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TATA STARBUCKS: HOW TO BREW A SUSTAINABLE
BLEND FOR INDIA INSTRUCTOR’S NOTES
Dev Das, Pace University
Alan B. Eisner, Pace University
Helaine J. Korn, Baruch College, CUNY
CASE DESCRIPTION
This case is primarily intended for use in the corporate strategy section of a business
policy or competitive strategy course. It can be used as an overview of the many decisions and
actions that an organization has to undertake to sustain a competitive advantage. This case can
also be used to augment discussions of strategic analysis, specifically both internal and external
environmental analysis and strategic formulation.
The case is rich enough for advanced and graduate students, and has been developed in a
manner that will allow students to diagnose the root(s) of the company’s issue(s) as detailed in
the case, and then form opinions and suggestions for any strategy that the company should
pursue. In doing this, students should consider the activities, history, and goals of the company
as presented.
It would be effective at the business strategy level, especially, to discuss the implications
of industry life cycles, and at the corporate strategy level to discuss implications of
diversification. The case also lends itself to discussions of strategic implementation and the effect
of leadership on innovation, especially when trying to maintain a mature brand.
CASE SYNOPSIS
Starbucks entered the Indian market in October 2012 by forming a 50:50 joint venture
with the Tata Group. The Indian Café market offered a lot of potential for the new Tata
Starbucks alliance. While India was a nation known for its tea drinkers, sipping coffee and
socializing at coffee shops was becoming increasingly popular. Domestic consumption of coffee
had risen up 80% in the past decade.
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
competitive with Café Coffee Day’s (CCD) pricing (coffee drinks available for as low as Rs
1001). Alternately, it could choose to embrace a premium-priced, niche approach similar to the
one it had used successfully in other Asian countries like Japan and China. The premium
offering would then cater to an older, business elite with higher spending power. This would
result in less rapid growth with a cherry-picked list of high profile, business-friendly locations
that could also allow it to build a premium brand with premium pricing.
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
1
Assumed 50 Rs = 1 US Dollar
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of what the alliance had achieved at the 2014 Starbucks annual shareholders meeting, some
critical strategic choices would need to be made to ensure the long term success of Starbucks in
India.
TEACHING PLANS
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, organizational structure and leadership, and external factors such as
the economy, the industry and the global market.
As a General Discussion Business Case: It is sufficient here that the instructor simply
allows students to speculate and discuss what they think is right/wrong with the company, what
they think of the company's decisions and what they think of the company's future, possibly
using a simple SWOT analysis.
One approach to help move students through this process is to put them in groups and ask
them to discuss within their groups what they think about Tata Starbucks’ competitive
environment as detailed in the case, using either a simple SWOT or Porter’s 5 forces model
(detailed use of this follows in the teaching note). In smaller classes, have the students put their
answers on the board. This will allow students to see where they agree and where they disagree
and, in that manner, foster further discussion.
The instructor's role in this scenario is to guide students through the discussion such that
they begin to realize that there are key tensions or issues in this case that must be addressed
before conclusions can be drawn. At this point, in-depth analysis of the issues is more difficult
without instructor direction. However, students can still see that their conclusions rely on certain
assumptions regarding the organization's internal environment, its external environment, its
business and corporate strategy alternatives and then its ability to implement those decisions. In
general, then, students should begin to develop some ideas about the strategic direction for Avon,
based on what’s been tried in the past.
As an Advanced Case: It is assumed that students at this point in the class have been
exposed to the various frameworks associated with different types of analyses. The instructor
should feel comfortable in this application being more direct in guiding the discussion and asking
students to incorporate various types of analyses into the discussion, such as the previously
mentioned 5 forces framework, VRIN analysis, generic competitive and diversification
strategies, as well as the implementation challenges of an emergent strategy. Here is where
additional assigned reading might prove helpful. As a way to conclude this strategy discussion,
students could be asked if they would recommend Tata Starbucks seek additional alliances to
penetrate the market, why or why not.
