STRATEGIC DEVELOPMENT OF STARBUCKS HONG KONG

STRATEGIC DEVELOPMENT OF STARBUCKS HONG KONG

 
Table of Contents

Introduction.. 3

SWOT Analysis.. 4

Strengths. 4

Weaknesses. 4

Opportunities. 5

Threats. 5

Future Development of the Organisation.. 6

Resource-led Strategic Development. 6

Value Creation. 7

Exploiting the Core Competencies. 8

Strategic Options. 9

Market-led Strategic Development. 9

Ansoff’s product/market Matrix. 10

Figure 1. Ansoff’s product/market Matrix. 10

Analysis of the Strategic Options.. 12

Recommendations.. 13

References.. 14

 

Introduction

In the olden times, foresight is limited to those claiming to be soothsayers, clairvoyants, and fortune tellers. Warlords and royalties often took their advice and ask for their counsel to aid with the battles and even state decisions. Centuries past and these individuals are left to those who place high regard on spirituality and the supernatural. Recent developments in business management and commerce have developed types of tools used for forecasting. However, unlike the soothsayers, clairvoyants, and fortune tellers, the forecast are based on the current positions and possible trends of the market. This shows that the modern merchant has gone very far from considering the supernatural and mysticism as a means of foretelling what is ahead.

This paper will be using this method of forecasting using analytical tools and consider the trends of the market. The focus of this paper will be the world renowned coffee provider, Starbucks. More specifically, the discussions will be covering the conditions surrounding the Hong Kong operations of the said brand. The use of SWOT analysis will be intimating the macroenvironement and microenvironment of Starbucks Hong Kong. The findings of this analysis will be the foundation of succeeding developments of the company in terms of the market and in terms of its own resources. In the end, an analysis of the possible strategic options for the company will be given. The observations and arguments provided in the subsequent discussions are to be supported by academic journals and scholarly articles directly related to the resource- and market-led developments of the modern company.     

SWOT Analysis

The SWOT analysis has been one of the tried and tested tools in determining the external and internal environment relevant to the organisation. The following part will paint this picture on the case of Starbucks Hong Kong. The company started its operation in Hong Kong in 2000 with the joint venture of Starbucks Coffee Company International and Maxi’s Caterers Ltd. (Ho, 2002, 283)

Strengths

The primary and possibly most obvious strengths of the company is the strength of its brand name. The name Starbucks has now been constantly associated with the finest gourmet caffeine filled drinks in the market. In 2005, the company has built over sixty five coffee establishments in Hong Kong. (Starbucks Coffee Company HK, 2007) This shows that the company has a definite hold of the market. The presence of the famous signage in the strategic locations alone provides an inviting appeal to the coffee drinking public in Hong Kong. In relation to this number of coffee establishments, an additional strength of the company is its accessibility to both locals and foreigners to their products.

Weaknesses

One of the possibly highest predicaments on the part of Starbucks in Hong Kong is the price of the individual cup of coffee. Compared to the other players in the market, particularly the local stores that offer the traditional Hong Kong-style coffee, the prices of the products sold in the coffee establishments in HK is rather high. (Lu 2002, 169) With reference to the other international coffee providers in the HK market, the products are essentially indistinguishable and interchangeable. This manifests the constant need for the local Starbucks stores to constantly innovate their products from the beverages to the cakes that they offer.   

Opportunities

Studies have maintained that the consuming public in Hong Kong is slowly developing a culture of coffee drinking. (Lu 2002, 169) This shows that potential of having a greater market share with the expanding number of buyers. The cold beverages offered by the company tend to attract a much younger market base. Moreover, the image of the company associated with chic and somewhat stylish lifestyle which consumers find rather appealing. In order to take advantage of this expanding market, improvements and developments in both the confectioneries and beverages should be looked into. Aside from coffee and tea, the company should look at other beverages that could be marketable. On the other hand, additional unique cakes and other pastries that complement their beverages should be introduced.  

Threats

The suppliers in the coffee industry are considerably powerful with reference to their bargaining power. The raw materials needed by the company to peddle their primary product, coffee, are acquired overseas which means that they need to acquire the good graces of these suppliers to ensure smooth business transactions. In the same regard, the rise and fall of the prices are easily controlled by these suppliers. This uncertainty provides for the erratic nature of the prices of the raw materials which also denote unpredictable changes in the overall profit of the company.   

Future Development of the Organisation

As maintained in the introduction of the paper, organisational development is incessantly sought by any modern company. It is important to realise that in order for development to essentially actualise, change has to occur. A model of organisational development theories places strategic management as a tool to determine the foreseeable future of an organisation. (Drejer 2002, 4) The following discussions will cover the possibilities of inducing change in the resources and markets held by Starbucks Hong Kong. After every presentation, an examination of the possible strategic options for the company will be given. These strategic options will be the basis of the recommendations that this paper will provide in the later parts.

