The Strategies Of The Starbucks Corporation Commerce Essay

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The Strategies Of The Starbucks Corporation Commerce
Global Expansion: A Case Study of Starbucks in Mexico and Dell in India

The Strategies of the Starbucks Corporation and Dell’s Expansion into India
Starbucks Corporation (Starbucks) is a specialty coffee retailer offering hot and cold beverages, coffee-related accessories, complementary food items, teas, and other non-food related products. With retail stores in 39 countries and approximately 146,000 employees, Starbucks primarily operates in the United States (U.S.), headquartered in Seattle, Washington (Starbucks, 2007). Starbucks has become a global icon, synonymous with the modern coffee experience. Its expansion strategies offer valuable lessons for other companies seeking international growth.

Established in the early 1970s, Starbucks’ first location opened in Seattle’s Pike Place market in 1971. Initially focused on supplying coffee to restaurants and coffee shops, Starbucks began its retail expansion in 1982. The company’s global footprint rapidly expanded in 1996, with new locations in Japan, Hawaii, and Singapore. Further international growth continued in 1998, reaching Taiwan, New Zealand, Thailand, and Malaysia. By 1999, Starbucks had established a presence in China, Korea, Kuwait, and Lebanon (Starbucks, 2007). This rapid international expansion demonstrates Starbucks’ aggressive growth strategy and its commitment to establishing a global brand presence.

This analysis will examine a hypothetical scenario where Starbucks acquires a similar business in Mexico. It will explore potential locations within Mexico and identify the human resource (HR) challenges arising from this expansion. Mexico presents unique cultural and regulatory factors that Starbucks must consider for successful store development. The organization’s effectiveness in Mexico depends on resolving issues stemming from this new market entry. Understanding these challenges is crucial for Starbucks to replicate its success in a new cultural context.

Starbucks will address recruitment and selection practices for the newly acquired company. A key HR decision involves determining the appropriate mix of expatriates and local nationals to ensure a smooth transition and successful acquisition. Employee skills and abilities, along with training and development practices, form an essential part of the company’s organizational strategy for achieving its goals. The Starbucks HR department faces considerable research and decision-making to ensure this acquisition’s success. Effective HR management will be pivotal in integrating the acquired company and fostering a unified organizational culture.

Mexico’s Demographics and Market Potential
Mexico is poised to become one of the wealthiest countries in Latin America, with a growing middle class fueled by employment growth and rising incomes. It boasts the second-highest population in Latin America, after Brazil, and a young demographic profile, with a median age of 27.5 years in 2006 (Country Insight, 2007). This youthful population represents a significant market opportunity for consumer-focused businesses like Starbucks. A 2006 survey in the United States revealed that 30% of new Starbucks customers are college graduates, with an average age of 42 (Harris, 2006). This suggests that Starbucks’ target demographic aligns well with the growing middle class and educated population in Mexico.

Mexico’s tourism sector plays a significant role in its economy. While past political events and natural disasters have impacted tourism, recent trends indicate a shift towards higher-end tourists who are more likely to spend (Country Insight, 2007). This increase in affluent tourists creates a promising market segment for Starbucks, potentially driving sales and brand visibility. Luxury tourism often correlates with demand for premium goods and services, making Starbucks’ offerings attractive to this demographic.

Human Resource Challenges in Mexico
Mexican labor laws stipulate a daily minimum wage of at least U.S. $4.50, including minimum statutory fringe benefits. However, very few Mexican workers earn this minimum wage. Fringe benefits include annual vacation compensation of at least six working days at 125% of the salary, an annual bonus of at least 15 days of salary, a profit-sharing program equal to 10% of pre-tax earnings distributed among all employees (excluding high officers), and variable payroll contributions for Social Security and worker’s housing. Social Security contributions can reach 22.57% of payroll salary, while worker’s housing contributions are 5% of payroll salary (Abogados, 2008). These mandatory benefits significantly impact labor costs and must be factored into Starbucks’ financial planning.

