Question

Use any search engine to search for articles about Starbucks partnership with Tata Companies in India and write a 1000-word (excluding title page and references) describing Starbuck's entry strategy in India. Describe Starbuck's entry challenges and suggest a better mode of entry, if any, or explain why it is a commendable strategy. Please be sure to use and explain the different concepts from the textbook in your paper.

Answer 1

Introduction:

Starbucks entry into India was never an easy thought considering the challenges a business can face entering into a foreign market. It was no less than a blockbuster television show how the Coffee producer entered the Indian market.

Starbucks Entry in India:

Much had been talked about Starbucks' expansion into huge markets like China and India, but the coffee giant postponed its entry into India when it couldn't gain regulatory approval. Undeterred, it appeared that Starbucks was taking another route into the populous country -- by distributing products through an Indian multiplex chain.

According to India's Financial Express, through a deal with PVR Ltd., Starbucks products would be available at several movie halls in Mumbai and New Delhi. If that sounds bizarre, it got a bit stranger even then: The hot, brewed, personalized coffee selections Starbucks is famous for, was nowhere to be found. PVR was supposing to stock Starbucks products like cold bottled coffee and water. While the deal could eventually extend to 25 theatres in major metropolitan areas in India, the reports said PVR was still evaluating how much demand there would be, and therefore there's no position for any additional rollouts in other venues. This was one of the tiny steps they took to establish in India.

Then again, I've never said that it was always easy for American companies to expand into other countries and cultures. Obviously, India was already proven to be a challenge. And a retreat involving Starbucks' cafe in China's Forbidden City also insinuates that Starbucks may not essentially be welcome at all times in every place.

Starbucks had made an arrangement with Tata beverages in order to buy and roast premium coffee beans at the then Tata Coffee plant in ‘Coorg’ which had a packaging and roasting capacity in southern India and was roasting Starbucks espresso roast coffee and Starbucks India Estates blend. They were also looking to get into a tea blend as a signature product and that will be available across India in all Starbuck stores.

Tata was proving to be a trustworthy and valuable partner for Starbucks, with the real estate experience in hand Tata helped them to negotiate prime stores in the malls on the ground floor. It also offered Starbucks to form a product line in the luxurious Taj hotels. Tata not only helped them learn more about the taste and culture but also added ice creams and pastries in their menu to give a more customized business. The layout of the stores with interior decoration and furniture being sourced proved a boon to the logistics issues.

The association with TATA was in line with the ethical sourcing initiatives of Starbucks. To help the farmers in the domestic space the JV set the Cafe Practices Program, and receive the prices above the market price, reduce coffee's environmental impact, obtain seasonal loans and better working conditions for employees.

Industry Trends favoring Starbucks:

While the Indian coffee market had been stagnating over the last 10 years, held back by the superiority of tea in the country and by unpredictable production, it was believed that it was set to showcase much stronger growth in the coming decade. Consumption trends were showing potential and sufficient domestic production had fostered an investment extravaganza in the country from both local and global coffee players, which underlined the robust growth potential for the India coffee sector in terms of exports, production, and retail potential for dedicated coffee chains.

There was a considerable upside potential for the Indian coffee market, based on promising consumption trends and production expansion. The Indian coffee industry was stagnating over the past decade, held back by unstable prices and yields, the lack of coffee culture and the superiority of tea in the country. But this trend was slowly turning, with production growing for the 5th consecutive year in 2012/13. Output was expected to reach around 5.5mn bags that season, which was up by 4.7% year-on-year, due to positive weather conditions and steady prices, which had encouraged better agriculture practices. Cultivation in states such as Orissa and Andhra Pradesh would intensify, and maturating trees would boost yields. Starbucks saw this opportunity and entered at the right time.

Moreover, the support from the government to the sector, in the form of production subsidies and export incentives would have ensured continued profitability to farmers. The export subsidy, equivalent to USc2-4/kg (INR1-2/kg), was specifically aimed at attracting the exporting Indian branded and high-value coffees to international markets such as the US, Japan, and Canada. This feed into the view that India's coffee production growth would mainly rely on export perspective in the medium term, as consumption only absorb about 35% of production.

Lastly, production was to be increased by India's strong coffee consumption increase. Coffee utilization in India has seen a spectacular change in the past decade. After largely stagnating between 1980 and 1999, it had expanded by 5.6% on average annually since 2000 and was projected to reach 1.8million 60kg bags in 2012. To 2017, it was expected impressive 47.4% growth in coffee consumption to 2.7mn bags. Consumption was to be spiked by favorable demographics and the increase of mid-sized cities in India. Meanwhile, India was set to see the rapid growth of its middle class, as households with disposable incomes from INR0.2-1.0mn per year could grow from 50mn people to about 583mn people in 2025. Another aspect of the consumption increases would be the continued aggressive producer marketing campaigns, which had been supported by the Indian government.

Investments in Commodity:

The in-progress investment spree in the Indian coffee retail business was a sign of the attractive long-term outlook for the industry. Fresh and Honest's recent espresso partnership at that time with Illy and the entrance of Costa Coffee in the market showed a clear trend towards premiumization of the industry. Given the robust expansionary capacity of newcomers, such as Starbucks (NASDAQ: SBUX), and their Indian ambitions, there was undoubtedly considerable vitality in the domestic coffee sector over the next years. This company was likely to be very aggressive in their expansionary efforts once they had entered India, which would only make it more taxing for existing companies to strengthen their domestic foothold.

Some believed that brands already existing in India would have benefitted from infusing their brands deeper among Indian consumers and accelerating their organic expansion. Café Coffee Day took 14 years period to set up 1,000 stores in India but was then planning to double its outlet count in four years. These investments were to see consumers converting to better-quality products, higher-value, and demanding enlarged range - something that ongoing economic expansion had enabled them to follow and the likes of Starbucks was then gearing up for the same.