Global Marketing

Introduction

The paper aims to explore global marketing opportunities within the foodservice market, specifically focusing on the company Starbucks with its plans for international expansion in the China.

Company background

The very name Starbucks is practically synonymous with coffee. As opening the first location in 1971 in Seattle’s Pike Place, nowadays, Starbucks has become the largest specialty coffee store. For Starbucks, their knowledge of where the finest coffee beans are grown, the knowledge of how best to prepare them in order to make the best cup of coffee and also the knowledge of how best to approach a foreign market as, of their industry competitors, they are the most successfully globalised. Exhibit below provides a summary scope of Starbucks operation today. (Below figures refer to year ended 31 January 2009)

Source: Starbucks annual report 2009

1. A CRITICAL ANALYSIS AND EVALUATION OF THE GLOBAL MACRO ENVIRONMENTAL VARIABLES THAT ARE LIKEY TO HAVE MOST SIGNIFICANT IMPACT ON THE COMPANY.

For over decades, globalization has been a key factor in decisions by many organizations seeking expansion and high profits (Allen and Raynor, 2003). The internationalisations of the

$ 9.8 billion revenue

Operate over 50 countries

16,706 stores worlwide

Employ over 170,000 pepole

foodservice market drive most leading players to expand their international operations. Exhibit in next page provides top 10 global operators by sales in 2008.

Source: Euromonitor International, Global Consumer Foodservice, 2009.

The success of Starbucks is sort of based on globalizations ideas. Starbucks has found the appeal of being global, even in tea drinking country such as the UK. The China market is important to the Company’s long term growth prospects, as its US business falters therefore; the Company needs to build brand equity not only via consumer foodservice outlets, but also through developments within the retail channel, where Starbucks branded coffee can be sell in China.

China has already experienced a substantial growth in the field of international business because aside from its local companies going international, many international companies from different countries have already started to dominate the Chinese market. China has been the fastest growing major nation for the past quarter of a century with an average annual GDP growth rate above 10%. Chinese economy has grown faster than predicted. It jumped by 8.7% for the whole of 2009, and was up by 10.9% in the last quarter - despite the global recession (BBC China economy 2009).

As a result, it was perceived that the Chinese economy will continue to grow. The coffee industry in china has a high intensity of competition, however sales through cafés/bars grew by 8% to RMB36 billion (over £3,487million). In addition chained specialist coffee shops saw the highest current value growth in 2008, of 22 % (Euromonitor International August 2009, Cafés/bars – China).

What is more, consumers today are more confident and conscious about their purchases than ever before, demanding products that suite their specific individual needs and demands (Kotler 2003). China has the biggest world’s population (see appendix 3.1); coffee drinking is popular among young generation, which has approximately 1.3 million potential consumers. Moreover, modern lifestyle of Chinese teenagers and adults supports the western specialty coffee shops. Meeting and negotiation business in a warm and characterless designed coffee

McDonald's CorpYum! Brands Inc

Burger King Holdings IncWendy's/Arby's GroupDoctor's Associates Inc

Seven & I Holdings Co, LtdStarbucks Corp

Dunkin' Brands IncDarden Restaurants Inc

DineEquity Inc

shop have become more popular in China. But, Starbucks needs take into account that China has nearly 5,000 years of tea drinking. Also China has been known for being culturally embedded reason why when it comes in prioritizing business environment, its domestic business always come in first followed by its international counterpart. Consequently, it is quite predictable that international companies experience some difficulties staying active and competitive in the Chinese market. It is quite difficult for foreign culture to get Chinese consumers’ consideration for certain products and services. For example, in 2003, through acquisition of Eachnet, eBay came to China (Mangalindan, M.   2006).  Many analysts thought that eBay would be successful but, nearing the end of 2006 eBay had invested over $300 million into eBay China but, had next to nothing to show for it.   Market shares continued to decline and former Eachnet executives, including the CEO Shao Yibo, had left eBay. One of eBay’s biggest mistakes and probably the cause of its failure in China is thinking that its brand image in the United States would be the same in China. This is one of the main reasons why many Global brands suffer when going into China.   On China’s playing field, brands that have a big name abroad have little guarantee of having a successful image in China.   Understanding how to localize a brand can do wonders for a company. As a result, Starbucks needs to understanding the context of domestic business environment in china as is crucial for success of expansion in China.

