starbucks midterm written assignment 1 group 7 how international business issues have affected starbucks a multinational company

1, Political Landscape Political Factors Affecting Starbucks Coffee’s Business.... 3, Starbucks business model The company''''s business model is based on a global strategy that aims to cre

VIETNAM NATIONAL UNIVERSITY, HA NOI

INTERNATIONAL SCHOOL

ĐẠI HỌC QUỐC GIA HA NO!

TRUONG QUOC TE

VNU-INTERNATIONAL SCHOOL

REPORT OF MID-TERM EXAM PROJECT

Subject: Introduction To International Business

Course Code: INS2021.04

Lecturer: Dr The Cuong Nguyen

GROUP 7: HOW INTERNATIONAL BUSINESS ISSUES HAVE AFFECTED STARBUCKS — A MULTINATIONAL

COMPANY?

Group 07:

Nguyễn Vũ Thúy Hiền 20070174

Nguyễn Thị Thùy Dung 21070274

Tơ Phương Linh 21070274

Nguyễn Văn Thăng 21070566

Contents

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1, Political Landscape (Political Factors Affecting Starbucks Coffee’s Business) 5

2, Economy (Economic Factors Important to Global Coffeehouse Chains) - 5

3, Social Influences (Sociocultural Factors in Starbucks Coffee’s External Environment) 6

4, Technologies (Technological Factors in the Coffeehouse Business Environment) 7

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1 Introduction:

1, Company overview

Starbueks Corporation 1s an AmerIcan multnational chain of coffeehouses and roastery reserves headquartered in Seattle, Washington It is the world's largest coffeehouse chain

As of November 2021, the company had 33,833 stores in 80 countries, 15,444 of which were located in the United States Out of Starbucks' U.S.-based stores, over 8,900 are company- operated, while the remainder are licensed

2, History

Starbucks was founded in Seattle, Washington in 1971 by three partners: Jerry Baldwin, Zev Siegl, and Gordon Bowker The company originally sold only coffee beans and coffee-making equipment

In 1982, entrepreneur Howard Schultz joined Starbucks as director of retail operations and marketing and suggested the idea of selling espresso drinks in the stores The idea was rejected

by the founders, so Schultz left Starbucks to start his own coffee business called Il Giornale

In 1987, Baldwin and Bowker decided to sell Starbucks to Schultz Under his leadership, the company expanded rapidly and by the end of the 1990s, it had more than 1,000 stores across North America In 2003, Starbucks expanded beyond North America, opening its first international store in Tokyo, Japan

3, Starbucks business model

The company's business model is based on a global strategy that aims to create a consistent brand image and customer experience across all of its locations while also adapting to local market conditions

To implement its global strategy, Starbucks operates in many countries around the world, with thousands of stores in over 80 markets Starbucks has a standardized menu across all its stores worldwide, ensuring consistent quality and customer experience The company also maintains consistent standards for its coffee roasting and brewing processes While maintaining its standard menu and quality, Starbucks also adapts its products and store layouts to local markets For example, while the company's core menu of coffee beverages and food items remains consistent worldwide, it also offers region-specific products and promotions to cater to local tastes and preferences Starbucks has a culture of innovation, constantly introducing new products and store formats

Starbucks has a strong commitment to social responsibility, including ethical sourcing of its coffee beans, supporting local communities, and reducing its environmental impact This commitment is highlighted through initiatives such as its Coffee and Farmer Equity (C.A.F.E.) Practices program and its Mission2020 sustainability goals

4, Products

Starbucks is known for providing high quality coffee, with a wide range of beverages such as espresso, cappuccino, latte and teas Starbucks stores also offer snacks such as bread, cakes, cookies, and fruitcakes In addition, we also offer products for home use such as coffee roasters and coffee makers

Starbucks is known for its chic and cozy store environment, with local and diverse designs to suit customers in different regions Starbucks stores are often decorated with coffee and chocolate cups, creating a fresh and relaxing space for customers

Starbucks has a culture of innovation, constantly introducing new products and store formats

Oo =©Low calorie and sugar-free products

In January 2008, Starbucks began a "skinny" line of drinks, offering lower-calorie and sugar-free versions of the company's offered drinks that use skim milk, and can be sweetened by a choice of natural sweeteners (such as raw sugar, agave syrup, or honey), artificial sweeteners (such as Sweets’ Low, Splenda, Equal), or one of the company's sugar-free syrup flavors

