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New Trade Theory
The new trade theory asserts that economies of scale and specialisation result in gains (Wild, Wild, & Han, 2014). Additionally, the first firms to market their products in a sector create new barriers. According to the theory, the government can help by providing powerful policies to assist home-based corporations. This theory describes Starbucks’ business performance in the United States. To begin with, the company was established in 1971 and soon became a leading player in the country’s coffee shop industry. The firm was the first to present a revolutionary approach to coffee consumption in the US. Starbucks’ business model made it a pacesetter in the industry.
The company expanded its product and eventually gained its objectives through specialisation. The concept of economies of scale continues to support the company’s performance in its home nation. Adequate domestic policies and regulations support Starbucks’ local business (Latif, Qurat-ul-ain, Gulzar, & Sameen, 2014). Being a pacesetter in the industry, Starbucks has developed both strategic and economic advantages. This fact explains why Starbucks remains a leading player in the industry.
Many companies planning to enter the industry must consider the standards set by Starbucks. The firm offers “superior products at discounted prices” (Latif et al., 2014, p. 312). This scenario has made it impossible for many companies to enter the market. The concept of productivity has been supported by the company. Since coffee is not a locally available raw material, Starbucks has to use powerful business strategies to acquire it and produce superior beverages for its customers.
The theory can be used to analyse the experience of Starbucks in Japan. The firm focuses on the best strategies in order to succeed in this host country. Several Japanese firms dominate the coffee industry, such as Streamer Coffee Company (Harrington, 2011). This company has been in the Japanese market for a very long time. Starbucks had to use its resources to penetrate an established sector in the Japanese market. The firm considers the subsidies, taxes, and business policies implemented by the government.
Starbucks faces competition from the existing firms in the country’s industry. The government of Japan might not help Starbucks to realise its potentials since it is not a domestic company (Latif et al., 2014). Market entry barriers make it hard for the company to increase its coffee shops in the country. This discussion, therefore, explains why Starbucks has recorded different experiences in these two countries.
National Competitive Advantage
This theory asserts that “a nation’s competitiveness in a specific industry is something that depends on the industry’s capacity to upgrade and innovate” (Reuvid & Sherlock, 2012, p. 45). The major determinants of the industry’s profitability include demand conditions, the existence of supportive industries, factor conditions, and the nature of strategy used by firms. This model can be used to give a detailed analysis of Starbucks Coffee’s business strategy in the United States and another country such as Japan.
According to the theory, Starbucks operates in a competitive and profitable industry. The coffee shop industry is characterised by companies that can innovate and produce superior beverages for their customers. Starbucks uses its resources to drive performance and support the changing needs of targeted customers. In the United States, the government has been promoting various legislations to support local firms. Such policies continue to support the coffee shop industry. Demand conditions in the US reshape the purchasing behaviours of many consumers. Quality is also taken seriously by many American coffee consumers (Harrington, 2011). These aspects force the company to improve customer satisfaction.
The existing factors continue to reshape the performance of many firms in the American coffee shop industry. The presence of rivalry from companies such as Coca Cola forces Starbucks (and its competitors) to focus on new measures to support the needs of the targeted customers. Starbucks’ business structure, culture, and strategy focus on new improvements that can empower the targeted customers (Paryani, 2011). The strategy is characterised by effective working conditions and the ability to fulfil the needs of the consumers. Such forces explain why Starbucks remains a leading provider of quality beverages.
The theory can also be used to describe and analyse Starbucks’ performance in the Japanese market. The Japanese coffee shop industry is less competitive. The sector has few local companies that focus on the changing needs of the customers. However, the government presents positive insights and policies to support different industries. In Japan, Starbucks operates around 1,160 coffee shops (Jianfei, 2014). The company has over 13,000 stores in the United States. Starbucks considers its traditional business model in order to operate successfully in Japan. The firm analyses the changing demands and expectations of the customers (Jianfei, 2014). This knowledge makes it easier for Starbucks to produce superior beverages for its customers.
