Strategic Fit Analysis of Starbucks in Malaysia Marketing Essay

10/7/2015 StrategicFitAnalysisOfStarbucksInMalaysiaMarketingEssay

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Strategic Fit Analysis Of Starbucks In Malaysia Marketing EssayStarbucks is the largest coffee company in the world, currently with 19,974 stores in 60 countriesincluding the two new shops that was opened in India November 2012, With its base in Seattle,Washington.

Starbucks sells Cold and hot drinks, Specialty Coffee, salads, sandwich, snacks and items like tumblersand teacups.

Starbucks started as a local coffee bean roaster and retailer before it started its expansion and got torapid expansion in the 1990s, going at a rate of opening a new store very workday, it continued likethat until the last decade with its first shop outside of the united states in Canada this was in the mid1990s but now overseas stores has over one third of Starbucks stores with over 7035 stores nowoutside of the USA.

A brief introduction to the country/market environmentI am focusing this report on the evaluation of Starbucks, to examine its past and how it got to itspresent stage as one of the most successful coffee shop around the world. This report will find moreinformation about its strategy and objectives that drive the company forward, my focus country forthis report will be Malaysia, We already have over 115 Starbucks currently in Malaysia.

The analysis uses SWOT, PESTEL and similar evaluative pattern to reach an understandable and welldetailed info about Starbucks.

Starbucks Coffee in Malaysia is a joint venture between Malaysia's BERJAYA GROUP and StarbucksCoffee International. Although they keep same standard like every other Starbucks around the worldbut they work with labor divided here, With the Starbucks International making sure they maintainstandard according to the International standard and BERJAYA handles all the operations whichinvolves local customs, Shops maintenance, and management plan as well as culture adaptability.

Analysis of Starbucks external environmentIn the business world today it's not all about your company, You have to constantly consider theimpact your rival companies are having around you and what they are doing right that you not that'sthe only way you can stay competitive, There are lots of external factors to consider when discussinga company like Starbucks examples of such factors are Political, Economic, Social, Technology,Legislation and Environment

PESTEL ANALYSISThe following PESTEL analysis will aim to thoroughly evaluate and explain how the social, customers,competitors, suppliers, environment, social, culture, economic, labor and political issues affectStarbucks external environment as it is not in complete control of these factors.



I will be examining the broad environment in which Starbucks operates in with the PESTEL analysis,The marketing environment of a company is a major factor for success as it contributes to everythinga company needs to succeed or fail for this reason it's good to review and do a proper research abouta location before embarking on any business. There are the four key areas in which to consider howcurrent and future change can affect the business of Starbucks Coffee.

PoliticalThe political situation of a company directly or indirectly affects any company, Either through politicaldecisions, tax, foreign policy or election crisis, When this things are not stable in a country its alwaysdifficult to tell what would happen the next day, Like there was a political riot in Malaysia last yearwith over 1600 people arrested followed by a similar situation in April with over 600 detained(online.wsj.com), at times like this all businesses around affected areas are closed and this is not goodfor businesses.

EconomicalWhen the economy of any country is bad, it affects everything especially the cost of living and thewhen the prices of things are inflated it automatically affects the price of selling and people will beskeptical about their spending, bad economy is not good for business, since the last decade Malaysiahave experienced a fast growth in economy which is why there is lot of international business comingin.

Social factorsThis has to do with the people you are targeting your market for, you have to understand their tasteand social life, with these you can have a better understanding about what they like and the kind ofenvironment they find pleasing and are comfortable in. That shows in the way Starbucks has workedon making sure they serve very low calorie drinks with low fat milk and the Frappucino Light due tothe fact that most people are health conscious now and want to stay slim and fit. Right now inMalaysia all Borders book shops have Starbucks coffee available to readers.

TechnologicalThese can be handy in different ways, In the business world today the very little things can make ahuge difference, That little curve or dressing on a coffee could be the reason why Mr A likes coming toStarbucks and this could make a huge difference in sales, Starbucks invest in machines and hightechnology research just so they can have that edge over their rivals, Internet is another technologicalimprovement, You never know who comes to get a coffee just so they can relax while browsing theinternet.

All these environmental factors contribute to the success and failure of a company.

Environmental InfluencesRecycling in Stores, Reusable cups, Greener Cups. Composting of coffee ground and introduction ofbring your own cup and get 10% discount shows how much Starbucks cares about environmentalcontrol.



