Liberalization policies

Executive Summary

In 1991, The Indian economy experienced a rebirth after the liberalization policies of the new Prime Minister. Thirteen years later, India has become one of the most exciting economies in the world with a huge increase in foreign investment and consumers who are willing to “spend, spend and spend!” Due to massive outsourcing on the part of foreign companies especially from the USA, educated Indians are now presented with exciting career opportunities, excellent pay and the confidence to spend more money. Time Magazine reports that these new consumers command $10.5 billion in cash to burn and the The Financial Express (www.financialexpress.com) states that;

The monthly per capita expenditure in the national capital's urban pockets was Rs 1,452.83 and Rs 1,010.83 in rural areas, whereas the all India figures come to Rs 932.79 and Rs 498.27 for urban and rural areas respectively, according to figures released by the Delhi government.

The per capita annual expenditure in Delhi was also among the highest in the country at Rs 51,664, while the all India per capital annual spending was Rs 20,999.

There couldn't be a more opportune time for the Starbucks Coffee Company to open its shop in the exotic land of India. The following is a proposal to open two new locations of STARBUCKS in India: one in Mumbai, a highly populated cosmopolitan business city, and the other in the nation's capital, New Delhi. These locations were strategically picked to ensure success of the business venture and will serve as test locations. If the new stores are highly profitable, Starbucks can expand to more than 200 locations in India. Starbucks India locations will customize their menu to meet the tastes of their new target market. This includes the addition of more tea items taking in accordance that Indians are known to be more a “tea-drinking” population, as well as adding some new flavors in their coffee selection.

The major competition for Starbucks at the moment is the Barista Coffee Co., which is an existing coffee shop branch in India, but Starbucks is expected to gain its market share for several reasons.

The international popularity of the Starbucks brand will help the company step into the country. With superb marketing and reasonable prices, 4 neither of which the Barista Coffee Company is able to provide, Starbucks will take over the market, and with its assurance of quality and commitment to giving back to the community, the company will earn brand loyalty.

Introduction

CASE STUDY: ABOUT STARBUCKS

In 1971,the starbucks coffee company opened its first store in Seattle's historic pike place market ,Washington, headquatered in USA by three partners Jerry Baldwin, Zev siegel and Gordon bowker. Inspired by the expresso bars in Milan , Italy, howard Schultz wanted to introduce the coffee bar culture to America. Today starbucks being the part of the food and beverage industry is the largest coffee house company in the world with 16,635 stores in 49 countries including 11068 (6764 company owned and 4304) in USA. Starbucks target market is any person and any age by offering varous types of brewed coffee, juices and cocoa for children, creamy blended drinks . Its vision is to become the premier provider of high quality coffees and related products. Starbucks went public on June 26, 1992 at 17$per share Starbucks stock is traded on NASDAQ, under the trading symbol SBUX (www.starbucks.com).

Starbucks coffee company's mission statement is to become a pioneer in providing best coffee and creating a great coffee experience while remaining aligned with their principles and also to achieve remarkable standards in purchasing , roasting and fresh delivery of their coffee.(www.starbucks.com)

What's the next step? Starbucks India! The probability of Starbucks successfully introducing its coffee bar culture in India is relatively high for many reasons.

There is a new consumer culture emerging in India. “India's young are becoming world-class consumers, and multinationals are taking note,” reads the sub header for an article titled “Hey, Big Spenders!”(By Michael Shuman: Time Magazine, August 25, 2003 Volume 162, No. 8) in the August 2003 issue of TIME Magazine. This change can be attributed to many factors. For one, the Indian economy went through a massive liberalization under the new minority government of P.V. Narasimha Rao in 1991. This revolution opened the economy to foreign investment and trade: it dismantled important controls, lowered customs duties, and devalued the currency: it virtually abolished licensing controls on private investment, dropped tax rates, and broke public sector monopolies. This was good news for both foreign and local entrepreneurs. Multinational companies such as Citibank, McDonald's and Motorola have been taking advantage of these new policies and finding a new home in India.

