Essay on Business and Business Environment of Starbucks
I’m Ashman an assistant business analyst junior working for a large multinational company in Malaysia called Starbucks. Firstly I will provide an overview of the different types of organizations that is known in the business theory as well as an explanation of the rapid growth of international businesses.
Public organizations are organizations that aim to provide services for the public which includes services such as the police force, fire patrol, schools etc. The organization is run by the government and it is funded by the tax money that is gathered by the government from the people.
Private organizations aim to survive, maximize their profit and to expand their business for example retail Jusco, Tesco etc. The organization is run by private owners and shareholders, the organization is funded by the owner and shareholders of the business.
Voluntary organizations aim to raise awareness for the needy, and certain cause for educational or charitable reasons. Any profits or extra funds earned will not be shared among the shareholders or the owners but will be spent serving its chosen cause, examples of these organizations are Salvation Army, Children In Need etc. The organizations are funded and run through mainly donations and voluntary work.
International firms contain transactions that are placed and carried out overseas to satisfy the needs of an individual, firm or organization. The transactions morph into multiple types of classification which for the most part will not harmonize with one another. The main form of a global business includes import, export, trade and foreign direct investment which can be shortened to (FDI).
Global businesses are expanding more than ever, the reason being that there is a high fluctuation of middle-class consumers, compared to a few decades ago people now are getting richer due to globalization, more people are getting employed and earning an income which would mean that there will be various segments of consumers that businesses can seek out in hopes for an opportunity of doing business. These middle-class consumers are quickly innovating the business world as well as the world around them. The relationship between the public and private sector has increased the growth of global power faster than ever, this, for example, can be NASA from public business and Space X a private business who are co-operating together in order to send the first person on the moon by the year 2030.
The world of technology is changing so rapidly, it’s so fast that it takes a massive role in the success of businesses in the modern world today. Mega business like Amazon is strongly reliant on technology, their market is based on the internet, selling their goods and services as well as creating a platform for sellers to sell their goods and services. Amazon also uses QR system which allows the employees in Amazon to easily locate the item needed to be delivered to their consumers. They have also adopted the idea of easy movie access called Amazon fire stick. You could say that technology is one of the key reasons for Amazon’s success today. Society is heavily armed with technology and uses it in their everyday life, they use it to communicate with people, keep up with the news and trends. If businesses aren’t able to keep up with this, then the businesses will not be able to survive.
A microenterprise can also be known as a micro business, in this size of the organization, only a maximum capacity of fewer than 10 employees are allowed to work within this organization. This size of the organization has a capital of at least RM 50,000 and to be financed it highly needs reliance on microloans, the owner’s capital and loans that can be received from close friends and families.
In this size of organization, only an existing 50 employees or less will be within this organization, this size of the organization will have a capital that is less than RM 250,000.
This organization will be present in about every sector of industry, and they can vary from shops that can be seen at street corners or to small manufacturing premises.
This size of the organization will have to be financed by the means of the owner’s capital, loans or financial support from friends and families, government funds or private stock shares.
This type of organization in manufacturing refers to a defined organization that are associated with sales turnover that does not go above the maximum capacity of RM 50 million or a maximum capacity of 200 employees. In the context of services this organization can be defined with associations of a sales turnover that doesn’t go over the maximum capacity of RM 20 million or in other way is that the full-time employees in this size of the organization will not exceed 75. This size of the organization is funded by owner’s capital, private loans from families and friends and loans from banks.
Starbucks was established in the year 1971, at the time Starbucks was a company that mainly operates as a roaster and a retailer that sells whole bean and ground coffee, tea, and spices in their first single store at Seattle’s pike place market.
Starbucks function as a franchiser, meaning if any interested party wants to operate under the company they will issue a permit of license, after the person acquires a license they will be able to use Starbucks’ name, logo and business models etc. This particular businessman or woman will be known as a franchisee.
Starbucks has a range of variety of products and services that they offer. Firstly their most popular selling product coffee, Starbucks is known for its good tasting and aroma coffee which is why Starbucks have an astounding number of over 30 unique blends of premium coffee. Starbucks loves serving its consumers specially prepared handcrafted beverages which can vary from freshly brewed coffee, ice beverages, Frappuccino coffee and so on. Starbucks also surprisingly sells their own merchandise such as tools to brew coffee or tea, other forms of merchandise like accessories, cups, mugs etc. Lastly, Starbucks sells fresh food to its customers that are freshly made. It includes sandwiches that are made from freshly baked bread and ingredients, fresh salads that have been specially selected, yogurts etc.
