Strategic Management 1
by
Wilfred Shayoya
ENVIRONMENTAL ANALYSIS AND ITS EFFECT ON CURRENT BUSINESS
STRATEGY – CASE OF STARBUCKS COFFEE
1
TABLE OF CONTENTS
1.0 Starbuck’s Position in Current Business....................................................................................3
2.0 Environmental Analysis.............................................................................................................3
2.1 The PESTLE Analysis...............................................................................................................3
2.1.1 Political factors....................................................................................................................3
2.1.2 Economic factors.................................................................................................................3
2.1.3 Sociocultural factors............................................................................................................4
2.1.4 Technological factors..........................................................................................................4
2.1.5 Legal factors........................................................................................................................4
2.1.6 Environmental factors.........................................................................................................4
3.0 Competitive Analysis: Porter’s Five Forces Model...................................................................4
3.1 Rivalry among existing competitors: High to Moderate............................................................4
3.2 Bargaining power of buyers or customers: Moderate to Low Pressure.....................................5
3.3 Bargaining power of suppliers: Low to Moderate Pressure.......................................................5
3.4 Threat of substitute products or service: High...........................................................................5
3.5 Threat of new entrants or new entry: Moderate.........................................................................5
4.0 SWOT Analysis.........................................................................................................................6
4.1 Strengths....................................................................................................................................6
4.2 Weaknesses................................................................................................................................6
4.3 Opportunities..............................................................................................................................6
4.4 Threats........................................................................................................................................7
REFERENCES................................................................................................................................8
2
1.0 Starbuck’s Position in Current Business
Starbucks leverages strategic collaborations as part of its aim for worldwide expansion in its
current markets (Bearak, 2014). Starbucks intends to profit on the expanding coffee consumption
rates, the increasing demand for Western-style items, and the prevention of a competitive edge in
its expansion plan. After creating a strong brand in Japan and China, Starbucks aims to penetrate
the Indian market. The company's competitive and industry analysis will be explored
subsequently. This report will give an environmental analysis of the targeted Indian market and
examine its influence on existing business strategy.
2.0 Environmental Analysis
2.1 The PESTLE Analysis
The goal of the PESTLE analysis is to identify possibilities and risks in India's political,
economic, social, technological, legal, and environmental realms in light of Starbucks'
aspirations to enter the market.
2.1.1 Political factors
India has undergone a series of beneficial economic reforms that have enhanced the business
climate for multinational enterprises and made it easier for foreign investors to enter the Indian
market (Sanyal, 2008). Foreign investment has expanded and has been made simpler as a result
of the reforms, although growth rates and inflation have also increased. The BJP political party
leading India is more amenable to FDI and international investment. These developments have
boosted India's global competitiveness (Statistic Brain, 2022). Starbucks should enter India
through a joint venture or strategic collaboration with an Indian company, given India's political
context, bureaucratic hurdles, and FDI norms and legislation.
2.1.2 Economic factors
India's GDP rose 7.4% in 2021 and 8.3% in 2023. In addition, the GDP per capita is expected to
reach $3,500 in 2021. After inflation reached 11% at the beginning of 2021, India's Central Bank
successfully lowered interest rates, bringing inflation down to single digits by end of 2021.
Starbuck's expansion is best in the nation's main cities. In 2022, the Indian government wants to
reduce the budget deficit from 6.8% of GDP to 5.5% (Statistic Brain, 2022).
3
2.1.3 Sociocultural factors
Indian culture and food are a challenge. Indian consumers are difficult to categorise due to the
country's diverse population, which includes non-tea drinkers, Muslims, Hindus, and other
residents. Urbanites have much stronger coffee preferences than rural residents. Coffee
consumption grew 6.7% and 2.0% between 2010 and 2015 (Annual Financials for Starbucks
Corp, 2016).
2.1.4 Technological factors
In India, where premium coffee beans are plentiful, quality is emphasised. Starbucks may be able
to offer competitive prices in India with its intended strategic partnership with Tata Group.
India's technology suffers from a lack of infrastructure. Starbucks is not concerned because of its
qualified local partners (Manning, 2006).
2.1.5 Legal factors
International firms say India's legal system is not as good as the UK's or the US's as corruption
is alarming (Ferrell and Hartline, 2005). Starbucks may have troubles with India's regulations.
India has made considerable advances in reforming foreign commerce and investment, so its
commercial prospects remain alluring. These improvements have helped attract FDI. Reduced
tariffs and entrance barriers have made the Indian market promising and changeable (Lund,
2020).
2.1.6 Environmental factors
Starbucks uses high-quality beans. Growing coffee demands serious environmental awareness.
Coffee beans thrive with plenty of water, trees, and plants and animals. Unchecked development,
urbanisation, industrialisation, agricultural intensification, and deforestation will result from
rapid population and economic growth (Almquist, 2005). A larger human population puts more
strain on the planet's limited resources and ecosystem. As a result, ensuring India's development
is sustainable is crucial.
3.0 Competitive Analysis: Porter’s Five Forces Model
3.1 Rivalry among existing competitors: High to Moderate
The company's somewhat low growth rate may produce moderately high competition among
competitors seeking market shapers like Starbucks. It does not have overcapacity, therefore
rivalry is relatively intense, and adjacent competitors have a large market share, putting pressure
4
on Starbucks. The Porters five forces study shows that the industry's strength and profitability are
moderate (Mankad and Thadamalla, 2012).
3.2 Bargaining power of buyers or customers: Moderate to Low Pressure
The Indian market offers vertically differentiated products, which make relatively low volume
purchases, of buyers, and there are no switching costs with high availability of substitute
products. Starbucks prices its product mix relative to rival stores with popular market price
elasticity and aggressive best pricing. There are many types of buyers in this market, and
purchasers cannot demand price concessions. Consumers have a moderate feeling about
premium coffee retailing since they pay more for better quality products (Bearak, 2014).