In terms of environmental analysis, this case could encourage a discussion of external
environmental forces (such as demographic, socio-cultural, technological and political-legal
issues), how these forces relate to Porter’s five-force model; and therefore how such forces affect
the ability to sustain performance in an industry. In terms of internal analysis of the firm, a
discussion of value-chain and resource-based analyses could provide hints for how integration
challenges across the value-chain activities in diverse product lines could affect growth and
performance. Are synergies present?
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As a business-level strategy case, this case can be used to discuss Porter’s generic
competitive strategies (is Tata Starbucks a differentiated product line or have they utilized a
combination or niche strategy), the advantages and disadvantages of those strategies and how the
implementation of those strategies might be affected by the life cycle of the industry.
As a corporate-level strategy case, this case can be used to discuss advantages and
disadvantages of various diversification strategies, in specific helping students to understand the
many issues associated with the decision to diversify a business, and the importance of assessing
core competencies and synergies.
ICEBREAKER
Since Starbucks is a household name among most US students, a good icebreaker would
be to ask for a show of hands of those who drink Starbucks regularly versus those who do not.
It is likely that a large number of students will be regulars. Next, the instructor can ask the
students for what they think is the secret to Starbucks’ success in the US.
After some discussion on this topic, the instructor can switch gears to find out how many
students have been to a Starbucks location outside the country. It is likely that the number of
students who have had this experience will be relatively small. Students can then be asked to
ponder whether they think Starbucks’ success drivers would be the same outside the US.
SUMMARY OF DISCUSSION QUESTIONS
Here is a list of suggested discussion questions. The instructor can decide which questions to
assign, and also, which additional readings or exercises to include to augment each discussion.
What key forces in the industry environment affect Tata Starbucks’ choice of strategy?
What internal resources does Tata Starbucks have that may give it a competitive
advantage over other foreign and domestic players within the Indian café market?
What should Tata Starbucks do to ensure sustained growth and profitability within the
Indian café market?
How should Starbucks tackle the emerging threat from the quick service restaurant
category e.g. McCafe?
DISCUSSION QUESTIONS AND RESPONSES
1. What key forces in the industry environment affect Tata Starbucks’ choice of strategy?
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 Figure TN1).
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Figure TN1 Porter’s Five Forces
Suggested: There is a low threat from
substitute products. Leading players
have incorporated potential
substitutes to coffee (e.g. tea) into
Substitute
s
Suggested: Leading players have
vertically integrated and source
their coffee beans from company
owned or affiliated plantations.
Supplier
s’
Power
Threat
Suggested: Many rivals compete for
market share. The company
experiences direct competition from
domestic giant Café Coffee Day, as
Rivalry
High
Buyers’
Power
Low
Suggested: The threat of entry is
medium. There are low entry
barriers i.e. low capital
requirements, for quick service
restaurants e.g. McDonalds
Threat
of New
Entrant
s
Journal of the International Academy for Case Studies, Volume 21, Number 4, 2015
Suggested: Since buyers are not
organized into groups, they do not
wield much bargaining power.
Page 47
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
coffee from company owned plantations. Through the joint venture, Tata Starbucks is able to
source coffee beans from plantations owned by the Tata Group in the Coorg region. Café Coffee
Day is part of the Amalgamated Bean Coffee Trading Company Ltd (ABCTCL) conglomerate
that produces and trades coffee beans on the international market.
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 wield
much bargaining power with regards to the pricing of coffee products. However, this dynamic
could change in the future as Tata Starbucks competes more directly for share with Café Coffee
Day. This would involve a price war as both players woo the large younger, more price
conscious and socially active demographic.
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 Jean
Company). A strong marketing response can be expected from one or more players, as Tata
Starbucks attempts to grow volume and market share.
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
quick service restaurants (QSRs) like McDonald’s and Dunkin Donuts raises the threat level as
these players can leverage existing real estate to begin to sell coffee at minimal incremental
costs. In the case of McDonald’s, McCafe counters could easily be introduced throughout the
country with minimal structural adjustments to existing McDonald’s locations.
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 within a
tea-drinking nation that has tea sellers at every street corner selling tea at nominal prices.
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2. What internal resources does Tata Starbucks have that may give it a competitive advantage
over other foreign and domestic players within the Indian café market?
