A Case Study on the Strategic Business Analysis of Starbucks Corporation Essay Example

company's mission, vision and core values.

The use of various technological advancements most especially in research and development both in its raw materials and machines used has been also deemed as very vital for the success of the company. Through these major factors added with the strategic logistic practices, operations, marketing and sales strategy and its customer service, Starbucks was able to establish a strong niche not only in America but all over the world.

Sales and Market Share

As of the end of the fiscal year of 2006, Starbucks was recorded to earn total revenue of 7,786,942 USD (Starbucks, 2007, p.18) which marks an increase of 22.3% since 2005 (Datamonitor, p.4). In relation with this, the operating profit of the company also amounted to $894 million in 2006 which marked an increase of 14.5% in comparison with 2005. Also, the net profit of the company amounted to $564.3 million in 2006 which was an increase of 14.1% in relation with 2005 (Datamonitor, 2007, p.5).

One of the major reasons for the continuous increase of the companyi??s revenues is tagged with its strong and effective use of innovative and cost effective marketing strategies that further build its image. Certain cost-effective marketing strategies like the use of billboards, use of freestanding inserts in news papers products and samplings and other innovative methods like paying for a day of free parking in a downtown area further makes its brand name strong (Datamonitor, 2007, p.5).

In the same manner, the image of the company is further strengthened by its operational strategies such as those cited by the Wall Street Journal in April 2007 about making Starbucks very accessible to consumers. According to the

aforementioned, the huge number of Starbuck stores all over New York was not viewed by its new store development director as a threat leading to market saturation, rather a strategy to solve the problem of increasing consumer traffic and long lines every afternoon (Wall Street Journal, 2007).

It is with this respect that the principle adopted by Starbucks in terms of the capacity of a particular store to serve its customers in the span of three minutes and its decision to build more nearby stores do not really cannibalizei the profit of the company, rather further enhances its returns (Palmer, 2007). It is with this respect that the case perceives that major criticisms about the company having too many stores in addition to the unprofitability of some of them should not be seen as a factor that would cause Starbucksi downfall.

The case believes that Starbucks through making its store more accessible and its brand shown almost everywhere is also part of its marketing and advertising campaign. By having consumers accustomed to see the company in almost any corner in the city, such would instill a psychological notion that indeed the Starbucks brand is successful and known, and if by any chance that a consumer wants to have a cup of coffee or simply relax, there is always a Starbucks store that would welcome him or her. The case believes that this strategy is also part of the campaign of Starbucks for its commitment to its consumers.

Albeit, profit margin of Starbucks from 2004-2006 appears to be very unstable. The study of Fergunson et al (2007) revealed that on 2004, net income of the company amounts to 390,559.00

while on 2005 it went up to 494,467.00 which make a 0.08 increase. However on 2006, Starbucks was only able to make 564,259.00 hence only a 0.07 increase. This could be highly attributed to declines on estimated annual sales expectations and the failure of the company to meet certain targets for their stores. As such, it is with this respect that even though the visibility of Starbucks creates a strong customer campaign, the outcome of these utilities was offset by low profitability in some stores.

In addition with this, since current problems in terms of employee motivation and satisfaction has become evident in the company, most baristas found more preference in joining Starbucks union, hence opting to join certain rallies and demonstrations instead of going to work. In effect of this, the profit of the company has been dramatically affected due to the unexpected lack of staff or in some cases closing of stores whenever there are demonstrations.

Low store profitability is not however the same in its international market ventures as Starbucks has yet to establish its dominance both in the Asian and European market. However, there are still certain instances wherein Starbucks failed to anticipate international market entry barriers such as like what happened to its store in the Forbidden City, China in which its contractors are either planning to prematurely end the one-year contract or continue with its operations despite being unprofitable (Asia Times, 2006).

Response to Changing Market Conditions and other External Factors

The changing market conditions most especially in the coffee beverage market segment are caused by the rise of a number of specialty coffee shops, restaurants and doughnut shops. At present, the availability

of specialty coffees in supermarkets, specialty retailers and boutique specialty coffee stores compete a lot with Starbuck's whole bean coffees. To make the situation more complicated, a number of regional specialty coffee companies are also now selling whole bean coffees in supermarkets hence further increasing market competition (Datamonitor, 2007, p.8).

The volatility of the price of coffee most especially during 2005-2006 also proves to be a major concern as it paves the way to further challenge the companyis profitability. The fall of coffee production in Brazil from 41 to 32 million bags in the period of 2005-2006 had impacted Starbucks and the price of its products. To further this concern, it has been predicted as well that the possibility of a supply gap of coffee in 2007-2008 would possibly affect the company's future financial performance (Datamonitor, 2007, p.8).

However, the fact that Starbucks have established its own strong brand, not to mention its role of revolutionizing how coffees are seen (Strickland and Gamble, 2005), Mills (2007) said that Starbucks will continue to be successful because the business is anchored to five basic principles which in turn create a competitive advantage in terms of creating a loyal customer base despite. Schultz said that these principles created an opportunity for the company to earn consumers who will patronize the company and its product beyond its price competitiveness.

The service that the company has done for the community is also a major drive for the influx of old and new customers according to Schultz (Mills, 2007). In addition with this, the recent campaign of the company called i??Transformation Agendai?? aimed to further improve the legacy of the Starbucks experience. Starbucks was

also not intimated by Dunkin Donut's special promotion of 99-cent small lattes, cappuccinos and espresso drinks (Morris, 2008).

