Coventry University

Coursework

Jeff Meyer Tioronto

G1725591L
Bachelor of Arts in Business and Marketing (Hons)
Global Marketing
Melissa Liow
 Table of Contents
1. Introduction.........................................................................................2

2. Macro-Environmental Analysis and Recommendations (SLEPT).....2

2.1. Social Factors and Recommendations...........................................2

2.2. Legal Factors and Recommendations............................................2

2.3. Economic Factors and Recommendations.....................................2

2.4. Political Factors and Recommendations........................................2

2.5. Technological Factors and Recommendations..............................2

3. Conclusion...........................................................................................2

4. References...........................................................................................2
 1. Introduction
Starbucks has initiated an internationalization strategy towards China, thus the company
has conducted a market research in order to understand better regarding the Chinese market, and
how capitalism functions within the country. By doing marketing research, Starbucks could
better understand the different environments that are within China that could assist on putting the
brand within the café industry. There are 5 different types of macro-environment that would be
discussed within the paper, which are social, legal, economic, political, and technological
environment. Within the research of the 5 environments, opportunities would be explored and
recommendations will be provided based on the opportunities and threats found within the
research.

2. Macro-Environmental Analysis and Recommendations (SLEPT)

2.1. Social Factors and Recommendations
Within the context of social environment, China has a contrasting personality
compared to the western culture. According to (Kim et al. 2009), Chinese consumers are
more interdependent on the perspective of themselves, which means they are dependent
on the people around them as the base of thinking, which in contrast of western culture,
which focuses on individualism and the importance of one self. Thus, Chinese are more
dependent on the opinions of other people for preferences on beverages or consumption
in general. According to (Kindel 1985), due to the teachings dated back to era of
Confucianism, Chinese are taught to be more considerate towards friends and family or
people from higher positions, that includes on opinion-making alongside preference on
shopping for products.
 (Doole and Lowe 2012)

As can be seen from the graph above, China is categorized as a country with a
large power-distance, similar to other Asian countries such as Korea or Japan. Therefore,
it has been proven that word-of-mouth marketing to be more effective for the Chinese
market rather than individuated advertisements such as e-mail advertisements. Based on
the research that has been done, the Chinese does not prefer advertising through the use
of online advertisements or billboard displays. It is recommended for Starbucks to
through the use of word-of-mouth marketing and influencer marketing as the method of
market insertion, as Chinese are more considerate of recommendations based on friends
or family, or influential people that they look up to.
However, according to (Mourdoukoutas 2019), there has been an increase in local
competitions such as the Beijing-based café Luckin Coffee, which is currently
experiencing the fastest retail expansion in history. Despite the Starbucks brand is already
familiar to Chinese for more than 20 years, Starbucks should constantly innovate further
than the local competition in order to keep relevant, as according to (IBISWorld 2019),
there are already 55,097 and growing café businesses within China, thus competition is
already tense.

2.2. Legal Factors and Recommendations

Based on research done by (Yueh 2009), China’s legal system has been
considered as incomplete, alongside supported by weak enforcements, thus the
effectiveness of patent within China is still questionable. However, patents have been
increasingly growing since the past decade, which makes the patent environment to be
interesting. This could be an indicator that China is now shifting from “imitation” to a
more “innovation” approach on creating products. With this in mind, Starbucks should be
wary of many new competitors that based from China itself, which can be seen from the
steady growth of new patents from within the country. Alongside that, registration and
certification is also a barrier for international brands to enter the Chinese market.
According to (Jia and Jukes 2013), with the new Food Safety Law in 2009, all
international food manufacturers are required to register and obtain license from
appropriate authorities before it could be imported from China. Starbucks should review
what intellectual property they should claim before entering the market, alongside taking
precautionary measures between the company and the relevant Chinese business partners,
as to prevent the leak of confidential information as to prevent information disclosure
towards competitors and embezzlement.
The bureaucracy legal structure could be a setback for Starbucks in entering the
Chinese market. According to (Chen et al. 2006), there could be up to 15 departments
could be involved in the approval process for establishment, which would take a
significant amount of time before establishment license would be released. With the right
connections, process could be a lot faster, however many companies before has rely on
inexperienced consultants or well-intended individuals, that would cause long-term
problems in the future. Starbucks should be cautious on choosing which legal partner to
work with, as many could be outright open at the front, but in reality taking advantage
over reckless international companies.

2.3. Economic Factors and Recommendations

China has faced income inequality since a few years ago; according to (Xie and
Zhou 2014), since the year 2005, China’s income inequality has grown to reach high
levels, with the result of Gini coefficient, a coefficient used to measure a population’s
economic inequality, reached 0.53-0.55 in the year 2010. According to (Zhang and Zhou
1998), decentralization of revenue raising and spending decision-making has also been
adopted by China for the sake of faster national economic growth. With the significant
distance of income level between population, Starbucks should consider the pricing they
would set during the penetration to the market, as larger cities such as Shanghai does not
have a similar income rate with smaller cities such as Henan.
 According to (Reuters 2019), in the year 2019, China will cut taxes and fees to all
companies for almost 2 trillion Chinese Yuan, or around 298.31 billion USD. China will
also cut the rate of value-added tax, or VAT, from the standard 16 percent into 13 percent
within the year 2019, the reason which is to reduce business costs as China is currently
experiencing a slow economy, alongside the tariff dispute with the United States. With
lower taxes, it is an opportunity for Starbucks to open a business within the country,
before in the near future, the possibility for China to increase the tax again. This allows
more attraction from consumers within China.

