International expansion of companies has proven to be a profitable venture with companies generating more revenue and attracting a broad customer base. Starbucks’ initiative of expanding its operations to Nigeria offers the company a vast market due to the high population in Nigeria. Starbucks is ideal for the Nigerian Market due to the high demand for products such as coffee, fresh food, and handcrafted beverages that Starbucks offers. The coffee house has been termed as the most reputable coffee house globally as it offers exceptional services. Starbucks’ main aim is to “nurture and inspire the human spirit through their products to all people and neighborhood at all times” in Nigeria. The leadership in the company has overseen the growth and expansion of the company in other international countries. Starbucks has significant strengths that will enable the firm to thrive in Nigeria. Financially, the company has stable returns and earning from its various stores. By expanding into Nigeria, Starbucks will achieve its objective of becoming the most reputable and recognized coffee house globally.
Starbucks is an American coffee firm that was started in the year 1971 by Zev Siegel, Cordon Bowker, and Jerry Baldwin, with a single store located in Seattle, Washington. Starbucks has been termed as the largest coffeehouse corporation as it offers coffee from quality beans across its 30,000 stores present in 80 markets globally. Customers can enjoy Starbucks services in the store, on the go, and also at home, making their products more attractive. The assortment of coffee offered in the store includes 30 blends and single-origin premium coffees. Other products offered are merchandise, handcrafted beverages, fresh food, and consumer products such as ready to drink beverages and whole ground and bean coffee.
The company’s main partners are their employees, referred to as “baristas” who deliver exceptional services to all customers and are the company’s most precious asset. The diversification of the coffee company into other countries is attributed to Starbucks’ innovative strategies that exploit various opportunities in the coffee industries. Starbucks has a high chance of growing and increasing its revenue by expanding in Africa. The African coffee industry is saturated with local coffee houses and, as an international coffee house, has high chances of growth. Out of the 54 countries in Africa, Starbucks is only present in three countries including South Africa, Morocco, and Egypt. There is a wide coffee market in Africa that is not tapped into that provides a profitable opportunity for Starbuck to increase its presence in the continent.
A viable opportunity is the expansion of Starbucks to Nigeria, which offers an opportunity for global business. Nigeria is considered to be the richest and 10th largest country in Africa. Nigeria has a large population of about 149 million people, which will provide Starbucks with a wide range of customers. The country is well-endowed with natural resources that will provide Starbucks with raw materials such as coffee beans, and other raw foods. Nigeria has thriving coastal ports that are populated with both the locals and international residents together with tourists. The country has a favorable business environment, which is essential for Starbucks’ growth. There is fair competition in the business sector, together with regulations that will contribute positively to the prosperity of Starbucks. Nigeria enjoys political stability, which is a significant boost in the growth of the company.
Entering a foreign market is a challenge that often requires extensive research before a company decides on the most effective entry mode to utilize. A joint venture is the most feasible mode of entry for Starbucks in Nigeria. Through the Joint venture, Starbucks is expected to identify a local business preferable in the coffee industry to collaborate with in establishing its operations. The joint venture entails that Starbucks and the local company pool together their resources to provide coffee and other Starbucks services. In a joint venture, the two parties are responsible for profits, losses and any other costs related to the coffee house. Through the venture, Starbucks becomes its separate entity away from the two parties’ other interests. The entry model is profitable for Starbucks as they can leverage resources, which enhances the expansion of the coffee house.
A joint venture enforces cost-saving whereby Starbucks will reduce its cost of coffee making and other costs such as labor and advertisement. There is combined expertise by the two parties, which significantly contributes to the production of high-quality coffee and services. Joint venture reduces the political risk likely to be faced in Starbucks as the local partner has prior knowledge regarding the local market and the coffee industry environment. Through the JV entry mode, Starbucks enjoys intellectual properties, transfer of technology, and already established local relations of the partner. Although the joint venture is profitable and efficient, it is faced with issues such as possible cultural clashes due to different organizational cultures. Also, instances of unresolvable disputes among the two parties the dissolution of the joint venture is a long process that includes complex legal processes.
