International competitiveness Of Starbucks and M&S
Introduction
International competitiveness is the extent to which a country can under free and fair market conditions meet the test of international markets while at the same time maintaining and improving the real incomes of its citizens. There are several factors affecting international competitiveness; development of global markets, increased access of foreign competitors to domestic markets among others. This report will analyze the key factors affecting international competition related to two companies, namely Starbucks and Marks & Spencer, and provide a comparison of the main international strategies currently being adopted by the two companies (Toder 2012, p. 2).
The first factor is Globalization, which is the process of enabling financial and investment markets to operate internationally. In the last 25 years the scope of globalization has accelerated due to modern form of technology and the reduction of tax tariffs on both imported and exported goods. Technology has made many business ventures to improve their production and the services they offer whereas the lower tax tariffs have increased the flow of trade internationally.
Globalization is mostly carried by big multinationals like Starbucks and Marks & Spencer who operate mostly beyond international borders so that they can maximize on cheap labor. The two companies have branches in variety of countries in the world. When it comes to globalization the internet has become a very important tool, it has improved the flow of communication, created a front for companies to advertise their products and it is also used as a global marketing tool.
Another factor is International Competitiveness which is defined as the way a country or a company carries its operations globally. Every company has a unique way of carrying out its operations. The method used for research, innovation, branding and production differs from one company to the other.
The third factor is Exchange rates, the value of one currency for the sole reason of conversion to another. There are various exchange rates all over the world but the most commonly quoted are rates against the euro, US dollar, Japanese Yen, sterling pound and other major currencies. Governments have exchange rate policies that help them in determining the exchange rate of the country’s currency. There are mainly two types of exchange rates; free or floating and fixed exchange rates. Free exchange rates are rates that are affected by the level of demand of exports and imports and investments of a certain country while fixed exchange rates are put in place by a country but this is not common. In January 1999, 11 European Union countries made their exchange rates to be fixed in relation to each other.
The fourth factor is Barriers to trade, this are rules and regulations placed by a government to protect the country from illegal trade and unsafe competition. These regulations are enacted in order to allow the domestic industries to develop and protect employment. Some of the trade barriers put in place is normally in form of tariffs, subsidies, administrative controls, quotas and voluntary export restraints (Trade barriers faced by developing countries’ exporters of tropical and diversification products 2008, p. 10)
The fifth factor is trading blocs, a set of countries with related trading operations forming a group with agreed rules and benefits. Trading blocs tend to avoid the disadvantages of trade barriers and also encourage trade between member states. By encouraging trade, trade blocs’ en courage competition between member states and these impacts positively to the consumers since the price is fair and the products are of good quality. Examples of trading blocs are North American Free Trade Agreement (NAFTA), Association of Southeast Asia Nations (ASEAN) and European Union (EU).
Other than factors, there several strategies that the two companies use that affect international competitiveness. A strategy is a plan that is developed and implemented by a company. Marks & Spencer is a British retailer company that began in 1884 as a stall, sells clothes, home furnishings, gifts, foods and financial services.
The company has been working under a simple philosophy: produce high quality products under a recognized brand name at affordable (but not cheap) prices and advertise through word of mouth After it experienced some setbacks both abroad and at home and the philosophy being attacked as the company began losing its competitive stance, the company came up with strategies to improve.
Marks & Spencer’s International Strategies
Marks & Spencer has been working with strategies under four fields, product, place, price and promotion. Products in M&S are divided into three categories; general merchandise, foods and financial services. The first category involves clothing, handbags, shoes, toys, books and cosmetics, foods include prepared foods, perishables, meats, alcoholic and non alcoholic beverages. The last category deals with store credit card, personal loans, personal equity loans, unit trusts and life insurance.
Product Strategy
The company came up with a strategy to produce its foods with new bistro style meals and also introducing juice and coffee bars in some stores.
Pricing Strategy
M&S has been using a value priced strategy since the beginning and since it has been focusing on middle class customers it has continued to use the value price strategy. The company through economies of scale in buying has been able to require manufacturers to stick to strict quality standards and bargain lower prices for its customers. Despite the drop in profit margins due to the recent strength of the sterling pound, M&S has managed to make the prices remain moderate.
Place Strategy
When it comes to place, M&S tries to put up its stores in the proximity of main streets of major cities. M&S stores come in two formats; general merchandise store with a basement dedicated to foods while the second format only offers food. The company owns a valuable global portfolio of property but competition for space has made it to consider locating in remote places.
Promotion Strategy
Product promotion in M&S has been carried out by word of mouth, which was very powerful and cost effective. In the past the company only carried out product promotion when they really needed it for example when introducing a new product or retail format. Currently the company has increased its advertising budget, invited advertising agencies since receipt of poor financial statements
M&S started internationalizing in the 1940s since it felt it had saturated the domestic markets and started exporting about $1,146,000 worth of merchandise. By the early 1990s there were franchises in 14 economies including some emerging countries like Gibraltar, Bermuda, Israel and Philippines. Franchising was a less risky way both economically and politically that allowed the company to achieve global presence but with time the company used more direct methods like acquisitions and joint ventures
Starbucks Company
Starbucks is a coffee company that is based in the US and was started in 1971. Starbucks has been able to maintain its sales and increase growth despite problems with cost and economy. Employee morale, customer loyalty and strategic positioning are the factors that have contributed to its success up to this point.