In the simple context at Starbucks, our mission is to provide ideas and let people explore new things but letting them do so by one step at a time.
Starbucks operates in a structure known as the matrix organizational structure, a combination of various basic features originating from the fundamental structure. The foremost corporate structure used by Starbucks are as followed; functional hierarchy, geographic divisions, products-based divisions and teams.
The functional hierarchy is a structure where one entity will have higher authority than another entity. For example within Starbucks there are several functioning departments, now each of the departments will be ranked from the most important to the least important.
Geographic divisions’ focuses on the areas and location that Starbucks operate within, Starbucks has an operating HQ in the global market located in America, Asia, Europe, the Middle East, and even Africa. Now, this structure will allow Starbucks to provide managerial support in the vast scope of the globe, which is good as the managers operating within Starbucks will have flexibility in making corrections in the plantings of their market strategy in order to adapt to the dynamic global market.
Product-based divisions are in charge of the product line. This division allows Starbucks to pay close attention to continuously improving their products in order to provide the best quality output to the final consumers. This division provides Starbucks with the drive and a sense of competition, which is necessary in order to counter the threats that can be recognized under SWOT analysis.
Teams are used in various structures within Starbucks. Though it is only identifiable at the lowest end of the organizational structure, especially at Starbucks cafe. For every Starbucks cafe, there is an organized set of teams that will deliver the goods and services to final consumer. This structure allows Starbucks to both efficiently and effectively provide goods and services to final consumers. It is very important that Starbucks maintain a good team structure, as it connects with the sales made by Starbucks. There for it affects the financial position of Starbucks as well as representing the economic performance of the business.
The human resource management department is the most important department in Starbucks. It is responsible in managing, maintaining, retaining a high-performance workforce. The human resource department is also responsible in recruiting new employees and help them undergo essential training in order for them to perform task at work properly. This department relates to all departments within Starbucks as every department will need manpower to operate.
The finance department has the responsibility to manage the money of the organization. Its business function within the organization is planning, arranging, auditing and accounting for the organization’s finance. Regularly this department will provide the organization with its financial statements after the end of every accounting period.
The function of the marketing department is to engage with customers, as well as to manage a profitable relationship and capture the value of the customers. It is responsible to communicate and deliver great value to consumers in order to manage profitable relationships with the customers.
In Starbucks the Human resource can link to the finance department, the finance department in Starbucks can’t be fully reliant on technology alone it will also need manual labor in Starbucks in order to operate. If there were any faulty errors that were to occur in the accounting software or system that the Starbucks finance department use, they will need someone that works in Starbucks to overlook the error and fix it manually, also Starbuck’s human resource will need finance from the Starbucks finance department in order to recruit, hire and pay employees that exists in Starbucks. The same concept applies for every other department in Starbucks, for example, the legal corps affairs and marketing department in Starbucks, this department in Starbucks cease to function without the manpower to operate it, no one will go out the field to search for ideas, conduct surveys or manage all legal files and documents. Starbucks Human resource is a department that will help to motivate employees in Starbucks, setting a goal for the employees in Starbucks and giving them compensation in return whether it be benefits or monetary allowances, this can help Starbucks employees to perform better and be more productive at task across all departments in Starbucks this is a reason why and how Starbucks human resource department links to other departments that reside within Starbucks.
A factor in the macro environment is the demographic factor, but we must know the demographic environment. The demographic environment basically involves the people who make up the market.
This factor will further look into demography which studies the trends in the human population such as size, density, age, gender and occupation etc.
It will also look into demographic trends which are changes in age and family structure, geographic population shift, education characteristics and population diversity. Looking into generational marketing which is where the company will segment people by lifestyle or life stage instead of age. And the demographic factor will also look into the age cohort which includes baby boomers, Gen X, Gen Y and Post millenniums.
The benefit of the demographic factor is that Starbucks will be able to carefully analyze and select a specific target market that can favour the company.