Cultural difference is a primary factor when a company is expanding into a different country is expected to encounter. The cultural differences are brought about by the behaviors, beliefs, practices, languages, and expressions that vary among people and organizations. Cultural differences create diversity in a company, which positively increases the productivity of an organization. Also, the differences have adverse effects, which if not addressed, they may cause disputes in the company and decrease productivity. In the Starbucks quest to venture into the Nigerian market, the company needs to identify the Nigerian cultural practices. Identifying the cultural practice in Nigeria will help Starbucks in aligning its operations to the country’s practices and avoid cultural clashes (Chris, Uche, & Timothy, 2016). Nigeria is densely populated; hence the country has diverse cultural practices that have been in the republic since independence.
There are hundreds of languages used in Nigeria and English being the official language, is an advantage to Starbuck. Nigeria has over 371 cultures present among the tribes but mainly recognizes three cultures, which are the Igbo, Hausa, and Yoruba culture. Starbucks should take into consideration the Nigerian culture, which is short term oriented mainly based on value for community life (Geert Hofstede, 2020). Nigerians consider the community as one entity, which entails that Starbucks operations should unite the community more. The residents believe in family oneness, thus forming their basis on family existence. Starbucks provides a friendly environment in its stores where customers can gather for family or social interactions as they enjoy their coffee. Starbucks stores are designed to offer an ambient environment and are located in quiet neighborhoods.
Religion is held high and sacred in Nigeria, with 50% of the population being Muslim, and 40% are Christians (Chris, Uche, & Timothy, 2016). The country promotes freedom of religion though there are restrictions in various states on religious gathering and demonstration in order to enhance security. Starbucks does not have any religious restrictions and welcomes customers of all religions (Amos, Akpoviroro, Sariat, & Arike, 2019. Nigerians are highly educated because the culture in the country has encouraged people to attend school. Education has increased the level of qualified personnel in Nigeria, which is a major boost to Starbucks as the company will employ qualified staff to increase its productivity. The dynamics of Nigerian culture are very diverse but contribute positively to a new venture such as Starbucks. Starbucks is enlisted with the responsibility of scrutinizing the Nigerian culture and providing services in line with the population’s practices. The alignment of Starbucks’ services with the local culture will attract a large customer base as the customers feel a sense of belonging with the coffee house.
Distribution methods are an essential aspect of the expansion of any company. Distribution methods, also known as distribution channels, act as intermediaries through which businesses use to pass their goods and services to consumers. Starbucks can utilize its full potential in Nigeria by utilizing various distribution channels to reach customers over a wider geographical area. The main channel of distribution is direct retail, where the client buys and take coffee in the physical Starbucks stores (Voigt, Buliga, & Michl, 2017). The in-store services create a higher association with the store among the Nigerians. In-store services also include free Wi-fi that is very fast, reliable, and also offers a quiet environment that customers can use to hold meetings. Customers who purchase coffee from the retail stores have their names signed on the mug as an appreciation to the customers. Also, clients can purchase on the go coffee from Starbucks, which is packed in high-quality mugs. Direct retail is favorable for Starbucks as there are few processes required in service delivery hence minimizing cost. Through the direct channel, Starbucks can minimize intermediaries hence limiting bureaucracy that affects a business.
Technology has introduced e-commerce, which a viable distribution channel that Starbucks can utilize. The channel entails clients ordering coffee viable the Starbucks website and having it delivered to their residence. The channel is fast, efficient and saves consumers on time used in visiting the stores. The channel also increases the company’s reach as a client who cannot visit the physical stores get to enjoy the Starbucks products. The use of agencies is a suitable channel where Starbucks products are sold in grocery stores, restaurants, and supermarkets across Nigeria (Geert Hofstede, 2020). Having binding agreements between Starbucks and agencies is useful in that the coffee house reduces the cost of setting up physical stores and also attracts more customers. The appropriate distribution channels ensure that clients in Nigeria access Starbucks products in the most seamless manner that also generates more revenue for the company.
