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The report has been prepared to develop an understanding of the justification for Starbucks being set up in India. PEST analysis has been performed to determine the opportunities and challenges of the company. The reasons for expansion are also ascertained on that basis. The report gives a descriptive view of the reasons for expanding in the Indian market. The motives lied in the decisions of Joint venture to expand the business to India have impacts on the company. The reasons for acquisitions and licensing lead to have positive impacts on an organization. The same has been stated to enhance long term stability.
PEST analysis is the method of managing external factors that would influence the operations of the company. These factors are external to the business. The environment must be scanned properly by implementing these factors. The company can only assess the intensity of these factors and not able to control these factors. The four factors are central to the company and all the decisions taken by the company must be in line with these factors. (Widyastuti et al., 2019).
PEST is the strategic planning approach that includes the aspects of legal and environment. The company needs to assess the market based on these factors. The planning is undertaken to maximize the ability of the organization to capitalize on the conditions that are existed for the betterment to stay ahead in the competition. The company must be better prepared for the changes in an organization. PEST analysis has been performed to determine long term efficiency in an organization. (Chang, 2020).
Political analysis -It is associated with changes taken place in the political structure of the country. Every country has its political system that must be in favor of business. Any change implemented has a direct impact on the company and its operations. India has the largest democracy in the world and so the political system of the country is difficult. It has been affected by various factors such as changes in income tax rates, GST and other taxes, octroi, and other duties being imposed by the government.
Social - Business which is set up in society so it has some responsibilities towards it. It is important to determine long term efficiency in an organization. It is important to deliver goods and services favorable to that of society (Chang, 2020). Social factors such as changes in income distribution, education patterns, changes in tastes, and preferences of the diverse population affect Starbucks in Indian society.
Economic- Interest rates, inflation, foreign exchange rates are covered in the category of economic factors. So it is important to balance the operations of the company concerning the economy of the country. The changes in the economy are out of the ambit of the company (Widyastuti et al., 2019). The economy of the country is stable for several last years but due to the imposition of demonetization and GST, a significant downfall has been seen in it. Recently Covid-19 impacts are there in the country that leads to a reduction of -9.6% in 2020-21. The economy was 4.2% before the outbreak of Covid-19. These factors affect the establishment of the company.
Technological factors -These are the most critical factors that can be changed with the pace of time and innovation and technological up-gradation and innovations. The company must keep the products and services updated with technological advances. It is important to determine continuous ways to develop an understanding of various aspects of the organization (Widyastuti et al., 2019).
Opportunities and challenges in Indian market based on PEST analysis
There are several opportunities and challenges associated with the Indian market. It is important to analyze these to conduct business operations and determining requirements for establishing new business prospects.
There are several opportunities to set up a business in India based on PEST analysis. The global power of the world is attracting towards opportunities of the country. It is important to analyze factors that are important to transform business operations effectively (Azriuddin et al., 2020).
Following are the factors that make India global power of making business in the country-
With the above opportunities, India also possess certain challenges that make it difficult to establish a business in the country-
Technological factors -the factors affecting the technology of the country has a direct effect on the organization. Technology developed in a company is related to having a direct impact on the organization. There is a continuous change in the technology of systems so that it is important to determine corrective responses in an organization.
Starbuck's establishment in the country is justified as it leads to having a direct impact on the coffee market of the country. The country is set as a joint venture and not leads to having any acquisitions and mergers. It has given a tough challenge to Barista.
Starbucks has its headquarters in Seattle. It is the largest coffeehouse chain in the world. India is the central player in the economy of the world where expansions are made based on factors affecting PEST.
Starbucks in the country is set up with the joint venture based foray that leads to have positive impacts on the organization. It is important to seek long term efficiency in an organization. Starbucks entered India by attracting critical resources of the country. It is important to seek long term efficiency, the investments in the country are justified as the decisions prove to be economical and profitable for the country. The selection of the partners is proving to be successful in implementing long term efficiency in an organization. It is important to seek reliability in an organization.
It is the first collaboration of the country with the emerging market firm and the company that first developed the country. The country needs to maintain that particular model that will lift the image of the brand and maintain harmony with various resources of the organization. The country can able to develop long-term efficiency in an organization.
The company has offered quality to the customers when it set up operations in the country. These are related to technical capabilities, intangible resources, and willingness to share expertise. It has developed plans to be beneficial to the global operations of the country. To be spread in its operations in other countries it is important to survive in the domestic markets of the country. There is a need to enhance the widespread customer base in the country so that company can able to set up its operations in the organization (Alwaleed et al., 2019).
It is important to satisfy the particular ability to enhance business operation in the country. The market seeking is based on the place where customers are willing to pay for the quality and the company is in search of that market. It is demand seeking. The other reason for the company to set up its operations is when it tries to gain access to natural resources and labor. The easy availability of the same leads to having a direct impact on the company, the organization develops measures to search for cost-effective plans. The main work is to protect the ownership of the company as it is a joint venture between two different organizations (Alwaleed et al., 2019).
