Starbucks is a contemporary coffee company that is situated in the United States. Nonetheless, the company has expanded to different nations globally through foreign direct investment. Starbucks offers customers unique tasting coffee and excellent consumer experiences, boosting its competitive advantage in the industry. According to Oakley (2014) the coffee company has established its presence in various parts of the world through foreign direct investment. Starbucks has also secured a considerable number of loyal customers worldwide.
Currently, Starbucks competes with multinational giants in the specialty coffee industry such as McDonald's. The employment of better corporate and business strategies will enable the corporation to pose stiffer competition to other corporations. Mainly, product diversification should be used to provide customers with different alternatives to choose from. Concurrently, the company would be able to gratify the vast and unique needs of each of its customers. Most importantly, the coffee company should target and invest in markets that have been overlooked by other companies to expand its customer base and increase its market share.
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This report conducts an analysis of the business environment in Austria. Two primary models are used to make an adequate assessment of this environment, to determine if it offers many growth opportunities for Starbucks. A PESTEL scrutiny determines the suitability of the business environment, and Porter’s five forces will be used to detect the threats and prospects that the corporation has in Austria. The two models will foster a comprehensive analysis of this environment, which is crucial for effective decision making.
Austria’s Background
Austria is a landlocked nation which is situated in Central Europe. The country’s economy has suffered greatly as a result of the global financial crisis which prevailed in the year 2008 to 2009. Nonetheless, Austria has experienced moderate economic growth from 2011. The factors behind this remarkable economic progress are the country’s economic reforms, currency appreciation, as well as the great influx of FDI. Studies indicate that the service and manufacturing industries are the leading contributors of the nation’s gross domestic product. On the other hand, Austria’s high per capita income has fostered the upsurge in local demand for durable products, insurance, and accommodation services, among others. A pestel analysis for the nations’ business environment is critical for determining whether the country offers a lot of growth opportunities for companies such as Starbucks or not.
PESTLE Analysis
Political Environment
A company’s success is highly dependent on the host country's political climate. Austria is a democratic republic nation which has been politically stable since the year 1955. PESTLE Analysis of Austria (2013) t he nation is further founded on the philosophies of democracy, as well as the division of power. Furthermore, the president occupies the highest rank as compared to other state representatives. Austria’s parliament is comprised of two key chambers which are the national and the federal council. The two bodies represent the legislative power. Moreover, the federal chancellor is the head of the federal government.
Apart from this, labor organizations have a fundamental role to play in the employment policy. The topmost priorities of the country are population aging and immigration. Austria is also characterized by strict environmental regulations and health standards. Other than this, the states salary level is stipulated by KV ( PESTLE Analysis of Austria 2013 ). Normally, based on the contracts that exist between employees and their organizations, salary advances are provided every year. Generally, Austria also has exceptional mine principles and robust laws that safeguard the rights of employees. The country offers a politically conducive climate for new companies.
The Economic Environment
The service industry dominates the country’s economy. Sixty-eight percent of the nation’s gross domestic product comes from the service sector. On the other hand, the productive sector contributes thirty percent of Austria’s GDP while the agricultural sector adds two percent of the nation’s gross domestic product ( PESTLE Analysis of Austria 2013 ). In the case of the machine, chemical, and metallurgical industries, among others, the manufacturing sector is the most dominant. Austria is also comprised of fifty-two insurance and intermediation corporations. Apart from Austria’s stable market economy, it is also characterized by high standards of living.
Figure 1: Austria’s GDP
The financial crisis in the year 2008 resulted in a depression that prevailed until the third quarter of 2009. The country experienced a three point eight percent contraction in 2009. Nonetheless, Austria has moderately recovered about two percent of what had been lost during the financial crisis. According to PESTLE Analysis of Austria (2013) a number of Austria’s most dominant banks suffered greatly from the crisis, which jeopardized financial operations. Nonetheless, the government provides bank support in the form of nationalization, to inhibit insolvency, as well as potential regional contagion. Large Australian banks are therefore reliant on government support for the provision of additional capital, which is expected to prevail even after the international economic outlook improves. There is a dire need for the country to put more emphasis on knowledge-based economic sectors.
Social Environment
A country’s social environment is a vital factor for determining the success and expansion opportunities that exist for new companies. Austria consists of eight million, four hundred and fourteen thousand, six hundred and thirty-eight individuals.