These companies owe their success to the rising young elite due to the mass outsourcing by foreign companies especially from the US. Jyoti Thottam in her Time 5 Magazine entitled “Where the Good Jobs are Going,”(By Jyoti Thottam: Time Magazine, August 4, 2003 Volume 162, No. 8) writes, “U.S. companies are expected to send 3.3 million jobs overseas in the next 12 years, primarily to India according to a study by Forrester Research.” This trend of offshore outsourcing is expected to accelerate in the upcoming years. Thottam continues in her article:

Those relatively low-skilled jobs were the first to go, starting in 1997. But more and more of the jobs that are moving abroad today are highly skilled and highly paid…educated Indian workers are quickly adjusting to their new status as the world's most sought-after employees. They have never been more confident and optimistic…Five years ago, computer-science graduates had one career option in India: routine, mind-numbing computer programming. Anything more rewarding required emigrating. Until three years ago, the first preference was to go overseas. Nowadays [these educated Indians] are interested only in business trips to the U.S. People are pretty comfortable with the jobs and pay [in India]. (Jyoti Thottam, Time Magazine)

As job opportunities increase in India, money stays in the palms of the Indian consumers enabling them to reinvest in the Indian economy. Time Magazine journalist, Michael Schumann, asserts that with the changing Indian economy, “Attitudes towards money are also changing. The mantra for the average Indian family, as in most of Asia, has always been save, save and save, but young Indians today, inspired by job opportunities, have switched to spend, spend and spend.” Pramod Saxena, president for Motorola in India, backs him up stating, “The attitude of the young generation is to enjoy life and spend money.

We're looking at India as a major growth market.” In addition, India's pop culture shows a heavy desire to follow western trend. As put simply by Indian entrepreneur Ravi Deol, “Indian consumers want to do what the rest of the world is doing.” The young Indians buyers want everything from McDonalds, to Levis Jeans, and Britney Spears CDs, but what's more is that they are willing to pay for it. Indian consumers will definitely welcome the internationally popular STARBUCKS COFFEE COMPANY to its country, as forty nine other countries have. The two new proposed locations for Starbucks Coffee shops are strategically picked to ensure their success. Both Mumbai and New Delhiare home to many call centers where these younger spenders work, and many colleges and Universities are also located here. This will allow Starbucks to target the younger consumer generation with the advertisement campaign. These two cities are also major hot spots for tourists, who recognize a multinational brand such as Starbucks. The new Starbucks menu must cater to the India taste, mixing traditional menu items with those that a customized for the Indian tastes. Starbucks india will be a wholly owned subsidiary unit with the control lying in the hands of headquater company.

Products and Services

1. The Product

Starbucks Coffee shops sells a variety of coffee and tea beverages along with different types of pastries, confections, and baked goods, coffee-related accessories and equipment. The coffee shops provide customers with a pleasant place to come and relax, study, work, or have business meetings. Both locations will provide wireless Internet access in the stores so that customers can bring their laptop and continue their work if they wish.

The Starbucks Coffee Company must customize their menu to fit the tastes of the Indians. A new menu will be formulated after several months of research and development. There are some common tastes preferences of the Indians known already. For example, Indians tend to take more cream in their coffee. Also, the skim milk option will not be offered in India because dieting is not a commonly accepted practice in the country. Indians will feel that they are being cheated out of their money if skim milk is put in their beverages. Indians also like spices in their tea and coffee, especially ginger and black clove. One of India's favorite fruit flavors is mango, and in fact the mango is India's national fruit.

The coffee beans and tea will be bought from local Indian farmers in order to Support the local agricultural economy, save money in transportation and tariffs, and gain tax benefits. Through inspections of the crops will ensure the high quality and standards behind the Starbucks brand name. The inventory policy is to keep the stores stocked but not overstocked to ensure freshness of products. Better gauges of the numerical figures in the inventory policies can be made after observing consumer trends. To begin with policies can be formulated assuming an average of five hundred consumers per day.