In addition, increasing attention being paid for international business activities did not diverted the country’s priority for improving its domestic business environment because the country is still committed in doing so. And this is evident in Chinese government’s actions in order to protect its own business environment, such as the increasing use of intellectual property protection that not only improves domestic but international enterprises as well, as explained by Frederick 2007. Prioritizing domestic business environment in China will be a major challenge for Starbucks because they are the ones who have to adjust, particularly on their operations in order to get the consideration not only of the consumers but of the whole country as well. Starbucks will be challenge with the issue of the domestic business environment of China, particularly by the socio cultural value system implemented in the country. Starbucks as a foreign company should consider the impact of the movement in domestic business environment of the China because just like any other countries, China is just being protective of its own business and has reputation nearly 5,000 years of tea drinking.

2) A FULL PESTEL. (See appendix)

3) THE DEVELOPMENT OF MAREKTING INFORMATION SYSTEMS.

The Marketing Information System focuses on only the marketing aspects of the management information system. It is an organized way of continually collecting, accessing and analyzing information that marketing managers need in order to make better decisions. Market information links Starbucks with the environment it is operating within and involves

specifying the problem, gathering the data and then analysing that data. Market research specifies the information required to address the issues and designs the methods for collecting the necessary data.

To understand the proper role of information systems Starbucks needs to examine what are they objectives and what information they need for decision making. A marketing information system (MIS) is intended to bring together disparate items of data into a logical body of information. An MIS is more than raw data or information suitable for the purposes of decision making such as entering to new market. “MIS identifies threat and opportunities so that the firm can design appropriate marketing strategies (Chee & Harris 1998)”.

The MIS model consists of four main parts: the internal reporting system, the marketing research system, the marketing intelligence system and the marketing models.

Starbucks could gather their market research in different ways they would need to define the market trends and competitive structure and also identifying the main buyers of Starbucks. Starbucks will use first and secondary research to find out what their customers need and want. Secondary data could be information that already exists and can be accessed by Starbucks for example, the peak time in China is not 7 to 10 in the morning; it is 4 to 6 in the afternoon. The advantage of this research is that it is much cheaper and quicker to access and may provide information that Starbucks would not otherwise have the time, resources and to gather. Primary data is information Starbucks finds out that has not been found before, this is more up to date. However, cultural differences, lack of accumulated data and social impediments are challenges that business and advertising agencies must overcome. Also the government produces a large amount of data which is an ideal; starting point for research into the consumer market for a particular product or for an assessment of industry’s competitive.

Marketing Environment:

Markets

Channels

Competitors

Political

Legal

Economy

Technology

Internal Report System

Marketing Research System

Market Intelligence

System

Marketing Models

Strategic

Decisions

Control

Decisions

Operational

Decisions

INFORMATION

In addition, Starbucks needs to develop a marketing information system in order to provide ongoing information to decision makers and to pass the information throughout the organisation. Therefore, “12C” environmental framework is a useful model to assist Starbucks to design its marketing plane in order to enter into china foodservice market. Exhibit below illustrate 12C framework analysis for Starbucks in China.

12 C Framework Country

China, 1.3 billion population (see appendix 3)

Commitment No restriction on trade regulation

(see appendix 1) In 2009 corporate tax rate for

domestic and foreign companies is 25%

Low barriers for new entrant Concentration

First target Chinese white-collar workers aged between 25 and 40

Second target age 18-24

Channels

Culture Culturally embedded 5,000 years of tea drinking Diversity towards western culture

among young generation

Communication 298 million Internet user 209 Central Television operators

Choices China domestic market can supply

rich coffee beans Local competitors as well as global

competitors such as Costa café & Nestle

Capacity to Pay Coffee treat as luxury Premium price

Consumption average annual GDP growth rate

above 10% In 2008, total volume sales of instant

coffee exceeded 28,000 tonnes and accounted for 93% of China’s coffee sales. (Euromonitor 2009 café – china)

Threat of direct substitute such as tea

Currency In July 2005 revalues its currency by

2.1% against the US dollar 1.00 RMB ≈ 0.14 $ 1.00 RMB ≈ 0.09 £

(above figure valued on Mar 2010)

Contractual Obligation Communist state, based on civil law

system (see appendix 2)

Caveats Next elections to be held in mid-

March 2013 international trafficking of Chinese

citizens

4) THE TECHNIQUES AVAILABLE TO THE GLOBAL MARKTER TO IDENTIFY THE POTENTIAL OF A MARKET.