Analyzing the Internal Environment
To answer the question of how to support a competitive strategy, it is important to
consider the concept of the resource-based view of the firm, and the three key types of resources:
tangible resources, intangible resources, and organizational capabilities. 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 and training
process to make sure that these brand ambassadors enhance the customer experience in each
store.
Physical
Individual stores are known to be designed tastefully to enhance the customer experience.
The stores cater to both the practical needs (free internet, spacious seating) as well as emotional
needs (cultural artifacts, pleasant music).
Technological
Starbucks has been implementing a number of technology related offerings to enhance
customer experience. A smartphone application allows customers to place coffee orders prior to
getting to the store thereby reducing the time spent waiting in line. Loyalty cards reward
customers for repeat purchases at the store.
Intangible Resources
Human
The company invests heavily in its “partners” and this translates into high motivation and a
positive attitudes towards work. By owning a share of the company even at the most junior
levels, employees feel a sense of ownership and pride.
Innovation and creativity
Tata Starbucks has been innovative in its selection of sites for stores, the interior designs
for each store. It has also been creative in developing a store menu that appeals to both the
seasoned coffee drinker as well as the dabbler and snacker.
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Reputation
Both partners in the Tata Starbucks joint venture enjoy a solid reputation of being
respectable companies that care about quality and social responsibility.
Organizational Capabilities
Starbucks is known to invest in training and education programs for its employee
“partners”. 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 access
to company owned coffee plantations. This vertical integration helps minimize supply and
pricing uncertainty.
Determining whether the internal resources are valuable, rare, difficult to imitate, or
difficult to substitute (VRIN) can help a firm sustain competitive advantage. The VRIN analysis
provides a deeper understanding of how a company stacks up in terms of critical resources that
are needed for any company to compete effectively in the market.
FORMULATING BUSINESS-LEVEL STRATEGIES
Several types of competitive strategies can be used, including the three generic strategies to
overcome the five forces and achieve a competitive advantage:
Overall cost leadership
o Low-cost-position relative to a firm’s peers
o Manage relationships throughout the entire value chain
Differentiation
o Create products and/or services that are unique and valued
o Non-price attributes for which customers will pay a premium
Focus strategy –
o Narrow product lines, buyer segments, or targeted geographic markets
o Attain advantages either through differentiation or cost leadership
3. What should Tata Starbucks do to ensure sustained growth and profitability within the Indian
café market?
Within the US, 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 customer.
Tata Starbucks can consider a similar strategy within the Indian café market.
4. How should Starbucks tackle the emerging threat from the quick service restaurant (QSR)
category e.g. McCafe?
Tata Starbucks could use its premium quality image and branding to tackle the new
entrants. QSR’s usually differentiate on convenience and speedy service (“fast food”), not
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high quality. It could continue to leverage the elevated experience it offers in its cafes which
are more professional and quiet than QSR locations.
As a wrap-up, let students know that at this point, it is not clear which business strategy is
best. They don’t have to pick one strategy, just use this discussion to explore the implications of
how strategy is developed, and what are the pros and cons for each business decision. Whatever
decisions students come to can be checked by asking “is this strategy sustainable”?
TEACHING NOTE REFERENCES
Barney, J. 1991. “Firm resources and sustained competitive advantage”, Journal of Management,
17(1): 99-120.
Harrigan, K.R. 1985, “Vertical integration and corporate strategy”, The Academy of
Management Journal, 28(2): 397-425.
Porter, M.E. 1980. Competitive Strategy: Techniques for analyzing industries and competitors.
New York: The Free Press.
Porter, M.E. 1985. Competitive Advantage: Creating and sustaining superior performance. New
York: The Free Press.
Porter, M.E. 1996. “What is strategy?” Harvard Business Review, 74(6): 61-78.
Journal of the International Academy for Case Studies, Volume 21, Number 4, 2015
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Weeks 2–7 Assignment Overview
Business Leaders’ Requests
Scenario Overview
You have recently been promoted to the role of Vice President of the Information
Technology group for a global apparel company, and your promotion is bittersweet. You
are excited about this new opportunity;; however, you quickly become concerned
because during the recent “Welcome: Getting to Know the Leadership Team” meeting,
several senior business executives expressed their disappointment with various
Information Technology functions and departments within the organization. They are
looking to you to make recommendations for how things could be improved and will
want to schedule follow-up time for you to present your ideas to them.
