1. SECONDARY QUESTION: 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?
NOTE this section does not have any accompanying PowerPoint slides.
Referencing Chapter 2: Analyzing the External Environment
As part of strategic analysis, it’s necessary to engage in external scanning: surveillance of
a firm’s external environment to predict environmental changes to come, detect changes
To answer the question about the current forces in the Indian café market that affect Tata
Starbucks’ ongoing strategy, it is necessary to assess the segments of the external
competitive environment that include competitors, customers and suppliers, substitutes,
and new entrants. Porter’s five forces model allows strategists to anticipate where the
industry might be most vulnerable. See Chapter 2, Exhibit 2.7. Ask students to diagram
the five forces. It should look something like the diagram below:
Rivalry
High
Substitutes’
Threat
Low
Power
Low
Suppliers’
Suggested: High Rivalry –
Many rivals compete for
market share. The company
experiences direct
Suggested: There are no
Suggested Low supplier
power – Leading players
have vertically integrated
Suggested: There
is a low threat from
substitute products.
Leading players
The five forces analysis indicates that the retail coffee business saw a major challenge to
Suppliers – Low Threat:
The suppliers in the Indian café market appear to have low bargaining power. The leading
players are vertically integrated. Both Tata Starbucks and Café Coffee Day source their
Buyers – Low Threat:
Since the company’s products are sold via retail locations, the end consumers are the
buyers of the products. Buyers are not organized into buying groups and hence, do not
Industry Rivalry – High Threat:
The company operates in a highly competitive industry and experiences competition from
an entrenched domestic leader (Café Coffee Day) and experienced foreign players (Gloria
New Entry – Medium Threat:
The threat of new entrants is medium. Large real-estate related capital investments would
otherwise create a big entry barrier for new entrants. However, the impending threat from
Substitutes – Low Threat:
There is low threat from substitute products like tea because the leading players have
included tea-related drinks to their menus. Ordinarily, this could have been a big threat
Referencing Chapter 3: Analyzing the Internal Environment of the Firm
To further support the decision to expand internationally, students can be asked to
The logic of RBV argues that unique bundles of resources and capabilities or core
competencies can (and should) be leveraged in an ever-broader scope through
The concept of the resource-based view of the firm includes the three key types of
resources: tangible resources, intangible resources, and organizational capabilities. A
firm’s strengths and capabilities – no matter how unique or impressive – do NOT
necessarily lead to a competitive advantage. The resource-based view of the firm takes
Tata Starbucks’ profile might look like the following:
Tangible Resources
Human: Tata Starbucks has a strong community of “partners” who represent the face of
the company while serving coffee. The company is known to have a rigorous recruiting
Physical: Individual stores are known to be designed tastefully to enhance the customer
Technological: Starbucks has been implementing a number of technology related
offerings to enhance customer experience. A smartphone application allows customers to
Intangible Resources
Innovation and creativity: Tata Starbucks has been innovative in its selection of sites for
Reputation: Both partners in the Tata Starbucks joint venture enjoy a solid reputation of
Referencing Chapter 4: Recognizing a Firm’s Intellectual Assets
See the concepts of intellectual capital, human capital, and social capital, all of which
are intangible assets that a company needs to have in order to compete successfully.
Human capital involves the individual capabilities, knowledge, skills, and experience of
the company’s employees and managers. This knowledge is relevant to the task at hand,
Success in retaining human capital could also be attributed to the nurturing of the “social
ties” or social capital. Social capital is a function of the network of relationships that
Dynamic capabilities involve a firm’s capacity to build and protect a competitive
advantage, which rests on knowledge, assets, competencies, complementary assets, and
Intellectual assets or intangible resources are critical to organizational success. Here are
Human capital: does the organization effectively attract, develop, and retain talent?
Does the organization value diversity?
Social capital: does the organization have positive personal and professional
relationships among employees and alliance partners?
Technology: does the organization effectively use technology to transfer best practices
Presence of Organizational Capabilities
Human and Social Capital: Starbucks is known to invest in training and education
programs for its employee “partners”. The company invests heavily in its “partners” and
The partnership with Tata also provides the local muscle to negotiate attractive
rental/purchase prices for its new stores. The Tata partnership also gives the joint venture
2. What business-level strategy should Tata pursue?
Referencing Chapter 5: Business-Level Strategy
The question of how to compete in a given business to attain competitive advantage
requires an assessment of the types of competitive strategies, including the three generic
strategies that are used to overcome the five forces and achieve a competitive advantage:
●Overall cost leadership
oLow-cost-position relative to a firm’s peers
●Differentiation
oCreate products and/or services that are unique and valued
●Focus strategy
oNarrow product lines, buyer segments, or targeted geographic markets
Ask the students which strategy they think Tata Starbucks should pursue, and why.
The coffee market in India was intensely competitive, with multiple domestic and foreign
players. The most formidable competitor was domestic giant Café Coffee Day (CCD),
Within the U.S., Starbucks was able to achieve success in two phases. It first established
a strong quality and premium brand image for itself. It then expanded the number of
stores to flood out the competition and satisfy the coffee drinking needs of every potential
In order for the differentiation strategy to work, however, Tata
Starbucks had to make sure to maintain parity with competitors on pricing. This
is what Tata Starbucks had done in India, where the initial launch pricing had been set to
Tata Starbucks could also use its premium quality image and branding to tackle any new
entrants such as McDonalds and Dunkin’ Donuts. Quick service restaurants (QSR)
usually differentiate on convenience and speedy service (“fast food”), not high quality.