Starbuck’s Inspiration to Venture in India, Concerns, and Obstacles
Starbucks is a prominent coffee business in the United States that provides a coffee house ambiance with a selection of coffee and tea drinks and snacks. The firm, founded in Seattle, Washington, aims to develop a worldwide cafés chain in multiple countries, and it has used several tactics to achieve global penetration (Beckett et al., 2017). Starbucks has encountered several challenges when expanding into emerging regions, notably in China and India, where the café tradition is still in its infancy.
With the world’s seventh-largest economy and the second-largest emerging market in terms of GDP, India has emerged as a crucial participant in the global economy. Starbucks’ debut into India was influenced by numerous factors, including access to crucial resources and markets from an Indian standpoint (Lakshminarayanan & Best, 2017). Starbucks’ principal purpose for entering India was to seek a new market. India is a high-growth, untapped market, which makes it an ideal location for Starbucks to extend its presence. The characteristics of Indian consumer behavior vary from those observed in Western society. This discrepancy was a major impediment to the company’s entry into the Indian market (Fischer & Roy, 2019). Since Indian customers do not appreciate the grab-and-go coffee culture, the firm had to consider various adjustments to its spatial configuration to appeal to Indian consumers.
The intrinsic motivations for forming strategic alliances and corporate ties between Starbucks and other companies were based on transaction cost theory and resource dependence theory. Starbucks and Tata’s collaboration served to alleviate one of the most significant constraints on Starbucks’ Indian merchants (Fischer & Roy, 2019). The joint venture established locations in properties owned by group firms, such as the Taj network of luxury hotels. Furthermore, the joint venture enabled the firm to outperform existing competitors.
Starbucks Approach to Entering India
Starbuck’s entry into India was facilitated by the company’s adaptation strategy. Developing local business units in markets to conduct out value chain stages autonomously is an illustration of adaptation that is commonly utilized when corporations begin conducting business outside of their domestic markets (Al-Tit & Euchi, 2019. This adaptation refers to the modification of features of a firm’s offering to satisfy local demands. In every market, some degree of adaptation is required, such as modification to the legal framework (Al-Tit & Euchi, 2019. Historically, India has been a tea-drinking nation with a limited selection of speciality coffees in comparison to the West, where coffee is regularly taken on the go.
The characteristics of Indian consumer behavior differ from those practiced in Western society. Indian customers do not appreciate the grab-and-go cafe culture. The company adjusted its spatial structure to appeal to Indian consumers (Beckett et al., 2017). The company has created an impact on Indian customer behavior by targeting younger and emerging professionals. Starbucks has created a brand appeal to the Indian customers by fantasizing about western coffee culture and updated lifestyles that resonate with this specific niche (Beckett et al., 2017). Further, the company has taken a localization strategy in their cuisine to meet the demands of Indian clients, including the most popular Indian beverage Chai combined with a latte and Indian characteristic foods.
Starbucks’ Use of Joint Ventures in India
A joint venture is a type of foreign direct investment that allows a corporation, often a major enterprise, to expand into new areas. A joint venture is often an acquisition of a portion of an existing business or a new venture (Sadegh et al., 2020). Although joint ventures can be created for a variety of reasons and in a variety of ways, a frequent international structure is when a corporation agrees with a local firm to share legal ownership and provide resources to seek economic possibilities jointly (Sadegh et al., 2020). Some of the opportunities that result from joint ventures include the use of the partner’s customer database to promote the company’s brand and the joining of forces in research and development.
Opportunities and Benefits of Using Joint Ventures in India
Starbucks may need to adopt an alliance strategy to become successful in the new niche. One of the primary reasons why most multinational corporations formed strategic partnerships with Indian firms is the complexities of the regulations and processes for entering the market since the government takes a cautious approach to international investment (Beckett et al., 2017). Starbuck should continue using the joint venture strategy in entering new markets. The use of joint ventures by Starbucks could grant the company operational clarity (Sadegh et al., 2020). Collaborating with a local company enables the company to establish what should be invested and by who. Besides, the strategy ensures that there is a clear chain of command within the organization.
