Jason Fernandes 0

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INTERNATIONAL BACCALAUREATE DIPLOMA PROGRAMME






Extended Essay in
Business and Management


Research Question:
Which would be a better option? For Starbucks to enter the Indian Market
through a joint venture with Tata global beverages limited (TGBL) or to enter by
itself.



Name of the student: Jason Fernandes
Candidate Number: 002272-019
Name of School: Bangalore International School
School Number: 00
Abstract: 254 words
Main Essay: 3786 words
Session: May 2013













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Acknowledgements

First of all, I would like to thank Mrs. Chitra Iyer, my subject teacher for
Business Management and supervisor for this project, who gave me constant support
and advice throughout this work and without whom my work would be impossible. I
am also grateful to Mr. Steven Andrew the executive chef of French loaf who granted
me the opportunity to carry out this study and provide me with help and information I
needed through my interview with him.




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TABLE OF CONTENTS
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01
Contents page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 03
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04
2. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
3. Techniques used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07
4. Main results and findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .09
5. Analysis of primary and secondary data . . . . . . . . . . . . . . . . . . . . . .12
6. Marketing mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7. Fishbone analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8. Ansoff matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9. Decision tree analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10. Investment Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11. Conclusion and recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13. Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
14. Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
15. Appendix 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
16. Appendix 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
17. Appendix 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44




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ABSTRACT



Jason Fernandes 4

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Introduction



On the 30
th
of January 2012 the US based Coffee giant Starbucks Coffee signed a
joint venture deal with Tata global beverages limited (TGBL). TGBL has signed an
equal joint venture with Starbucks Coffee where each of the companies will have a
50/50 percentage stake in the venture. The joint venture
1
under the name of TATA
Starbucks Limited will now operate in India under the brand name of Starbucks
Coffee A Tata Alliance. Starbucks will setup shops in Tata group retail outlets and
hotels besides sourcing and roasting coffee beans.

Starbucks Coffee have also made a separate sourcing and roasting agreement with
Tata Coffee limited (subsidiary company of TGBL), were Tata Coffee limited (TCL) will
supply roasted coffee to all Starbucks outlets in India and abroad as well. The gives
Starbucks consumers the opportunity to enjoy the premium Starbucks Experience,
while further still feeling at home with the unique taste of high-quality Indian Arabica
coffee. And when news of this agreement reached the public TCLs share price shot
up over 100 points

The question we are addressing here is could Starbucks have been in a more
beneficial position had it set out on this business venture on its own instead of joining
up with TGBL?

Keeping in mind the above question, what needs to be taken into consideration would
be the barriers to entry that the Indian government creates for these multinational
companies, the popularity demand for Starbucks brewed coffee, and many other
factors which shall be discussed.


Which would be a better option? For Starbucks to enter the Indian Market
through a joint venture with Tata global beverages limited (TGBL) or to enter by
itself?


1
http://www.thehindubusinessline.com/industry


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Findings And Results

The cafe industry

The Indian Cafe market can absorb up to 5,500 outlets. At present the size of the
coffee chain market in India is Rs 1000 crore ($200 million) and is estimated to be
growing at a compound rate of 25% annually. And with a decreasing growth in
developed markets India is becoming a big hot spot for multinational coffee retailers.


The above statistics show that there is still room for Starbucks to open over 3000
more outlets in India. And being a world renown brand there is no need for them to
enter through a joint venture.

Starbucks biggest competitors currently would be Barista Coffee and Cafe coffee day.
Consumption of coffee in India doubled to over 100,000 metric tonnes between 2001
and 2010 therefore exposing a large potential to be exploited by Starbucks. The
Indian government is now allowing 100 per cent foreign direct investment in single-
brand retail. On January 10, the government fully opened the doors to international
single-brand retailers, paving way for global chains to have full ownership of their India
operations. This should enable Starbucks to enter India on its own and without
partnering with an Indian company. And Judging from the fact that Starbucks already
operates in over 17,000 retail stores in over 55 countries. This indicates that
Starbucks have plenty of brand awareness even in a country such as India where
there still isn't a single Starbucks outlet. From the broader view Starbucks seems to be
better off on its own than in a 50/50 joint venture partner ship with TGBL, so what
reason would they have to team up with TGBL?
Breakup of coffee outlets in India
caf cofee day
barista
costa cofee
others

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Till the mid-1990s, coffee consumption in India stagnated at 55,000 tons annually. It
has more doubled since then because of the growing number of coffee caf led by
domestic brewers like Cafe Coffee Day (CCD) and Barista. Over the years, others like
the Coffee Bean & Tea Leaf, The

Chocolate Room, Qwiky's, Caf Nescafe and now
Starbucks have joined the industry resulting in a healthy and competitive market. India
provides a very fertile soil for a company like Starbucks to take its root and succeed
either by itself or through a joint venture; there is no room for failure when it comes to
a branded company like Starbucks.