O Non-dairy milk offerings

In 2015, Starbucks began serving coconut milk In 2016, it began serving almond milk In January 2020, oat milk became available nationally The company also offers non-dairy creamers

at retail in partnership with Nestle SA

Focus on customer experience: Starbucks places a strong emphasis on the customer experience, from the quality of its products to the design of its stores The company invests significant resources in training its baristas to provide excellent customer service and maintain a welcoming environment in its stores

5, Starbucks locations

As of February 2023, Starbucks had 36,170 locations open across 83 countries, with 61% of the locations operating in the U.S and China, and the rest operating elsewhere

Starbucks locations as of October 2022

II Situation Faced

1, Political Landscape (Political Factors Affecting Starbucks Coffee’s Business)

This part of the PESTEL/PESTLE analysis framework identifies the impact of governments and related policies on the coffeehouse business Starbucks experiences the following political external factors:

e Integration and disintegration of market (opportunity and threat): Political Integration facilitates regional market penetration (opportunity), while disintegration creates barriers (threat) to the coffeehouse company’s expansion

e Bureaucratic red tape in developing countries (threat): Bureaucratic red tape persists in many countries This political external factor is a threat because it impedes the coffee company’s business expansion, while possibly favoring local competitors that have extensive political connections

Thus, this aspect of the PESTEL/PESTLE analysis presents opportunities for Starbucks Coffee, but also points out political obstacles in growing the business

For example: Starbucks could be vulnerable in Trade War between US - China as China would retaliate against US companies operating in China and China market plays an important role in the growth of Starbucks The Chinese government could make life difficult for Starbucks: heavy handed health and safety inspections, prevent new stores from opening in a timely manner or open public relations campaigns aimed at getting locals to boycott Starbucks, That pose a huge threat for multinational company like Starbuck!

2, Economy (Economic Factors Important to Global Coffeehouse Chains)

This component of the PESTEL/PESTLE analysis model refers to the economic conditions and trends that affect the coffee and food service business Economic conditions of a country are directly linked to the business of a company Starbucks faces the following economic external factors:

e The global economic recession is the prime external economic driver for Starbucks (threat) As already mentioned, this factor dented the profitability of Starbucks This has convinced buyers to shift to cheaper alternatives

e Growth of developing countries & Declining unemployment rates in the long term (opportunity) Especially, the sharp increase of middle-class around the world create opportunities for Starbucks to gain more revenues from various markets around the world

e Currency exchange rates (threat) the multinational company may receive cash flows and make payments in multiple currencies A multinational company such as Starbucks has transaction risk not only because it is purchasing raw materials in foreign countries but also because it is selling its product—and thus collecting revenue—in foreign currency

When there is currency fluctuation, it can affect the company’s overall cost and revenues then finally its profit

For example: Changes in exchange rates can impact a business in several ways

In March 2021, with an exchange rate of USD 0.1839=BRL 1, it would have cost Starbucks

$0.1839 x 7,000,000=$ 1,287,300 to purchase the reals needed to receive the one million pounds

of coffee beans

In July 2021, if the US dollar depreciated (and the Brazilian real appreciated) and it cost more to purchase each Brazilian real, then Starbucks would find that its dollar cost for the coffee beans was higher than it expected The exchange rate was USD 0.2000=BRL 1, then the coffee beans would cost Starbucks $0.2000 x 7,000,000=$1,400,000

=> The company know they are locked in 7000000 reals/ 1 million pounds of coffee, but they cannot predict the exchange rate to decide when to make the purchase to avoid loss for the company Purchasing raw materials in US dollar - their cost in US dollar and collecting revenue

in local currency, its profit can be harmed when local currency depreciates, revenue in dollar decreases while their cost (in dollar) stays still

3, Social Influences (Sociocultural Factors in Starbucks Coffee’s External Environment) This aspect of the PESTEL/PESTLE analysis framework shows the social conditions and trends influencing consumers and the coffeehouse business Starbucks must address the following social/sociocultural external factors:

e Growing coffee culture and growing middle class (opportunity): Starbucks has opportunities to increase its revenues based on increasing demand for specialty coffee, which is due to a growing coffee culture and growing middle class populations around the world - World growing middle class In some countries there are a large number of hidden rich people, they are potential customers for Starbucks’s product Vietnam is an example The hidden rich in Vietnam

e Increasing health consciousness (threat): The changes in the lifestyle of the people and their choice of food can affect the company's sale People are more tending to have a healthy, low-calorie diet, which can decrease the sales of their sugary beverages e@ Independent coffeehouse movements, competitors (threat): Starbucks faces threats linked

to independent coffeehouse movements, which are cultural movements that favor small independent coffee houses instead of large multinational chains