It is with this respect that it could be implied that since competition among specialty coffee within both local and the international market has already intensified since Starbucks dominance in the early 1990i??s the notion that Starbucks provide coffees that are superior in taste and quality is no longer enough to keep a loyal customer base. As such, it is evident that Starbucks is also capitalizing on promoting the brand as a symbol for an elite way of life which could be experienced through the Starbucks experiencei that they have been promoting.

The taste of the companyis coffee has already been matched and in certain cases out-matched by a number of its competitors, however, what keeps majority of Starbucks customers coming back is the brand and the status that is attained through its coffee. In addition with this, the total experience such as relaxation, promotion for a place to have a nice talk and a place wherein customers can ask virtually for everything that would make them feel special and taken cared of is what makes the company dominant.

Entrance or Exit to Geographic or Product Markets

Starbucks has proven that its brand is very far from market saturation and is still open for various market expansions both in the local and international markets. In 2005, the company had opened a number of stores in various countries which include Jordan, Bahamas and the Republic of Ireland. Consequently, in 2006, Starbucks had also tapped into the ready-to-drink coffee in South Korea in partnership with Dong Suh Foods. The aforementioned is expected to

import various US- produced bottled Starbucks Frapuccino drinks (Datamonitor, 2007, p.7). In 2006, Starbucks focused on Brazil and China as the coffee industries of these countries promise a very good market turn-over as both Brazil and China are expected to improve by 11.4% and 38.9% within the 2007-2010 period.

As of 2007, Starbucks is planning to build stores in Russia in partnership with M.H. Alshaya which will allows the company to build its store in Moscow Russia. The country has been perceived by Starbucks as having a very competitive market in virtue of its growing coffee consumption in addition with the popularity of various Western brands. Consequently, Starbucks is also looking forward to tap India through a joint venture as the aforementioned's market is expected to rise to more or less 12% within the 2007-2010 period (Datamonitor, 2007, p.7). Other than these ventures, the company also holds a very significant market share in Asia. The table 2 (see appendix) reveals that the new retail store count of the company.

The Chinese market, being second to Japan in terms of the number of Starbucks stores also proved to be a very strategic international expansion move for the company, due to the aforementionedi??s rate of economic growth and population. The rise of the baby boomers in China appears to be very favorable for the company for such has become the target of Starbucks in terms of marketing its specialty coffees. However, even if this is the case, a few more challenges are faced by the company in terms of competing with the number one drink in China, which is tea (Harrison et al, 2005). Table 3 (see appendix) presents

the top most drinks adopted in the Chinese market.

On the other hand, in the European region together in Middle East and Africa, a total of 17 countries have Starbucks retail stores, making it the second largest international venture of the company, which allowed the aforementioned to build 396 stores. In Canada, Starbucks has now a total of 178 stores, 101 in Mexico, nine in Peru and five in the Bahamas (Starbucks, 2007, p.5). In terms of its international expansion, Starbucks has still not allowed their coffee to be franchised. However though Starbucks is anchoring its international strategy based on the use of its own business model, the company did allow certain financial licenses to be given to certain distributors that would serve as the middleman in which its coffee could be distributed just like the case of Starbucks Hong Kong.

Starbucks Honking is run by Maxim Caterers which is one of the major catering company in the country which started way back when Hong Kong was still under the British colony. As of present, Maxim has 300 retail stores all over Hong Kong and is still continuously expanding (Eurofood, 2000). The case study perceived that the major reason for Starbucks to have their stores run by one of the most powerful retail company also in the food and drinks industry in Hong Kong is part of its major strategy in order to effectively venture with in the Hong Kong market.

Through providing a license to Maxim, Starbucks is assured that the spread of its stores all over the country could be relatively easier since Maxim is already an established corporation in Hong Kong which knows the strategic

places where Starbucks could be profitable. In relation with this, Starbucks also no longer have to spend so much on market researches before they know the contributing factors that would significantly affect the success of their store in Hong Kong. As such, it could be said, that indeed, Starbucksi?? partnership with Maxim is in accordance with it principles of international strategic alliances.

Merge or Acquisition with Rival Companies

Starbucks has also been venturing to various acquisitions in order to establish its competitive advantage and reduce its competitions. In January 2006, the company had increased its equity ownership to 100% in Hawaii and Puerto Rico. More specifically, Starbucks was able to own 5% of Coffee Partners Hawaii and CafA© del Caribe in Puerto Rico. Albeit, the effects of these decisions for the company, most specifically in Puerto Rico had paved the way for the reduction of the earnings of the company by $0.5 million in April 2, 2006 due to the act of retroactive application of equity (Starbucks, 2007, p.20). In the previous years, the result of Starbucks' acquisitions had reduced the net earnings of the company by $97 thousand in the end of fiscal year of October 2, 2005 and $93 thousand for the end of the fiscal year of October 2, 2004.

On October 18, 2006 Starbucks had acquired 90% of the ownership of various licensed retail stores in Beijing and Tianjin, China (Starbucks, 2007, p.20). Another most notable acquisition of Starbucks happened in 2003 when the company was able to acquire Seattlei??s Best Coffee (SBC) (Ahmed, 2007, p.1). Starbucks have bought SBC together with Torrefazione brands which eventually allowed the company to satisfy demands of consumers

of the smooth flavors of SBC and distinct Italian recipes of Torrefazione Italia (Frey, 2003).

