Teaching Note: Case 12 – Tata Starbucks:
How to Brew a Sustainable Blend for India
Case Objectives
1. To assess the advantages and disadvantages of different international entry modes.
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The
Teaching Note gives guidance for the PRIMARY use chapter and provides suggestions if the
instructor wants to use the case to illustrate concepts from the optional Secondary chapters.
Chapter Use Key Concepts Additional Readings or
Exercises
PRIMARY
CONCEPT
International expansion;
international, global,
SECONDARY
1: Strategic
Management
Vision, mission, strategic
2: External
Environment
Industry competition five forces
3: Internal
Analysis
Resource-based view of the firm
4: Intellectual
Intellectual and human capital;
5: Business-Level
Competitive strategy; generic
6: Corporate-Level
Corporate strategy;
Case Synopsis
In early 2015, the financial press reported that the Tata Starbucks joint venture had incurred
major losses in its first full year in the Indian market. However, the company remained
The joint venture appeared to be at the crossroads of an important strategic decision. It could
either revert to a plan to grow its store count aggressively much like it did in the US. It is
possible that this was the original intent. After all, the initial launch pricing had been set to be
Would Starbucks and Tata under Davda’s leadership finally be able to crack the code for
sustained success in the competitive and complex Indian market? While Davda appeared proud
Teaching Plan
Given Starbucks’ history, goals, and current strategy in emerging markets, the focus of general
discussions should center on what the issues were and whether there were ideas presented in the
case that might sustain improvement for the Tata Starbucks joint venture. Details in the case
provide the basis for discussion and analysis of strategies, potential markets and products,
diversification, and external factors such as the economy, the industry and the global market
This is a fairly brief case, which can be covered quickly. The major opportunity here is to
demonstrate the global nature of some industries, and therefore how companies must strategize
to compete in the international arena.
ICEBREAKER
This case can start with an icebreaker. Starting from the perspective of a customer may make it
easier for students to transition to a strategic analysis. Ask the following:
How many of you drink Starbucks regularly?
Since Starbucks is a household name among most U.S. students, it is likely that a large number
What other coffee houses do you frequent?
Even though there will probably be a number of Starbucks’ fans, other coffee houses have their
Next, the instructor can ask the students whether they think Starbucks is successful in the U.S.,
and why.
Is Starbucks successful in the U.S.? Why?
Possible answers could include the “Starbucks Experience” of premium service and premium
quality, the importance of consistency across outlets, and the power of the Starbucks brand. After
How many of you have tried Starbucks OUTSIDE the U.S.?
Are Starbucks’ success drivers the same outside the U.S.?
Before engaging in discussion, the instructor might want to test student’s basic knowledge
Which of the following statements is most true?
a. Starbucks’ U.S. market is the most profitable, worldwide.
b. Unlike in the U.S., both Chinese and Indian coffee consumers prefer to drink their
c. Most of the revenue for India’s Tata Group comes from business it does in India, such as
d. Tata Starbucks’ other international competitor, Gloria Jean’s Coffee, is based in Canada.
ANSWER: b. China/Asia Pacific operating margins in the last quarter of 2012 were 33.7 percent
in comparison to 20.8 percent in the United States. Chinese tend to not like to take their drinks
off-site. Local Chinese customers enjoyed the “Starbucks Experience” while sitting with friends
World-traveled consumers expected the “Starbucks Experience” to be consistent, worldwide. If
the coffee didn’t taste the same as it did abroad, they would not come back.
a. Yes
b. No
ANSWER: a. Starbucks had to meet the expectations of its world-traveled customers, who were
aware of the “Starbucks Experience.” Many of these customers would check whether the coffee
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign,
and also which additional readings or exercises to include to augment each discussion. Refer
Discussion Questions:
1. PRIMARY QUESTION: What entry strategy has Starbucks used internationally? Should
Tata Starbucks use a strategy that is modified for the Indian market or should it pursue
the same strategy it has in all other international markets?
2. SECONDARY QUESTIONS: What forces in the industry environment might affect Tata
Starbucks’ choice of strategy? And what does an internal analysis tell us about this? What
intellectual assets are most important to Tata Starbucks?
3. What business-level strategy should Tata Starbucks pursue?
Discussion Questions and Responses
1. What entry strategy has Starbucks used internationally? Should Tata Starbucks use a
strategy that is modified for the Indian market or should it pursue the same strategy it
has in all other international markets?
Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter
1, Exhibit 1.1: Strategic management consists of the analyses, decisions, and actions an
organization undertakes in order to create and sustain competitive advantages:
●strategy directs the organization toward overall goals and objectives;
●includes multiple stakeholders in decision making;
An organization’s leader faces a large number of complex challenges. Leaders must be proactive,
See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision,
mission and strategic objectives. Leaders must communicate their initial vision of the
organization’s purpose: what was the original goal, one that evokes a powerful and compelling
mental image of a shared future, that would be massively inspiring, overarching, and long-term,
and that represented a destination that is driven by and evokes passion?
The organizational mission also needs to be considered: a mission encompasses both the purpose
of the company, as well as the basis for competition and competitive advantages. Anticipating
These vision and mission statements and the resulting strategic objectives have implications for
how to analyze opportunities, manage innovation, and provide leadership to encourage growth. It
The basic question strategic management tries to answer is: How can we create a sustainable
competitive advantage in the marketplace that is not only unique and valuable but also difficult
for competitors to copy or substitute?