2. Transportation of goods

The raw goods (coffee beans and tea) will then be transported to the Starbucks roasting plant located near the New Delhi location and then transported to Mumbai making use of India's vast and efficient railway system, and supply trucks. Equipment and other necessary supplies will be shipped from the United States keeping in mind there is a tariff on all these items.

STARBUCKS Target Market

  1. Primary Target Market: The Primary target market for Starbucks Coffee Co. in India is the young both male and female from the ages of 16-38. This market is well educated and comes from middle class to upper middle class population. Since our locations are close the newly opened call centers where well educated and highly paid consumers work, special marketing strategies will be used to gain their brand loyalty to Starbucks. The geographic of the target market are mainly consumers who live or work in the vicinity of the two proposed locations for the Starbucks Coffee shops
  2. The Secondary Target Market: The secondary target markets are the tourists in the areas. Tourists will recognize Starbucks, as it is a multinational company, as most tourists in India come from the countries of U.S., England, 11 Germany, and Japan. This market will also fall in the middle to upper middle class population and will find the Starbucks India prices relatively cheap.
  3. STAFFING STRATEGY
  4. As we know , staffing is a crucial issue for a multinational organization (Harzing 01), one option for the international organization is to transfer its people between different countries such transferees are usually referred to as expatriates.

STARBUCKS INDIA

Store

Manager

Service employees

Roasting Plant

Production team

Distribution team

Zone Office

Human resource generalists,

Managers,accounts,finance,

of- facilities, marketing,legal analysis.

Starbucks is a wholly owned subsidiary company which requires staffing and creating Hr policies and practices for a new work force which is termed as start up project (Greenfield or brownfield) , having either option of transferring all policies and practices from PCN's or adopting the policies and practices that are common in the new country. (international humanresource management, Dennis R.Briscoe,Randall S.schuler and lisbeth clauds ,3editon,p56). International strategy often involves international orientation of senior executives as referred by perlmutter,such as ethnocentric,regiocentric,polycentric,and geocentric. The international orientation adopted by starbucks is geocentric which will enable the top managers to understand the global business environment and have a geocentric mindset. The managerial outlook is to create a global network which has a preference to follow a transnational strategy which is integrative and interdependent among various elements of global enterprise. Under the geocentric mind set HR practices will include extensive use of expatriate.

McKinsey 7-S Framework to analyze the internal environment of host country national.

Shared Values

  • provide a great working environment
  • treat each other with respect and dignity
  • embrace diversity
  • apply the highest quality standards for products
  • develop enthusiastically satisfied customers
  • contribute to the community and environment
  • recognize that profitability is essential to future success.

Strategy

Plans for the allocation of a firms scarce resources, over time, to reach identified goals.

There were 3 components to this experiential branding strategy: coffee quality, service, and atmosphere

  1. Starbucks prided itself providing the high-quality coffee in the world from diversity regions around the world.
  2. Starbucks service goal - 'Customer intimacy' has given customers an uplifting experience every time customers consume a cup of coffee in Starbucks stores.(on page.4)(strength)
  3. Starbucks has establish an atomsphere that makes people want to stay while they come for the coffee.

Structure:

The subsidiary unit is planned according to the matrix structure which groups employees by both function and product. This structure can combine the best of both separate structures . A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms.

Starbucksis one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. Its design combines functional and product based divisions, with employees reporting to two heads[8]. Creating a team spirit, the company empowers employees to make their own decisions and train them to develop both hard and soft skills. That makes Starbucks one of the best at customer service.