As the competition and the rise of other coffee restaurants emerge, the attempts of Starbucks to maintain its position and market leadership is evident. For instance, Arshad "Sony" Javid the owner of Cafe Descartes, a famous coffee house in Chicago has been viewed by Starbucks as one of its major threats in the state. Since 1996, the company has continued to branch out, until in 2006, one of Chicago Magazine's dining critics had deemed Cafe Descartes' coffee as "handily trumps the national chains" which eventually led Javid to officially declare its competition with Starbucks (Ahmed, 2007). Due to the success of the company, CafA© Descartes was continuously being checked by Starbucks for profiling and certainly to be added in the list of competitors to watch out for.

Strategic Alliance or Collaborative Partnerships

Since 2004, Starbucks has made a number of significant alliances that would further enhance its brand image, visibility and corporate social responsibility. Upon Starbucks' partnership with Hear Music in 1999 and eventually its acquisition in 2004, the company has ventured on proprietary record compilations and personalized CD's catering to a market segment which has certain characteristics evident on its most loyal consumers. Hear Music has been creating CDs and other musical programming for Starbucks all over the world since 2004. In the same year, the company was able to launch its 24-hour "Starbucks Hear Music" channel which eventually paves the way for the further enhancement of the strategic marketing alliance of Starbucks with XM Satellite Radio through Hear Music.

The collaboration between Starbucks, Hear Music in addition with Concord Records has enabled

the company to create a breakthrough model in the music industry and eventually changed the way original music are produced, distributed and marketed (Business Wire, 2004). Starbucks has also established its alliance with the National Association for the Advancement of Colored People (NAACP) in 2006 and committed a total of $2.5 million in cash and in-kind to further the company's commitment for social and economic equality.

The partnership of Starbucks with NAACP has further improved the brand image of the company that is most useful in terms of creating a favorable image necessary in establishing its business to various countries all over the world; due to creating a picture of the company embracing diversity (Business Wire, 2006).

In addition with this, the company has also created strategic agreements with Chase Bank, USA N.A. and Visa which allowed the company to issue Starbucks Card Duetto Visa, or more known as the "Duettto Card". In relation with this, same arrangements were also established with Royal Bank of Canada and Visa Canada Association in order to have the Duetto Card also available in the aforementioned banks. Consequently, the company has also partnered with Apple which allowed it to have their music available in iTunes Store, hence allowing more consumers to be familiar with the brand and experience that Starbucks stores offer (Starbucks, 2007, p.6).

It is with this respect that it could be seen that Starbucks is indeed trying its best to not only limit its business in terms of coffee, but also tap to various markets where their coffee customers are interested at.

Pursue Market Opportunities and Defense Against Company Threats

One of the most evident opportunities that Starbucks is currently focusing

at the moment is the opening of new stores in several international market locations. It is with this respect that the company is able to diversify and create more profits and revenues (Datamonitor, 2007, p.7). In relation with this, strategic alliances of the company, most particularly with Concord Music and Hear Music have enabled Starbucks to further advertise its brand. Through a number of significant relationships with artists and music distribution expertise of Hear Music Label, the Starbucks experience has been shared beyond the walls of its stores.

For instance, Hear Music's most recent album featuring Paul McCartney enables Starbucks to further develop its image, increase its visibility and stability to its revenues (Datamonitor, 2007, p.7). Also, other marketing initiatives of Starbucks such as availability of wireless broadband Internet have also allowed the company to offer services that are unique of its competitors (Starbucks, 2007, p.6).

These opportunities help the company to leverage itself against its counterparts such as restaurants more particularly the quick-service sector, specialty coffee shops and doughnut shops. Supermarkets offering whole coffee bean products have been a source of competition for the company, however instead of being intimidated by the influx of other products in supermarkets, Starbucks viewed the aforementioned as a venue wherein it can serve as a competitive distribution channel for their specialty bean coffee. Foremost of the reason for this perspective is the diversity of choices that supermarkets can give to their consumers. It is with this respect that Starbucks believe that the growing sophistication of coffee buyers would still pave the way for their products to be chosen other than those of their competitors (Starbucks, 2007,p.8).

On the other hand, one

of the most evident threats that the company faces as mentioned earlier is with regard to the intense competition from restaurants, fast food chains and doughnut shops owing to their relatively lower prices (Datamonitor, 2007, p.8). One of the strategies done by the company most specifically in order to respond to the highly volatile nature of its green coffee was the relationship that it established with various leading coffee producers that are outside trading companies and exporters.

The "fixed-price purchase commitments" that Starbucks had created allowed the company to secure more adequate supply of green coffee and reduce its costs of sales hence allowing Starbucks to counter the threats introduced by the new competitive marketing environment (Starbucks, 2007, p.7). Through fixed-prices and price-to-be-fixed contracts employed by Starbucks, the company is able to maintain its assurance of adequate supply of green coffee despite the increase of commodity prices.