Severance payments for termination cases are based on the employee’s actual daily salary, which can include bonuses, commissions, and other economic benefits like cars or club fees. Severance calculation involves dividing the total value of these benefits in the last calendar year by 365 or the actual period worked. Severance payments depend on the termination type (Abogados, 2008). Understanding these complex severance regulations is essential for Starbucks to minimize legal risks and manage employee departures effectively.

Three termination types exist: termination with fair cause, termination without fair cause, and termination by mutual agreement. Termination without fair cause entitles the employee to three months’ salary, 20 days of additional salary for each year of employment, a seniority premium (12 days for every year of employment), prorated vacation, annual bonus, and profit-sharing for the termination year. These additional salary requirements accrue until the payment date. Termination with fair cause grants similar benefits, excluding the three months’ salary and the additional 20 days. Employees rarely agree to mutual termination without compensation, usually less than the termination without fair cause (Abogados, 2008). These legal complexities necessitate careful documentation of employee performance and adherence to due process in termination procedures.

Many Mexican employment laws resemble those in the United States, including the right to form unions, worker’s compensation, safety, freedom from forced labor, and freedom from discrimination. Mexicans must comprise at least 90% of a Mexican company’s employees. The Commission for Labor Cooperation (n.d.) emphasizes the importance of a single court in each state handling most labor and employment disputes, including collective labor relations, unjustified terminations, on-the-job injuries, and equal pay issues. Discrimination based on sex, social status, political opinion, disability, ethnicity, national origin, age, or other grounds is illegal. Overtime pay must be double regular wages (Commission for Labor Cooperation, n.d.). Proposed labor market reforms aim to reduce employment legislation strictness, but require a two-thirds congressional vote. Skill shortages remain an issue (EIU Viewswire, 2006). Navigating these legal similarities and differences requires expert legal counsel.

These differing regulations between Mexico and the U.S. pose challenges for Starbucks. Hiring a consulting firm or attorneys specializing in Mexican labor and employment law will help Starbucks understand and interpret these laws. Global expansion is risky if not executed correctly, leaving no room for misinterpretations of laws and regulations. Understanding daily versus hourly wages, discrimination policies, and termination packages can significantly impact Starbucks’ profits. Accurate legal interpretation and compliance are crucial for Starbucks’ success in the Mexican market.

Starbucks must evaluate turnover, labor, and skill availability in the Mexican market. Multilingual employees are essential for serving the community and tourists. A scarcity of English speakers is a common problem for investors. Mexico, often cited for its lower labor costs, has seen companies adjust investment decisions due to skilled labor shortages and the need for English proficiency (Jackson, Houdard, & Highfield, 2008). Starbucks must develop strategies to attract and retain qualified bilingual employees.

Understanding cultural differences and management practices is crucial for companies venturing into Mexico. Attention to human resource management is necessary for strategic choices in various business avenues. Researchers believe that many companies neglect human resource issues. Strategic management is required to maximize performance in areas like recruiting, selection, training, compensation, and performance management. Understanding these HR issues contributes to employee motivation, performance, satisfaction, and empowerment, all critical for organizational effectiveness. Common personnel problems include loyalty, staffing, decision-making, promotions, compensation, and performance management. Human resource management practices can be most challenging, especially when managing cultural changes (Rao, 2001). Starbucks must prioritize HR management to ensure a successful transition and long-term growth in Mexico.

Mexicans often view joint ventures as opportunities for economic advancement and career growth. As more companies move to Mexico, U.S. practices become more acceptable. Concepts like quality circles, flat organizations, teamwork, pay-for-performance, and careful selection are increasingly common. In Mexico, work and personal life are intertwined, influencing hiring and recruiting (Rao, 2001). Starbucks should adapt its management practices to align with Mexican cultural norms while maintaining its core values.

Multiple interviews for managerial positions are common, ensuring a good candidate fit. Hiring qualified personnel through joint ventures achieves company objectives. A strategic recruitment practice generating a qualified labor pool ensures effective employee selection. Employees should possess adequate technical, organizational, and interpersonal skills. Bilingual skills are vital. Social referrals are widely used in Mexican selection processes. Rao (2001) notes that while social referrals are used, credentials are often treated as a mere formality. These social referrals, while potentially valuable, may not always align with the company’s performance standards. Starbucks should balance the benefits of social referrals with a rigorous evaluation of candidates’ skills and qualifications.