In Nigeria, Starbucks will offer it a wide variety of products, which include coffee that is offered in a range of 30 blends and single-origin premium coffees. Handcrafted beverages are another product provided by the coffee house. The beverages include brewed coffee, espresso beverages, cold brew, Iced coffee, Frappuccino, nitro, refresher beverages, Teavana teas, coffee, and non-coffee blended beverages (Ruzich, 2008). The company has various merchandise to offer in Nigeria compromising of brewing equipment, accessories, mugs, books, gifts, and packed gifts. Also, there are fresh foods such as baked pastries, sandwiches, oatmeal, salads, fruit cups, and yogurt parfaits offered by the coffee house. Consumers in Nigeria will be presented with a wide range of products to choose from in the coffee house.
Coffee consumption in Nigeria is on the rise, thus increasing demand of coffee and coffee houses. Increased coffee demand is attributed to the rise of urbanization where many areas are being transformed into towns, and also, the large population is moving to already established towns. Nigeria has a ready market for Starbucks coffee with a large number of consumers in urban centers. There has been a notable expansion in the formal workforce with the growth of companies and employment opportunities in Nigeria. The large working force requires caffeine that stimulates the brain and enhances alertness that keeps the employees more proactive. The workforce offers Starbucks a market to service its coffee, snacks, and other products. The workforce has a higher purchasing power, which will multiply Starbucks sales and revenue.
Starbucks utilizes the value-based pricing module to maximize on profits. Starbuck is tasked with the role of researching and analyzing the highest amount of money that Nigerians are willing to spend and pay for its products. The price-setting of Starbucks products revolves around the highest value of products at a moderate cost. Starbucks targets medium ad high-income earners who will remain loyal to the coffee house by setting reasonable prices for their products. The company will set prices that are relatively affordable in reference to a specific product and size. Starbucks will incorporate premium pricing for the premium beverages that are termed as an affordable luxury. Also, the company will utilize its strategy of gradually increasing prices in order to direct customers towards other products in the coffeehouse that are more profitable. An example, Starbucks increases the prices of tall coffee to convince the customers to purchase the larger coffee size that has a high price margin.
Brand positioning in Nigeria is an element that largely contributes to the growth and development of a company. Through the brand position, Starbucks is expected to create a consumer perception that stands out, among others, competing for coffee houses. Starbuck has positioned itself as a reputable coffee brand that offers premium coffee globally, thus having a competitive advantage (Culp, Sun, & Brooks, 2012). The coffee house has added advantages, such as providing innovative products and high standard services that are not available in many Nigerian coffee houses. In Nigeria, Starbucks will attract a large number of customers as they seek services from a reputable coffee house. Also, Starbucks has positioned itself as a flexible store that adapts to consumer health requirements by providing products like the iced Americano, Chai tea latte, and the coffee misto that has fewer calories. The health consideration of the coffee house will attract consumers in the interest of health awareness among Nigerians.
The international environment of an organization is made up of elements that are within the organization and have effects on the organization’s operations. Expanding to Nigeria, Starbucks enjoys its internal strengths, with the company market positioning being a significant advantage. The company has positioned itself as a reputable brand globally that provides premium products (Berger, 2018). Starbucks is globally recognized, which eases its marketing strategy in Nigeria, as most Nigerians are aware of the coffee shop through other people in the world. Starbucks creates an atmosphere where customers can relax, hold meetings, and access wi-fi as they enjoy their coffee. Starbucks is present globally, which has increased brand loyalty among customers as they can access their favorite coffee when they travel.