Starbucks success similar to McDonalds and KFC could be seen on its capability to diversify and align its products, services and even pricing strategies to specific target markets. In addition with this, Starbucks like McDonalds has been continuously trying to match its major competitors in terms of its product offerings on top of the assurance that its tastes would be as good as its counterparts. The Starbucks-McDonalds rivalry is very evident since McDonalds started to sell its own barista-prepared coffees for $4; while Starbucks on the other hand started to serve heated sandwiches and drive through counters (Tancer, 2008).

Research and Development, Sales and Marketing and Production

The research and development endeavors by the company are also fully funded and supported by the top management. According to Starbucks (2007), food scientists, engineers,

chemists and culinarians compose their Research and Development department and have been steadily focusing on ways on how to further develop the company's food and beverage products, and at the same time develop new equipments. For this endeavor, the company spent $6.5 million in 2006, $6.2 million in 2005 and $4.7 million in 2004.

Starbucks has also made use of various information technology (IT) related products more particularly its customer relationship management (CRM) software that allows them to effectively monitor their most profitable customers, manage their sales and also the management of their leads. In addition with this, such also help a lot in terms of effectively pipelining the management and so that new accounts and customer resolution on certain problems could be easily dealt at (CRM Today, 2004).

In terms of strategizing in order to improve its profit, Starbucks has not only focused on expanding within the United States but also established its business on its neighboring countries such as Canada and Latin America. In addition with this, the company has also ventured on international market expansion more specifically in Asia, Europe and Africa (Starbucks, 2007). Such a strategy allowed the company to widen its market reach and at the same time make its brand known in the international market. Starbucks has 650 stores in Japan, 223 in China, 175 in Taiwan, 174 in South Korea, 98 in the Philippines, 71 in Malaysia, 45 in New Zealand and 45 in Indonesia, hence a total of 1,481 in the entire Asia Pacific region (Starbucks, 2007, p.5).

On the other hand, in Europe together with Middle East and Africa, Starbucks was able to tap a total of 17 countries

which have its retail stores; making it the second largest international venture of the company. In Canada, Starbucks has now a total of 178 stores, 101 in Mexico, nine in Peru and five in the Bahamas (Starbucks, 2007, p.5).

In terms of production, Starbucks through its R focused on improving its products, machineries, widening its product portfolio and also further improving the way how coffees are produced. The creation of Starbucks Coffee Agronomy Company S.R.L. in Costa Rica allowed the company to address the very volatile nature of coffee and at the same time maintain its competitive advantage in the global market (Starbucks, 2007, p.7).

Consequently, company profitability is also enhanced by the acquisitions made by the company most especially of Seattlei??s Best Coffee, Coffee Partners Hawaii and CafA© del Caribe in Puerto Rico. In relation with this, the company's partnerships with Chase Bank, USA N.A. and Visa allowed consumers to purchase products with more ease white at the same time earn various points both in their Starbucks purchases and bank credits, hence paving the way for Starbucks to have more repeated purchases (Starbucks, 2007).

Strengthening of Capabilities and Correction of Weaknesses

It is evident based from the Transformation Agenda which aimed to further transform the legacy of the Starbucks experience (Mills, 2007); venturing to various international markets in Asia and Europe (Datamonitor, 2007; Harrison et al, 2005; Starbucks, 2007); acquisition of various companies such as Coffee Partners Hawaii and CafA© del Caribe in Puerto Rico (Starbucks, 2007, p.20); looking closely at the companyis major and possible competitors (Ahmed, 2007); establishment of significant alliances that would further enhances its brand image, visibility and corporate social responsibility (Business Wire, 2004);

use of various strategies in order to counter the volatile nature of coffee through "fixed-price purchase commitments" (Starbucks, 2007, p.7) and finally through the creation of Starbucks Coffee Agronomy Company, are strong evidences that the company has been strengthening its capabilities and formulates other ways in which the aforementioned can sustain their growth and market leadership.

On the other hand, it is also a fact that the company has been facing a number of controversies most especially those in relation with its employees. On June 2004, the company faced a lawsuit in the US District Court for the Southern District of Florida filed by two then-current employees of the company due to the claim of the aforementioned that Starbucks had violated the requirements of the Fair Labor Standards Act (FLSA). In relation with this, a lawsuit was also filed on October 2004 in San Diego Country Superior Court stating that the company had violated the California Labor Code by allowing Starbucks supervisors to receive tips from customers. Another case was also filed on March 2005 by another employee in the US District Court for the Southern District of Texas due to complaints on tips sharing with supervisors as well (Datamonitor, 2007, p.6).

It is with this respect that these occurrences emphasized that the company has been having problems in terms of its capability to comply with various statutory laws and procedures. However, instead of addressing the issue in a positive manner, the company still maintained its stand that technically, shift supervisors are not managers therefore they have the right to also share with the tips being given by customers. Starbucks spokesperson Valerie O'Neil maintained that despite the

order of San Diego Court Judge Patricia Cowett for the company to pay baristas $100 million in back tips and interest, the company still opt to wait for the decision of a court appeal before they comply with the said decision (Starbucks Workers Union, 2008).

New Businesses

Most notable new businesses of Starbucks include its acquisition of Hear Music in 1999 wherein such allowed the company to strategically align its business in the music industry and make the aforementioned as part of its over-all company strategy. Through Hear Music, the company was able to sold 44,000 CDs in North America which amounts to 22% of total album sales; this rate of turn-over of Starbucks CDs is more favorable in comparison with other individual record retailers like traditional and mass merchants (Business Wire, 2004). In relation with this, through a distribution channel that Starbucks partnered with, more than a million copies of the company's CDs launched through its Hear Music label was distributed all over the world (Business Wire, 2004).