The Intensive competition among firms in the same industry tends to be one of the major characteristics of globalization of markets. A result, firms in many industries are seeking to create competitive advantages in response to increasingly demanding customers and crowd markets which are a feature of their markets. Porter’s five forces analysis is an important tool for analyzing an organization industry structure in strategic processes.

According to Johnson, G. Scholes 2008 the five forces framework helps identifying the attractiveness of an industry or sector in terms of competitive forces.

The threat of entry: HighThe threat to entry is high due to China does not see a need to restrict the development of foodservice market. (see appendix 1.1)A large capital requirement is not essential to set up and expand although experience and knowledge which tends to decrease the cost of products. There is lack of strong brand identification in Chine’s coffee market and there is not heavy advertising and marketing campaigns.

Intensity of rivalry: HighA few big brands dominate the China Coffee industry.Coffee shops are increasingly under pressure in seeking competitive advantage.Rivalry is heightened for firms when operating within the individual markets. There are full of local Coffee shop, and have brand loyalty and strong market for its brands in china.

Bargaining power of buyers: LowBuyers have little power over Starbucks because there are thousands of them. China has the biggest world’s population (see appendix 3.1); coffee drinking is popular among young generation, which has approximately 1.3 million potential consumers.

Bargaining power of supplier: HighThe power of suppliers are quite high, Starbucks is sensitive to pricing and supply, however, company has forged tighter relationships with vendors and negotiated better contracts.

Substitutes: HighHigh threats of direct substitutes such as teas, juices and soft drinks.

5) A CRITICAL APPRAISAL OF THE USE OF A GLOBAL MARKETING PLAN.

Global marketing is a company’s willingness to adopt a global perspective instead of a country by country or region by region perspective in developing a marketing strategy for growth and profit. However, “many researchers on international marketing have focused on the lack of influences of an international or global perspective in marketing thinking and strategic planning” (Ellis, J & Williams, D 1995).

The marketing planning process is a communication of how best to use the resources an organisation has for marketing to achieve its marketing goals. Planning also encourages regular structured environmental and competitive mentoring. Planning involves where the organisation would like to be and how to get there, which involves goal setting and strategy determination.

Planning gives a number of advantages, exhibit below demonstrate some of the advantages:

The planning task depends on the level of involvement in a country. Exporting and licensing give minimum country involvement but joint ventures involve more in-country activity and give a greater degree of integration and control. Wholly owned subsidiaries give the organisation almost total control. Global planning is rather more difficult than domestic planning. Planning can be standardised, decentralised or interactive.

Standardised plans offer a number of advantages:

Cost savings on limited product range and economies of scale both in production and marketing for example, car manufacture.

Uniformity of consumer choice across the world.

Advantages of planning

Gives rise to systematic thinking

Helps coordinate activities

Helps prepare for exigencies

Gives activity continuity

Integrates functions and

activities

Helps in a continuous review of

operations.

There are disadvantages:

Different market characteristics make uniform products inappropriate, for example, Mc Donald’s serving pork in Israel.

Environmental obstacles disallow standardisation; for example lack of refrigerated transport in developing countries.

Decentralised plans take into account the subtleties of local conditions, however they are usually very costly and resource consuming.

Interactive plans

In this approach headquarters devises branch policy and a strategic framework, and subsidiaries interpret these under local conditions.

Mangers within a firm need to analyse the long term issues then the short term, this is why planning is important. However these decisions have to be set in context with the overall aims of the organisation for example, Starbucks aims is to create personalized customer experiences, stimulate business growth, generate profits, energize employees, and secure customer loyalty-all at the same time.

Reference

1) Allen, D. & Raynor, M. E. (2003) Globalization at Risk, (online) Available at http://www.manyworlds.com/default.aspx?from=/exploreCO.aspx&coid=CO1270317195517 (Access 10th March, 08)

Mangalindan, M.   (2006)   China May Be eBay’s Latest Challenge as Local Rivals East into Market Share

Frederick, M. 2007. China and Your Client’s Intellectual Property

Kotler P, 2003 Marketing Management International Edition

Johnson, G. Scholes, K. Whittington, R. eds.2008.Exploring corporate strategy.8th edition.

Ellis, J & Williams, D. International business strategy (London: Pitman Publishing 1995.