Mexicans often exhibit strong loyalty to their bosses, but corporate loyalty is less ingrained in the culture, leading to high employee turnover. Company-oriented training sessions can

References

Brewster, C., Chung, C., & Sparrow, P. (2019). International Human Resource Management (5th ed.). Routledge.

Collinson, S., Narula, R., & Rugman, A. (2020). International Business (8th ed.). Pearson.

Stahl, G. K., Björkman, I., & Morris, S. (2020). Handbook of Research in International Human Resource Management (2nd ed.). Edward Elgar Publishing.

Industry Identifications

During this century it is estimated that Economic and political world power is will shift eastward toward China, Japan and India. These countries are expected to challenge the centuries-old dominance of Europe and America. The worldwide PC industry may be one of the first industries to feel the presence of the new eastern rivalries. The challenges that will no doubt befall other industries will be felt first through the PC market as the expanding Asian PC industry provides an early and substantial threat to the companies of Europe and America.

In both manufacturing and consumption, Asia/Pacific represents the most dynamic region of the worldwide PC industry. The U.S. market remains robust, but growth will slow as saturation approaches. In contrast, the short-term, high-growth regions are Asia/Pacific, Japan, and Latin America. On the manufacturing side, U.S. PC companies depend on Asian suppliers. The Asian foundry has enabled U.S. players to gain and maintain substantial market share on the world market, however tested and confident Asian manufacturers are now gearing up for expansion across the Asia/Pacific and into the United States. Soon U.S. PC suppliers will be competing with aggressive Asian companies in both regions.

Asian players, primarily Japanese and Korean corporations, are not strangers or novices in the U.S. market. Toshiba has been a perennial leader in the laptop market. NEC has enjoyed mixed results. Many others tried to compete in the United States in the late 1980s, predominantly as IBM clone suppliers. That initial foray was short lived and largely unsuccessful, but a second, better-planned, assault is imminent. The new waves of Asian suppliers are not just me-too players scrambling for low-end market share. Instead, manufacturers are looking for strong, early positions in the race to provide the next-generation personal computing devices that are project as such a huge opportunity in the consumer market.

The people at Dell believe that their continued successful will require teamwork and continuous learning on the part of each team member in order to develop and grow. Dell focuses on building a pipeline of talented, diversified individuals in order to meet current and future staffing needs in order to develop Dell’s leaders of tomorrow. They focus on attracting top candidates with the skill sets they require by working on the basis of early recruitment and full utilization of their pipeline program. This strategy has supported their mission statement fully until now. But if Dell plans to take a large amount of the market share in India, it will have to change its mission and strategy according to the needs of these customers.

Dell’s new mission statement: To be the most successful computer company in the world at delivering the best customer experience in the markets we serve and providing special service and support to the markets that are highly differentiated on terms of cultural and demographic basis.

This statement shows that the customers in the region of Asia-Pacific, China and India to be precise have special needs that have to be satisfied. Since it is known from business practice that every market has different characteristic and different customers with their own needs to be satisfied, Dell has to give special attention to the markets of China and India.

Until now Dell has had success with its applied business model, but in order to gain the trust of customers in the Asia-Pacific region it will have to change its model according to these markets special needs and wants in order to gain customer satisfaction and loyalty. For example, the people in this region are not used to surfing on the Internet and making purchases of the products they need. People in Asia-Pacific are used to going to a specific retail chains where they can visually obtain the information, product or service they are looking for. Dell does not offer this option, so in order to gain customers in this region Dell will have to partner with retail chains in this region in order to offer its products to its customers.