Second most important business that the company ventured at is the Starbucks Coffee Agronomy Company S.R.L., a subsidiary fully owned by Starbucks based in Costa Rica. Starbucks Coffee Agronomy Company aimed to further strengthen the leadership of Starbucks in the coffee industry and assure its sustainable and future supply of green coffees through creating its own coffee plantation and educating coffee farmers on how to produce good quality products (Starbucks, 2007). In order to make this happen, Starbucks has employed agronomists, cuppers and sustainability experts. More specifically, agronomists will be providing farmers with various methods that will assure continuous good coffee production (Behrbaum and Gimbl, 2004).

Strategic Action Not Adopted

Upon

the review of the core competencies, opportunities, company weaknesses, and various threats that the aforementioned might face due to the highly competitive nature of the international coffee industry, the case had deduced that Starbucks has been very particular in terms of how it will be able to maintain its dominance in the industry, improve its profit and revenues, diversify the company in international markets, create and maintain strategic alliances, acquire companies that will further strengthen its market reach, invest on research and development, advertise and market its brand in a manner that will create a strong impression among consumers.

The company has also been very particular in terms of giving back to the society, hence its various projects and alliances promoting corporate social responsibility (CSR). However, there is specifically one area within the scope of the case study that the researcher viewed that the company failed to focus on- and that is the over-all welfare of its employees and its failure to accept and rectify its mistakes.

According to Thompson and Strickland (2001), foremost task in creating an effective strategic management strategy is through the capacity of a company to develop a strategic mission and vision. On the Starbucks mission statement found on their website, its number one priority focuses on giving a "great work environment" in which there is a conscious treatment of "respect and dignity"; second, Starbucks also emphasized on the importance of diversity (Starbucks, 2008).

However, based on the most current updates of the lawsuits filed against the company due to the issue of supervisors taking a cut on the tips of baristas, Starbucks Chairman, Howard Schultz appears to be unapologetic and still aims to

pursue the case on higher courts. On the official website of Starbucks' employee union, Hirsh (2008) said that despite the jurisdiction of San Diego County Superior Court Judge Patricia Cowett to have the Seattle-based Starbucks to pay its baristas based in California $100 million to serve as back tips and interests, Starbucks management has still been very firm on their stand that supervisors since they are also being paid by the hour are not managers, therefore they are also entitled to have their share from the tip box.

Albeit, Hirsh (2008) maintained the non-validity of this argument by referring to David Balter a lawyer in the Department of Industrial Relation's Division of Labor Standards Enforcement in California by emphasizing that the laws specifically catering to the sharing of tips have been on the books since 2000. The laws stipulating management's absence of privilege to share on tips was argued by Starbucks to be very much blurred and unspecific. According to the company, the law does not clearly distinguish if supervisors are indeed classified under "management", hence the company's appeal (Hirsh, 2008). However, the author also maintained that regardless of this point, such law describing how tip jars should be treated has been clearly pointed out in the California Labor Code; which in addition a whole lot of other restaurants have already been strictly following.

This issue of the lack of the capability of Starbucks to familiarize itself with necessary statutory laws in addition with their lose adherence to the aforementioned is indeed a clear point against the failure of the company to comply with their first mission which focuses on employees and providing a great place to

work at. In addition with this, the failure of the Starbucks management to accept its mistakes owing on the legal aspects of the issue is also a signal that the company is not accepting its errors and is not really looking towards immediately fixing the issue. It should be noted as well that on the case study of Thompson, Strickland and Gamble (2004), before Starbucks was fully acquired by Howard Schultz, the same issue on the lack of focus on employee welfare has been pointed out. Albeit, even years have already passed, the issue of employee satisfaction has still not been dealt with fully.

Growth Strategy and Operational Competencies

This section of the case study elaborates on the definition of Starbucksi strategy based on the details presented on the first section of this case; and two operational competencies of the company which the aforementioned was able to develop to an organizational strength and eventually to a sustainable competitive advantage.

Starbucksi Growth Strategy

According to Thompson and Strickland (2001), in order to understand a Companyis Strategy, there are nine factors that must be considered. Figure 1 (see appendix) provides an overview of the determining factors of strategy growth.

Having the conceptual framework provided by Thompson and Strickland (2001), (see Figure 1), it could be implied that the strategy for growth of Starbucks focused on diversification strategies such as building stores in various international market regions such as Latin America, Canada, Asia, Europe and Africa. In the same manner, since Starbucksi?? market reach has been continuously widened, it also creates a competitive advantage necessary for the company to compete effectively with its rivals such as specialty coffee stores, restaurants, doughnut shops and

whole bean products in the supermarket.

The company has also been very strategic in terms of responding to the current changes in the marketing environment by further investing on its research and development to improve product competitiveness and prevent raw material shortages, capitalizing more on its strengths such as the Starbucks experience, to further strengthen its loyal customer base. To alter its geographical coverage, the company in addition to building its stores in countries where there is a huge demand for coffee has also ventured even to markets where coffee is not even in the top most priority such as China.