Starbucks Coffee

Starbucks is the largest multinational Coffee Company in the world, which is based in
Seattle, Washington. They purchase and roast high quality coffee, which is then sold
along with hand, crafted tea and coffee beverages and a large variety of fresh food
items, through company operated outlets. Starbucks also sell other flagship brands
that are owned by Starbucks, which include Seattles Best Coffee, Tazo Tea, and
Starbucks VIA Ready Brew.

In their main aim of trying to achieve becoming one of the most recognized and
respected brands in the world, Starbucks maintains a disciplined expansion of their
store base, which is typically focused on growth of their brand in countries outside the
United States.

Operations of Starbucks Cafes in the world (19,555 stores)

Starbucks Coffee is a company that can manage to survive even if the market
0
2000
4000
6000
8000
10000
12000
14000
USA Canada Japan Great
Britain
China South
Korea


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conditions aren't favorable. They have maintained a dominant market position through
various marketing strategies such as buying out competitors and intentionally running
under loss where they would use pricing methods such as predator pricing to drive out
small local competitors. This shows that Starbucks can be a very ruthless company
when it come to surviving and gaining market share. Through this we can make an
obvious prediction that Starbucks is equipped with the marketing skills needed to
ensure its success in India, without the help of TGBL.

Over the years Starbucks have show a steady growth in net revenues. At the end of
2011 star bucks reported a highest ever recoded annual revenue of 11.7 billions
dollars. This is the result of various expansion projects that star bucks initiated by
opening new stores at a rate of over 500 stores per year, mainly in new markets,
where India still remains one of the markets that are yet to be tapped by this
corporation. Based on Starbucks growth strategies in the past we can expect
Starbucks to launch a minimum of 500 new stores within the first year of its operation
in India. This would propel Starbucks into having the second highest market share in
the industry. Ahead of barista and below Cafe coffee day.

TGBL

Tata Global Beverages limited (TGBL) is a part of the global Tata Group. TGBL is the
worlds second largest tea company. The groups annual turnover is US $1.5 bn and it
employs around 3000 people worldwide. The Company focuses on good for you
beverages and has a stable of innovative regional and global beverage brands,
including Tata Tea, Tetley, Himalayan natural mineral water and Eight O Clock
Coffee.


TGBL is now ready to make its entry into the fast growing Indian caf retail market
through its partnership with the renowned international coffee brand, Starbucks Coffee
Company. Both these industry giants will operate under the name of TATA Starbucks
Limited (TSL). The joint venture is being made under a subsidiary company of TGBL
know at Tata Coffee. Tata Coffee is Asias largest coffee plantation company and the
3rd largest exporter of instant coffee in the country. They produce more than 10,000
MT of Robusta coffees and shade grown Arabica in plantations spread out over 19
states in India and its two manufacturing facilities have the combined capacity to
produced over 6000 metrics tones. They export their coffee to clients in Europe, Asia,
Middle East and North America which is also where Starbucks Coffee is based.

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2
Analysis



The following revenues show a steady growth in Starbucks sales over the years,
although this is without Starbucks operating in the largest population in the world. In
simple terms India would make 1/7 of Starbucks customer base. Out of the 59
countries Starbucks operates in, the Indian market one day would be equivalent to 8-9
of those countries.

Another factor that should be taken into account is that the Indian government
imposes very high taxes on the imported products, therefore sourcing most of its raw
materials through its joint venture with TCL from within the country itself can help
Starbucks work around this problem. This is one of the prominent reasons why
Starbucks signed the joint venture with TGBL, in view of the fact that it will save
Starbucks millions of dollars over the long term.


22
http://corporate.indbankonline.com/documents/TATA%20Global%20Beverages%20Ltd.pdf

http://www.tataglobalbeverages.com/media-centre/news/news-detail/2012/05/21/tata-global-beverages-and-starbucks-
form-joint-venture-to-open-starbucks-caf%C3%A9s-across-india


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3
On the contrary the above statistics of the Starbucks sales mix shows that coffee
sales only amount to 3-4% of total sales. Therefore greatly reducing the beneficial
factor of the joint venture. Although there could other intentions such as the raw
materials being provided by Tata coffee are not only meant for the Indian market but
for the manufacture of coffee products worldwide in all other Starbucks outlets, in
which case coffee production on a scale that large would be largely beneficial for
Starbucks. Coffee could also be used


It will also enable Starbucks to keep costs low and in turn keep prices low so it can
compete with the rest of the market. In a country like India where the cafe industry
depends so heavily on the spending of the youth, keeping prices low would be very
essential in Starbucks success, as most youth in India are on a modest budget. When
it comes to a cafe chain like Starbucks they customarily charge high premiums for
their products all around the world at least when you look at it from an Indians
perspective, therefore they are going to have to completely change their pricing
strategy when it comes to the Indian market, and that is probably where TGBL comes
in. While Starbucks have a great deal of experience in running operations worldwide
they are still inexperienced when it comes running low cost operations efficiently in a
country like India. The kind of business strategies needed to adapt in the Indian
market could be unique compared to the conventional methods they are used to.