3.3 Bargaining power of suppliers: Low to Moderate Pressure
The industry's suppliers pose a low threat of competing with Starbucks by vertical addition,
reducing their strength. Starbucks Corporation's size and scale take advantage of its suppliers,
but it maintains a fair trade certified coffee below its Coffee and Farmer Equity Programme,
which gives its suppliers a fair partnership status. Starbucks also forms a highly significant part
of the suppliers' business, which reduces their power. Suppliers have minimal bargaining
leverage given these factors.
3.4 Threat of substitute products or service: High
Fruit juices, tea, energy drinks, water, and so on are good coffee substitutes. Starbucks and other
industry giants are selling coffee to offset this threat. Consumers may manufacture low-cost
Starbucks-style coffee at home. It is very important that there are no switching costs for the
consumers for switching to substitutes, which makes the threat high (Ferrell and Hartline, 2005).
3.5 Threat of new entrants or new entry: Moderate
New entrants pose a moderate threat since entry barriers are not high enough to deter them.
Locations and price competition are somewhat high, creating a moderate investment barrier to
entrance (Ferrell and Hartline, 2005). Locally, tiny coffee shops can compete with Starbucks
since the business has monopolistic competition. New entrants can lease tool stores, reducing
their initial cost. Starbucks' economies of scale and market share can boost its efficiency.
5
4.0 SWOT Analysis
4.1 Strengths
Starbucks' brand equity is one of their most valuable assets given their size and market
dominance (Interbrand Top 100 Most Valuable Brands – N97 estimated brand value $ 3.339m)
(Lund, 2020). Through its constant and innovative marketing strategy and exclusive product
positioning, Starbucks has maintained its brand integrity and mission and vision. Strong joint
ventures and strategic collaborations created a sustainable, high-quality supply chain for the
organisation (Ferrell and Hartline, 2005). Starbucks also prioritises employee happiness and
well-being. The company is 98th on Fortune's list of 100 best employers. Starbucks' financial
stability is another strength it possesses. Starbucks' 2010 net revenues climbed 17.2% to $2.8
billion, making it simpler for them to expand into new areas like India (Mankad and Thadamalla,
2012).
4.2 Weaknesses
Starbucks' high prices are due to their high-quality, exclusive items (Ferrell and Hartline, 2005),
which is a company vulnerability, but it's not aggressively addressed due of their exclusive
image. Starbucks may not a market leader in India's coffee retail industry; there are already
established leaders. Starbucks' intense rivalry may affect their suppliers. Tata Coffee may be a
supplier, but it's also a competitor.
4.3 Opportunities
After economic liberalisation in 1990, India's growth accelerates to 7% by 1997. Along with
rising GDP, this boosts consumer disposable income. Rising money and living standards boost
demand for western items in a country where cultural trends are prominent. Recently, department
stores have proliferated. Starbucks targets the high-income and upper-middle strata. Starbucks
has experience placing coffee-bars in high-profit locations. Starbucks' rising clientele in Asia is
another potential. In 2006, India's middle class was over 250 million and rising in cities. All of
these elements demonstrate that Starbucks has a large enough target audience eager and able to
pay for a high-quality western brand. Starbucks' strategy and brand image could help them
penetrate the Indian market easily (Lund, 2020).
6
4.4 Threats
In India, most coffee retail brands are local. CCD, Qwiky's, and Barista Coffee are the biggest.
These companies are a threat to Starbuck's entry into the Indian market because they offer
similar products. Starbucks may face challenges or higher expenses due to India's
underdeveloped infrastructure. India's retail environment is unorganised and dominated by small
firms. India's alternative goods pose a threat. Indians still love tea. The consumption of tea per
person in 2000 was reported to 44 litres in comparison to 1.2 litres of coffee. Another good,
which is considered a substitute, is the instant coffee. It is reported that 65% of households
bought instant coffee and only 18 % bought filter coffee (Lund, 2020).
7
REFERENCES
Almquist, T. (2005) ‘Selling to your CFO’, CMO The Resource For Marketing Executives,
October 2005, retrieved 20/08/2022, available from: http://www.cmomagazine.com.
Annual Financials for Starbucks Corp. (n.d.). Retrieved July 27, 2016 from MarketWatch:
http://www.marketwatch.com/investing/stock/sbux/financials
Bearak, M. (2014). Hopes, and homes, crumbling on Indian tea plantations. The New York
Times. Retrieved from http://www.nytimes.com/2021/02/14/world/asia/onindian-tea-plantations-
low-wages-and-crumbling-homes.html?
Ferrell, O.C. and Hartline, M.D. (2005) Marketing Strategy, Ohio: Thomson South-Western.
Lund, B. (2020) ‘Starbucks’ brand power’, December 2021, retrieved 28/07/2022, available
from: http://www.fool.com.
Mankad, R. and Thadamalla, J. S. (2012). Starbucks Coffee Company: The Indian Dilemma. In:
Wheelen, T. L., and Hunger, J. D. (2012). Strategic management and business policy: Toward
global sustainability (pp. 5-1 to 5-22). Boston: Pearson.
Manning, B. (2006) ‘Measure engagement, not satisfaction’, iMedia Connection, July 2006,
retrieved 28/09/2019, available from: http://www.imediaconnection.com/content/10381.asp
Sanyal, S. (2008). The Indian renaissance: India’s rise after a thousand years of decline. London:
World Scientific Publishing.
Statistic Brain. (2022). Starbucks company statistics. Retrieved Aug 22, 2022 from
http://www.statisticbrain.com/starbucks-company-statistics/