The benefits of ownership are mainly based on intangible and tangible sources available in the country. There is a need to enhance long-term efficiency in an organization. The company can able to enhance long-term efficiency to make aspects in long run. The customers are willing to pay premium prices for the quality they are getting. It is also considered to be a status symbol and there is a need to enhance reliability in an organization (Krishna, 2018).
Starbucks is a company that usually invests in its employees. The people in the country get an opportunity to work with the world's class MNC. This has increased the pace of growth of the company. It is important to develop an understating based on maintaining long term relation. The premium quality of coffee attests to a large number of customers. The production technique of the company improves the working pattern and the production process as employees are well versed with the kind of quality being provided by it (Krishna, 2018).
The main motive of the company is to deliver the best baristas to the customers being entering the store. It increases the market and the brand image of the country, there is a need to maintain long-term efficiency so that reliability can be ascertained in an organization. The company can continuously make a difference if it could understand the needs of customers (Alwaleed et al., 2019).
The company is well versed with the global standards it had possessed so it is important to maintain efficiency in an organization. The production process is designed to maintain and strengthen the process. It is an appropriate example that it is not served based on price and service but is a function of variables such as location, product quality, and interiors, among other criteria. The country continuously increases the surveys that lead to having efficiency in the operations of the country (Krishna, 2018).
The company has gained profound knowledge of developing long term efficiency in an organization. It is considered to be effective that lead to having irrelativeness in a company. The main focus of the company was on the innovative techniques that would offer the company ability to expand operations in an organization. The company has made user-friendly apps for the betterment of the customers. There is a need to maintain standards in the market so that records would not be break and creativeness can be stated in a company (Gopalakrishna et al., 2016).
Starbucks is considered to be the experience provider and enhance relativeness' in an organization. the customer survey proves to be beneficial for the company as it is considered a major aspect of making changes in the patterns and the company can improve its performance by implementing change in the company and serving patterns. The local culture of the country is being adapted which makes it possible to enhance relativeness in an organization. Location advantages mostly concern economic, political, or institutional factors in the targeted countries (Gupta et al., 2018).
Value added services are required in every country that increases the growth of the economy of that particular company. It is important to maintain relational value to enhance sustainability in an organization. The major market pillar of expansion and growth makes the expansion justified as the company clearly understood and scanned the market of India before implementing its operations in the country. The competitive advantage has been saved and secured that lead to affect the company internal affairs and make the project quite successful.
Starbucks provides a good place where the company can well offer the customer the support and ambiance where one can spend a good time. The premium quality it has offered is considered to be effective in maintaining the reputation of the company. Starbucks has supported the standards set abroad to enhance domestic standards with international ones (Gupta et al., 2018).
Joint venture -It is the arrangement of business where two and more parties pool their resources to conduct business. It is considered an important parameter where the task is accomplished and new business activity is undertaken on that basis. In the joint venture both the parties are responsible for making profit and losses. The two parties are liable for all the business operations it is conducting. It is important to measure the intensity of such losses to ascertain reliability in an organization. More resources lead to having more development of the country and factors affecting the same (Liu, 2017). Starbucks in India is established with a joint venture with TATA. The company chooses a joint venture business to get the benefit of local retail space and personalized experience in domestic country TATA. It better understands the customer's tastes and preferences.
Licensing -the profitable ways to grow the business lead to having increased the patents, trademarks, and copyrights of the company. The company Starbucks instead of setting up as a particular brand established in the joint venture. This has resulted in the organization of resources so that effectiveness can be attained in a company (Gupta et al., 2018).
Acquisitions -when one company acquires a stake in another company that leads to having profitability is referred to as have the acquisition. The ownership of the company is in the hands of the company that has acquired one. All the decisions are in the hands of that particular company.
Starbucks chooses this over licensing and acquisitions. The benefits of the economy and the brand image are directly received by the company (Liu, 2017).
The reasons for choosing joint venture over licensing and acquisitions are as follows-
Efficient strategies are needed for smoothly carrying the entity's operations. Starbucks is covered in the category of fastest-growing business. The company is planning to expand its business operations on a large scale. Starbucks aims to provide quality services to its customers with the motive to increase its market share. Business can be expended either by joint venture or by fulfilling licensing formalities. These formalities differ from country to country. The business entity should expand its operations in countries where fewer legal formalities are required to be completed (Fischer, et.al 2019). Various types of documents are required to be presented to the government for starting a business. If these documents are not presented then it becomes difficult for a company to expand its business.
An agreement is required to be signed by the company so that it becomes enables for them to carry its operations in a smooth manner (Hossain, et. al 2015). By analyzing the financial reports of Starbuck's it was observed that the financial position of the entity has improved in the current year as compared to previous financial years. Various types of strategies are formulated by the entity's managers which have created a positive impact on the entity's profit. By analyzing the entity's reports it was also observed that an entity's performance is negatively impacted by the great recession. A negative economic climate has impacted an entity's activities. The cost of production has increased over the years. Entity's managers were planning to expand its operations in various other countries with the motive to increase its revenue and to reduce its cost. But due to unfavorable market activities company was not able to expand its operations (Fischer, et.al 2019).