Starbuck’s International Strategy
Employee Strategy
Starbucks uses employee morale as a strategy to keep its customers happy and eventually remain successful. The company offers a friendly environment, wide range of benefits and flexibility to keep employees happy. Customer service levels keep declining every day but this is not the case at Starbucks since they serve their customers with enthusiasm. Good customer service will keep customers coming and remaining loyal to the company. Starbucks was even listed on Fortune Magazine as one of 100 Best Places to Work (Easton, 2005).
Location Strategy
Starbucks has another strategy that brings in business, the store location strategy. The company has saturated the market and people even joke of a Starbucks store being in every corner. This strategy is seen as predatory by critics but to customers it offers convenience and to Starbucks it offers exposure (Starbucks, 2012)
Marketing Strategy
Starbucks has used a variety of marketing strategies to get profits and at the forefront of the retail coffee market. The mix of strategies can be found in consumer relations, store relations and corporate decision-making. In consumer relations, Starbucks has remained successful by the use of added value concept (Pophal 2009, p. 2). The good employee customer relation is selling more than an overpriced coffee cup. The stores also offer a satisfying environment; there is good furniture, music, cleanliness and a great ambiance.
Due to its employee relationship Starbucks does not use division of labor but it embraces shared activity approach when it comes to store operations. When it comes to pricing Starbucks has created a repeat- business that makes the sales not to suffer in case of price increase. This shows that the demand of a Starbucks’ product to be inelastic according to the demand and supply curve (Khanna & Palepu, 2006, 56).
Another strategy the company is using is that of payment. At Starbucks you cannot only pay by the use of cash and credit cards but also Duetto Visa Card and Starbucks Card is accepted. The Duetto Visa Card is like any other credit card while the Starbucks Card is a prepaid card used at Starbucks only. By having so many payment options the company has dramatically increased its sales potential (Andrejczak, 2011).
Starbucks has also boosted its sales by embracing strategic partnering; it partnered with Hear Music in 1999 and T-Mobile Wireless Internet to expand what it was offering in each store. These additions further convenience customers since they could listen to a variety of music they liked and access internet at the store while taking beverages or snacks (Khanna & Palepu, 2006, 45).
Starbucks only mainly deals with beverages but M&S deals with a variety of products but they have used various main international strategies. They have used pricing strategies, marketing strategies, and expansion and restructure strategies.
COMPARISON OF THE INTERNATIONAL STRATEGIES USED BY MARKS & SPENCER AND STARBUCKS
Focus on core brands
Both companies have selling brands; M&S use the trade name of St. Michael as their selling brand while Starbucks use their good employee environment and morale as their selling brand (Xiao, 2010, 34). M&S relied on the trade name in order to market themselves since it was a popular brand name whereas Starbuck are using employee satisfaction to get customer satisfaction and loyalty.
Marketing and advertisement strategies
When it comes to marketing, the two companies go about it differently, M&S starts advertising itself by word of mouth but when bad financial start coming in they change their form of advertising and start using advertising agencies to help market their products and services (Kotler & Armstrong 2009,101). The location of M&S stores in prime place is also a way of marketing. Starbucks uses a different approach to advertising and marketing its products, it engages the use of several strategies; store operations, consumer relations and corporate decision-making (Iwata 2006, par. 5).
Expansion of the companies
To expand its ventures M&S franchises its stores in international markets and embraces the use of bistro style meals to offer food. Starbucks expands its ventures by partnering with two companies, Hear Music and T-Mobile Wireless Internet. By doing so, both companies improve their profit margins.
Restructuring of operations
M&S is used to placing its stores in main streets of major cities but when competition for these prime areas becomes stiff they have to locate their new stores in more remote areas. When the company also feels they have saturated the domestic market they venture into external markets. Starbucks has added two payment options in its stores, the use of a Starbucks Card and a Duetto Visa Card.
Conclusion
The paper has been able to go through the varied strategies that are being applied by Mark & Spencer and Starbucks in getting to their competitive top form. It has shown how several how global strategies that are used by companies affect their international competitiveness. Globalization and growth are just some of the methods that have been focused by the paper in an attempt to give picture of the advancement that is has as well as challenges that ensue. The paper has been to look at the costs, marketing, structure, distribution method and growth methods among other methods that have been applied so as to make the companies more competitive. Comparisons have been drawn that showed varied similarities and contrasts. This has hence shown how varied companies are able to apply contrasting techniques so as to reach top form in the global competition stage. Varied market settings make companies to use varied techniques so as to advance themselves market-wise.
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(Khanna & Palepu,)
