ABBREVIATIONS USED:CASE BACKGROUND (CB)CASE FACTS (CF)CASE PROBLEM AREAS (CPA)CASE PROBLEM SOLUTIONS (CPS)STAR BUCKSCASE BACKGROUND (CB) Founded in 1971 in Seattle, by Gordon Bowker, Jerry Baldwi and Ziv Siegl. By 1982, Starbuck had five retail stores and was selling high quality whole bean and ground coffee products to restaurants and espresso stands in the Seattle area. 1984, Opened a coffee bar in down town Seattle which was successful, Schultz acquired Starbucks in 1987, and locations were opened in Chicago and Vancouver. The company published its first mail order catalog in 1988. In 1991, Starbucks became the first U.S. based privately held company to offer stock options to all employees. The company went public in 1992.CASE FACTS (CF) Coffee consumption has declined to less than two cups a day per adult as compared to the earlier statistics of three cups. Starbucks faces competition from two distinct type of firms Regional coffee manufactures Large national coffee manufactures Fierce competition from Seattle‟s Best Coffee. Planning aggressive expansion in overseas marketsCASE PROBLEM AREAS (CPA) Competition from regional and national coffee manufactures. Coffee consumption has declined from three cups of coffee a day(per adult) to less than two How to expand overseas and compete with other chains like Café Coffee Day, Barista and Mc Donald.CASE PROBLEM SOLUTIONS (CPS)
Despite reduced coffee sales, decaffeinated coffee sales have increased.QUESTION ANSWERS. What are some of the challenges associated with Starbucks’ aggressive growth strategy? Could an unanticipated change in coffee consumption patterns disrupt Starbucks in the same way that it paved the way for the company’s growth in the 1980s? A change in the coffee consumption pattern can disrupt Starbucks. But it can also capitalize on this change. For example in the 1960‟s the average per adult day to day consumption was three cups of coffee. Nowadays the consumption has reduced to less than two cups a day where only half the American adults are coffee drinkers. But during this decaffeinated coffee sales soared. Also a new category of loyal coffee drinkers was born which only consumed premium or specialty coffee. Starbucks capitalized on this change and its specialty coffee sales increased from 45 million dollars to more than 2 billion dollars. What problems might arise from Starbucks’ efforts to expand rapidly into nations such as India? India is generally considered as a tea drinking nation. The main coffee drinkers are the urban population. Coffee consumption is highest in south India, where filter coffee already has a loyal customer base. The challenges faced by Starbucks are manifold 1. CCD and Barista are already well established brands whose prices are much more competitive as compared to Starbucks. The main problem would be to devise a strategy that would pull customers away from CCD, Costa Coffee and Barista. 2. Nestle, Kraft and Proctor and Gamble already have a presence in India, the strongest maintaining a reasonable profit could be a problem. Nestle products are well established and much cheaper 3. Filter coffee is a hot favorite in south India and decaffeinated coffee is not popular in India. Starbucks will face stiff competition from this sector. How would you see the competition of Starbucks in India, with players like Costa Coffee, Mc donalds, Barista and Café Coffee day. Draw out a competitive strategy for Starbucks?
Mc Donalds , Barista and Café Coffee Day are already well established brands in Indiaand are cheaper as compared to Starbucks.( keeping in mind that the Indian consumer isquite price sensitive). Starbucks will face fierce competition from these brands.COMPETITIVE STRATEGY FOR STARBUCKS.PRODUCTStarbucks being a new foreign entrant can capitalize on the fact that the Indian consumerespecially the urban youth are ready to try out new products.Differentiating strategy should be used by Starbucks to show what is it‟s uniqueselling proposition over other chains in India.It will have to come up with competitive pricing strategies against the knownbrands.Use the exclusive “coffee chain” tag.Celebrity endorsement to attract customers.Starbucks can lower down the price because Indian customers are price sensitive.Projecting the „De caf” version as a harmless coffee through emotional marketing.