Starbucks is also able to maintain its market dominance and further enhance its profitability through acquiring competitive specialty coffee companies, venture into new businesses such as the Music industry and coffee plantation as well. Strategic alliances were also made to certain organizations that will promote its image as a company embracing diversity and giving something back to the society. Also, Starbucks has tied-up with banks in order to further improve its customer loyalty programs. It is with this respect that the company is perceived to focus on creating new opportunities and eventually defend itself against various threats.

The act of venturing to the international market, acquiring companies and entering into new businesses has furthered widened the market reach of Starbucks hence creating more ways in improving its profits and revenues. In the same manner, threats to the company were lessened through the act of acquisitions, creating opportunities where competition is at its peak such as the case of supermarkets selling whole grain coffees and closely studying rival companies that have a huge potential of cutting its consumer

market share.

Functional activities in the company is also assured to be in accordance with the protocol by making new baristas undergo both theoretical and hands-on training together with being fully educated about the history, mission and vision of the company. In addition with this, continuous trainings were also conducted in response to the current demands, issues, competitions and trends in the market.

In order to further strengthen its resources and capabilities, Starbucks assures that problems in terms of raw material shortages will be dealt at. In the same manner, it also looks into close consideration on how to further improve its employee morale and retention though the latter is still on its early stage and is currently facing a lot of controversies. Through research and development and further ventures into new businesses, Starbucks is in a continuous process of enhancing its capability and eventually maintain its market dominance.

Starbucksi Relevant Operational Competencies

According to Thompson and Strickland (2001), an operating competency focuses on specific strategies relevant for managing detailed activities. On the cases study of Starbucks, there are two main operating competencies which the company was able to develop to an organizational strength and eventually pave the way to attain a sustainable competitive advantage. In order to determine if a company has a sustainable competitive advantage, Thompson and Strickland (2001) said that a resource must pass four tests.

The first test focuses on the uniqueness of the resource in such a manner that it would be very hard to copy; second, the resource must have a staying power and must be durable; third, the aforementioned must be competitively superior; and finally, the capability of the resource to overcome various

rival capabilities is also very vital (p.20) shows the process on how competitive advantage is built, its actualization and the effects of rivalsi?? attempts to erode the companyis competitive advantage.

These processes are vital in terms of explaining how operational competencies of Starbucks enable it to establish its dominance in the market and eventually go beyond the erosion period of their competitive advantage. The two operational competencies that this case focused at are:

• the strategy of Starbucksi?? to improve its services to its customers
• the further improvement of Starbucks productsitaste and product diversity.

The service that Starbucks provide to its consumers is one of the major operational strategies done by the company in order to assure quality service; costumer satisfaction, and eventually create a loyal customer base. In this area, the most recent strategy conducted by the company was with regard to the implementation of Transformation Agenda Communication No. 6i which aimed to further enable the company to strengthen its competitive advantage in terms of further capitalizing with the "Starbucks experience".

The Starbucks experience plays a substantial role in terms of the company's success. The delivery of a positive consumer experience is a major determining factor in terms of creating a strong brand value and eventually having that specific brand value dominate other competitors. The i??Transformation Agenda Communication No. 6 focused for an employee training for a renewed focus on espresso standards that is expected to make baristas more prepared to share what they know and their enthusiasm with customers. The emphasis on the "art of espresso" by making Starbucks baristas show the consumers how to create a perfect shot, steam a milk, and customize various consumer requests

(Starbucks A, 2008).

In specifically implementing an operational strategy catering on Starbucks experience improvement, the company was able to further improve its organizational strength. According to Starbucks B (2007), the act of creating a "seamless global Starbucks Experience", leads the company to gear towards a faster global expansion.

The act of leveraging its strength, which is primarily characterized by the companyis overall service given, in addition to its products creates a competitive advantage that is very hard for its competitors to imitate. Taking into consideration the figure presented by Thompson and Strickland (2001) about the building and eroding of a company's competitive advantage ; the case speculates that the notion of arriving to the erosion periodi of Starbucks is still very far from actuality. Since Schultz' entry to Starbucks in 1982 and eventually the company's decision to sell specialty coffee, the Starbucks experiencei?? has been in the process of continuous improvement and still continuous to set it apart from its competitors, make its brand stronger, and most importantly create a stronger customer base.

The second core competency that this case focused at is the drive of the company to further improve their productsi?? taste and diversity. In order to make this happen, various strategies were implemented by Starbucks most especially in its research and development on how to improve the quality of coffee being harvested and more importantly the sustainability of coffee supply of the company despite its volatile nature.

In order to make this happen, Starbucks had implemented the Starbucks Coffee Agronomy Company S.R.L (Starbucks, 2007) which is composed of various coffee experts ranging from agronomists, cuppers and sustainability experts. In addition with this, research and development studies

were also conducted by the company to further enhance the quality of its products through specifically creating a research and development department focusing on how to further develop the company's food and beverage products, and at the same time develop new equipments. For this endeavor, the company spent $6.5 million in 2006, $6.2 million in 2005 and $4.7 million in 2004 (Starbucks, 2007).

In these specific actions done by the company, the superiority of the tastes of its products in addition to various introductions of new flavors of specialized coffee, further adds to their organizational strength. The diversity of its products and other options that Starbucks provide their customers in virtue of their thorough study to improve and maintain beverage tastes despite whether a whole milk, non-fat, 2% milk or soy is used also spells a lot of their overall success and market leadership.