Figure 2: Austria’s Population
The population in Vienna is approximately one quarter of Austria’s population since it exceeds one point seven million. The second largest is Graz, which is occupied by two hundred, fifty thousand and ninety-nine individuals. Linz follows after Graz, since it hosts one hundred and eighty-eight thousand, nine hundred and sixty-eight individuals. Salzburg is the fourth in this rank, followed by Innsbruck, which have no more than one hundred and fifty thousand inhabitants. The remaining cities are occupied by no more than a hundred thousand individuals. The country is expected to have approximately eight point eight, eight million people in the year 2020. Moreover, a vast number of ethnic groups live in the country. Austria consists of 91.1%, 4% former Yugoslavs, 1.6% Turks, 0.9% Germans, 2.4% ( PESTLE Analysis of Austria 2013 ) represents the other ethnic groups. Basically, Austria embraces diversity, which makes it easy for new individuals and business investors to blend in with the society.
Legal environment
Austria has very robust labor laws. Concurrently, labor organizations play an essential role in business. The country also has a favorable tax system, which is a critical requirement when it comes to investing in foreign nations. The profits made by companies are taxed using an average tax rate of twenty-five percent ( PESTLE Analysis of Austria 2013 ). Furthermore, no levy, for instance trade and net worth taxes are imposed in Austria which makes it favorable for new businesses.
Environmental
The core priorities of Austria after the world wars became reconstruction and industrial development. In the late seventies nonetheless, environmental movements became rampant, fostering the creation of awareness on matters such as pollution. Thereafter, a green party was established and a range of environmental laws were developed to safeguard the natural environment from the nation and its destructive activities. Austria has two primary environmental issues which are industrial pollution and transit traffic, especially in Tyral and Salzburg.
The Technological Environment
Austria spends a high percentage of its GDP on research and development. Foreign organizations have even invested greatly in Austrian research and development. Technological advancements have not only resulted in a stable economic growth, but also business development. The advancements also enable business organizations to overcome prospective challenges. Companies in Austria have demonstrated their exceptional abilities in research and development, which has enabled them to specialize in the production of competitive export equipment such as nanotechnologies and telemetric solutions ( PESTLE Analysis of Austria 2013 ). Starbucks can benefit from these advancements since they foster effective advertising, strengthening the company’s brand image. Other factors that can influence a business are climate vicissitudes and natural calamities, which may affect business location decisions. Nonetheless, one of the core strengths of the country is that it has a wide range of energy sources, which makes electricity abundant in supply.
Porter ’ s Five Forces
Porter’s five forces framework enables corporations to identify the significant external competitive threats. Additionally, the model also fosters a compelling analysis of the relevance of the forces to the organization or industry. A comprehensive scrutiny of the risks, strengths, weaknesses, and opportunities inherent in the Austria’s business environment can be done through the use of Porter’s five forces. It is critical for the structure of an industry to be assessed, to find the most prolific sources of competitive advantage. The main forces in the business environment of Starbucks in Australia are analyzed below.
Rivalry/ Competition
Oakley (2014) argues that one of the strongest forces facing Starbucks is the stiff competition posed by specialty coffee companies in the industry. In the past, the company competed primarily against small-scale specialty coffee retailers. Today, however, the business competes against multinational corporations of different sizes, such as Coca-Cola Company, PepsiCo, and McDonalds, among others, which have not only expanded to Austria, but different parts of the world. One of the most competitive of these companies is McDonald's, a company which has gained popularity and a vast number of customers through product differentiation, the low-cost strategy, and the delivery of unique tasting fast foods and beverages (Dividend Monk 2018). McDonald's poses stiff competition for Starbucks, especially in Austria.
Figure 3: McDonalds Annual Revenue
Over the years, McDonald's has become the most successful fast food chain globally. It has further increased its competitive advantage through product diversification. In a single year, McDonalds earns a gross revenue of more than twenty-two billion dollars ( Duke 2017 ). The specialty coffee sector has experienced rapid growth over the past twenty years. Consequently, many companies have realized the probability of profit maximization and have attempted to capitalize by entering the industry. The diversity that exists among the competitors is extremely high. Hence, the levels of competition have risen. Strategic stakes have become higher as larger companies enter the industry, which has forced corporations such as McDonalds to distinguish themselves through price superiority as well as offering additional products such as McCafe, cappuccino, espresso, and iced latte, among others. McDonalds has therefore strengthened its level of competition in the industry, which jeopardizes the competitiveness of Starbucks in the industry.