(Doole and Lowe 2012)

According to the theory above, one of the barriers on entering a market would be
the tariffs placed on the imported and exported goods on the international trade.
Meanwhile, China has just decreased their value-added tax in exchange for cheaper
businesses, thus providing Starbucks a lower entry barrier to the Chinese market. An
opportunity to open a new business within the country.
2.4. Political Factors and Recommendations
Currently the Chinese Cabinet is being ruled by the Communist party. However,
China has experienced a series of reforms, alongside a series of events initiated by the
people themselves, referred as the “marginal revolutions”, which transforms the
economic powers of the country into the China we know today. According to (Coase and
Wang 2013), private businesses first started by people who don’t have a job within the
public sector, with mostly composited of youths from the country side. Due to the
government unable to create sufficient jobs, the youth are forced to initiate self-
employment, that leads to the push of capitalism to the country.

Due to the adaptation of capitalism to the country, China is fast on keeping up

with the effect of globalization, that leads to the adaptation of western cultures, such as
excessive luxury consumptions. According to (Jiang and Cova 2012), within
Confucianism social context, luxury items are considered as a “must have” item in China
in order to maintain their social status, this is also the major cause for many counterfeits
to be produced within China. This also applies towards Starbucks, as the people
recognize the brand as a middle-to-high class brand due to their excessive than standard
pricing towards coffee. Starbucks could utilize China’s Confucianism mindset as an
opportunity for selling coffee, as the people would majorly buy the product just for the
sake of the brand.
 (Harrell and Kiefer 1993)

According to the business portfolio matrix above, China could be considered as

an attractive country due to the sheer number of population alongside the already existing
brand image of Starbucks within China already brought positive impact towards the
company. Due to the Confucianism society, Chinese would buy Starbucks majorly
because of the brand popularity. Thus, providing Starbucks within the primary
opportunity to get into China.

2.5. Technological Factors and Recommendations

Within technology context, China has advanced significantly, chasing the likes of
United States and United Nations. According to (Lewis 2007), China had begun shifting
of coal energy towards wind-powered energy oriented country, such as India. Not only
alternative energy utilization, according to (Bradsher 2013), ever since China released
their high-speed trains for commercial use, the train has carried twice the amount of
passengers compared to domestic airline services, far improving time efficiency for the
people from all over China. Technologies such as this allows people from countryside an
easier access towards the urban lifestyle, which exposes them faster towards
globalization.
 However, China’s internet environment has been significantly limited by the
government, restricting the people from access on large international web platforms such
as Google or Instagram. According to (OpenNet Initiative 2012), China has restricted
partial internet access in order to maintain social stability and state regulations.

(Doole and Lowe 2012)

As can be seen from the stakeholder chart above, home country government and
host country government would surely affect a multinational firm’s business operations.
Within this context, China is restricting internet content from the people, thus affecting
the flow of marketing information to the consumers. Starbucks would have a harder
time on building brand image through online means. Despite the limited access of
internet from China, Starbucks still has potential on opening a business within the
country. Aside from internet access, China urban areas such as Shanghai or Beijing has
been more accessible due to advanced railway systems, allowing more people on access
to Starbucks.
3. Conclusion
In conclusion, it is a huge opportunity for Starbucks to be able to open a business within
China. With the familiarity the people has with the brand, Starbucks could utilize that by market
it through word-of-mouth, as to fit the marketing strategy with the Confucianism culture the
Chinese adopted. The lowering of tax from the government also allows cheaper cost for
Starbucks to open a store within urban cities such as Shanghai or Beijing. Accessibility such as
advanced China railways allows more countryside areas access to the urban areas, thus providing
ease on the means of trying out Starbucks. However, there are minor setbacks such as the long
bureaucratic legal structure China has on the legal systems, which brings complications on
creating establishment license.
4. References
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hong-kong> [1 October 2019]
China To Cut Value-Added Tax Rate For Manufacturing, Construction Sectors (2019) available from
<https://www.reuters.com/article/us-china-parliament-budget-tax/china-to-cut-value-added-tax-rate-for-
manufacturing-construction-sectors-idUSKCN1QM046> [28 September 2019]
Coase, R. and Wang, N. (2013) How China Became Capitalist. Palgrave Macmillan
Doole, I. and Lowe, R. (2012) Strategic Marketing Decisions 2008-2009. London: Routlrdge
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<https://www.ibisworld.com/china/market-research-reports/cafes-bars-other-drinking-establishments-
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Jia, C. and Jukes, D. (2013) "The National Food Safety Control System Of China – A Systematic
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Jiang, L. and Cova, V. (2012) "Love For Luxury, Preference For Counterfeits –A Qualitative Study In
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<https://www.forbes.com/sites/panosmourdoukoutas/2019/02/18/all-day-dining-cafes-wont-solve-
starbucks-china-problem/#3b35b3db4c2c> [28 September 2019]
Xie, Y. and Zhou, X. (2014) "Income Inequality In Today's China". Proceedings Of The National Academy
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(4), 304-313
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