The continuous drive of Starbucks to be the leader in terms of specialty coffee and doing ways beyond the usual is what often gives them the edge against other products. It could be noted that on the case study of Thompson, Strickland and Gamble (2004) Schultz was first very wary of having Starbucks coffee substituting whole milk to non-fat milk or soy due to the fear of compromising of the coffee taste. However, since the company puts immense value to their customers, the aforementioned was able to revise its values and strategies for the sake of their satisfaction. Through the act of aligning its products to consumer preferences, demands and ways of life, Starbucks is able to create a brand that would give the company sustainable competitive advantage.

Local Market Strategy

Starbucks does not allow

franchising in both international and local markets (Starbucks B, 2008; Starbucks C, 2008). The major reason for this decision is rooted on the notion of the companyis perspective that it is highly probable that franchises would fail to live up with the product quality and service that company-owned stores provide hence compromising the Starbucks brand (Thompson, Strickland and Gamble, 2004).

All of the Starbucks stores in North America are company-operated. Although, Starbucks do provide certain exceptions on local market agreements only to certain organizations which have access to real estate locations such as airports, grocery chains, food services, schools and hospitals (Starbucks B, 2008). In terms of local market agreements, Starbucks has been implementing licensing agreements only to food and services provider (Starbucks B, 2008).

One relevant example of licensing contracts undergone by Starbucks within the United States was with ARAMARK Food and Services Group, Inc., a Delaware corporation otherwise known as "ARAMARK". On its contract, Starbucks clearly stipulated the form of agreement that ARAMARK and the company must follow (Onecle Inc, 2008). It should be noted that ARAMARK is a service provider for "food services, facilities management, and uniform and career apparel to health care institutions, universities and school districts, stadiums and arenas, and businesses" (ARAMARK, 2008). It is with this respect that the company was considered to be awarded a licensing contract due to the nature of its business.

The contract between ARAMARK and Starbucks was signed on May 7, 1996 which gave ARAMARK a non-exclusive right to ioperate a Starbucks Store, including interior and exterior store design; other items of trade dress; specifications for equipment, fixtures, and uniforms; defined product offerings and preparation methods; standard

operating and administrative procedures; and management and technical training programsi?? as stated on the Definitions part of the contract (Onecle Inc, 2008). Thus, implying from the said provision, it is clear that ARAMARK will only serve as an operator from which all of the details concerning the operation of a Starbucks store as stated from the definition above would entirely came from Starbucks itself.

Other details of the agreements were also stated on Article 6.5 of the Starbucks- ARAMARK contract such as the licensing contract between the two companies being valid only for a period of three years, otherwise renewed (Onecle Inc, 2008). As such, this provision tells that Starbucks is very particular in terms of licenseeis capability to follow the agreements in the contract as any notable failure on its adherence would surely make the brand suffer.

Consequently, Article 7.2 of the contract also stated that the relationship between Starbucks and ARAMARK is only defined in terms of "independent contractorship" hence implying that the company does not consider ARAMARK as a "partner, joint-venturer agent, employee, or legal representative" (Onecle Inc, 2008). Again local license agreements granted by Starbucks allow the company to maintain exclusive ownership of its products and more importantly first hand production, management and marketing.

Thompson and Strickland (2001) said that licensing strategies are very important most especially for companies which hold a valuable patented product most especially in terms of entering international markets.

In licensing, a particular company must seek to avoid risks that may arise due to unfamiliar markets, economic uncertainty and volatility of a particular country's politics. In adopting international licensing agreements, Starbucks experiences more advantage despite the fact that the company allows

certain operators to manage and implement the business of the company in other countries. Through specifically stating the necessity of an operating company to derive all of its raw products and other related materials, services and details directly from Starbucks itself, the company is able to assure the exclusivity of its products similar to just what happened with their agreement with ARAMARK.

Licensing as an international strategy allows Starbucks to sell their goods through another firm while at the same time earn royalties from every sale that was made. In addition with this, it is the licensee who takes the risks and difficulties in terms of operating Starbucks stores in their particular area. Licensing is also very useful in terms of penetrating new markets and looking for new and effective business partners (Hillstrom and Helms, 2006).

Foreign Market Strategy

In terms of international business relationships, Starbucks has also been employing licensing agreements in addition to joint ventures and also company-owned operations (Starbucks C, 2008). Starbucks clearly pointed out that it does not do franchises or sub-franchise even in foreign markets. The company often builds their stores in various countries either directly through a local subsidiary; or through a business agreement with a certain organization or group of people. Hence, it is with this respect that Starbucks only gives specific companies or groups an exclusive right to operate Starbucks stores (Starbucks C, 2008).

For instance, Starbucks has a total of 400 stores in China; however, even if this is the case, Schultz still said that its global sales for the country are still 10% lower in comparison to other Asian market (Asia Times, 2006). The case believes that this could

be tagged due to the relatively lower prices of coffee that the coffee giant provides in China as part of its strategy to have the brand well known and accepted in the mainstream.

However, Schultz is still very positive about the venture of Starbucks within the country as he is expecting that once the company has already established its robust expansion in the country, it can slowly have its prices relatively close to its US prices. However, even if this is the case, Starbucks said that Starbucks Beijing has been steadily profitable since its establishment in 1999. The store is able to maintain its 30% annual growth rate and is able to reach a total of 32 million yuan ($4 million) for the first two years of its operation. In order to establish Starbucksi?? dominance in the country, Starbucks has established a joint venture with Shanghai Uni-President which allows the company to manage Starbucks operations in Shanghai Jiangsu and Zhejiang (Asia Times, 2006).