For example: It is well-known that Vietnam is the origin country of coffee There is a long history of coffee drinking in Vietnam Foreign brands have been struggling to reach this potentially profitable market as local Vietnamese coffee houses offer low prices, adapt more quickly with new trends, and have more significant quantities of stores Local coffee chains are challenging the giant with lower prices, convenience, and localization experience The Vietnam Starbuck has announced the plan to close some stores in the next few years due to poor

performance (Vietnam Investment Review, 2018) Starbucks is struggling in a coffee market that

is worth more than $5.9 billion (USDA Foreign Agricultural Service, 2019)

4, Technologies (Technological Factors in the Coffeehouse Business Environment)

In this part of the PESTEL/PESTLE analysis model, technologies and related trends are identified, pertaining to their effects on the coffeehouse chain Starbucks experiences the following technological external factors in the remote or macro-environment:

e Increasing adoption of mobile technology for online purchases (opportunity) Starbucks is

in a good position to enjoy the benefits of the emerging mobile wave

e Rising availability of specialty coffee machines for home use and coffee agriculture development - online selling of high-quality coffee (threat) The rising availability of home-use specialty coffee machines threatens Starbucks by increasing the availability of substitutes to the company’s products The company may see a drop in their sales because

of the availability of good quality coffee machines and high-quality roasted coffee beans

in the market

Thus, the technological external factors in this PESTEL/PESTLE analysis shows the importance

of Starbucks products that effectively compete while addressing new and emerging technologies affecting the industry

5, Ecological or environmental conditions

Starbucks faces the following ecological/environmental external factors in its remote or macro- environment:

e Ethical source (threat) responsible sourcing emphasizes corporate social responsibility, such as in Starbucks’s supply chain Starbucks has to ensure their source of coffee is ethical (product Quality, fair and humane working conditions, manage waste, protect water quality, conserve water and energy)

e Environmentally conscious customers, requirement for environmentally friendly products (opportunity) there are demands for more environment-friendly products Starbucks needs to pay attention to global warming and other environmental issues on a global level The company should increase the use of recyclable materials for packaging food products and other merchandise

Thus, the ecological factors in this PESTEL/PESTLE analysis show opportunities for strengthening Starbucks’s corporate image based on the ecological impact of the business

6, Legal Factors in the Café Industry

Many legal issues can directly or indirectly impact the growth of a company If a company has some legal cases going on, that can create a negative impression It may destroy its reputation

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Starbucks must ensure that it does not violate any laws and regulations in the home market and countries from where they buy raw materials PESTEL analysis Starbucks can help to identify those legal factors:

e Product safety regulations (threat) Starbucks need to improve its performance by satisfying product safety regulations

e Increasing employment regulations (threat) Employment regulations, especially in developing countries, threaten Starbucks Coffee’s access to the labor market and competitively priced coffee beans This external factor also impacts the coffee business through increased spending for human resources

Licensing regulations and collisions with trade laws can hinder the expansion of the company The company must ensure employee rights and customer safety regulations while expanding its business in a country Otherwise, their business may suffer

Case: An undercover investigation by Beijing News found that two Starbucks stores in Wuxi, Zhejiang Province, had several food safeties issues Starbucks China posted on its official Weibo account a statement on Monday saying that it had immediately closed two stores

“., Starbucks has been caught up in a child labor row after an investigation revealed that children under 13 were working on farms in Guatemala that supply the chain with its beans.”

The PESTLE analysis above has shown that Starbucks have opportunities and many threats from external environment There are threats for Starbucks to tackle, they must develop many different strategies to deal with those problems Let’s see what Starbucks have done to make it number one coffee chains around the World, which strategies has been used by Starbucks

III Action Taken

As Starbucks Corporation grows internationally, it faces new challenges and realities in a changed world These include the continued effects of COVID-19, heightened social and political unrest, efforts to unionize and stakeholders who seek new accountability from businesses At times, the company has fallen short of its ambitions but remains transparent about its missteps while still rising to meet the opportunities ahead through its Mission and Values The steps Starbucks has taken to resolve these issues and their effects on the company's international operations will be discussed in this section

1, Starbuck Global Marketing Strategy

Starbucks is a global coffeehouse chain and one of the most recognizable brands in the world The company has successfully expanded its business to different countries by implementing a global marketing mix strategy This strategy involves tailoring the company’s marketing mix