3
http://corporate.indbankonline.com/documents/TATA%20Global%20Beverages%20Ltd.pdf

http://www.tatacoffee.com/

http://www.tataglobalbeverages.com/media-centre/news/news-detail/2012/05/21/tata-global-beverages-and-starbucks-
form-joint-venture-to-open-starbucks-caf%C3%A9s-across-india

http://www.business-standard.com/india/news/finally-tata-coffee-to-bring-starbucks-to-india/462351/

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4607


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In this case the Starbucks alliance itself and its brand would be the product. And while
most companies need to spend high amounts of capital in initiating brand awareness
and acquiring publicity, Starbucks got a little luck from the hype created from their
alliance with TGBL itself. Months before Starbucks even opened their first outlet in
India, they had already received plenty of valuable publicity from the media itself. And
once the general public is aware of Starbucks entering the market there nothing more
then need to do I terms of marketing as Starbucks already have a strong stance as far
as branding is concerned and most Indian consumers are already aware of that.
From the diagram we can see that in India's cafe market is still growing and would
therefore put Starbucks in the perfect position to set up outlets and penetrate the
market, as the market is still vacant to absorb more competition and supply. On that
account it will be years before Starbucks reaches its maturity and saturation point in
India. And Decades before it reaches a decline.




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Pestle analysis

Political - Indian government is now allowing 100 percent foreign direct investment in
single brand retail. Therefore this greatly reduces one of the barriers to entry to set up
in India. This would have also made it more feasible for Starbucks to penetrate the
Indian market own their own instead of a joint venture with TGBL.

Economical - The Indian cafe industry in India is currently strong and going through a
rapid growth and is still far from its maturity and saturation stage. Therefore the
perfect economic environment for Starbucks to be successful.

Social - Starbucks is a very popular brand worldwide. And its arrival into India will
definitely have created plenty of hype amongst consumers. This hype would also have
reduced the need for Starbucks to spend too much money on marketing the brand in
India.

Technological - New factories to be open for production of Starbucks products in
India. Starbucks might instead just set up assembly operations in current TGBL
factories. This would save Starbucks massive amounts of capital which would have
otherwise been invested in setting up new factories.

Legal - Many tax restrictions on imported products. The government is also very strict
about any meat products. In some states Starbucks will not be able to sell any beef or
pork. The smallest problem spotted by any consumer, can cost Starbucks millions. For
example when Mc Donald's was sued by a customer for millions of dollars for frying
their fries in animal oil instead of vegetable oil.

Environmental - India presents a very comfortable and inviting environment for
Starbucks to set up operations in India. While at the same time they might have to
adjust and cut down on their pricing as India offers a very competitive market and for
Starbucks to penetrate and gain market share they will have to present themselves as
a value for money brand. Which means their products will have be a lot more
affordable in India than compared to their products in other countries.


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An additional factor we need to consider is the fact that start bucks has reached its
saturation point with their cafes in many economies abroad where they still have a lot
of scope to exploit the Indian untapped cafe market.


INCOME & DIVIDEND, ETC. 2005-
2006
2006-
2007
2007-
2008
2008-
2009
2009-
2010
Sale Value of Coffee and
Estate Products and Gross Income
From Services rendered (Rs. in
millions)
38.25 537.0 65.39 57.36 74.68
Profit Before Tax (Rs. in millions) 5.27 5.55 7.72 5.68 10.0
As percentage of Sales 14, 10, 12,
8, 13
14 10 12 8 13
Profit After Tax (Rs. in millions) 4.46 4.05 4.94 3.73 6.4


Swot analysis for Starbucks coffee penetrating the Indian market on its own.


Strengths

18. Number one cafe in the world, big
corporate image
19. Has experience in managing and
running over 20,000 cafes in 58
countries, India being the 59
th
.
20.

Weakness

New to India. Not aware of its cultural
practices wont know how to market
properly.

Opportunity

Big Market of over a billion people.
Only 3 major competitors to compete
with.
2
nd
fastest economic growth in the world
after china. Increased spending in
lifestyle.
India has a young population. And it is
the youth that fuels the india cafe
industry.
Exploitation of low labour costs.
Threat

Already many competitors in the market.
Very cultural country, some company
practices could offend the people
which could lead to bad publicity for
Starbucks all over the country.

4









Swot analysis for Starbucks entering the Indian market through a joint venture with

4

3
http://en.wikipedia.org/wiki/Starbucks
http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome


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Tata global beverages limited.