According to Woodside and Pitts (1996), an international joint venture (IJV) is a multi-organizational agreement which allows the creation of alliances between two or more parent organizations of different countries (p.3). Often times, companies enter into IJVs through various decision-processes in order to create alliances that would create product-market opportunities for both firms concerned (p.5). More specifically, IJVs enables companies to widen their reach, allow them to take hold of various information and resources that they could not have alone, establish their credibility in a particular market in which they decided to enter at, and finally tap into certain markets that would not be possible without the other venturing company (Ward, 2008). Starbucks' use

of joint market ventures in its pursuit for international market expansion is very logical.

In IJVs, the relationship of two companies is only limited for the purpose of a particular project, hence allowing them to create a common business; albeit, it should be noted that in the said relationship, companies still maintain the exclusive ownership of their products or services. In this respect companies adopting joint ventures does not necessarily have to share all of their assets and liabilities like what usually happens to company merges; rather only financially invests for the purpose of a particular project alone (Ward, 2008). This strategy of Starbucks in terms of international business expansion could be seen as still in accordance of the companyis stand in terms of the exclusiveness of their business.

Again, Starbucks despite its goal of international brand awareness, dominance, and profitability still want to make sure that all of its products and services are given in accordance with its strict protocols. Franchising laws do vary in every country, and in virtue of this fact, it would be very hard for Starbucks to maintain its core competencies given a particular circumstance that the companyi??s way of doing business would be not in accordance with the business norms of a franchise. Albeit, Starbucks still seldom conduct IJVs in its international market expansion rather focus more on establishing company owned stores. However it could not be denied that both licensing agreements and international joint ventures provide as much benefit like company-owned businesses.

The international strategy of Starbucks could be viewed as very different from its local operations owing to the fact that on its local operations the company is only allowing

license contracts to food service companies while international operations allow both license contracts and joint ventures. According to Thompson and Strickland (2001) the importance of careful strategy is very important in terms of competing in the global market.

It is often the case that a companies expands to foreign countries in order to widen the aforementioned's book of business. However there are a lot of challenges that companies must face in their venture to a different geographic location. For instance, huge differences in cultures and lifestyles, market geographic, manufacturing and distributing costs, fluctuating exchange rates and most importantly host government's trade policy highly affects the success or failure of a business endeavor (Thompson and Strickland, 2001, p.7). In relation with this, the varying preferences of consumers in terms of tastes and buying habits also influence the turn-over of products. It is with this respect that the role of licensing and joint venture strategies of Starbucks play a crucial role.

Joint ventures are also advantageous for Starbucks because its international partners know the buying habits and preferences of the consumers in their own areas. It is with this respect that establishing IJVs allow the company to have more knowledge of existing distribution channels and relationships. Also, in most developing countries, foreign companies entering new markets often require as a condition of entry, an assurance that international companies coming to developed countries would not end up exploiting the latteri??s resources.

It is with this respect that IJVs are most useful because such allows foreign companies to enter foreign markets without having to spend so much time studying the countryi??s culture and its consumer behaviors hence saving a lot of money

and time; and in addition with this it allows international companies like Starbucks attain good image in various countries thus further strengthening the brand (Waggoner and Turner, 2006).

In relation with this, Chwo-Ming and Ming-Je (1992) said that most multinational corporations (MNCs) enter joint ventures due to the greater economic benefits that it usually provides in addition with its capability to strengthen market-power and enhancement (p.332). On the case of Starbucks it could be said that its joint venture with Partner Grupo Vips in 2004 enabled the company to add more product diversity and compete in the Parisian market.

The role of Partner Grupo Vips as a manager of day to day operations of the company in 26 Avenue de l'Opera provided an opportunity for Starbucks to diversify its market reach and at the same time improve its revenues as the company has been offering Starbucks products in one of the tourist spots in Paris which have the most number of people. One of the strategies being done by Partner Grupo Vips was offering various French specialties to cater to the cultural preferences of the city through tying up with various specialty French food companies (Businesswire, 2004).

In addition with this, products being offered are more different since local ingredients are used instead of the ingredients coming directly from Starbucks which is often the policy in license agreements. According to Franck Esquerre, managing director, Starbucks Coffee France SAS, such is necessary in order to adopt the taste of the products in consumer preferences (Businesswire, 2004). In analyzing how the Starbucks business was done in Paris, it could be implied that its joint venture with Partner Grupo Vips has

enabled it to align its products more closely to local consumer preferences without investing too much time and finances doing local market researches, cultural studies, local consumer preferences and the likes.

Future Challenges

Competition between Starbucks and McDonalds has been steadily increasing. It is with this respect that the company must be able to leverage itself and maintain its competitive advantage over McDonalds despite the aforementioned offering almost the same taste of coffee at a lower price. In addition with this, challenges being brought forth by small coffee houses, donut shops and huge specialty coffee chains must be taken into consideration as well. In relation with this, since the US economy is in the process of slowing down, Starbucks must take into account changes in consumer buying behaviors that could also be the result of the lagging economy.