MMM306 Final Exam
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Question 1
Introduction
Top management teams and scholars in various fields acknowledge the challenge that globalization presents to organizations today. Businesses are keenly aware of how tough it has become to identify suitable internationalization strategies and choosing the right country to invest and do business with. Still, a majority of companies, especially multinationals corporations, have stuck to approaches that have been conventionally deployed, emphasizing the standardized strategies to new markets and the occasional experimenting with minimal local twists. Consequently, many MNCs are struggling to come up with successful approaches to enter and conquer emerging markets. Starbucks desire to venture in to the Republic of Baldokistan presents a similar scenario. The management of Starbucks must address some important considerations as it ventures into a new, international, emerging market given its unique institutional environment. By entering this market, Starbucks will see to fruition a long term plan to gain more control and bargaining power over the supply chain of raw materials essential to its global business operations. Baldokistan provides a good avenue for such a bold business venture and will support the company’s internationalization strategy.
Analysis
The international business landscape has changed significantly over the last decade following the 2008/2009 financial crisis that crippled firms and industries alike. The last three two years have also changed how international business is conducted with the prevalence of the COVID-19 pandemic. Yet, a fundamental reality is maintained that despite the volatility of emerging markets and their differing economic abilities, they are essential to the development and growth of international companies. Established MNCs have learned that winning in the emerging markets is not easy. In countries such as Baldokistan, the business environment can turn out very difficult, hard to navigate bureaucracies, and poor infrastructure may hamper an organization’s efforts to succeed. Yet, a majority of organizations such as Coca Cola have continued to dominate and succeed in these markets. For Starbucks, capturing important growth opportunities will be key to making a name for itself in a nation that remains largely untouched by the outside world. Before intense competition for raw materials and other resources emerge, Starbucks must employ its strength to control the savvy domestic players.
Starbucks will enter the Baldokistan economy via foreign direct investment (FDI) under a greenfield investment. At present, the external environment in the host country is FDI-conducive as the nation is labelled a a fast-growing emerging economy, the next golden hub of agricultural and food production business opportunities in modern Asia, and a highly adaptable country that is committed to undertaking radical social, political, and economic reforms to align itself with the leading economies in the world and actively engage with and participate in world socio-economic affairs. Further, the country is predicted to become one of the top countries in Asia in terms of ease of doing business in the next five years. These elements are important to Starbucks as they reveal stable nation, one that has the political, legal, environmental, social, cultural, and technological ability to drive the company’s internationalization agenda in Asia.
FDI in the form of business acquisitions has grown in efficiency and strategic alignment. This is an indication that the emerging economies are continuously building advanced local sectors and industries that are attractive to investment targets including MNCs. In the Greenfield approach that Starbucks intends to use in Baldokistan, creating a subsidiary to build operations from the ground up will be a welcome idea in a nation that is actively looking for investment opportunities and growth. A greenfield FDI will provide the highest form of control for Starbucks as it realizes its vision to increase its bargaining power through owning a significant portion of the raw materials supply chain. Overall, FDI will play an important role in transferring technology from the home country into thev host country.
FDI continues to be among the most important contributors of economic growth. FDI is not only a key driver of growth for an MNC but also a tool applied to enter and successfully perform in a new economy. For Starbucks in Baldokistan, FDI will generate an impact of technology as well as knowledge transfer, make significant improvements to its competitiveness, improve the productivity and long-run growth of the firm and overall boost the local economy. Yet, the effects of greenfield FDI are not universal but unique to different nations and locations depending on the situation. One benefit in the case of Baldokistan is that a positive spillover effect would grow the productivity of the domestic firms, augment domestic investments and provide a firm entry into the economy for Starbucks.
Starbucks will attain several advantages by employing a greenfield FDI approach to shape the local institutions in Baldokistan. First, the company will gain high level and high-quality control over the sale and manufacturing of products. This will set an industry pace that will allow it to leverage the technologies and knowledge and skills gained through years of operation. It will then be able to attain economies of scope and scale through the marketing, production, and research and development, a fete that other local competitors might not achieve. Years of operations and a host of partnerships around the world will enable the organization to bypass trade restrictions. By creating jobs for the local Baldokistan economy, Starbucks will control local institutions through CSR and other good will initiatives.
