-owned single brand retail outlets to source 30 percent of their products from domestic manufacturers. Continuous policy reforms have opened the country to an influx of foreign business and have increased both competition and wealth within the nation. As India continues to liberalize, it remains a mystery of how the nation’s culture will respond to increasingly foreign influences.97Page 422 While continuous liberalization presents opportunities for Starbucks’ Indian growth, it is important that the firm monitors political trends throughout the other regions it operates in. For instance, Starbucks’ largest market, the United States, has not shared the same mentality as India, and growing hostilities, tariffs, and trade wars threaten Starbucks’ operations and relationships. Preferences, tastes, and landscapes are constantly shifting around the world, yet not all regions are shifting in the same direction. In order to be successful, Starbucks must constantly monitor these varying movements and must establish a common ground that aligns well with a universal Starbucks image. As the firm increases its emphasis on international expansion, it is important that it also monitors foreign landscapes, especially as they relate to its domestic presence.98 The competitive reaction to Starbucks’ Indian entrance has also been overwhelming, and Howard Schultz has described the Indian coffee market as “ferocious in terms of competition.” Pre-established firms such as Café Coffee Day already dominate the market, and easing FDI regulations have allowed new foreign competitors such as Dunkin, Donuts to gain a presence within India. The growth of local, smaller coffee shops that mimic the cultural and atmospheric feel of Starbucks’ cafés have also been gaining popularity. According to Starbucks’ Chief Financial Officer Scott Maw, the greatest competition Starbucks now faces “is the collective group of independent coffee shops out there that are doing a lot of what Starbucks has been so good at for so long.”99 These independent locations have been able to foster the same third place image that Starbucks has built into its brand. This influx of competition is not unique to India, and both domestic and international opposition have begun to erode Starbucks’ dominance. Growing competition, especially by smaller independent cafés, has had a monumental impact on Starbucks’ bottom line, and this threat accounts for the company’s slowing development. Additionally, declining revenues can also be linked to the onset of ecommerce. With fewer people being driven to physical retail outlets, shopping centers, and malls, restaurants such as Starbucks have been negatively impacted. As a result, 2018 marked the firm’s worst domestic performance in almost a decade, and growth dropped to around 2 percent. Historically, Starbucks has seen 7 percent domestic growth, and this decrease is particularly concerning as the United States accounts for almost 70 percent of Starbucks’ revenues. This lack of revenue stream diversification has prompted Starbucks to focus on foreign expansion and helps explain why countries such as China and India have been so highly targeted within recent years.100 Starbucks has reached a point in which the U.S. can no longer support the overall growth of the company. With over 14,000 domestic locations, Starbucks has become highly saturated in the American market. Café cannibalization threatens expansion, and new developments harm existing outlets. Saturation also threatens Starbucks’ identity as too many domestic stores have spread the firm thin.101 Once renowned for the exclusivity of its experience, Starbucks is now becoming nothing more than a “first place” coffee provider for many Americans. The Starbucks image has therefore begun to lose its uniqueness and prestige, and the firm is seeing itself become associated with the negative implications of fast-food culture. As a result, international growth has become vital to the longevity of Starbucks’ image. Internationally, Starbucks retains its reputation, and the rarity of these cafés has associated Starbucks with luxury. Capitalizing on this status internationally is an important component of Starbucks’ future success, and a revolutionary adjustment to its domestic image is necessary to protect the firm from becoming ordinary and outdated.102 Both domestic and international market shifts also threaten Starbucks’ way of doing business. Although coffee culture is growing globally, coffee consumption preferences are changing. Consumers, especially those in the United States, are increasingly brewing coffee at home. The increased popularity of ready-to-drink coffee products has altered consumers’ tastes, and while Starbucks is diversifying its retail landscape, the state of café culture is nonetheless shifting.103 Starbucks has entered India during a time primed for growth. If Starbucks and the Tata Group can continue to leverage shared strengths and synergies, then the firms’ potential success within India is limitless. Increased relaxation of governmental regulations, growing consumer wealth, and a changing culture that has created an emerging preference for coffee have combined to result in an Indian market ready to embrace the growth of Starbucks. While the Tata Group and Starbucks have aided one another well so far, further expansion of the two firms’ synergies could permanently change the way Starbucks operates internationally. While it is clear that Starbucks is primed for international growth, it is vital that the firm continuously expands its presence abroad. Slowing domestic dominance can only be countered by international expansion, and this expansion seems to be the firm’s main opportunity for future success. Questions for Review What inspired Starbucks to venture into India? What were some of the company’s early concerns and obstacles? Describe why Starbucks wanted to enter India through a joint venture. Specifically, what benefits did Starbucks and the Tata Group both gain by partnering with one another? What synergies were present? How would you describe Starbucks’ approach to entering India?Page 423 How did national cultural differences between India and the United States influence how Starbucks adapted its offerings for the Indian market? Do you think Starbucks should be concerned by its lack of financial success within India so far? What is your assessment of the future outlook of Starbucks within India? What areas for improvement or greater focus do you think would allow the firm to prosper? Do you think Starbucks should continuously enter foreign markets through joint-venture partnerships? What are some benefits and concerns that Starbucks faces by doing this?
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