DAWEOOCASE BACKGROUND Kim Woo-Choong started Daewoo in 1967 as a small textile company with only five employees and $10,000 in capital. In just 30 years, Mr. Kim had grown Daewoo into a diversified company with 250,000 employees worldwide as well as over 30 domestic companies and 300 overseas subsidiaries that generated sales of more than $100 billion annually. However, some estimated that Daewoo and its subcontractors employed 2.5 million people in Korea. Although Daewoo started in textiles, it quickly moved into other fields, first heavy and chemical industries in the 1970s, and then technology intensive industries in the 1980s. By the end of 1999, Daewoo was organized into six major divisions: · Trading Division · Heavy Industry and Shipbuilding · Construction and Hotels · Motor Vehicle Division · Electronics and Telecommunications · Finance and ServiceCASE FACTS The impact of the Asian financial crisis on Korea was partly a result of the economic system of state intervention adopted by Korea in the mid-1950s. Modeled after the Japanese economic system, the Korean authoritarian government targeted export growth as the key for the country‟s future. Initially, the government adopted a strategy of import substitution, and that later gave way to a strategy of “expo,”, or die.” Significant incentives were given to exporters, such as access to low-cost money (often borrowed abroad in dollars and loaned to companies at below market interest rates in Korean won), lower corporate income taxes, tariff exemptions, tax holidays for domestic suppliers of export firms, reduced rates on public utilities, and monopoly rights for new export markets. Clearly, the government wanted Korean companies to export. The chaebol, of which the four largest were Hyundai, Daewoo, Samsung, and the LG Group, became the dominant business institutions during the rise in the Korean economy.
They were among W largest companies in the world and were very diversified, as can b:: seen by Daewoo‟s investment and business choices. They were held together by ownership, management, and family ties. In particular family ties played a key role in controlling the chaebol. Until the 1980s, the banks in Korea provided most of the funding to the chaebol, and they were owned and controlled by the government. Because of the importance of exporting, the chaebol were all tied to general trading companies. The chaebol received lots of support from the government, and they were also very loyal to the government, giving rise to charges of corruption. Most chaebol were initially involved in light industry, such as textile production, but the government realized that companies needed to shift first to heavy industry and then to technology industries. Daewoo transitioned to heavy industry in 1976 when the Korean government asked President Kim to acquire an ailing industrial firm rather than let the firm go out of business and create unemployment.CASE PROBLEM AREAS Daewoo was struggling. Its $50 billion debt was 40 percent greater than in 1998, equaling 13 percent of Korea‟s entire GDP. A good share of that total, about $10 billion, was owed to overseas creditors. Its debt-to-equity ratio (total debt divided by shareholders‟ equity) in 1998 was 5 to 1, which was higher than the 4 to 1 average of other large chaebol, but it was significantly higher than the U.S. average, which usually is around 1 to 1 but which rarely climbs above 2 to 1. The Asian financial crisis brought that growth to a halt. After the Thai baht was devalued on July 2, 1997, the Korean won soon followed, and the Korean stock market crashed as well. By the end of 1997, the South Korean won –as 46.2 percent lower than its re- evaluation rate. At the time the Crisis hit.CASE PROBLEM SOLUTIONS Of course, there is no way of knowing the true picture of Daewoo‟s financial information because of the climate of secrecy in Korean company. After the Thai baht was devalued on July 2, 1997, the Korean won soon followed, and the Korean stock market crashed as well. One possibility was to dismantle Daewoo and let it have only auto-related businesses. All of the other businesses would be sold off to domestic or foreign investors, and the name would be changed to something other than Daewoo. Another option for President Kim was to sell some of Daewoo‟s auto assets. Ford, Daimler Chrysler, and General Motors showed interest, but selling Daewoo Motor, the second largest automaker in Korea, would be a big blow to the country. After a year of negotiations, General Motors purchased a portion of the $1.2 billion Daewoo Motor in April 2002 for $400 million agreed to keep only three manufacturing
plantstwo in Korea and one in Vietnam-leaving creditors scrambling to sell its other plants in Eastern Europe, Asia, and the Middle East. By mid-2002, the Korean economy was showing promising signs of recovery and reform. In 2001, the economy grew by 3 percent and was expected to grow by 5 to 6 percent in 2002.QUESTION ANSWERS1. Does Korea look like a good market to invest? Why or why not? Ans. Korea doesn‟t look like a market to invest due to the following facts: a) Presence of many other conglomerates in the Korean market. b) Secrecy in the climate of companies created difficulty in studying and plotting the move. c) More emphasis and high flexibility for exports and less for imports. d) As the Korean stock market crashed during that time, it brought uncertainty in the market for Investing, demoralising the new entering companies. e) Bank and the Korean government were biased towards native companies.4. What risks does GM face in taking over Daewoo Motors? Suggest some suitableproduct/brand strategies for GM. Ans. GM faced problems like How to market Daewoo cars and reduce the $830 million of Daewoo debt Should GM continue selling Daewoo cars in the United States and Europe and compete with its own brands. Without increasing its debt, will it be able to restore Daewoo‟s 37 percent share of the market in Korea.