The industry-based view ignores the informal and formal institutions that provide competition among industries. The model sees institutions as a background. In contrast, the institution-based view of strategy focuses on the active interaction between organizations and institutions, considering strategic choices as the main outcome of the choices. In the case of Starbucks in Baldokistan, strategic choice is not only driven by the capabilities of the firm and industry conditions, but also informal and forma institutional frameworks that the firm must confront. Institutions dictate the strategy an MNC takes as it attempts to formulate or implement approaches to generate competitive advantage. The differences in institutional systems between Baldokistan, an emerging economy, and the United States, a developed world where Starbucks originates from, will force the company to pay more attention to the differences created in terms of doing business.
Recommendations
Starbucks should grow in the emerging markets by winning locally, a strategy that may be attained through the creation of competitive advantages o the basis of its size, financial capability, market dominance, marketing prowess, and research and development capabilities. Starbucks should transfer its core competencies and capabilities into Baldokistan and then gradually build profit drivers in there as it continues to increase its bargaining power. By tapping into the rural Baldokistan economy, the country will get additional penetration to offset the saturated American market.
Conclusion and Call to Action
Overall, Starbucks will see to fruition a long-term plan to gain more control and bargaining power over the supply chain of raw materials essential to its global business operations. As an emerging market, Baldokistan provides a good avenue for such a bold business venture and will support the company’s internationalization strategy. Starbucks must leverage its core competencies and advantages in terms of its size and financial muscle to create stronger competitive advantage.
Question 2
In an extension strategy, firms are open to various approaches that are all intended at creating the best environment to conduct business. One of the most important avenues is a joint venture. A joint venture provides several benefits including new insights and expertise, better resources, sharing of costs and risks, and are incredibly flexible. Cafe2Go proposed joint venture with a Malaysian firm will provide an opportunity to gain new insights and expertise. It will open up the company to business operations in a new country while hiding behind the buffer of an already experienced business partner. The firm will also reap the benefit of having an access to better resources, including specialized staff and technology, already familiar with the local culture and business operations. The proposal will only take 5 years meaning that the arrangement is by definition, temporary. Overall, the chances of success are higher as the firm is already riding with a renowned brand.
Nonetheless, an issue raised during the meeting is the protection of the firm’s intellectual or strategic assets, particularly the innovation capability of the firm through its unique technology, process and skills of running a specialty coffee shop. This innovation capability has been the foundation of the firm’s competitive advantage because it is not only valuable (V), rare (R), and organised (O) within the firm but also extremely inimitable (I). To address this issue, Cafe2Go will contribute only the amount of information and other resources that are important for the partnership. Intellectual and strategic assets will not be compromised in any way especially the innovation capability of the firm. The use of technical expertise will be protected under the agreement and will only be used to help make the venture stronger. The innovation capability of the organization will allow market penetration in Malaysia, allowing the firm to expand after the terms of the venture come to an end. Overall, the joint venture will provide access to new markets and distribution networks. increased capacity, enable sharing of risks and costs with the local partner, offer access to greater resources, and it is flexible to enable the firm to protect its strategic assets.
It is recommended that the proposed joint venture is an effective strategy that will enhance the firm’s value chain because of synergy and will likely lead to the firm’s competitive advantage in a highly competitive industry in Malaysia. The technological and innovative capability of Cafe2Go will be an important element to push the company forward in a highly competitive industry characterised by buyers’ strong bargaining power. The Malaysian market is not only very competitive but also has pressure from consumers on businesses to get higher quality products, better customer service, and at significant lower prices. Additionally, the markets substantial number of substitutes means that there are other products in other industries that provide similar benefits to consumers. Substitutes limit the potential returns in the industry by placing a ceiling on prices charged to generate profit. Cafe2Go must additionally employ its innovation capability to create competitive advantage. This will allow the joint venture to put pressure on the competition, gain more advantage, and fight the power of consumers and substitute goods in the Malaysian market.