Over the coming weeks, you will review all of the executives’ requests and conduct
research to provide the information they require. In Weeks 2–6, you will answer each
executive’s questions or requests for that week’s Assignment. In Week 7, you will create
a PowerPoint presentation that synthesizes the executives’ prior requests into one
cohesive set of recommendations that will support development of the company’s global
strategy.
Following is a “transcript” of the conversation with each executive in the “Welcome:
Getting to Know the Leadership Team” meeting. Read each scenario in preparation for
that week’s Assignment, and conduct research using the Walden Library and any other
credible scholarly sources to provide the requested information.
Week 2 Scenario: Knowledge Management
Executive A’s Request
Welcome to the team! I am glad you are in this role and have no doubt that you will
address the team’s concerns. Let me begin by sharing my sincere appreciation that you
accepted this fantastic opportunity. We know you would like to start working on your
organization’s strategy, but we all have immediate concerns that we hope you will help
us with first.
Last month, I met with some of the Information Technology (IT) technicians who are
now part of your team, and they asked me to fund a project related to knowledge
management. They mentioned the ICT tool and its relationship to EDI. They also
explained how we are not using the ICT tool to promote employee knowledge and
innovation. I delayed my decision because I didn’t have the information I needed to
move forward. To be honest, I was quite embarrassed that I did not understand the
technical terms or how this project would be beneficial to our organization. In fact, I did
a little research, found various definitions of the term knowledge management, and
became confused about the definition’s relevance to our group and whether this is a
viable project to fund. When we next meet, I need the following information from you:
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• Compare and contrast the various forms of knowledge.
• Compare and contrast the various definitions of knowledge management.
• Explain the ways knowledge management is relevant and critical for operational
processes, human resources, and the organizational culture. Explain your
rationale.
• Define information communication technology (ICT) tools and employee-driven
innovation (EDI) and explain how these concepts will benefit or not benefit the
organization.
If you can assist me with this as I plan my strategy, I can follow up with my team with
more definitive direction. I know you will have recommendations during the follow-up
meeting.
Week 3 Scenario: Social Commerce and Electronic Commerce
Executive B’s Request
Greetings! I know you have a great deal on your plate, but perhaps you can help me
with the following issue I am having. Social media infused with electronic commerce is
generating such a high volume of data that understanding my customer base is
problematic. Although I understand some of my user or customer characteristics (i.e.,
gender, age, income, and marital status), these things are speculative based on
purchases. I want to improve my customers’ satisfaction, and I need to form a strategy
to understand the integrated social media and e-commerce customer. For our next
meeting, I need to know the following:
• What things should I consider as I measure my social media and e-commerce
customers’ characteristics and behaviors?
• What challenges do you foresee with trying to improve e-commerce customer
satisfaction? Provide one or more examples of challenges other companies or
business leaders have experienced to illustrate your point.
• Based on your experience and any research you’ve done, what are some best
practices for understanding e-commerce customer satisfaction? Explain your
rationale for any best practices you identify.
If you can provide this preliminary information prior to our upcoming follow-up meeting, I
believe it will ensure we are communicating effectively, and it will help expedite my
business colleagues’ exchange of ideas during our strategy meeting.
Week 4 Scenario: Information Systems Resource Options
Executive C’s Request
Like my colleagues, I am delighted to have you on board with us! I don’t want to
overwhelm you, but I have an important decision I need to make because it is
imperative that we reduce costs and increase sales. I know your Information Systems
Development personnel are working on priority initiatives and cannot devote time to
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some of my business projects that I need to be completed quickly. There are
discussions taking place among my colleagues concerning the use of information
systems consultants (i.e., outsourcing, offshoring, and crowdsourcing). Although I am
familiar with outsourcing and offshoring, I am unfamiliar with crowdsourcing and how
leaders are using this type of resource. I have two projects that need to be completed
quickly and am unsure of the consultants I should consider, if any. Here is a summary of
my current concerns:
• I need a modification to my existing website so that it will accept all the various
forms of global social and e-commerce transactions. This will require software
development expertise.
