An India Pestle Examination Economics Essay


Starbucks is a multinational espresso bar. The first Starbucks opened in 1971 and took their name from the traditional tale of Moby Dick, since it appeared that the name was satisfactory for the company that imported the best coffee for the people of Seattle. Howard Schultz bough this coffee company in Seattle in 1987 and soon he managed to transform the six local caffeine retailers to a open public national company with over 250, 000 employees and over 1300 stores. During the decade of the 2000's, Starbucks got opened coffee retailers in more than 43 countries and over 15, 500 regions. Only in 2002 Starbucks featured more than 5600 coffee retailers. Now Starbucks is the global market innovator of espresso bars ( Starbucks, 2012 ).

Over the previous few years Starbucks have decided to grow to the diverse market of India. India is the next biggest country on the planet in terms of human population and seventh biggest by physical area. India nowadays in considered to be one of the emerging powers. India's economy is one of the most effective expanding on earth, which is forecasted that India would be the fifth major consumer market by 2025. If today the Indian middle class counts 300 million people, a number compared to the whole EU market, it is only expected because of this number to grow over the years, as this new market expands in power ( Worldscibooks, 2012 ).


In order to evaluate Starbuck's decision to develop their business activities in the Indian market, it is essential to analyse all the factors which influence such decisions. These factors include the political, economic, sociable, technological, moral and environmental issues. For that reason the PESTLE analysis can be used.

Political Factors

Political factors make reference to the governmental plan in terms of the economy, the goods and services provided, political decisions made in vital regions of business, education and workforce, as well as the decision made involving infrastructure.

Political Situation: The politics situation in India can be characterized as firm. It has a federal government republic Democracy, which comprises political stability with effective governmental insurance policies.

Privatization: India has reduced the political user interface in the management of businesses, thus leading to better efficiency and production of businesses. Privatization in India has been carried out in several phases; such as, deregulation, de - reservation, and disinvestment ( Privatization in South Asia )

Economical Factors

Economical factors include interest rates, taxation changes, economic growth, inflation and exchange rates.

Taxation Policy: India features a well structured duty system. There are several different taxes or mandatory efforts that a business in India has to make. These include a corporate income tax, Central sales taxes, social security contributions, employee's point out insurance contribution, dividend duty, property tax, gasoline tax, tax on insurance agreements, vehicle duty ( pollution taxes ), status VAT, CENVAT ( Excise Responsibility ), tax on interest, income surcharge, education cess and secondary and advanced schooling cess ( doingbusiness, 2012 ). Duty system in India is considered to be beneficial for a business development ( KPMG, 2012 ).

Economic reform: Since 1991 India has began to move towards a a more industrial policy. The Government reduced the number of industriesunder compulsory licensing to six, Policy towards foreign capital was liberalized, and the Foreign Investment Campaign Mother board ( FIPB ) was set up to market and channelize international investment in India ( Ahuja et al, 2006 ).

Interest rates: An increase in rates of interest means that investment and development programs are suspended consequently of falling sales for Starbucks and their suppliers. Also, home loan repayments are rising and therefore, consumers have less disposable income to invest on luxury items such as caffeine. Low rates of interest should have the opposite impact. With India's interest as high as 8%, a company expansion currently could end up being dangerous ( Loan provider of India, 2012 ).

Inflation: Inflation is a prerequisite for a rise in prices. Business costs will surge for Starbucks, in the event of an inflation growth, as well as the expenses of wear and therefore the menu cost will increase too and Starbucks must create new pricing lists. Furthermore uncertainty is established in the decision making process, because inflation redistributes money from lenders to borrowers. Together with the Indian inflation rates differing around 9 and 9, 5 % such redistribution of income is likely to happen ( Trading Economics, 2012 ).

Social Factors

Social changes in a country has a significant impact on the demand for a firm's products, as well as the availability and willingness of men and women to work.

Demographics: India's society is ageing. From a total of almost 1, 1 billion people, a 31, 8 % are under 14 years old, 63, 1 % are between 15 and 64 years old and a 5. 1 % is over 65 years. Thus the best percentage of society is the working population.

Lifestyle: India's lifestyle is more connected to tea, the production and consumption of which is considered more of a little ceremony than simply a habit. However espresso consumption has began to augment between people over 15 years of age, who consider consuming coffee as an indicator of adopting a more common and global lifestyle ( Srivastava, 2002 ).

Attitude towards work and leisure: Indian culture differs in terms of leisure days and nights in comparison to the rest of the world. As Sunday is considered to be a leisure day for most of the planet, this does not correspond to the Indian culture, for them Fri is the official leisure day.

Technological Factors

New technologies create services and new functions. India has already been a large market in the mobile sector and new providers will establish there their services soon.