Another benefit is that Starbucks will be able to recognize the various markets where Starbucks can create value, build a lasting profitable relationship and capture the value of the customers in return.
Lastly another benefit that Starbucks can gain from the demographic factor is that Starbucks will be able to collect and gain data in the population, they will be able to compare the information and identify the trends in the population for example the number of female consumers who consume coffee decreases, Starbucks can then determine their sales in the future and decide upon on what and how many products and services are to be offered.
A drawback to the demographic factor is that though marketers may collect and use data to determine what events that the organization would likely face in the future, there is still no guarantee that any of their predictions will come true because they are basically just assumptions made by the marketers themselves.
Another drawback is that the population is rapidly and always innovating, there is never a point where the population remains constant. Therefore a marketer from Starbucks cannot carelessly collect data from a specific time. In order for the collection of data to be successful, the marketer from Starbucks must collect the data constantly in order to have a grasp unto a realistic idea of what will really happen at any point of time.
Lastly, another drawback is that when Starbucks’ marketing is based on the information they gain from revising the demographic, it would mean a potential loss of customers who aren’t fitted in the general demographic due to Starbucks’ inability to place efforts to attract those particular customers. This will obviously lead to the loss of the potential to create profit.
Moving on to the next macro environment, which is the economic factor.
This factor contains variables that can impact the purchasing power of a consumer as well as their spending patterns. For examples like inflation, interest rate, stock market fluctuation, and GDP; Gross domestic product.
In figure 1.1 we can see more clearly that the two variables that are impacted by the economic factors.
Over the years there have been many changes, but you can’t help but notice that the changes in income are so obvious. We can see that the rich are clearly only getting richer, the middle class are slowly disappearing and the poor will always remain poorer.
Consumers also are cautious of what they buy, making to differentiate quality between brands as well as the price tag that goes along with it. The consumers spending patterns has been affected by economic factor therefore businesses will have to carefully provide financially attractive offers with great quality and performance in order to attract customers.
A benefit of the economic factor for Starbucks is that Starbucks can determine whether it is inexpensive to make a loan. When the interest rate are low Starbucks will be able to apply for a loan with extra money to be invested back into the business.
A drawback to this, however, is that if the opposite were to occur with higher interest rates, Starbucks will be more in debt to the lender, with a dynamic interest rate it can place Starbucks at risk as the business asset values also correlate with the interest rates.
A benefit of the economic factor is that during an inflation prices for goods and services skyrocket but a drawback however is that Starbucks will have to pay their employees more in order for them to survive, and consumer spending will decrease significantly which will result in less sales and less profit therefor putting Starbuck’s business survival at risk.
Lastly, another benefit to the economic factor is that Starbucks can collect data on current factors that are affecting the economy in order to forecast what might occur in the near or late future to the business.
Though however, a drawback is that there will be uncertainty, unexpected changes can occur the factor may turn out for the better or it can turn out for the bad there is no way to absolutely sure.
Another macro environment factor is the political factor. This factor will concern Starbucks as this is a factor where the company’s sales and profit will depend on the state of the current position of the government in which the government operates in.
The benefit of the political factor for Starbucks is that when the Government of the country that Starbucks will operate in is stable then that means Starbucks will be able to maximize profit and not worry about an unstable Government.
A drawback to the political factor is that the Government may choose to increase the tax rate and administer it to Starbucks which would affect how Starbucks operates as Starbucks would try to minimize sales in order to avoid tax.
Another macro environment is the environmental factor, this factor will concern Starbucks as it will look into the sustainability of Starbucks operations, and how environmentally friendly Starbucks is.
A benefit to Starbucks is that environmental factors can provide Starbucks with the opportunity to make a good image for the company. For example, Starbucks can find a new way of how they source their coffee beans in order to be environmentally friendly.
A drawback is that Starbucks may have to make major changes in order to find a new supplier that can source coffee beans in a sustainable way, but this will cost Starbucks money and time of course.
Another macro environment factor is the technological factor. Since technology is the most dramatic force that is landscaping and shaping the market. It will have a major impact on how Starbucks will operate.
A benefit of the technological factor, Is that it can help Starbucks to market its products and services more easily. With access to social media and online marketing, it will be easy for Starbucks to reach out to more customers.