Non Governmental Organizations and pressure groups possess incredible ability to coercebusinesses into changing their practices. They could influence businesses through lobbying

and boycotts. Such measures usually impact the intangible assets of a firm which usually involvestarnishing a company's brand name. Starbucks however works with the Fair-Trade movement(Economist.com) and the accreditation that comes with such alliance massively improved Starbucksimage, hence Environmental influences is favorable for Starbucks another worry is Climate Change:implementing a climate change strategy since 2004, focusing on renewable energy, energyconservation, and collaboration and advocacy ensure a long-term supply of high-quality coffeethrough responsible coffee purchasing practices and by investing in farmers and their communities.Source: Starbucks USA Homepage

Legal InfluencesEmployment law working time, age, minimum wage rate all attribute to legal influences, anotherfactor is not all countries welcome big firms because they like to protect their indigenous firms fromunfair competition and takeover. Legal issues such as Monopoly and national protectionist laws willaffect Starbucks because of its size and its plan of expansion.

i) macro environment (PESTEL: Essential) or any other models/analyses(e.g Scenarios)

ii) Micro environment (Porter's 5 forces:Essential) or any other models(e.g strategic groups,market segments,blue ocean canvas)

Industry RivalryThis happens to be the center point of the five forces model and its about the industry competitioncoming from the rivalries among existing companies.

Companies like Coffee Bean, McDonald's and Dunkin Donuts are the closest rivals to Starbucks rightnow and are proving to be very tough competitors with cheaper prices for coffee and offering othervariety which customers might prefer to coffee, there by providing more options to customers, non-coffee drinks like water, tea, soft drinks, juice and alcohol with so many people now into healthy andfresh juice instead of coffee the demand for coffee might be affected.

Potential for new entrantsThis solely depends on the barriers to entry, because when the barrier to a particular line of businessis very high the threat of new entry is minimal.

The higher the barriers to entry are within any given industry the smaller the threat of new entrantsto that industry. (Porter, 1998, p. 7). Capital proves to be the major barrier in any business but in thiscase it is not too expensive to set up. McDonalds has already added specialty coffee to their existingservice.



Today Malaysia grows about 25,000 hectares of coffee mainly in the provinces of Kelantan, Kedah,Terengganu, Selangor and Malacca. Coffee is also cultivated in the Sabah region at the northern mosttip of the island of Borneo. Both the lower grade Robusta and the higher grade Arabica coffee plantvarietals are grown in Malaysia but about ninety-five percent of the crop is the Liberica Coffee varietalwhich was first introduced to the country in 1875.(www.espressocoffeeguide.com) this leaves theindustry vulnerable to new entrants despite the potentially high barriers to entry.

Substitute ProductsThe primary substitute products posing a potential threat to specialty coffee were the caffeinated softdrinks produced by Pepsi and Coca-Cola. Competitors like Pepsi and Coca-Cola offered beverages,which had the caffeine inherent in specialty coffee, at significantly lower prices. (Quelch, 2006) However with the significant difference in taste its hard for a coffee consumer to switch to the latter so thedirect threat is basic coffee but the public generally see it as a lower quality coffee than the specialtycoffee this mentality helps reduce the threat of substitution.

Bargaining Power of BuyersThe force of the buyer's bargaining power is proportional to the ability of buyers to force down prices,bargain for higher-quality products or more services, and pit rival organizations against one another.(Porter, 1998, p. 24)

Knowing that customers can get specialty coffee from other competitive rivals helps keep the price ona better level for the fear of losing customers.

Bargaining Power of SuppliersThe fact that there is no union for suppliers of coffee bean it hinders their bargaining power.

The suppliers of Arabica beans were mostly small to medium-sized family owned farms and typicallysold their crops to processors through local markets. (Lee, 2007)

Putting into consideration that the most important ingredient in specialty coffee is quality Arabicabeans, we can say differentiation can occur between the numerous suppliers farms based upon thequality of beans they produce, Thus increasing their bargaining power as suppliers. The supplierswith better bargaining power are the technological innovations such as automatic coffee machines,latte and espresso machines because the suppliers for their machines are not as common as thecoffee beans suppliers.