Software: The twelve-monthly progress rate of India's software exports has been constantly over 50 percent since 1991. More specifically India's software industry is continuing to grow to 5, 4 billion dollars in the very beginning of the 2000's ( Indian Embassy, 2012 )

Power Sector: India has a great ratio of self sufficiency in conditions of total electric power energy needs. THE FEDERAL GOVERNMENT of India and its own agencies and institutes have lately developed a number of ideas and strategies regarding electricity sector technology ( International Energy Agency, 2011 ).

Legal factors

The factors influence the legal environment in which a company usually runs. In recent years significant changes have been made in the legal environment in India which effect the way in which companies operate. Such changes include the disability discrimination legislation, a rise in the minimum amount wage and greater requirements for companies to recycle. Generally legal changes make a difference a firm's costs and demand.

International Trade regulations: After 1992 India has began to implement legislation which strengthen imports and exports in the united states. Through the international trade act, provisions for even more development are made, as well as routes of cooperation between your central federal government and the international trade are founded ( Indian Federal government, 2012 ).

Environmental Factors

Environmental Factors are the weather and environment change. The overall move towards more environmental friendly products and processes is affecting demand patterns and creating work at home opportunities.

Climate: The environment in India with the long monsoons and the similarly long dry cycles creates a challenge which must be fulfilled by the organizations. Infrastructure must be in a way that can make businesses feasible in such diverse local climate.

Air pollution: On the 3 million early deaths on earth that occur every year due to outdoor and indoors air pollution, the highest number are assessed to occur in India. Organizations have to establish internal polices and standards to be able to assist in the decrease of this ratio.


Five causes Porter competitor research is an important tool for examining the structure of an industry on strategic procedures. It helps the trader to stand out in a competitive environment. Porter has determined five competitive forces that form every industry and every market. They are: The threat of entry, buyer electricity, the power of suppliers, threat of substitutes and competitive rivalry.

The risk of admittance includes: Economies of range, high or low accessibility costs, no ease of access to distribution channels, the price advantages not related to the company size, the action of the government and the value of diversification. There will be a constant pressure on Starbucks to respond and adjust to the stresses of new entrants. The simpler it is ideal for a fresh market entry, the higher competition in the market. For that purpose Starbucks have agreed upon an MoU with Tata Espresso in India, that allows them another market entrance thus balancing the featured threats ( Starbucks, 2011 ). Since local foreign-investment rules limit a overseas single-brand retailer to possessing 51% of its jv with a local partner, it might prove to be an effort for Starbucks to enter into to the Indian market.

The vitality of purchasers: Buying electric power is likely to be high under certain conditions. A concentration of buyers may occur, particularly if the volume of purchases is high, the industry contains many smaller businesses, there are different sources of supply, cost of recycleables is a high percentage of total costs, the expense of switching is low and poses little risk. The cost of transitioning between suppliers is low for Starbucks, especially due to the large number of suppliers Starbucks have.

The electricity of suppliers: If the marketplace is dominated by a few large suppliers and rather than multiple sources, the bargaining electricity of suppliers is likely to be high, even though suppliers will often have a limited amount of electricity. With Starbucks being the most famous

Coffee string stores, with sales worldwide of $ 3. 28 billion in 2002 and carrying on to expand, they need to still be able to require coffee beans for some time. It's safe to say that suppliers need Starbucks equally if not more than Starbucks that need them. However, having authorized an MoU with Tata Coffee in India, the power of purchasers might prove to be high in this case and Starbucks might need to seek for substitute clients in the Indian market segments.

The threat of substitutes: This menace occurs when a dependence on substitution appears and for that reason substitutes occur for some products. A good example would be for Starbucks to offer an alternative drink if a person wants to change from using caffeine to tea. Indianizing the Starbucks products in order that they meet the flavour of Indians is a challenge for people in Starbucks. Some of the moves apt to be made are adding some Indian teas, coffees and food, such as vegetarian sandwiches.

Competitive Rivalry: Many factors contribute to the powerful rivalry among existing rivals within an industry. That is probably to be high when the accessibility is possible, when the risk of substitute products exists, so when suppliers and potential buyers are seeking to exercise market control. For this reason, the competitive rivalry in the heart of the diagram. Competitive rivalry in India will be high for Starbucks, since the coffee houses are believed as the first and foremost meeting places. Rivals of Starbucks would include 2200 coffee cafes among which, Cafe Espresso Day, a unit of Amalgamated Bean Coffee Trading Co. , which now could be the largest string of coffee shops, the Luigi Lavazza SpA-run Barista Lavazza chain of espresso pubs and Whitbread PLC-operated Costa Espresso stores as well.


By putting your signature on an MoU with Tata Espresso in India, Starbucks has chosen the alliance strategy for stepping into this new market, plus more specifically has achieved so by way of a jv. A jv is an association of persons, natural or legal, by which they seek one common purpose by using of common means. The supposed purpose of a Joint Venture ( and hence also its size ) varies from that of other business strategies and company types in the sense that it's not a regular but a distinctive business type which is usually associated immediately with a certain project.

The option of a jv was only natural due to the local international investment lawful restrictions which occur in India. A joint venture is a constantly additionally used method for internationalization, which ensures low functional cost, a better competitive position and learning of home based business capabilities. In the case of Tata Starbucks Ltd, two companies made the venture, a global and an area company. The most crucial conditions for the forming of a joint venture are possession of additional benefits, the timing of opportunities for both organizations and the lifestyle of barriers to full union, either economical, financial, legal or political. The project, Tata Starbucks Ltd, will spend 400 crore at first and start 50 Starbucks cafe across the country by the finish of the calendar year. The initial stores designed in Delhi and Mumbai in August. The move is part of the $ 10-billion-plus US firm's strategy to focus on appearing market segments such as India and China to operate a vehicle future growth rates. Although some of the cafes will be standalone outlets, some others might be roofed under the Tata hotel chain Taj.

A Joint venture is a controversial entry function to new market segments for a company, as it minimizes the cost and the risk in logical levels for both venturing companies, while it also offers the opportunity to the one to learn from the other. Furthermore it is another way of stepping into market segments in countries where constraints are present which is also considered as a way of exchanging technical knowledge and the introduction of international experience in the modern day global environment. In addition to the aforementioned benefits however, joint ventures feature some down sides. The main drawback of the business strategy is the fact the total control of all variables of the project is not possible and therefore it's possible that problems might occur, mostly as a result of insufficient full relationship between contribution and effect, even though this example is more organized than the rest. It really is of course necessary that the members of the jv must be able to protect their strategic advantages, the potential to talk about control and undoubtedly to bargain to the demands of every culture. It is considered of great importance a venture occurs between the management of the companies included, which can either strengthen or dissolve a jv.

The company's value string is very important for any supervisor, because they are required to enhance every link of the string in order to increase the consumption of the customer value. For Starbucks, the worthiness chain of suppliers is ssociated with the place of source of the coffees they use to create the final product. The very best coffee kinds are preferred from around the world with wealthy and interesting taste. They test more than 150, 000 cups of coffee annually in order to select the best flavored coffee beans. Usually the decided on variety of Arabica beans has the most refined taste ( Starbucks, 201 ). Understanding the importance of the value string suppliers, Starbucks maintain close romantic relationships with coffee exporters, with whom they work every day and whom they educate constantly. If Starbucks wishes to make use of the joint venture with Tata Coffee in order to market the strategy of value creation they have already established internationally, they must maintain their position into the qualirt of the product serve and even look for alternatives suppliers closer to the Indian district aside from Tata Espresso.

However the worthiness chain must be from the resources the business has. The business's value chain includes:

The infrastructure of the company, which regarding Starbucks is how they would like to run their business and the execution of best planning, economic policy and quality control. Starbucks has made a decision to produce high quality caffeine and quality control is directly related to the decision.

The supervision of human resources, which Starbucks has used important decisions, such as that employees are similar. Even the waiters who are partially employeed receive add-ons for his or her work, such as free caffeine and coverage of health to feel that their company appreciates them and gives them value, in order to and will in turn provide high quality services, thus increasing the value of the customers.

Technology Development is also critical, which Starbucks uses in every department of the company, either to teach their workforce, or for the creation of these products, or to control their stock.

Supply, ie how Starbucks acquired the highest quality of coffee beans.

Operations, or else the procedures adopted for the manufacturing of products.

Internal and exterior logistical structures, particularly the functions of obtaining the coffees from suppliers, holding them and the steps to be implemented until the person receives the purchased product.

The service, which addresses all activities that improve the value of the product. In this area the staff is roofed, which ensures that every customer who visits Starbucks has a distinctive experience, because of the friendliness of personnel, their efficiency of service and product quality.

All these create the competitive advantage of the company, which offers the added value to consumers / customers. The essential capacities provide businesses significant competitive advantages through the actions, skills and competence and standard knowledge to produce the merchandise. The comparative good thing about this offers increased value to customers. The target is designed for Starbucks to target their attention on the essential skills that really have an effect on their competitive advantage. For Starbucks, this consists of understanding of the best expanded coffee beans, what exactly is the ultimate way to prepare the ultimate product in order to make the best cup of coffee, but also knowledge of how better to approach a overseas market. The comparative good thing about quality value and has helped them both to diversify their product and to assume leadership in the field of coffees and refreshments.

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