-product, price, place, and promotion - to meet the needs and preferences of consumers in different markets By carefully considering the unique characteristics of each market and adapting its marketing mix accordingly, Starbucks has been able to achieve success on a global scale

e Product:

+Starbucks’ strategy related to the global market focuses on differentiation/ localization/ adaptation rather than standardization Paying close attention to the local preferences, it strives to satisfy the customers by offering the most relevant products and atmosphere Make Starbucks be a part of local people’s life and their culture

About the trade war, Starbuck CEO “We haven’t seen any significant impacts from the geopolitical situation between the U.S and China, but that said, we’re not immune,” he told CNBC’s Jim Cramer on “Mad Money.” “But because we really have built Starbucks

in China for China, it really is operating as an entity in China that’s relevant to the consumer, to the culture, and we’re playing the long game.”

+Starbucks Corporation's coffees provide a sense of distinctiveness and satisfaction to customers, making them essential for their success

+Through innovation, Starbucks has managed to add different values, additional foodstuffs to its menu, and become the first in offering internet capabilities in its retail stores Starbucks also partnership with Apple to bring app-based discount coupons is helping it ride the mobile wave easily Starbucks has opportunities to improve its mobile apps and linked services to gain more revenues through mobile purchases

+Ensure safety regulations by Starbucks’ regulations, stores conduct food safety inspections every day, and management teams and food safety teams regularly conduct internal audits of the stores in various regions Each store receives at least one third-party unannounced inspection every year, and 20% of the stores usually receive the inspection twice,

e Price: The pricing strategy employed by the marketing mix in Starbucks is that of premium pricing This pricing strategy focuses on people's behavior of seeking expensive products because they believe that these products have a higher value

The premium pricing strategy employed by Starbucks Corporation gives the company a premium value image This image appeals to high-end and medium-class customers

e Place: Starbucks has focused on reaching the international market by opening up outlets

in numerous places around the world In most cities around the world, there are vibrant Starbucks coffeehouses and cafes These outlets offer localized Starbucks experiences to the people of the area

e Promotion:

+Starbucks has been successful using word-of-mouth ads to promote their high-quality services and products, allowing clients to recognize that Starbucks makes its own brands and runs the market The word-of-mouth marketing has been instrumental in promoting the company in the eyes of customers The spreading of positive information about the company endears it to the public

+Starbucks has designed a reward program as a form of sales promotion technique This involves the company giving free items to customers who buy a certain number of products

+Starbucks is known for its strategic partnerships, which help it to increase its global market dominance and increase its annual sales

2, Exchange rate risk management of Starbucks

+ Engage in transactions involving various derivative instruments to reduce their foreign currency rate exposures In 2008, Starbucks had “forward foreign exchange contracts that hedge portions of anticipated international revenue streams and inventory purchases Starbucks can use currency derivatives such as forwards, futures, options or swaps to hedge against fluctuations in currency values These instruments allow Starbucks to lock in a specific exchange rate for a future transaction, reducing their exposure to changes in currency values

For example, if Starbucks has a large payment due in euros in six months’ time, they could enter

a forward contract to buy euros at a fixed exchange rate This would allow them to know exactly how much they will need to pay in US dollars when the payment is due, regardless of any changes in the exchange rate between the US dollar and the euro

+ Starbucks’ hedging strategy is that it creates a profitable environment for the company as well

as for a supplier Basically, Starbucks locks in a price to buy coffee beans over an agreed-upon future period, "hedging" against risk The contract acts almost like insurance, protecting Starbucks from paying higher prices if coffee beans spike due to a weather event, shortage, or some other issue

+ Other than helping Starbucks deal with currency risk, this Starbucks’ strategy of buying in advance also gives it a “significant advantage” over competitors amid volatile price increases, CEO Kevin Johnson said on a recent earnings call

3, Starbucks Competitive Strategy

+Starbucks Corporation has earned above average returns due to its unique ways to differentiate and deliver superior food value to its clients These strategies include appealing store ambiance, superior client services, flavorful coffee drinks and convenient locations

Starbucks is able to achieve long-term brand-loyalty by selecting unique differentiation strategies

to offer superior value to the clients while determined to attain operative excellence The company is renowned to take the global oldest products and modify them into differentiated, value laden and lasting brands Most Starbucks products are differentiated to attract low costs which further offer a source of potential and sustainable competitive advantage to the company The differentiated products are difficult to replicate due to their unusual positive brand image, based on technological capability, innovative design, extraordinary service and exceptionally high quality The premium prices charged on each coffee cup surpasses the differentiation costs

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