Resource-led Strategic Development

To trigger development in Starbucks HK, improvements in terms of using the resources of the company is imperative. Specifically, the company needs to realise how it could find the overall improvement by maximising its resources with minimal wastage and even smaller unnecessary spending. In this regard, this paper realises that the best way to maximise development in terms of the resources at the disposal of Starbucks is through value creation of the company and by exploiting the core competencies of the company.  

Value Creation

In order to establish the proper ways of creating value in the organisation, one must first establish the value chain of the company. The following will be providing the specific primary and support activities that create value for Starbucks Hong Kong.

Primary Activities

Based on the value chain theories, primary activities include “inbound logistics, operations, outbound logistics, sales and marketing, and service.” (Porter 1985, in Swiercz and Spencer 1992, 35) In the case of Starbucks, the inbound logistics consists of the reception of the inventories needed to provide the public the best gourmet coffee in the market. (Incandela, McLaughlin, and Shi 1999, 84) These include the raw materials for creating the brew as well as the backed goods which the stores peddle along with their drinks. In the context of operations, the individual Starbucks stores in Hong Kong provide the services that involve the creation and distribution of different caffeine concoctions to their avid consumers. (Stopper 2004, 21) On the other hand, marketing the brand is essentially one of that requires less effort compared to the rest of the primary activities of Starbucks. With their already strong brand and established core consumers, they could always rely on word of mouth as their primary means of advertising. (Stopper 2004, 21)  Similarly, the maintenance of the machines that provide for the cappuccinos and espressos for Starbucks as well as the maintenance of the ambiance of the individual stores constitutes for the services element of the primary activities of the company. Keeping these elements up and running provides the smooth operations of the individual stores.

Support Activities

Included in support activities of Starbucks are the areas of human resources and technology. Starbucks baristas are constantly trained not only to instil the prescribed image sought by Starbucks but also to keep up with the constant technologies and consequent innovations in drinks that the company carry out. (Allerton 2004, 95) Other elements connected into this activities is the recruitment, selection, and hiring of future employees for the company.  

Exploiting the Core Competencies

Based on the discussions above, there are several core competencies that Starbucks Hong Kong could exploit to carry out strategic developments. First, the company is basically the primary provider of premium coffee in Hong Kong in reasonable prices. This means that the consumers are getting their money’s worth. In the same regard, the human resources of the individual stores tend to fill up another core competency as they come out as affable, knowledgeable and skilful baristas after they undergo the initial training provided by the company. This gives the individual stores an edge as elements of customer relationship management is infused in this context. 

Strategic Options

The discussions above present that Starbucks Hong Kong, is considerably having a grand time being one of the top players in the market. However, in order to maximise the resources and create more value for the company, Starbucks have to recognise the strategic options based on what they posses. It would be more advantageous for the company to deal with things that they can actually control their resources. Based on the discussions above, the company is already a well oiled machine in the context of its value chain. However, it would still be advantageous to reduce the costs of their operations. In this way, the company could expand some more and realise its goals of being the “premier purveyor of the finest coffee in the world while maintaining our uncompromising principles.” (Starbucks Coffee Company HK, 2007) On the other hand, another strategy option for the company is to improve on their major core competency. The edge that they have is that their baristas provide the personalised service that the Hong Kong consumer requires. In doing so, Starbucks Hong Kong will not only keep their core consumers, it is possible that they establish a whole new set of target market. However, this could only be possible if they intend to carry on implementing the existing culture of innovation with regards to their beverages and confectionaries.

Market-led Strategic Development

Aside from the resources of the company, it is also imperative to establish the personality of the external environment. In reality, Starbucks Hong Kong’s position in the market is not that secure. There are other players in the industry that intend to take the place of the company in terms of market position and market share. Just by walking down the busy streets of Hong Kong, one would see the intensity of competition in the said market. Companies like Coffee Bean and Seattle’s Best, and local coffee shops in Hong Kong make the coffee industry in Hong Kong more interesting. The battle for market supremacy will be discussed with the help of Ansoff’s product/market matrix.

Ansoff’s product/market Matrix

This marketing tool is essentially used to help companies to take on organisational development and marketing growth. (Adamson 2005, 358) Basically, this is used to view the possibility of growth through the products and markets, either existing or new.

 

Figure 1. Ansoff’s product/market Matrix

 

 

Market Penetration

Market penetration shows that the possibilities of growth in a company that intends to operate in an existing market and product. In the case of Starbucks Hong Kong, the product, with exception to the famous blends, are constantly changed to promote and build a market for the company. (Stopper 2004, 21)  

Market Development

Hong Kong is essentially among the top destinations in Asia. Academics have pointed out that the consumers here have low uncertainty avoidance; hence does impulse buying is prevalent. (Chan et al, 1999, 12) Nevertheless, when they see a particular brand that they like, consumers tend to stick to it. This is the reason why Starbucks Hong Kong is constantly seeking a new market every chance that they see.