The probability of New Entrants
The threat of new entrants is moderate in Austria. Many companies are inhibited from entering the industry due to the existing barriers of entry. The cost of opening and maintaining a small coffeehouse is lower as compared to the expenses incurred in the development and operations of a coffeehouse chain. Moreover, Smaller coffee cafes have less supply requirements, and incur less supply chain expenses (Oakley 2014). Factors such as this allow this small companies to compete with Starbucks. Nonetheless, this poses little threat for the company since brand development is an expensive, not to mention difficult goal to achieve. Hence, new entrants are unable to pose any competition since they have an undeveloped brand.
Notably, the low-cost strategy which is embraced by the majority of companies such as McDonald's also creates an entry barrier by discouraging other new companies from investing in the industry. Additionally, one of the core priorities of new companies is profit maximization. Most of them sell their products and services at the industrial average amount or at a slightly higher price than the existing companies, upon entry. Nonetheless, the low prices that companies such as McDonald's sell their products make customers reluctant to buy from new companies, despite their willingness to try out new things. The threat of new entrants is moderate for Starbucks due to the mentioned entry barriers.
Substitute Products
One of the core factors that decrease a company’s competitive advantage is the threat of substitute products. In the coffee industry, companies are able to be more competitive when they produce high quality and tasty substitute products. The threat of substitute products has dramatically decreased in this sector. Majority of the companies which were formally regarded as threats due to their potential to become more competitive as a result of substitute products, compete directly by offering consumers with their own premium coffee selections. The products that threaten the demand for the coffee products are the caffeinated soft drinks which are produced by Coca-Cola and Pepsi.
Nonetheless, even these products pose minimal threat to the companies such as Starbucks Austria’s society, just like other nations worldwide is characterized by many individuals suffering from a variety of chronic ailments (Oakley 2014). Concerns raised on the effect of the sugary beverages provided by Pepsi and Coca-Cola on human health have led to a decline in the demand for these products. Therefore, the threat of substitute products is low.
Supplier Bargaining Power and Customer Bargaining Power
Supplier bargaining power is a weak force. The force entails the influence that merchants have on a particular organization, as well as its industrial environment. Austria’s suppliers have weak bargaining power on Starbucks corporation. According to Oakley (2014) s uppliers employ different strategies and competencies to increase their competitive advantage over other suppliers. As a result, they lack unity which weakens their bargaining power. Moreover, the great coffee supply also jeopardizes the suppliers’ ability to bargain. Austria consists of many small scale coffee suppliers who sell their products at different prices, therefore, suppliers are more willing to sell their products at the prices stipulated by the organization, since failure to comply results in the potential loss of a customer willing to buy in bulk, to another supplier. Starbucks therefore has a high bargaining power over suppliers. On the other hand, the bargaining power of customers is an intense force. The availability of the internet has provided buyers with information which enables them to ensure that they pay favorable prices depending on the type and quality of the products they purchase. Data on various market variables has therefore heightened the bargaining power of buyers.
In summation, Starbucks is expected to experience dramatic growth in the next few years. Notably, it is anticipated to establish a considerable number of stores in Austria. The PESTLE analysis indicates that Austria offers a suitable business environment. Likewise, Porter’s five force analysis demonstrates that the company faces a few strong forces such as the bargaining power of buyers and competition. Nonetheless, Starbucks can employ various strategies such as product diversification, the focus strategy and the low cost strategy to increase its competitive advantage in the industry. Concurrently, the company would establish its dominance in the specialty coffee industry.
Bibliography
Dividend M. (2018). McDonald's looks fair under $90 . Available from
https://seekingalpha.com/article/643411-mcdonalds-looks-fair-under-90 . [Accessed 4 th November. 2018]
Duke, D. (2017). Porter ’s Five Forces and the Coffee Industry. Management Teaching Review , p.2379298117726765.
Oakley, T., 2014. Starbucks: Porter’s five forces . Available from https://themarketingagenda.com/2014/06/02/starbucks-power-of-the-brand/ . [Accessed 4 th November. 2018]
PESTLE Analysis of Austria. (2013). Lucintel. https://www.lucintel.com/pestle-of-austria- 2013.aspx . [Accessed 10 th November. 2018]