Demand for an entity's products has started declining over the years and it becomes difficult for the entity to carting operations in a competitive environment. The main focus of the entity's managers is to formulate marketing strategies that can be used to attract a large number of customers. The market structure of an entity is complex and differs from other types of entities (Gupta et al., 2018). It is difficult for an entity to expand its business in other directions. If the case of India is considered then India is operated by Tata. Major holdings of the entity are with Tata (Hossain, et.al 2015). Revenue is shared between two different companies in half form.
The coffee market of India is considered one of the fastest-growing markets and there are very fewer market players in this market so it can be considered as a plus point for a new business to enter this market. When any small entity is acquired by a large business firm then it is considered as a situation of the acquisition on the other hand when two different entities merge to form a new business then it is termed as a merger. Various types of risks are associated while conducting the acquisition and merger process. There might be variation in trade reforms of two different countries. Alterations in trade reforms can have an inverse effect on business activities (Entrepreneur, 2020).
Adverse market conditions do not allow businesses to expand at a rapid rate. In these cases, acquisition and merger strategies play a critical role in improving the profitability level of the entity. These strategies are not only suitable for large businesses but businesses that are operational on small scale can also use these strategies for shifting their profit in a positive direction. In the financial year 2013 -14, there were only 14 Starbucks stores in India which has increased to 43 in 2014 and 72 and the end of 2015 and in the current financial year, Starbucks operates more than 140 stores in various parts of the country (Gallagher, et.al 2014). Several types of risks are associated with the coffee market in India. It is difficult for a foreign entity to invest in the Indian market. Foreign policies of the Indian market are quite easy as compared to various other countries. Also if any foreign brand is planning to enter in Indian market then it has to share at least 50 % of revenue with an existing Indian brand. This is the reason behind choosing the joint venture option by Starbucks to enter the Indian market.
The company has entered the country by making joint ventures so that it is important to maintain efficiency and effectiveness in the conduct of plans and procedures. The venture established in the county is the major competitor for Cafe Coffee Day, which operates over 1,200 outlets in the country. But the plans and the procedures make it difficult to enhance the quality of the product (Kumar, 2020).
Aggregation strategy was followed by Starbucks managers for dealing with its competitors effective. Entity's upper-level manager has decided to follow the economics of scale for reducing its product cost. Global operations of entities are expanding at a rapid rate. And for expending operation in such manner funds are needed by entity's managers. So the company has focused on standardization of products rather than producing and selling a variety of products. The main objective of the entity is to improve its production and development process so that products can be manufactured at a lower cost. The aggregation strategy has proved beneficial for large business firms. The main motive of aggression strategy is to focus on primarily benefits. It is mainly suitable for a strong brand. Starbucks has created a unique coffee culture in the market. Market entry forms are classified into three categories i.e. FDI, exports, and licensing (Entrepreneur, 2020.). By analyzing Starbuck's structure it can be indicated that the entity has received location advantages, Internalization, and ownership advantages. Its stores have the power to formulate and implement strategies as per their understanding (Liu, 2017).
The culture of coffee has been changed effectively that lead to having a direct impact on the company. It has occupied the market effectively that make sense of depicting long term view in an organization. The joint venture facilitates the company with information about the local area and the location and brand where it needs to set up its operations. This is important for the long-term survival of the operations of the company. The alliance was made with TATA. The company has placed the specialty of the well-grown brand of Arabica and transforms the same into a special one. Indians are aspiring to acquire western culture by maintaining efficiency in an organization. The aspirations of Indians are fulfilled with the establishment of a brand in the country (Gupta et al., 2018).
The localization of the country is adaptable to the needs of the organization. It is important to measure how well the company can maintain efficiency in a country. As the standard of living of customers increased there is an increase in purchasing power and the need of having premium brands to be covered. The company can able to enhance effective relations with the place and develop the image for a similar brand. The place where it first set up its operations is in Delhi.
The benefits of joint venture affect the performance of the company. It is important to develop long term efficiency in an organization. There is a need to place things in place so that direct benefits can be attained and growth and expansion can be possible with that. The prices decided by the company are competitive that affects the price-sensitive market. The tendency of the people to pay for quality makes the success story of the company (Liu, 2017).
From the above analysis it has been ascertained that with the joint venture the company gets the benefits of exposure to large Indian market. There is decrease in the dependency on the primary US market of the country. These are covered in the category of OLI factors. Main aim of these factors is to determine ways in which new firm can enter in the market. FDI is considered as one of the popular market entry form as it enables investors to invest in company and business can grow at a rapid rate. Entity has direct linkage between global marketing strategies and its economics of scale. Company has created its local business units with the aim to reach to large count of customers.
Accounting tools, 2018 Merger and acquisition (online) Accounting tools Available at: https://www.accountingtools.com/mergers-and-acquisitions-book Accessed on: 20/11/2020
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