Under Howard Schultz’s leadership, Starbucks’ mission was to inspire and nurture the human
spirit one person, one cup, and one neighborhood at a time, and to do so not only in the U.S. but
Starbucks’ mission and strategic objectives had allowed it to create a sustainable competitive
Referencing Chapter 6: Corporate-Level Strategy
Corporate strategy focuses discussion on the questions of what businesses a corporation should
compete in, and how the businesses should be managed so they can create “synergy” – creating
Diversification is the process of firms expanding their operations by entering new businesses. In
related diversification, a firm enters a different business in which it can benefit from leveraging
core competencies, sharing activities, or building market power. Some possibilities include:
●Mergers and acquisitions
●Strategic alliances
Whatever the choice, it should create value for all stakeholders – employees, suppliers,
Companies can achieve synergy through diversification in two ways:
Through related businesses (horizontal relationships)
●Sharing tangible resources
Or through unrelated businesses (hierarchical relationships)
●Value creation derives from corporate office
Core competencies reflect the collective learning in organizations—how to coordinate diverse
production skills, integrate multiple streams of technologies, and market diverse products and
Starbucks’ mission was to grow worldwide. It had used internal development to acquire
significant core competencies in the U.S. market, and had expanded through related
diversification into new markets, sharing these tangible and intangible resources with overseas
partners in Asia. Together, Starbucks and its alliance partners had grown market power. Would
Starbucks be successful with all its overseas expansion?
Referencing Chapter 7: International Strategy: Creating Value in Global Markets
International expansion is a viable diversification strategy, however before pursuing this, a firm
There are several reasons to expand internationally. A firm’s motivation for international
expansion could involve the following:
▪To increase the size of potential markets
▪To attain economies of scale
When choosing a country to expand into, firms must assess certain factors: the degree of
consumer demand, the degree to which resources such as skilled labor and other supplier or
Because of its previous success in other parts of Asia, specifically Japan,
China and Singapore, Starbucks had had its eye on the large Indian market
for a while. An attempt to enter the market several years earlier had failed
Entry modes available for international expansion differ based on the extent of investment and
risk, and the degree of ownership and control. See Chapter 7, Exhibit 7.9. In order from low to
high, they include:
●Exporting
●Licensing
In India, at the time of Starbucks’ entry, government regulations permitted foreign retailers a
maximum ownership stake of only 51 percent. This meant Starbucks had to find a joint venture
partner, which it did in Tata Group’s Tata Global Beverages. Like Starbucks, Tata Group had a
strong belief in social responsibility, and had been respected in India for more than 140 years
The global marketplace provides many opportunities for firms to increase their revenue base and
their profitability. However, managers face many opportunities and risks when they diversify
Strategies that favor global products and brands should standardize all of a firm’s products for all
of their worldwide markets and should reduce a firm’s overall costs by spreading investments
over a larger market. These strategies are based on three assumptions:
●Customer needs and interests worldwide are becoming more homogeneous
●Economies of scale in production and marketing can be achieved through supplying
However these assumptions may be incorrect – “one size fits all” does NOT generally apply:
●Product markets DO vary widely between nations – local adaptations can work.
●Cost of production may not be critical to product cost; a firm’s strategy should not be
The opposing pressures that managers face place conflicting demands on firms as they strive to
be competitive. On the one hand, competitive pressures require that firms do what they can to
lower unit costs so that consumers will not perceive their product and service offerings as too
The two opposing pressures result in four different basic strategies that companies can use to
compete in the global marketplace: international, global, multidomestic, and transnational. The
Starbucks had been very successful in Japan and in China where it had followed a global
strategy, standardizing its approach and centralizing operations to produce economies of scale. In
In China Starbucks recognized there was a universal need among individuals to be respected for
their differences and to feel connected with others. Starbucks catered to this need by applying its
culture and values in a way that was conducive to local values and tastes. Partnering with other
Up to this point, in Asia, Starbucks had been successful by using these tactics:
●Make sure marketing and the brand image was sensitive to local culture
●Have patience, take the time to gain customer loyalty; recruit and train local employees
Starbucks’ success in China and Japan led it to believe that this culturally specific approach
The coffee business in India had high rental expenses and intense competition which required
continuous price monitoring. Then, there was the investment in making the stores appealing to
customers, finding people to run them, and building a food and beverage menu that was hip
In addition, coffee bars were a sit-in concept in India, where consumers generally hung around
such outlets for hours, unlike the global phenomenon of grabbing coffee on the go from
Was it possible Starbucks, now partnering with Tata, should be using a multidomestic strategy in
India?
A multidomestic strategy would put emphasis on differentiating products and services to adapt to
local markets. This would mean tailoring to local use, considering adaptation to language,
When a firm emphasizes differentiation of products and service offerings in order to adapt to
local markets it can result in enhanced revenue due to a firm’s carve-out of attractive niches.
This was the challenge Tata Starbucks faced. How could the company maximize the long-term
success of the venture in India? Should it grow aggressively, regardless of cost, to overcome