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Course Name: Competitive Strategy
Assignment Title: Project – Globalization Problems faced by Starbucks – Focus on Europe
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Table of Contents
Executive Summary 3
Industry structure – Porter five forces analysis 4
Company background 5
Globalization strategy [1995-2008] 9
Performance in EMEA 11
Findings and analysis 13
This study is focused on Starbucks, the world’s largest ...view middle of the document...
The focus of this study is to further delve into these factors, considering the industry structure and competitive environment, to arrive at the findings and recommendations for what could have been the ideal strategy for globalization for this company.
Industry structure – Porter five forces analysis
1. Rivalry within an industry – The specialty coffee industry is competitive because of its multi-domestic nature, with both low cost and high price-high differentiation players. However, given the relatively small number of branded competitors, the effect of competition is generally moderate.
2. Threat of New Entrants - Barriers to entry are generally low as there are low capital requirements, no significant economies of scale, ease of setting up business and the localized nature of the business. However, brand differentiation can be a challenge to newer firms and can be a deterrent to new entrants in an already established market. Overall, the threat of new entrants is high.
3. Threat of substitutes – Carbonated soft drinks and other energy drinks are not true substitutes. The closest substitute of specialty coffee is commercial coffee and tea, which is generally not as good in quality as specialty coffee. Threat of substitution is thus moderate.
4. Power of buyers – This is significantly high as specialty coffee is not a necessary consumption item. Under price constraints, the customer can easily switch to low cost options and even avoid having specialty coffee. Although price bargain is not available to buyer, they can almost always switch.
5. Power of suppliers – This is low as the main raw material for this industry is coffee beans which is cultivated in farmlands located in Africa and South America, and produced by fragmented small to medium farmers. Switching the supplier is rather easy. Specialty coffee needs high quality Arabica beans, which does enjoy a few supply-side powers but it is not pronounced enough to influence the industry.
Overall, the industry is very attractive and closely tied to macroeconomic conditions of a country.
Illustration 1: Porter’s 5 forces for Specialty Coffee Industry
The company started off as a coffee roaster selling beans out of Seattle in 1971 for about five years. It was founded by three students of University of San Francisco - Jerry Baldwin, Zev Siegl, and Gordon Bowker - who were inspired by one of their teacher’s style of roasting beans. In the 1980s the consumption of specialty coffee increased and illustrated a shift in consumer preference from packaged coffee to specialty coffee. Howard Schultz, director of retail operations and marketing, went to Italy in 1983 where he observed how people gathered at their neighborhood espresso bars which looked like an extension of the front porch. He brought the idea of espresso bars to the management of the company, and in 1986 the company sold its...