Business Plan: Starbucks in India Identifying Global

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[. . .] This is why Starbucks has partnered with Tata, in order to make these problems disappear. There are some incentives for foreign direct investment, but these pale compared the incentive provided by the size of the market. Each state and each city has its own government that must be dealt with.

Intellectual Property

There are issues with Intellectual property protections that might be of concern to Starbucks. Protections are generally poor in India, and enforcement is lax. Without the cooperation of local government, IP rights can be hard to enforce. This cooperation may not be forthcoming.

Formal Trade Barriers and Promoting Global Business

Despite India's status as a major emerging market, the government there is doing little to create the conditions for substantial foreign investment. Countries enter India for the market opportunity, and despite the government. There are likely to be challenges at some point getting goods into the country, but this is why having a prestigious local partner is critical.

Module 6: Selecting a Global Company Structure

Entry Modes

There are a number of different modes of entry for foreign markets. A company like Starbucks can set up its own local subsidiary that it owns. Such an approach allows the company to retain all of the profits from the venture. However, it would also force Starbucks to figure out how to do business in India on its own. This is not desirable. Another form of market entry is a strict licensing agreement, something it has tried in the past. The issue with that tactic is that there is a lack of oversight from head office -- the partner is halfway around the world and without a very high level of trust Starbucks should never risk its brand and formula for success in the hands of an unsupervised license partner. Exporting is not much of an option -- the company could only sell retail, via its bottling agreement with Pepsi. This is not desirable for market entry since Starbucks wants to have its coffee shops.

Organizational Structure / Strategic Alliance

Starbucks sets up subsidiary companies in order to enter new markets, or at least it has since it entered Japan. For entering the Indian market, the company has a joint venture with the Tata conglomerate that runs the stores. Tata runs the stores, effectively utilizing Starbucks' expertise at running coffee shops, while the local company handles the local details. This alternative allows the company to work past problems with government, legal environment and local culture, since the partner company knows about all of these things. The drawback to this structure is that Starbucks only has 50% control and only 50% of the profits from the joint venture.

Module 7: Financing the Global Business Operations

Economic Environment

The economic environment is generally favorable for Starbucks. The company has enjoyed a financial rebound since Howard Schultz rejoined the company as CEO. As such, Starbucks is in excellent financial condition. Its foreign operations can be financed almost entirely from retained earnings, something that reduces the risk associated with setting up a foreign joint venture. Otherwise, the Indian economy is growing, and this is favorable because it is likely that the joint venture will also self-finance from retained earnings.

Financing Sources and Startup Costs

Starbucks and Tata each have a 50% stake in the joint venture, which implies that they each have contributed 50% of the capital. The new expansion will be conducted with this initial capital in addition to operating profits. Starbucks does not usually take its subsidiaries to the stock market. The startup costs do not appear to be significant. Most of the physical infrastructure is going to be with the stores, and they are relatively affordable to open. The company is capitalized to the extent that it plans to open another 50 stores in 2013 alone, so financing the start-up costs is definitely not going to be a problem.

Action Plan

The combined company will also need to evaluate its ability to finance the massive expansion that it has planned. After this year, it is expected that there will be more rapid growth in 2014 and beyond. Thus, the company will need to continue to be well-capitalized, either through injections from the parent companies or through its own operations.

Module 8: Creating Global MIS

Global Information Needs

In this case, the local company will utilize the Starbucks MIS in order to help it organize and run the Indian stores.

Global Information Sources

The company will compile its information on a daily, weekly, monthly and quarterly basis and then communicate this back to Seattle head office, while Tata head office in Mumbai will also receive the information. Most of the decision-making for the business is between the Starbucks manager there and the Tata partner manager. They make joint decisions, and typically rely on information from the joint venture. Only performance measures are communicated back to head office, so there is not much need for a global MIS. However, by linking the Indian operation in with the pre-existing global Starbucks MIS the company will achieve its objectives of being fully connected.

Technology for Managing Information

One of the important considerations here is that Starbucks relies on global MIS. It does not need to create it so much as integrate it with the existing systems. This means expending on infrastructure in India in order to support the company's rapid growth in that country. For Starbucks, being prepared from an information systems perspective for rapid growth is an essential component of the market entry strategy. The company will utilize the Internet, cloud-based computing, and will also use traditional Internet networks and storage, communicating with email and instant message.

Module 9: Identifying human resources for global business activities

Staffing / Training & Development

Starbucks will leave the running of the company to the local partner. In this way, Starbucks contributes very little human resources to the Indian venture. However, some up-and-coming managerial talent will be sent to India to help with training and to contribute to the upper management of the new venture. Eventually Starbucks will want to own its own stores in India so this is important to use this as an opportunity to build the managerial talent within the organization.

Compensation

As well, the company needs to decide about compensation levels and those types of issues in India. It is believed that the company can pay significantly lower than in the U.S., simply because the cost of living in India is that much lower. However, Starbucks also has a good reputation for how it treats its employees. Therefore, it should try to offer employees a similar type of benefits package that it does in the U.S. This means giving its Indian workers health care and other things in order to entice the best workers to join the company and build careers there. There is tremendous opportunity given the rapid growth rate, so attracting the best people early on will be essential to the success of the business over the long run.

Performance Appraisal

Performance appraisal should be conducted according to American standards. The company has a system for this, including the use of "secret shoppers" to perform evaluations at the store level. The use of the same performance appraisal system is likely to… [END OF PREVIEW]

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