Strengths

21. TGBL has been based in India for
50 years and have good knowledge
how the Indian market works.
22. Both are well established brands
23. Both have the advantages of a
CSR reputation
24. Both use each others resources
such as raw materials like coffee
beans, etc.

Weakness

Expensive premium pricing
May cause conflict with Tatas alliance
with barista.
Lack of brand awareness in India.
Opportunity

TGBL owns one of the largest coffee
and tea companies in the world and
has the potential to take Starbucks to
new heights!
Increase in consumption of coffee
Tatas dependency on commodities
lowers and can now diversify into
retail.
Easy to open up Starbucks outlets in
Numerous Taj hotels all over India.
New line of products that can be
outsourced from TGBL.
Threat

Profits have to be split.
Conflicts between strategies of the
joint venture.
High level of competition such
brands like cafe coffee day, French
loaf and other local brands.
Demand for cafe products is price
elastic - therefore pricing ay be any
issue






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Products
Existing New
Markets

Existing

Market penetration



Product Development

New line of coffees for Indian
market.
Collaboration for raw materials
with Tata Coffee.
Adopting TGBL products under
the Starbucks brand
New
Market Development

Coffee, and Beverages
Food and Pastries
Large line of TGBL
products.
Diversification

.




Cost Differentiation

B
r
o
a
d

Cost leadership Differentiation
Tata and Starbucks
N
a
r
r
o
w


Cost focus Differentiation focus




Market Share

High low
M
a
r
k
e
t

g
r
o
w
t
h

H
i
g
h

Stars Problem child
L
o
w

Cash cows Dogs


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While market development is considered to be a medium risk business growth
strategy, it can be very risky for Starbucks to operate in a market it is unaware off.
Especially a market as unpredictable as India which is rapidly growing. Therefore the
joint venture with TGBL would make more sense. While at the same time Starbucks
would also be able to seize many other growth opportunities such as open up outlets
in most TAJ hotels due to the fact that in India Starbucks would be considered a high
end brand, their outlets would correlate well in five start Taj hotels.


































































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Appendix 4


Strengths

25. Number one cafe in the world, big
corporate image
26. Has experience in managing and
running over 20,000 cafes in 58
countries, India being the 59
th
.
27.

Weakness

New to India. Not aware of its cultural
practices wont know how to market
properly.

Opportunity

Big Market of over a billion people.
Only 3 major competitors to compete
with.
2
nd
fastest economic growth in the world
after china. Increased spending in
lifestyle.
India has a young population. And it is
the youth that fuels the india cafe
industry.
Exploitation of low labour costs.
Threat

Already many competitors in the market.
Very cultural country, some company
practices could offend the people
which could lead to bad publicity for
Starbucks all over the country.

















Appendix 5

Strengths

28. TGBL has been based in India for
50 years and have good knowledge
how the Indian market works.
29. Both are well established brands
30. Both have the advantages of a
CSR reputation
31. Both use each others resources
such as raw materials like coffee
beans, etc.

Weakness

Expensive premium pricing
May cause conflict with Tatas alliance
with barista.
Lack of brand awareness in India.
Opportunity

TGBL owns one of the largest coffee
and tea companies in the world and
Threat

Profits have to be split.
Conflicts between strategies of the


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has the potential to take Starbucks to
new heights!
Increase in consumption of coffee
Tatas dependency on commodities
lowers and can now diversify into
retail.
Easy to open up Starbucks outlets in
Numerous Taj hotels all over India.
New line of products that can be
outsourced from TGBL.
joint venture.
High level of competition such
brands like cafe coffee day, French
loaf and other local brands.
Demand for cafe products is price
elastic - therefore pricing ay be any
issue









Appendix 6


Products
Existing New
Marke
ts

Existi
ng

Market penetration



Product Development
New
Market Development

32. Coffee, and Beverages
33. Food and Pastries
34. Large line of TGBL
products.
Diversification

New line of coffees for Indian
market.
Collaboration for raw materials
with Tata Coffee.
Adopting TGBL products under
the Starbucks brand.




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Bibliography


http://corporate.indbankonline.com/. (February 10, 2012). Bright days ahead
with Starbucks alliance. Available:
http://corporate.indbankonline.com/documents/TATA%20Global%20Beverages%2
0Ltd.pdf. Last accessed 23/7/12.

http://www.tatacoffee.com/. (2012). Tata coffee. Available:
http://www.tatacoffee.com/. Last accessed 23/7/12.


http://www.tataglobalbeverages.com/media-centre/news/news-detail/2012/05/21/tata-global-
beverages-and-starbucks-form-joint-venture-to-open-starbucks-caf%C3%A9s-across-india

http://www.business-standard.com/india/news/finally-tata-coffee-to-bring-starbucks-to-
india/462351/

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4607

http://en.wikipedia.org/wiki/Starbucks

http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome