Starbucks

Prepared

BY

Kabiru Ahmed Shahir (SCM 013621)

For

Miss Malathi

Strategic and change management

1 | P a g e S E G i U N I V E R I S I T Y

Executive Summary

This case study is going to assess the frame work of the PEST analysis it is widely considered to

be one of the most effective analytical tools used to analyses the impacts of external factors to

the company using the principles underlying the framework and therefore critically analyzing the

external environment of the company the report will also show how the company faces the

problems and how they solve it the report will also include some recommendations as well as

solutions suggested

Prepared By Kabiru Ahmed Shahir ,(scm 013621)


Table of Contents

Executive Summary.......................................................................................................................................1

Questions sheet..............................................................................................................................................3

Question A.....................................................................................................................................................4

Political..........................................................................................................................................................6

Economical....................................................................................................................................................7

Social/cultural................................................................................................................................................8

Technology....................................................................................................................................................9

Bibliography................................................................................................................................................10



Questions sheet

Choose one of the strategic change and management framework highlighted below and critically analyze

and evaluate with supporting examples.

• PEST Analysis

• Porter’s 5 Forces

• Porter’s Value Chain

Your report should attempt the following tasks:

a) Discussion of the principles underlying the framework.

b) A critical evaluation on the application of the framework in actual business context.

c) Relating the framework to an organization of your choice.



Question A

Discussion of the principles underlying the framework.

Introduction

What is PEST?

PEST is an acronym for POLITICAL ENVIRONMENTAL SOCIAL AND TECHNOLOGY, it

is useful to examine the environmental influences affecting the organization the PEST analysis

will help to capture and understand the context by using the prompts, (Ruth, 2010)PEST it is also

a technique that facilitates a wide scan of the context and actual or potential factors that would

affect objectives of organizations if left unmanaged (Andreas, 2004)

The PEST will further be analyses using the diagram below show the breakdown of the frame

work and showing the scan too

Question B

A critical evaluation on the application of the framework in actual business context.

The environmental scan diagram /framework

Source (Diabay, 2012)


Environmental Scan

External AnalysisInternal Analysis

Macro environment Microenvironment

P.E.S.T


Political

The political factors are those government regulations set by the government in power these could be

legal or informal rules that companies under each industry are bound to follow some of the rules or policy

that a government will impose in include (Diabay, 2012)

Tax Policy

Environmental laws

Environmental regulations

Trade restriction and tariffs

Political stability

The Economic factor

The Economic factor will have to do with the purchasing power of the potential customers and the

company cost of capital the macro environment will include (Diabay, 2012)

Exchange rate

Inflation rate

Economic growth

Interest rate

The Social/cultural factors

These are the cultural and the social aspect of the external macro environment that these factors affect

such as the size of the potential markets some of these include (Diabay, 2012)

Income distribution

Career attitudes

Emphasis on safety

Culture

Population growth rate

Technological Factors

This is a very strong tool which if used or followed correctly can lower barriers to entry minimum

efficient production levels and could influence outsourcing decisions some of the technology factors

include (Diabay, 2012)



Rate of technology change

Automation

R & D activity

Technology incentives



PEST Analysis Starbucks

The PEST Analysis of Starbucks coffee

POLITICAL Social/cultural

Taxation

Taxation policy these are fines set by the

government according the industry which a

company is serving

Trade tariffs

These are restriction set by a government of a

country to control the import and export of goods

among trading nations

Income distribution

This in the money intercalation within the

populations of a country

Culture

According to the context here in focus, culture is

principles and traditions of people in a country of

certain location

ECONOMICAL Technology

Globalization

This is the process in which a company expands

globally opening branches around the world

entering into new markets

Exchange rate

The US-dollar is the world’s currency so

international trade is based on the rise and fall of

the dollar because price of one country's currency

expressed in another country's currency

IT development

Ecommerce has been around for over a decade now

so most companies are marketing and providing

information and services via the computers and

smart phones.

Rate of technology

The rate of technological change in the current

world market is high, much higher than, say, thirty

years ago. Much of this is down to the Internet and

the speed with which information can be

communicated around the globe.



Political

Taxation policy

Starbucks is one of the companies that surfers from high taxations imposed on farmers in those countries

producing coffee beans this means that Starbucks will pay a very high price for the coffee they purchase

(QuickMBA, 2010)

In Japan Starbucks faced similar political problems during entry in to the japan markets but Starbucks

were not giving up so they Found a partner with similar corporate values and complementary strengths,

this was strategy to lower the barriers on taxation and helped Starbucks grow much faster (QuickMBA,

2010)

In the US they face problems such as deregulations 10years ago the US removed itself from the ICA

(international Coffee agreement) this is an international body that that sets quotas on how much coffee

would be in tread between producing nations and they kept the price of the coffee stable but when the US

left price control and stability was over since then farmers have suffered and they no longer earn as much

as they use too that made most of the farmers give up. (QuickMBA, 2010)

The trade issue affected Starbucks badly because of exports this means that whenever a country’ s

government impose a tariff it’s not only the results in an efficiency loss for Starbucks but large income as

well may become inconsistent (QuickMBA, 2010)

Starbucks and Instability

The world’s economy was hit by the aftermath of 9/11 this was the biggest economic down turn in the US

this affected the sales of Starbucks and many other companies If the world market is in a slump it is not

usually the ideal time for a business to look at grand expansion. (Starbucks, PEST, 2011)

The Employment law and Starbucks

A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks

would lower production costs for farmers. This saving would in turn be passed onto the purchase



Economical

Economic growth in Starbucks

If Starbucks location growth is low in a nation like Malaysia then sales may also fall .and thus in the

event of negative growth income tends to fall in that period this will make the consumer confident to fall

as well because of less disposable income . (QuickMBA, 2010)

Inflation rate can be defined Inflation is a condition of increasing prices this relates to Starbucks in a way

that if in the UK Business costs rise Starbucks will face though inflation ,everything will increase from

the cost of the coffee to the cups and even the general cost of production this will lead to increase in cost

on the menu as star buck will have to create new price list this will also affect decision taking uncertainty

is created when making decisions not least because inflation redistributes money from lenders to

borrowers. (Starbucks, PEST, 2011)

Globalization

Globalization did not come as a benefit to coffee farmers because this means they would earn far less

money than they use to and because of low gain in the business of coffee a lot of people will be

discouraged this will lead to decrease in production of coffee and this will result to drop in supply of

coffee to Starbucks and probably low profit. (QuickMBA, 2010)

Competitive pricing

This is an advantage to the consumer but a disadvantage to Starbucks because hat can drive down profits

and profit margins as they attempt to increase, or at least maintain, their share of the market

Exchange rate

When dealing with international trade Starbucks is faced with or affected by the exchange rate, if the

value of RM falls in Tanzania or any other coffee producing nation this enable Starbucks to get frothier



dollar when importing the goods to their country. This saving can be passed along to the customer.

Exchange rates are forever changing throughout the world in today's market (Starbucks, PEST, 2011)

Social/cultural

Income distribution

In locating a Starbucks shop or outlet they should take into consideration is where income is being

distributed as it also demonstrate where they should target their marketing .Starbucks should target people

with more disposable income because as coffee is regarded as a more of a luxury product so these people

will likely to buy more coffee. (QuickMBA, 2010)

Cultural

Starbucks is a type of company that prefers an energetic, hands-on style and straightforward corporate

governance to manage its fast-paced growth, employee satisfaction is priority to Starbucks in its hugely

successful blend. (Starbucks, Starbucks coffee JAPAN, 2010)

In the Japanese market, Starbucks face a cultural barrier because to Japanese the American style of

nonsmoking environment or drink from paper cups in the street was an unacceptable matter adding that

Starbucks would have to keep stores no larger than 500 square feet to save on rent. Furthermore, the

consultants believed that no Japanese person would walk down the street carrying a Starbucks beverage

because it was considered impolite in Japanese culture. (Starbucks, Starbucks coffee JAPAN, 2010)

Attitude to work

Starbucks have always strategically located their stores because they would not locate their store at where

people have a poor attitude to work because it will affect recruitment level difficulty in training new

employees and staff turnover will be high but attitude to work could also be an advantage to Starbucks

because most staff do not like canteen food because it mostly do not teats good so people would rather go

outside to eat or have coffee and this is to the advantage of the Starbucks and promote the shop as a place



where people can meet up and so it will mean that they will get a larger amount of people in their stores

at this time of the day (Starbucks, Starbucks coffee JAPAN, 2010)

Location

Transport needs to the premises must be considered for both staff and customers. Easy accesses vital to

ensure there is no excuse for staff to arrive late or for customers not to visit. (QuickMBA, 2010)



Technology

Technological IT development

Starbucks lunched it first e-commerce site in 1998 in too late 1999,starbucks decided the site needed to

grow so they prepared it for the future of which is now and years to come but achieving this was a

challenge they had to change their whole server to Microsoft Commerce Server 2000, one of the key

Microsoft .NET Enterprise Servers. These increased their performance now having the right tool

Starbucks can target customers, analyze site data, and deliver new features to the market in the shortest

time possible (Starbucks, PEST, 2011)

New materials and processes

Starbucks made things much easier for their staff with machines and computers. Starbucks uses new cash

registers this will enable their staff to work more quickly and efficiently. Thanks to Developments in the

technology of coffee making this will result in customers being served quicker and create the potential to

serve more customers in a day. This removes long queuing people standing thus improving customer

relations along with increasing the customer base. (QuickMBA, 2010)

Software upgrades

In the short run, Starbucks must identify the most suitable software upgrades to use to keep up with the

competition. This applies to the improving the accessibility of their website (www.starbucks.com) and

also improving the speed and quality of the service provided on the shop floor. (QuickMBA, 2010)



Limitations to PEST analysis

The external factors considered during PEST analysis are dynamic and they change at a very fast

pace. At times, these changes may occur in less than a day’s time, thus making it tricky to predict

why and how these factors may affect the present or future of the project. On many occasions,

environmental changes that may have an adverse effect on the project may not be noticeable

during their initial stages. (Mehdi , 2007)

A simple presentation can also be considered a limitation. For PEST analysis, the usual

procedure is to present a simple list of the environmental factors that can affect the project.

Unless the attributing factors are critically examined (Mehdi , 2007)

PEST analysis is not only time consuming but costly as well, getting the latest data and keeping

the analysis updated with it becomes a problem most times Collecting enormous amounts of

relevant data from the right sources becomes a difficulty , especially since most of the pertinent

data must be collected from external agencies. (wordpress, 2012)

Making too many assumptions, the factors mentioned in the analysis are based more on

assumptions and less on actual facts. An analysis based on unfounded assumptions can lead to

planning disasters.



ConclusionsIn conclusion to this this study the reports shows that the PEST is a very useful business tool to help

business or organization position their self in the industry but the PEST also have its own flaw as the

PEST is mostly based on assumptions rather than facts.

An example was shown in the study where Starbucks did not do a market research before going into

Japan in which they assume the Japanese will walk on the street with a cup of coffee on their hands which

in Japan is regarded as disrespectful according to Japanese culture



Bibliography

Andreas, B. (2004). Busniess Analysis. In B. Andreas, Business Analysis of web (pp.

7-8). Germany : AUflag .

Diabay, L. &. (2012). Starbucks PESTEL Analysis. Reserch Methodology .

Dictionary, B. (2010). Pest analysis. google.

Mehdi , k. (2007). Utilizing and managing commerce and service online. In k.

Mehdi, Utilizing and managing commerce and service online (p. 61). USA:

Cyber Tech.

QuickMBA. (2010). Strategic Management . PEST analysis.

Ruth, M. (2010). PEST analysis . In M. Ruth, managenment of Risk Guidance and

practitioners (pp. 88-89). norwich UK: TSO .

Starbucks. (2010). Starbucks coffee JAPAN. starbucks japan.

Starbucks. (2011). PEST. Sandra Low.

Thakur, S. (2010, 12 26). Bright Hub PM. Retrieved 10 19, 2012, from project

management website:

http://www.brighthubpm.com/project-planning/100700-limitations-of-a-

pest-analysis/

wordpress. (2012). PESTEL analysis. Retrieved 10 20, 2012, from busniess analysis

website: http://pestel-analysis.com/


Documents

Starbucks