Identify opportunities and threats from both analysesStarbucks competes against a number of categories in the food service retail market, such as coffeebeverages sales, quick-service restaurants and specialty coffee shops. The most direct competition isfrom specialist coffee houses. (Euro monitor International)

Internal Origin

STRENGHT

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Strong brand image

Leader in the coffee retailing market

High brand awareness

Worldwide resources for coffee beans

Diverse distribution channels, such as grocery stores, convenience stores and department stores

Staffs personality making customers want to come again

WEAKNESSAggressive growth which has lead to cannibalization of sales

Over-reliance on coffee and coffee related products

Brand image becoming a mere commodity with rapid expansion

Lack of menu for kids

External Origin

OPPORTUNIESContact and contracts with foreign exporters

Excellent relationship with suppliers

Worldwide resources for coffee beans

Some degree of control over suppliers

Global expansion

THREATSSaturation in the specialty coffee market

Growing competition from national brands and new entrants in Malaysia

Many companies are selling their coffee cheap just to increase their customer base

Critical Success Factors (CSF)Starbucks is known for the quality and high standard specialty coffee and that's why its price is higherthan its rivals and the psychological believe that expensive things are made of high quality makesmore people want to go for Starbucks specialty coffee.

The quality of their employees is one great factor for their success. The fact that Arabica beans isproduced here in Malaysia is a huge cost advantage,



The cafe industry is to some extent dependent on front house staff, their attitude and their ability tomake customers come back. Starbucks promotes an environment that encourages team working andcollaboration. As such it encourages managers to follow its motto of hire the personality, train theskill. Hence through exceptional service, customers keep coming back. Arguably, Starbucks has one ofthe lowest staff turnover rate in the industry (workforce.com). this is one of the reason they are verysuccessful another factor is their environment which is very conducive for Social or Business meetingand its arguably one of the most chilled cafes around here in Malaysia not withstanding their uniqueability to adapt to the changing dynamics of their consumer increase. Providing free internet hasincreased makes people want to visit more often once they are on break from work so they can go oninternet and do personal work.

Task B: ANALYSIS OF STARBUCKS STRATEGIC

CAPABILITY (Approximately 1000 words) Maximum of 30 marks

Strategic capability: Threshold resources and competences +Distinctive resources and competences (Essential)

Value chain and value network analysis (Essential)

Optional: Any other models

Make sure your analysis includes evaluation of resources andcompetences that are relevant to the Critical Success Factors

Identify strengths and weaknesses from analyses!

Strategic Capabilities (Resources and Competency)

1) ResourcesThe strategic capability of any company is based on the availability of resources it needs to function;The four resources that determines the strategies are Human, Financial, Physical and Intellectualcapital.

The Human ResourcesThese are the skills, knowledge, commitment and adaptability of the workers at Starbucks. that's whyat Starbucks all the staffs are offered shares to the company including the per time staffs as well asfull time health insurance, for the 14th time, Starbucks was named to FORTUNE's "100 BestCompanies to Work For" list. Schultz, the founder of Starbucks, believes every member of staff playsan equal part in the customer experience' regardless of whether they be CEO or waiter.

Financial Resources



These are the capital, cash, debtors & creditors, and shareholders of Starbucks. Starbucks has a lot ofrunning cost and very minimal debt which puts them on good financial stand. Some of this runningcost includes varieties of whole coffee beans, foodstuffs, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers and other accessories.

Physical ResourcesThe physical resources of Starbucks include the buildings, vehicles and machine used in the processof coffee making. Starbucks has around 115 outlets here in Malaysia with a target to open 20 moreevery year to meet a target of 200 in 15 years (The Edge Financial Daily).

Intellectual capitalThese are the intangible/immeasurable resources of Starbucks.This is the secret that makes acompany successful and its under this core values that it's based on. This is the information capturedin brands, patents, customer databases, business systems and relationships with business partners.All these can contain great value and when a business is purchased these values fall under the pricetag marked goodwill. One of the few ways Starbucks can protect this intangible information is toensure employees sign confidentiality agreements to protect any leaks of knowledge to competitors.

2) Competences - Their competitive advantageIts strategy of "first to the market",

Its ability to see opportunities before its rivals and always trying to be the first to explore a country'sspecialty coffee market gives it an edge over its rivals, Its advancement in technology, advance thedevelopment of alliances with suppliers in advance and the non savings related to productionquantities.