• The other upcoming project is to update some of our clothing lines;; however, we
do not know what our customers would like to purchase. What we do know is that
our sales are dropping.
• I need someone to help me understand this e-commerce sales drop and
generate innovative ways to increase sales. Additionally, I need to know what we
are doing wrong and what new clothes customers will purchase.
I need to select the most appropriate consultant type for each of my projects (i.e.,
processing transactions and changing clothing lines). Could you please provide the
following information before our next meeting?
• Compare and contrast the various types of information systems consultant
resource options (i.e., outsourcing, offshoring, and crowdsourcing). Explain the
advantages and disadvantages of each.
• Describe a company or institution that is using one or more of these various
types of information systems consultants and why. What are some best
practices? Provide a rationale for each best practice identified.
Week 5 Scenario: Information Systems and Decision Making
Executive D’s Request
Welcome to the organization! We run a lot of reports here on a lot of different things, but
after some consideration, I noticed our reporting is antiquated. As such, we are not
getting the right information at the right time to make the appropriate decisions and are,
therefore, not maintaining the competitive advantage. I’d like to get your
recommendations about the use of decision support systems (DSS). Before our next
meeting, could you provide me with the following?
• Explain how the use of DSS can influence an organization’s success, and identify
risks associated with their use.
• Provide a list of at least three DSS options and the advantages and
disadvantages of each.
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I know in the follow-up meeting you will provide your recommendation for the most
effective DSS and your rationale, but in the interim, it would help me if you provide this
information before our follow-up meeting.
Week 6 Scenario: Business Continuity Planning and Risk Management
Executive E’s Request
Nice to meet you! I am the person responsible for business continuity and oversee the
Business Operations staff. We are hoping that you, as the Information Technology
leader, can help us understand the various IT components needed to ensure minimal
risk to the organization. We need your input as we collaborate to create a business
continuity plan that aligns with our organizational strategy. In order to help us get
started, we need you to do the following:
• Compare and contrast at least two types of business continuity plans, being sure
to explain the advantages and disadvantages of each.
• Delineate the appropriate steps needed for business continuity planning.
I know in the follow-up meeting you will have recommendations for my business
continuity strategy, but if you could provide this information prior to the follow-up
meeting, it would be helpful.
Week 7: Information Systems Strategic Direction
Presentation to the Executive Leadership Team
This week you will submit a 10- to 12-slide PowerPoint presentation in which you
synthesize the research you have compiled over Weeks 2–6 and provide your strategic
recommendations to the team of executives. Your presentation should contain 1 to 2
slides per topic area, with detailed notes explaining your rationale for the theories and
recommendations you chose. Be sure to include a cover slide and References slide(s)
as well. Your presentation should include the following headings and must address the
bullet points provided:
Knowledge Management (Executive A)
• Briefly summarize (in 2 to 3 bullet points) the relevance and importance of
knowledge management to the organization.
• Identify a theory, model, or framework relevant to knowledge management that
you believe Executive A can use to gain an understanding of why this topic is
helpful to the organization. Include a rationale for your proposal and appropriate
scholarly citations to support your assertion.
Social Commerce and Electronic Commerce (Executive B)
• Describe two or more theories, models, or frameworks that can help the
executive define characteristics of his/her customers and develop a strategic
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approach to e-commerce customer satisfaction. Identify the advantages and
disadvantages of each.
• Recommend at least one strategy for how to increase e-commerce customer
satisfaction for this company.
Information Systems Resource Options (Executive C)
• Provide at least two theories or models that might help the executive as he or
she decides how and where to begin. What are the advantages and
disadvantages of each of these theories or models?
• Based on the evidence you provide, recommend the appropriate consultant
resource type(s) for the executive’s projects.
Information Systems and Decision Making (Executive D)
• Identify at least two theories or models that might help the executive in
implementing the most appropriate DSS for the organization.
• Recommend one or more DSS options for this organization, including a rationale
for your recommendation.
Business Continuity Planning and Risk Management (Executive E)
• Identify at least two theories or models related to business continuity that might
help the executive and his or her team begin the process of developing a
business continuity plan.
• Recommend one or more business continuity plan approaches for this
organization, including a rationale for your recommendation.
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