A drawback to the technological factor is that sometimes technology can be very expensive and very hard to keep up to date. Technology can be very costly, and very quickly new versions of them are released very fast. Starbucks may not be able to keep up with the pace of change in technology.
Another macro environment factor is the legal factor. This factor will consider acts that are enacted by the government that will protect companies from each other, copyrights act, and customers from unfair business practices.
A benefit to this factor is that Starbucks will of course be protected by the government from any other businesses that wish to directly harm Starbucks financially and socially. It will also ensure that Starbucks’ brand image cannot be copied by any other people who practice fake brands.
A drawback is that Starbucks may have to put in extra effort, some government acts may be restraining for a business for example if Starbucks is charged with a high tax rate it will have an impact in Starbucks’ profit.
Firstly I will explain to you what SWOT analysis actually means; Strengths, Weaknesses, Opportunities, and Threats.
Firstly we will discuss the strength of Starbucks, Starbucks as we know have a really popular and well-known brand image within the food and beverage sector of the industry. Their share of the market, number of customers; especially loyal customers and profits keep growing every day.
Another strength of Starbucks is that Starbucks have a great financial performance, this is true as the company’s net value sits around $81 billion, making sure to have a fixed position within the market and a growing number of stores over the few years; 1998-2018 their number of stores went from 1,886 to 29,324.
Lastly, another Strength of Starbucks is that Starbucks has a comprehensive line of supplies. The sourcing of Starbucks coffee takes place in the regions of Asia-Pacific, Africa and South America.
Now we will discuss the weaknesses of Starbucks, the first weakness that comes to mind is that Starbucks is well known for being of high quality but there is no arguing that Starbucks is very expensive, especially for those who are classified to be in the middle class in financial aspects. The term affordable or cheap can’t be applied to Starbucks.
Another weakness to Starbucks is that Starbucks is also known for evading taxes in Europe more specifically in the UK where in 3 years of sales prior to 2012, Starbucks didn’t pay an outstanding balance of 1.3 billion pound sterling.
Lastly, another weakness of Starbucks is that a handful of the products offered at Starbucks are not suitable with the cultural standards of other markets. E.g. for certain areas, the crafted drinks in Starbucks is not associated with the customers’ taste.
Now we will discuss the opportunities that are open to Starbucks. One opportunity for Starbucks is to make great expansions throughout regions it hadn’t ventured to for example India, Africa, and China.
Lastly, another opportunity for Starbucks is to introduce new brands in order to welcome more profits; in this case products like (Milk with sweet organic honey, Eggnog latte, etc.).
Now we will finally discuss some of the threats that Starbucks is facing. Firstly Starbucks will face major competition with other competitors in the same branch that are selling food and beverages at a cheaper expense than Starbucks.
Lastly, another threat to Starbucks is that other multinational companies like Mcdonald’s and Dunkin Donuts may pose to be a big threat to Starbucks’ market share.
Now we will discuss how one of the variables in the SWOT analysis and how it relates to the Macro environment factors.
Now if we look at the SWOT analysis within the weakness category, we can see that Starbucks food and beverages are highly expensive for people, especially middle incomers. Now we can relate this with the economic factor in the Macro environment, I have explained that within the economy there is changes in income, I mentioned that the “Rich will be richer, the middle class is disappearing and the poorer will be poorer”. If this is happening where then will Starbucks get its main profit from if its segments of customers are slowly disappearing?
Now from the macro environment and Swot analysis, we have made various findings, but how do they exactly affect the decision-making of Starbucks? Well, firstly the demographic environment can affect the decision-making of Starbucks because Starbucks will have to determine the suitable segment to target in the characteristics and trends of the population in order to fully maximize their profit and sales. The economic environment can affect the decision-making of Starbucks because sometimes even with a well perform economy, there may be unforeseeable events that can occur that could heavily impact Starbucks E.g. A change of Government.
Now in the Swot analysis, we have identified their strengths, weaknesses, opportunities, and threats all of these influence the decision-making of Starbucks because these analyses are the main key points of the company, and being able to identify them Starbucks, will know what they can add, what they need to improve on and how they can go about to achieve their vision and mission.
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