1) QualityStarbucks is known for its quality which is what they have maintained from the start and thatcontributes the huge success they enjoy today, communication turns around a lot of this criterion.They have a good quality control of their product and its environment.

2) PricesThe price difference between Starbucks and its rivals is well known and it goes down to the quality ofcoffee they serve you for every penny spent. This is what makes them unique.

3) SuppliersOne of the key factors leading position occupied by Starbucks result of the relationship with thecompany weaves its suppliers. Thus, the company has retained its leadership through numerousalliances particularly in the development of new products and sales of its coffee. The purpose of thebrand by building such relationships with its suppliers as to promote the single outside the coffeeshop to reach consumers on different levels, and thus in new places such as libraries, hotels, or thesupermarkets.

4) Customer service



4) Customer serviceThis is one of the most important and strongest success point for Starbucks, That explains why theydon't believe in skills, they go for personality and develop the skills after employment, The way thecustomers are treated by staffs makes them want to come back and the staffs are well encouraged bygood offers by the management of the company just to keep them happy and make them feel likethey are a part of the company and that they are not just staffs but a family.

5) Ownership specific advantagesThe Starbucks brand has become almost synonymous with coffee here in Malaysia. the combinationof the green and white color now reminds you of coffee, that's how much they have impacted thecoffee market here in Malaysia.

Strategic Alternative (TOWS analysis)

Internal Factors

External Factors

StrengthsS1. High brand equity

S2. Satisfied employees

S3. Economics of scale in purchasing

WeaknessesW1. High prices

W2. Over dependency on coffee related products

W3. lack of internal focus(too much focus on expansion)

OpportunitiesO1. New market with low investment

O2. Coffee market growing worldwide.

O3. Product range diversifications to food and non food items

1. Grow vertically to include other low cost countries using the good brand.

2. Use the experienced employees to diversify in other related businesses.

1. Diversification to related business to overcome the dependency on the coffee and increase productrange.



2. Reduce costs to reduce prices in low investment markets and get benefits from the growingmarkets.

ThreatsT1. Financial Crises and recession

T2. Increase in Domestic competition

T3. Volatile coffee and diary products.

1. Differentiate using the high brand to prevent domestic competition.

2. Make a backward vertical integration using the economics of scale to avoid volatile of coffee anddiary

Solutions1. Reduce cost to reduce price in order to survive in the current financial crises.

2. Depend on international alliances in the international stores to focus on the domestic market toavoid competition, as the domestic market is the main source of revenue.

Task C: STRATEGIC FIT ANALYSIS (Approximately 750

words)Maximum of 20 marks

How are Starbucks' strengths and weaknesses matching theopportunities and threats in the external environment?

To what extent is Starbucks matching the CSF identified in Task A?

You may answer these questions in a tabular format

Summarise the overall strategic fit of Starbucks, highlighting any specialstrengths/weaknesses, and opportunities/threats

Optional: Provide recommendations

Final Thoughts (1)

Make sure that there is a clear link between Task A and Task B. If not,you will not be able to do Task C.

The main body of the report should be dominated by critical analysis.

PESTEL/Five Forces/Value Chain, etc.: Best placed in the appendixes (but



PESTEL/Five Forces/Value Chain, etc.: Best placed in the appendixes (butrefer to the appendixes in your text!)

Final Thoughts (2)

From these appendixes, select and analyse in the main body those 4-6factors that you believe have the greatest impact/importance onStarbucks

The analysis must explain:

Why factors are important?

How they impact Starbucks now?

How they will impact Starbucks in the future?Appendixes

http://en.wikipedia.org/wiki/Starbucks

http://www2.uhv.edu/chapao/MGMT4340/Samples/Project%20Sample%203.pdf

"Starbucks Coffee Company." 123HelpMe.com. 08 Nov 2012

.

Management concept and practices by Tim hannagan

http://www.espressocoffeeguide.com/gourmet-coffee/asian-indonesian-and-pacific-coffees/malaysian-coffee-coffees-of-malaysia/

fortunes magazine http://money.cnn.com/magazines/fortune/best-companies/2012/full_list/

(The Edge Financial Daily) june 13 2012

http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=215339&Itemid=79

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Strategic Fit Analysis of Starbucks in Malaysia Marketing Essay