Joint ventures are less risky than complete acquisition since it offers the flexibility of the local partner if there is an unexpected change in the conditions. The company can sell its stake to the local partner, which is less costly than closing down after acquisition. Starbucks may use the partner’s brand to achieve market legitimacy and compete on an equal playing field with competing firms. The company’s partner may also supply new production capabilities or goods that might help Starbucks grow.
Concerns for Using Joint Ventures in India
Despite its benefits, joint ventures strategy is precarious. Deciding on the ethical, financial, or operational policies the venture should adhere to may be challenging. Other decisions such as investment strategies tactics and strategies could be a source of dispute (Solheim-Kile & Wald, 2020). These concerns would require Starbucks ‘ attention before initiating the joint venture agreement.
Establishing a middle ground is sometimes difficult. Suboptimal oversight might lead to a lack of vision or damage to the business’s brand or reputation. At the same time, excessive supervision or regulation can cause frustration and a propensity for destruction over development (Sadegh et al., 2020). As a result of these issues, joint ventures are typically short-lived, and preparedness for their dissolution is vital (Sadegh et al., 2020). When the collaboration ends, the technologies and experience shared with the local partner may result in a formidable adversary, particularly in countries with lax intellectual property regulations.
Cultural Environment and Establishing a Joint Venture Strategy
Until the early 1990s, severe nationalistic rules were in place to safeguard local businesses and attain constructive self-sufficiency in India. The adoption of centralized planning in the country resulted in government influence of industry activities and corporate performance (Fischer & Roy, 2019). The Indian government also strongly prohibited international competition, and restrictive customs hurdles were erected to discourage extensive imports and entry by foreign enterprises.
While a joint venture is legally binding, both firms should have complementary cultures. In establishing a joint venture, the company will conduct a comprehensive investigation to verify if the local partner can add value (Sadegh et al., 2020). Besides, the company will examine the partner’s culture, value chain, decision-making criterion, and approach as well (Sadegh et al., 2020). Investigating these elements may reveal potential future situations that might have an impact on the collaboration.
The company will determine whether the firm and the local corporation are compatible. The company will not make a There will be no point in making a deal unless both parties have similar goals and aspirations (Killing, 2017). Due diligence for the firm should be focused on a set of predefined parameters. This process will allow the business to examine and evaluate the possibility of success or loss (Killing, 2017). Consultation with industry professionals throughout this step might make it simpler to identify flaws that may jeopardize the enterprise.
The company will pull a team of experts to help in negotiations. These experts will oversee critical decisions and will be engaged in every aspect of the transactions before sealing the agreement (Solheim-Kile & Wald, 2020). Finally, the company will enter into a formal contractual agreement with the local partner. The agreement will detail the span of the venture, the various duties and obligations, and the principles that will guide the collaboration. Further, the agreement will explain the aspects of governance in the venture, and the partners’ expectations and interests (Solheim-Kile & Wald, 2020). This agreement should help to reinforce and fortify the joint venture’s operations.
References
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Beckett, P., Agarwal, V., & Jargon, J. (2017). Starbucks Brews Coffee Plan for India—Alliance With Tata Opens Door to Fast-Growing Market, Burnishing Seattle Firm’s Prospects on the Subcontinent. Wall Street Journal.
Fischer, D., & Roy, K. (2019). Market entry in India: The curious case of Starbucks. Rutgers Business Review, 4(2).
Killing, J. P. (2017). How to make a global joint venture work. In International Business (pp. 321-328). Routledge.
Lakshminarayanan, S., Maggio, E., & Best, S. (2017). Kofi or Coffee–Starbucks Enters the Indian Market. Journal of Case Studies, 35(2).
Sadegh, M. H., Shah Hosseini, M. A., & Heidari, A. (2020). Extracting the Effective Factors on Corporate Governance Formation in Strategic Alliances with Focus on International Joint Ventures through Systematic Literature Review. Journal of Business Management, 12(1), 64-93.
Solheim-Kile, E., & Wald, A. (2020). Public-private joint ventures in the healthcare sector: enlarging the shadow of the future through social and economic incentives. International Journal of Public Sector Management.
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