Starbucks Expansion

Starbucks Globalization opportunity: Rising middle income

Long established tea-drinking culture in China and India doesn’t mean Starbucks cannot get their cups of coffee into those people’s hands. Also low income per capita in these countries doesn’t mean consumers cannot afford to buy $3-4 Starbucks’s coffee. Other the other hand, the fact that India and China are the most populous countries alone doesn’t mean it would give Starbucks an arena for growth. Looking just from the surface of globalization force is not sufficient for a company to acknowledge opportunity from globalization and be able to expand its business successfully.

Starbucks currently has opened hundreds of stores in China and is committed both financially and strategically to invest in India. Rising middle class especially in BRIC countries such as China and India is an underlying logic for Starbucks to pursue global expansion strategy and decided to tap into China and India market.

Strategic Implications

In 2006, international sales increased by 27% to US$ 1.3 billion. Canada and the U.K. are Starbucks' current strongest markets abroad, while India, Russia, and China represent key areas of focused future expansion. 1 By 2025, BRICs could have over 200 million people with incomes of over $15,000. 2

Growing middle class stratum in China and India has several implications to Starbucks. In the next three years itself, the number of people with incomes over $3,000 (middle class) could double and touch 800 million in a decade, which is higher than the combined population of the US, Western Europe and Japan. In India, the middle class is expected to increase 14 times in the next 10 years, compared to 10 times in China. 2 The Hindu Business Line reported that the middle-class (annual income above $5,000) in India and China is estimated to explode to the one-billion mark by 2020, with China having 650 million and India 350 million individuals in this income group.

Starbucks need to understand the underlying needs of this middle class. They seek to flaunt its status with noticeable consumption of trendy items such as western brand names--including Starbucks coffee. Media proliferation and workforce mobility around the globe have allowed China and India consumers to recognize Starbucks brand, use it as an affordable luxury item and establish themselves as part of their social group. As Tom Doctoroff, the North Asia managing director of ad firm J. Walter Thompson said, in China “people don't go there for the coffee. They go there to present themselves as modern Chinese in a public setting” 3 Understanding the needs of the middle class stratum would present Starbucks an opportunity in these two markets, in spite of the constraints of tea-drinking culture and low income per capita of these countries as mentioned from the beginning.

Strategic Imperatives

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