Organizational Effectiveness

When a company hires experience they hire habits, both good and bad. With this in mind, any organization looking for good employees should not use experience as the only hiring criterion. Indians are as diverse in their cultural orientations and work habits as they are in the regions in which they are raised (Valanju, 2006). Any organization that is interviewing a prospective employee, should keep in mind that employees that have spent a significant part of their lives in one particular region of India may have certain generic attitudes inherent in those regions that living or being raised for a long period in one specific region will have a significant impact on his or her ethical outlook. Living in one region of India can also have a marked impact on work ethics such as attitude, dedication, initiative and acceptance of responsibility. For these reasons foreign companies will usually consider including an Indian national when conducting an interview thus preventing the employer from missing any subtle cultural nuances.

Probably the most restrictive issues facing companies that are expanding in India are the regulations. Manish Sabharwal of TeamLease, who campaigns for their reform, feels that, for much of Indian industry, “they are a thorn in the flesh, not a dagger in the heart.” The labor laws have become an extra cost–for example, in bribes paid to inspectors–but not a huge barrier to business.

Yet in most conversations with manufacturers, labor laws still loom large. The most notorious is Chapter 5B of the 1947 Industrial Disputes Act, which bars establishments with more than 100 workers from laying off employees without the permission of the state government. This deters employment. Mr. Sabharwal, pointing to a firm that bought machines rather than give permanent employment to 16 tea-boys, says it encourages the substitution of capital for labor.

What is more worrying in India than labor laws, however; is that some parts of the country deter investment because they are so badly governed–and those parts are very big. Some 60% of the increase in India’s population between now and 2050–the “demographic dividend” that is raising such big hopes will come in four northern Indian states with rotten infrastructure and education systems. But what are most troubling are the corrupt governments.

Bad state governments compound another disincentive to investment in manufacturing that is partly the central government’s fault: the indirect tax system. A 2002 study found that India’s cascading import duties, excises, sales taxes and octroi (a tax on goods in transit) accounted for nearly one-half of a price disadvantage of roughly 30% suffered by manufacturers compared with their Chinese counterparts. Since then, most states have introduced a value-added tax at a centrally set rate, and a transition to a national goods-and-services tax has been announced. But the lack of a single market in India causes unnecessary delays and expense for industry.

As any person would expect in a system where so much is at the discretion of government officials, corruption is endemic. As Ms Basu notes: “Entrepreneurs have to spend significant time in dealing with permits, clearances and inspections, and end up paying substantial ‘rents’ to the inspectors.” One foreign manager, monitoring the costs his reputable international building contractor was incurring in constructing a new office block, describes his horror at some of the prices. He called all the contractor’s suppliers and subcontractors to his office, along with some independent competitors, and held an open auction. That saved him $2m in a single day. Collusion between contractor and vendor is so common it is probably not even recognized as corrupt.

This is an aspect of business that nobody likes to discuss, except to say that at least things are getting better. That may be true: Mr. Yog, for example, of Xander, the property fund, thinks that last year’s opening of the property market to foreign investment has already had a salutary effect. In a business especially prone to “black money” transactions, for the purposes of laundering, tax evasion and bribery, foreigners help clean things up–or sometimes find they are unable to compete. The new breed of Indian multinationals too, listed on American or European stock exchanges, have high ethical standards. But contractors seeking their business say that, even in those companies, the kickback culture survives at lower-levels.

Staffing Strategies

Dreher and Dougherty (2001) state that hiring the right people means more than just securing employees who possess the knowledge, skills and abilities required to perform a particular job; these people must be able to acquire new knowledge and skills as jobs and environments change. Therefore, it is imperative for companies who wish to stay on top of the competition to develop and maintain high quality recruitment systems. The recruiting system is especially important when the hiring is being done in a foreign country.

Employers expanding overseas sometimes fall to a trap that prevents them from attaining their goals. Employees become so focused on the cultural challenges that they overlook the talent that they already have. For these companies, sometimes the best option is to promote and transfer employees who have already worked their way up the corporate ladder. The problem is that many of these workers have spouses who also work. Therefore, they are unable to simply leave the country and expect their spouses to leave their positions. As a result, the most qualified people to effectively oversee foreign operations are often the last people available for the job. However, with the complexities of growing a business overseas and the costs of training current employees deciding whether to train current employees as ex-patriots or employee local talent is not an easy decision (Solomon, 1999). Therefore, it becomes important to get expert advice to help with staff issues when it comes time to begin the hiring process for expansion overseas.