The national competitive theory can also explain why Starbucks is less successful in Japan. This is the case because its model might contradict with the people’s culture. There is also competitive rivalry from Japanese companies such as Streamer Coffee Company, Bear Pond Espresso, and Turret Coffee (Latif et al., 2014). The absence of supporting industries affects Starbucks’ profitability in Japan.
Regional Economic Integration
This term refers to the process through which countries in a specific region collaborate in an attempt to reduce business barriers (Reuvid & Sherlock, 2012). The process is aimed at increasing the flow of people and products across the region. The integration strategy affects the performance of many business corporations. The concept influences Starbucks’s business model in the global coffee shop industry.
The regional economic integration concept can be used to predict or analyse the performance of Starbucks in a host country such as the United Kingdom (Wild et al., 2014). For very many years, the UK was part of the European Union (EU). This integration fostered regional economic growth, acquisition of raw materials, and cooperation. Starbucks was able to acquire raw materials and labor from different countries. The functional economy of the EU played a positive role towards making Starbucks successful in the UK.
The EU agreement removed barriers to capital, trade, and labor. Such developments supported Starbucks’ performance in the UK market. Unfortunately, Britain’s decision to exit the EU is something that will have disastrous implications on the company’s business model (Wild et al., 2014). This happens to be the case because the company must consider specific strategies capable of support its UK’s business model. Many experts believe strongly that Britain’s exit from the EU will affect many multinational firms.
The United States cooperates with different countries in North America through various trade pacts. One of these agreements is the North American Free Trade Agreement (NAFTA). This trade agreement was established in the year 2006. The member nations include the US, Guatemala, Costa Rica, Honduras, Nicaragua, El Salvador, and Dominican Republic (Wild et al., 2014). This agreement has made it easier for Starbucks to obtain raw materials from different countries in the region. Its expansion in Canada can be attributed to this regional integration. The agreement encourages the major business players to use a common currency and outsource specific services (Latif et al., 2014).
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However, most of the raw materials such as coffee are obtained from different countries across the globe. The absence of integration between the United States and some West African countries explains why Starbucks has to incur numerous expenses. Some critics have been against the NAFTA agreement. This means that Starbucks should be aware of these issues in order to have a sustainable business in the future (Wild et al., 2014).
Starbucks manipulates international financial markets in order to remain competitive in the industry. The firm uses the concept of hedging. This refers to “the use of foreign exchange markets to insure against potential losses from adverse changes” (Reuvid & Sherlock, 2012, p. 67). This approach makes it easier for the company to minimise losses in its international operations. The company has established powerful networks characterised by financial institutions, governments, and business partners. Drivers such as deregulation, financial instruments, and information technology (IT) are taken seriously to have a successful business model.
The company also considers the international monetary system in order to improve its competitive advantage (Paryani, 2011). For instance, its products are marketed using the law of one price (Jianfei, 2014). This pricing approach makes the products more competitive and affordable. The issue of purchasing power is considered especially when importing raw materials from different nations. The firm forecasts issues such as inflation whenever making its business decisions. The company uses technical analysis to forecast future currency trends.
Harrington, M. (2011). Strategy: The Starbucks way: Rediscovering your mission. Web.
Jianfei, X. (2014). Analysis of Starbucks employees operating philosophy. International Journal of Business and Social Science, 6(1), 55-63.
Latif, M., Qurat-ul-ain, H., Gulzar, H., & Sameen, S. (2014). Starbucks sustained during economic crisis. International Journal of Accounting and Financial Reporting, 4(1), 307-321.
Paryani, K. (2011). Product quality, service reliability and management of operations at Starbucks. International Journal of Engineering, Science and Technology, 3(7), 1-14.
Reuvid, J., & Sherlock, J. (2012). International trade: An essential guide to the principles and practice of export. New York, NY: Kogan Page.
Wild, J., Wild, K., & Han, J. (2014). International business: The challenges of globalisation. New York, NY: Pearson Education.