Economic Factors
One of the first and often important environmental factors of a company’s decision to operate overseas is the economic factors. In 1947, the World Trade Organization was created to promote world trade by reducing tariffs and other trade barriers (Perreault, Cannon, & McCarthy, Jr., 2009). The General Agreement on Tariffs and Trade (GATT) has helped to lower the average tariffs on manufactured goods from 45% to 5% (Perreault, Cannon, & McCarthy, Jr., 2009). These improvements have helped globalization of economies so that nations can be intertwined by open trade and commerce.
Two economic factors that help a company determine if a country would be a good market is the country’s industrial structure and its income distribution. The country’s industrial structure refers to a country’s subsistence economy, raw material exporting economy, the industrializing economy, and the industrial economy (Perreault, Cannon, & McCarthy, Jr., 2009). These factors shape the product and service needs, income levels, and employment levels (Perreault, Cannon, & McCarthy, Jr., 2009). The income distribution of a country also determines if there will be enough demand from the income of the families to warrant offering the products or services.
The marketing decisions for an economy like the United States with a higher level of disposable income for a broader market will be different than a country with a much narrower market of disposable income. Being a producer of premium and specialty coffees, Starbucks requires a target market group that will be able to sustain a demand for the coffee. This requires significant market research into the demographics and physical infrastructure of the cities that they move into.
Political-Legal Factors
Nations differ greatly in their political-legal environments. Before Starbucks decides to operate a business in a foreign country, the country’s attitude toward international producers, government bureaucracy, political stability, and monetary regulations must be thoroughly considered (Armstrong & Kilter, 2009). One example of political instability that causes Starbucks to reconsider opening a store in the country is the nation of India. India’s government is notoriously unstable. The country has elected 10 new governments in the past 25 years (Perreault, Cannon, & McCarthy, Jr., 2009). This instability makes doing business risky because of the continual change in laws and oversight concerning business and financial matters.
China is another country with a traditionally risky government to invest in. However, with changes that have opened the doors to foreign investors and corporations, many companies like Starbucks have found the risk worth accepting because of the upside of the financial rewards of a population of over 1.3 billion people (Murphy, 2007).
One of the common themes of human nature throughout the world is bribery in order to obtain financial or legal benefit. In 1977, the Foreign Corrupt Practices Act (FCPA) was enacted for the purposes of making it unlawful for individuals and entities, foreign and domestic, to make payments to foreign government officials to assist in obtaining business (Department of Justice, 2011). This Act was a result of an SEC investigation in the mid-70’s of more than 400 US companies that admitted making in excess of $300 million to foreign government officials, politicians, and political parties. This Act was an attempt to restore public confidence in the integrity of the American business system. Starbucks has attempted to maintain this value of integrity of American businesses by helping to enrich and sustain coffee bean farmers in all the regions that they purchase beans (Davis, 2008). “Starbucks believe the answer to development is not large amounts of foreign aid; it’s getting these countries to engage in the global market, and Starbucks helps that” (Davis, 2008).
Cultural Factors
One of the strongest environmental factors that Starbucks is faced to deal with overseas is the cultural factors. Starbucks has become an icon for globalization. Starbucks has become a target of anti-globalization protesters fighting against the consumption of the West and exploitation in the Majority World (Davis, 2008). These protests are not just from countries steeped in tradition like Asia. Protests are coming from countries like Australia, France, Germany, and Italy (Davis, 2008) in defense of their authentic culture unaffected by consumerism and materialism.
Businesses must be very careful to understand the ways that consumers think about and use certain products before planning a marketing strategy. Social critics contend that Starbucks and other American businesses aren’t just globalizing their brands, but they are “Americanizing” the world’s cultures. In fact before Starbucks came to China, most people in China rarely drank coffee (Perreault, Cannon, & McCarthy, Jr., 2009). In order to prevent this type of marketing, Starbucks has taken its name off the branding so that internationally, so that its name is not confusing to the customers and that it focuses not only on the coffee but on the tea products as well (Starbucks, 2011).
Conclusion
Starbucks is recognized around the world for specialty coffees and teas. This type of branding is directly tied to the marketing decisions made to limit environmental factors from derailing the coffee giant overseas. Starbucks’ marketing strategy in both its domestic and international markets successfully navigates the economic, political-legal, and cultural factors that make a company successful.
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