Globalization Has Intensified Significantly The Past Few Years Marketing Essay

The process of global expansion is where regional cultures, societies and economies integrate on a global network through trade, transportation and communication. Economic globalization includes integrating national economies by migration, FDI capital flows, trade and innovation in technology. Globalization is described as being determined through a combination of biological, political, socio-cultural, technological and economic factors.

Global expansion paves way for companies to boost profitability and the rate with which their profit grows more than that which they could achieve when operating on a solely domestic basis. By operating internationally, firms can create a bigger market for its domestic products, achieve location economies and higher cost economies and also leverage valuable skills they develop, for greater return.

2.1 GLOBALIZATION OF PRODUCTION.

The movement towards the globalization of production involves firms dispensing fractions of the production process to various locations worldwide so as to make use of the different costs and qualities of the factors of production to their advantage (Raza, M.K. 2009).

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2.2 GLOBALIZATION OF MARKETS.

The globalization of markets movement occurs due to the convergence of consumers’ tastes and preferences on a more global norm. Examples include the worldwide acceptance of McDonalds’ burgers, Levis jeans, Pepsi etc. However there are still distinct differences. Italians consume the most pasta, the French top in the consummation of wine etc. This often calls for companies to adopt strategies that customize products based on local conditions (Raza, M.K. 2009).

Globalization has intensified significantly the past few years and as of today it continues to be a rising trend. It is said to be a “shift toward a more integrated and interdependent world economy” (Hill¼Œ2005, p 5). Today, with the advances in technology and particularly the Internet, globalization is a very significant, observable process.

STARBUCKS.

Starbucks Corporation is an international coffeehouse and coffee enterprise. It started as a small coffee shop founded by Zev Siegl, Gerald Baldwin and Gordon Bowker. Howard Schultz joined the chain in 1982 and was selected to be manager of marketing and sales. When he visited Italy, he noticed how espresso shops brought people together and wanted to introduce such a third home for people in America. Having got the opportunity to do so when the company was sold to him, he started expanding and opening stores and thought of going public. He faced lots of criticism but ignored it and raised around 25 million dollars. Encouraged by this he opened more stores and by 2002 there were above 5000 stores across the globe.

EXPANDING THE MARKET

LEVERAGING PRODUCTS AND COMPETENCES.

Companies have potential to boost its rate of growth by selling the products they make at home, internationally. Many multi national firms began their business in this way. If native competing firms do not have similar products, returns from this strategy can provide high returns. Multinationals also rely on core competencies to be successful. These competencies motivate the manufacture, development and marketing of products. They shouldn’t be easily imitable by competitors. Starbucks believes in “leveraging the Starbucks experience”. In addition to selling its core product, the coffee, it aims to provide a comfortable ambience, friendly staff, good music in each of their stores. When operating in foreign markets, they find local business partners and sends local baristas to Seattle to train for 13 weeks. In this way they leverage their competencies and skills to not only their home market (Bizmana, 2010).

REALIZING LOCATION ECONOMIES.

Location economies are those economically related advantages that arise from making value products in the most favorable location for that activity. This could be anywhere on the globe. Helps to keep costs down low and differentiate its product offering. Starbucks have stores in high traffic areas and high visibility areas like offices, university campuses and retail centers.

EXPERIENCE EFFECTS.

As a products life matures, there is a significant decline in the costs of production. There are two reasons for this. Firstly, the savings of costs that derive from learning effects and secondly economies of scale when producing a large quantity of an item. Starbucks train their employees highly. First of they call their employees partners. They have two training methods, the soft skills method, where employees learn how to connect with their customers on a personal front and the hard skills method focuses on strictly teaching how to make the coffee products. As employees receive the best training and employ the ‘Just say yes’ policy, they learn by doing and so gain experience and cut costs effectively. Starbucks have developed machines to ease the process of producing their drinks, like the verismo machine. It cuts the work involved in making the drink from about 10 steps to just a few.

COMPETITIVE PRESSURES.

Companies that operate on a global basis have to usually face two common pressures. Cost reduction pressures and local responsiveness pressures. These result in a conflict in demand for the company.

PRESSURES FOR COST REDUCTION.

Due to intense competition, companies always face pressure to lower their costs. This is most intense for those involved in producing commodities. It’s also high if there are chief competitors situated in their low cost locations. Another threat occurs in the form of consumers having high buying power and no hesitance in switching. For many years in a row, Starbucks was experiencing rapid growth and high profits beyond expectations, but as of late this has been changing. Sales were being sluggish and profits were declining. This was either due to too many store openings or the high prices of their products. Cannibalization saturated the market, opening many stores near each other. In response to these pressures, Starbucks decided to shut down 600 of its shops in 2009 (Smith. A, 2009). They also cut down on other costs by trying to introduce machines that would reduce time consuming costs and also by laying off workers. Most of the time, the workers would go on to work in other stores.

PRESSURES FOR LOCAL RESPONSIVENESS.

These pressures come up due to varying tastes and preferences of the consumer, distribution channels, traditional practices, infrastructure and government. To respond to this, companies need to differentiate their products and also their strategies. These tend to increase costs. A country’s macro environment factors come into view. Starbucks offers the same quality of their coffee everywhere but has to adjust to accommodate for local factors.

6.0 INTERNATIONAL BUSINESS STRATEGY.

International business strategy is identified as the strategies that firms, companies and businesses adapt while functioning in the global environment and attending to consumers needs worldwide. These strategies are strongly linked with business development strategies that are implemented by businesses to achieve their long and short term objectives. Objectives on a short term basis consist usually of bettering the daily operations of the firm. Long term goals target profit increment, the earnings and sales of the firm on a long-term basis which ensures business growth and stability as well as dominating national and/or regional markets (EconomyWatch, 2010).