The coffee house offers high-quality products that are very diverse, giving the clients a wide range of products to choose from. Starbucks is utilizing modern technology and innovation in delivering its products and services. The workforce at the coffee house is highly qualified and are considered as vital assets of the firm (Wu, 2017). The employees are efficient forming long-lasting relations with the customers. Starbucks has a robust and unique culture that customers easily relate with. The culture at the store follows its mission of “one person, one cup and one neighborhood at a time.” Also, the organizational culture is based on creating a sense of belonging, diversity, and inclusion of everyone through their social responsibility engagement.
Although Starbucks has a secure market positioning, the organization has been criticized for its high prices. The coffee house has been termed expensive hence not affordable to low-income earners. Starbucks stores are located in areas where there is high traffic of customers, causing them to be crowded. The stores are often crowded because the atmosphere is comfortable, attracting people to utilize the spaces for meeting and work. Due to Starbucks being a large corporation, its often being scrutinized, forcing the company to invest in CSR activities that decrease revenue.
The ability to expand into other countries is an opportunity that Starbucks has for tapping into developing markets (Real & Percell, 2018). The expansion of Starbucks will increase its revenue and also increase its geographical reach. Diversification of the coffee house products and services offers the company a chance to engage in other profitable markets such as offering tea and fresh juice. Advancement of technology renders the store an opportunity to increase its productivity, promote efficiency in service delivery and production of unique products.
Starbucks faces a major threat of competition with various companies offering similar products such as coffee and snacks. Low prices of products offered by other coffee houses threaten the market share of Starbucks. Starbucks is facing the threat of imitation where other organizations are offering products which have similar taste, feel, and look like those of the coffee house. Change in customers’ preference, taste, and lifestyle threatens the consumption of Starbucks products. An example, clients decrease in coffee consumption in an attempt to minimize risks associated with taking coffee.
Starbucks faces the threat of new entrants in the coffee industry. Many organizations have been granted the opportunity of venturing into any industry since few or no barriers limit the organizations from entering the industry (Real & Percell, 2018).
Starbucks offers coffee that can be substituted by other beverages such as tea, fresh juice, and alcohol (Real & Percell, 2018). Customers may opt to brew their coffee at their homes hence decreasing the demand for Starbucks coffee leading to losses.
Buyers highly control the market, and, in this case, they have the ability to pressure Starbucks into reducing its prices. The buyers have a dependence that allows them to purchase from other coffee houses, thus decreasing Starbucks sales. Also, if the buyers are few in the market and the switching cost from one coffee house to another is low, Starbucks is likely to be affected negatively.
Suppliers form a significant element of an organization concerning increasing prices of raw materials. In Nigeria, the power of the supplier is low as there is extensive farming of coffee, which is attributed to the excellent climate; therefore, there are many suppliers for coffee beans and other raw materials.
The presence of many coffee houses that offer similar services and products in Nigeria reduces the competitive power of Starbucks. A large number of coffee houses offer clients a range of providers to choose from, which minimizes the competitive advantage of Starbucks.
Starbucks ventures into Nigeria will be faced with challenges, which include the presence of bureaucratic processes involved in the licensing and registration of the coffee house by the government authorities. Starbucks being an international organization, will incur high charges and also experience more authorization in the regulation of its operation. The registration process is time-consuming and expensive (Real & Percell, 2018). There are also multiple coffee stores in Nigeria, which subjects Starbucks to stiff competition. To overcome the problems that the store is likely to face, Starbucks should draw strategies and recommendations that are aimed at achieving its main objectives and goals in the Nigerian market.
Starbucks is expected to outline strategies that will help the firm solves problems it is likely to encounter in Nigeria. The strategies include ways in which the store transfers its competencies and capabilities to fit into Nigeria’s operations and culture seamlessly. A product mix is necessary for Starbucks in its venture to increase its market in Nigeria. The product mix will help in attracting more customers and enable the coffee house to remain competitive in the coffee industry (Real & Percell, 2018). Communication channels are vital in exchanging information between Starbucks and the Nigerian authorities. The channels will ensure that Starbucks transitions smoothly into the Nigerian market and economy. By having all strategies in place, Starbucks will become a success in Nigeria and uphold its reputable brand.
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