According to Frauenheim (2006) Dell is planning thousands of new hires in India. According to Park (2004) Dell has already added 700 jobs in 2003 with only 1000 of them coming from the United States. Specifically, where did these employees come from and where will Dell find the latest round of employees? Well, Frauenheim states that for the most part Dell can tap into the streams of students graduating each year from the country’s universities to fill slots. But when it comes time to hire the hundreds of midlevel and senior manager positions these expansion plans will require expert advice. The most successful companies in Asia will be those that are the most successful at hiring the best managers.

While it is not difficult to find managers in India, any organization looking to expand in India and hire the best Indian managers should expect to have to pay for them. According to Frauenheim, mid-level managers can make $30,000 to $40,000 and executives, such as a country general manager, can pull in $200,000 to $250,000. These salaries reflect the fact that average salaries for Indian managers in the technology and business process outsourcing industries rose about 15% last year, and should approach that level of growth this year.

One strategy to dealing with the growth in Indian salaries is to start pulling in managers from other industries such as manufacturing. Hiring Indians who have worked in the United states for a while is thought to be very valuable because they would take with them a learned US business culture. In addition a ranking of 155 countries by ease of doing business in 2006, the World Bank and its affiliate, the International Finance Corporation, list India at 116, two places below Iraq, 56 below Pakistan and 25 below China (“Still in the Way,” 2006). These statistics reflect on India’s diversity, and the differences between the regions within India. And the way they are governed.

In March 2006, Dell said it has created an effort to search globally for managers to fill the 20, 000 person increase in its Indian workforce expected in the next three years. That is nearly a doubling of its current workforce. According to Helmholz Dell’s director of executive talent acquisition “It is too early to tell how difficult it is to find management talent in India” (2006) But he says a critical issue related to managers below the senior level will be how firms hold on to them. “At the lower and mid level, you’ve got higher attrition rates,” Helmholz says. “The company that has a better retention strategy will win.”

Organizational Structure

Smart corporate strategists know that adaptable organizational structures drive winning strategies in turbulent markets. So they map and remap their business units quickly with shifting market opportunities.

According to Eisenhardt & Brown (1999) patching is the strategic process by which corporate executives routinely remap businesses to changing market opportunities. It can take the form of adding, splitting, transferring, exiting, or combining chunks of businesses. Patching is a reorganization strategy that allows managers to focus on the best opportunities and leave the less promising opportunities behind. Using this technique allows managers to constantly adjust their businesses to match changing market opportunities. With the patching strategy managers are likely to focus on high potential businesses while using less corporate resources on low-potential operations. Thus patching is an effective strategy in businesses that are experiencing mergers, expansions and rapid growth in creating economic value for the corporation.

Dell Computer regularly uses patching to focus more closely on target markets. For example, in 1994, Dell split into two segments. The transaction which deals with customers who buy equipment one or two at a time; and the relationship segment that works with customers who buy in quantities of greater than 50 units at a time. Since that time Dell has announced a new split almost quarterly. As a result Dell’s commercial relationship accounts are now segmented into corporate and small business accounts while government accounts are split into three segments; federal, state, and local. Dell’s nonprofit sales are further divided into segments such as education and medical. All this segmentation has resulted in managers that are tightly focused on increasingly specific market opportunities.

Patching is usually executed in small changes; however managers occasionally make medium to large segment changes. At Dell, small moves, such as splitting the government business into state and local divisions, are the normal. But Dell’s managers occasionally make a large move, such as shifting their Asian business from a country focus to a channel focus (Eisenhardt, K, 2006). Large segmentation changes are more challenging than small ones. But managers at patching companies, such as Dell can usually make large moves more effectively than their traditional competitors. The reason is that they are much more flexible due to frequent re-patching while their competitors are, by comparison, out of shape (Eisenhardt). Dell has used their patchin

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