Reasons for the growth of international business during the latter of the 20th century include the fact that investment and trade became liberalized and also conducting business on a global scale had become easier. Trade liberalization was a result of the GATT – General Agreement on Tariffs and Trade negotiation rounds. Following the GATT, the WTO – World Trade Organization continued this in 1995. Simultaneously many governments were liberalizing capital movements worldwide, mainly due to the introduction of electronic fund transfers.

6.1 IMPORTANCE OF INTERNATIONAL BUSINESS STRATEGY.

Fifty years ago, markets were separated due to high barriers to trade. Due to this, businesses concentrated wholly on supplying their products to one market, the one they operated in. They didn’t take outside markets into consideration or think about entering foreign markets. Global competition was not an issue. However since barriers to trade and investment have fallen, huge global markets for products have arisen. Average tariff rate were now 4% from 40%. Regulations that prevented foreign markets to enter and start production were being removed. There has been a great increase in the value of foreign direct investment and international trade. These two trends have led to the globalization of markets and of products. These have many implications for those competing in an industry. Since more and more industries are becoming global, competitors exist in national markets now, not only in their home market. Managers who analyze solely on their home markets will be caught unawares by foreign competitors’ entry into the market. To accommodate these changes, businesses have to pursue international strategies to create and maintain a competitive advantage (Hill, C. & Jones, G, 2008).

6.2 CHOOSING A STRATEGY.

There are four strategies, businesses implement based on the importance of pressures for cost reduction and the pressures on local responsiveness in the particular market. Depending on the importance of each, a strategy is selected.

6.2.1 INTERNATIONAL STRATEGY.

This strategy is when the company faces no pressures to keep their costs low as well as low pressures for adapting to local factors. Products that serve a universal purpose typically do not have significant competition, therefore no immediate need to lower costs. Under this strategy, product developing functions are centralized i.e. the R&D will be at home but functions like marketing and manufacturing will be established in every region or country they conduct business in.

6.2.2 GLOBAL STANDARDIZATION STRATEGY.

A company that implements a global standardization strategy, aims to maintain a low costing strategy on a global basis. They gain economies of location and scale and therefore reap cost reductions, by which in doing so, they increase their profitability. These companies do not invest heavily in customizing their offering, because this usually raises costs. This strategy is most compatible only when there are minimal pressures to be locally responsive and strong needs to reduce costs.

6.2.3 LOCALIZATION STRATEGY.

This strategy tries to customize their product offering by satisfying the various tastes and preferences of customers across various markets. This strategy is suitable when there are low pressures to reduce costs.

6.2.4 TRANSNATIONAL STRATEGY.

Under this strategy, companies try to keep costs low while differentiating their goods and services among various geographic markets. It leverages skills across subsidiaries in a worldwide network of operations.

STARBUCKS’ STRATEGY.

Starbucks realized that they were reaching a saturation point in the US coffee market. They noticed their store base was reaching maturity which resulted in slowing down of growth in their volume of output and their profitability. In reaction to this, Starbucks had to look at foreign markets to continue growing (Bizmana, 2010).

Starbucks Coffee International Inc. was established in 1995 and this was in charge of developing business outside North America with addition to planning and financing of stores, logistics and operations management and training managers.

The first store Starbucks opened outside America was in Tokyo Japan in 1996. Since Starbucks desperately wanted to regain their high sales revenues like the past few years, they exported their concept aggressively. Their products were standardized wherein the quality of the coffee that they offered stayed the same through out, the atmosphere of the shop had the same familiar feeling and all employees were trained the same way. Such a process of keeping products the same with minimal customization seemed evident of a global standardization strategy.

However it was discovered that there were varying tastes and preferences in the different markets, Starbucks expanded to. Starbucks expanded by partnering with local businessmen and then testing the region with a few stores and training the employees for 13 weeks back in Seattle. By studying the different markets and their local factors, Starbucks adapts to these in ways like developing mince pie in Britain, offering meat buns and curry puffs in Asia, designing architecture to local standards. In china, the populations were mainly tea drinkers, so Starbucks offered tea as well. This is a localization strategy i.e. there is attentiveness to local tastes and preferences.

But on a more modern note, Starbucks costs have been rising as well. Costs include waiting costs, supply costs etc. some products at Starbucks take about 10 steps to make and usually the barista misses out something or the other. It iss more efficient to install machines which eases the process and the employees can attend to customers faster. Starbucks has taken it upon them to monitor their own supply chains to ensure their quality roast beans. Since they are now taking into account the need to reduce costs as well as attending to local tastes and preferences in each market, they are now following a successful transnational strategy.

LIMITATIONS.

A downside to international strategy is that, as time goes on, emergence of competitors is inevitable. Managers need to be quick and proactively take measures to decrease their costs, or else they will be completely overtaken by competitors globally who are more efficient. The main point is that, international strategy isn’t compatible for the long term. The same goes for localization. Although it gives a company a competitive advantage, the addition of more competition, they had to decrease costs and this means moving towards transnational. Therefore, as competition in markets increases, localization and international strategies are less favorable.

CONCLUSION.

To conclude this report, we have seen the strategies that businesses take to operate on a global basis and how the pressures of cost reduction and local responsiveness play a big important role. We have seen that international and localization tend to be less viable than transnational and global, since these take into account the need to reduce high costs structure. Starbucks Corporation initially followed standardization and localization but now is following a transnational strategy.