Product Development

Product development has become one of the fortes of Starbucks in general. They are known in the market as the key innovators in coffee blending both in hot and cold mixes. Though admittedly, the consumers do stick to a particular type eventually, new products tend to only provide a whole new range of choices for the consumers, but also trigger new purchases on the said product. (Stopper 2004, 21) 

Diversification

Diversification initiatives in Starbucks Hong Kong are limited to the introduction of new concoctions and confectionaries. (Stopper 2004, 21)  Moreover, there are some stores that have started to offer breakfast meals as a part of their menus.

Analysis of the Strategic Options

The strategic options provided above, the market-led and the resource-led options, presents the information needed by Starbucks Hong Kong to assist them in formulating strategies and in making strategic decisions for the company. In the same manner, the said data establishes what the company needs to create a strategic fit for their operation.

Upon examining the data as well as the options provided above, it appears that the two perspectives have to complement each other. Specifically, the resource-led options should find a way to stretch the resources of the company to fit the needs of the market. The company should find a way to use these resources and value chain as leverage to allow the company to realise its potentials. On the other hand, the market-led options should establish a fit with reference to the capabilities and limits of the resources of Starbucks Hong Kong. Through appropriate positioning and finding the opportune niche, the company will be well on its way in taking Hong Kong by storm. 

 

Recommendations

The following recommendations are based on the principles, arguments, and observations provided in the discussions above. Basically, Starbucks Hong Kong should take on the following courses of action.

Install a Cost Leadership Strategy

The discussions above have established that the company should be taking on the advantages of the economies of scale and the experience curve that they have accumulated since their inception in the Hong Kong market. Basically, this is shown in their acquisition of a large market share. (Allen, Helms, Takeda, White, White, 2006, 24) However, it is apparent that Starbucks Hong Kong is not taking advantage of the situation entirely. The discussions above imply that the company has yet to significantly reduce their operational costs so as to maximise their profits and consequently create value for their firm. Based on the website of Starbucks Hong Kong, they have established a programme (Starbucks Cards) that provide great strides towards addressing this issue. This programme, not only ensure repeat purchase in their stores but also guarantee customer loyalty and consequently establish a close customer relationship with the core consumers of Starbucks Hong Kong.

Improve their Differentiation Strategy

The study has pointed out that the products and services provided by the players in the industry are essentially the same. (Clark 2005, 34) Since the company has been touted to have a culture of innovation, then this would not be a problem. However, the company should also make sure that the development in the confectionaries and beverages should coincide with the general likes and dislikes of the coffee drinking public of Hong Kong. For instance, aside from coffee and tea, the stores should experiment on other drinks like smoothies. In the services department, stores should start to consider addressing the fast paced lifestyle in Hong Kong. This means that express lanes or even drive thu counters may bid well in the future of the company.

Focus their marketing on specific target markets 

As maintained earlier, the coffee drinking culture in Hong Kong is increasing, partly because of the developments provided by Starbucks. Normally, professionals and other foreigners are among the main consumers of coffee. (Allen, Helms, Takeda, White, White, 2006, 24) With the introduction of the cold coffee-based beverages, a much younger crowd has been flocking the stores. In addition to the products, the ambiance of the stores, aside from being the greatest possible place to satisfy one’s caffeine fix, has become very famous areas for hanging out for young people. Starbucks Hong Kong should be capitalising this potential.

References

 

Adamson, J. (2005) "Using Marketing Visuals for Product Talk in Business English Classes." Business Communication Quarterly. 68(3), 358.

Allen, R., Helms, M., Takeda, M., White, C., White, C. (2006) "A Comparison of Competitive Strategies in Japan and the United States." SAM Advanced Management Journal. 71(1), 24. 

Allerton, H. (2004) "Food for Thought: True Tales from the Workplace." T&D. 58(4), 95.

Chan, A., Chow, W., Fosh, P., Snape, E., Westwood, R. (1999) Hong Kong Management and Labour: Change and Continuity. Routledge. London.

Clark, C. (2005) "Shopping without Cash: The Emergence of the E-Purse." Economic Perspectives. 29(4), 34.

Drejer, A. (2002) Strategic Management and Core Competencies: Theory and Application. Connecticut: Quorum Books.

Ho, B. (2002) "Demutualization of Organized Securities Exchanges in Hong Kong: The Great Leap Forward." Law and Policy in International Business. 33(2), 283.

Incadela, D., McLaughlin, K., Shi, C. (1999) "Retailers to the World." The McKinsey Quarterly.p84.

Lu, H. (2002) "Nostalgia for the Future: The Resurgence of an Alienated Culture in China." Pacific Affairs. 75(2), 169.

Porter, M.E. (1985) Competitive Advantage. New York: Free Press. in PM Swiercz, B. Spencer "HRM and Sustainable Competitive Advantage: Lessons from Delta Air Lines." (1992) Human Resource Planning. 15(2), 35.

Starbucks Coffee Company. (2007) Starbucks in Hong Kong. Available In: http://www.starbucks.com.hk/en-US/_About+Starbucks/Starbucks+in+Hong+Kong.htm [Accessed 04 April, 2008]

Stopper, W. (2004) "Establishing and Maintaining the Trust of Your Employees." Human Resource Planning. 27(2), 21.

 

 

  

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