Systems

The procedures, processes and routines that characterize how the work should be done:

  1. Recruiting system: The company recruitment motto "To have the right people hiring the right people", hence, the company paid highest wage in industry to attract high quality people (page.4), and invested in training them in "hard skills" and "soft skills" under a standardized curriculum prepared by a team of experts (page.6). (strength)
  2. Performance appraisal systems: The company's most outstanding measurement tool ,"Customer Snapshot", sent an anonymous mystery shopper three times a quarter to visited every store and rate these stores by the company's four "Basic Service" criteria. (page.7) (strength)

Staff

Numbers and types of personnel within the organization.

The company employed 60,000 partners worldwide (page.4) , part-times partners has a proportion of 65% (page.8). (weakness)

Style

  • Basic management style for the subsidiary is laissez faire.
  • work duties will be assigned by the shift supervisors
  • service employees will be encouraged to take initiative and be empowered to make decisions

Skills

Distinctive capabilities of personnels in the organisation.

The company recruitment motto was "To have the right people hiring the right people".

The company invested in training program by a team of experts, the program aims to indoctrinate employees company's philosophy and train them to serve as the company service principles.

Hard skills:the employees learn how to use the cash register and mix drinks.

Soft skills (Star Skills) governed interpersonal relations at Starbucks: (1) maintain and enhance self-esteem (2) listen and acknowledge; (3)ask for help.

People mgmt styles

USA has a command and control orientation with a top down management approach (wheeler&McClendon,1998) and egalitarian commitment .

Usa the calculative or contractual responses of US HRM systems which recognize and work within the instrumental relationships between employer and employee (trying to humanize this through quality of work life initiative and employee involvement while firmly focusing on bottom line)

According to Hofstede(1980),the research suggested the four key factors of national cultures.

  • Individualism
  • Power distance
  • Uncertainity avoidance
  • Masculinity

Hofstede also argued that countries emphasizing large power distance and strong uncertainity avoidance were likely to produce forms of org that relied heavily on hierarchy and clear orders from superiors ie. A pyramid of ppl

Leadership style is the manner and approach of providing direction, implementing plans, and motivating people. Kurt Lewin (1939) led a group of researchers to identify different styles of leadership. This early study has been very influential and established three major leadership styles. The three major styles of leadership are(U.S. Army Handbook, 1973):

  • Authoritarian or autocratic
  • Participative or democratic
  • Delegative or Free Reign

Characteristic

American management

Self image

Individualistic

Nationalism

Strong sense of nationalism

Education

Normal system through high school

Social cooperation and willingness to work together

Competitive,engage in political power plays to become stars

Respect for authority

Normal

Attitude towards work

Little self discipline,low tolerance for personal discomfort

Attitude towards workplace ,property and environment

Self centered

Loyalty

average

American Management Style

  • American People Management is based on top-down decision making; where company policies change after there is change in leadership
  • Emphasis on Knowledge Management

Indian Management Style

Ø Indian People Management is based on top-down decision making with family relation; where company policy is printed for the organizational leaders to follow

Ø Emphasis on Conservative Style

  1. Integrating ideology- old is gold, change carefully
  2. Performance control- through traditions, conventions, precedents
  3. Coordination- hierarchical
  4. Staff motivation- financial security, psychological safety

American Vs Indian

People Management Style

Management Practices

American Management

(Top-Down - Knowledge Style)

Indian Management

(Conservative Style)

Employee Requirement

Task requirement and abilities

Family relation & cast memberships of employees have to be considered

Leadership Style

1. Participative style where input is solicited

2. Relationships remain impersonal

Organizational leaders display a high level of personal involvement with their subordinates. Leaders provide nurturance contingent upon the subordinates task accomplishment

Motivational Aspects & Rewards

1. Work and end itself

2. Intrinsic rewards

Work is viewed as a means to an end i.e. for the sake of satisfying family needs. Little demand for changing work tasks, only the compensation is relevant

HR Management Practices

1. Objective Selection Criteria

2. Downsizing performance pay

Nepotism and caste considerations affect selection and compensation. Training less emphasized.

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