There are different external factors which influence competitiveness of a business. The business has direct control over the internal factors, and cannot control such external factors. Such external factors include political environment, technological environment, international environment and socio-cultural environment which are beyond a firm’s control. Business environment are constantly changing and carries with them uncertainties, risks and opportunities which businesses need to adopt. Success of a business enterprise may depend on the adaptability and alertness of a business to change in the environment.
PEST Analysis for Starbucks
PEST is a reference to a tool used in analyzing the business environment, which refers to Political, Economic, Social and Technological factors which can influence business competition. Overtime, it has come to be referred to as PESTELI with the addition to Ecological factors, Industry analysis and Legislative requirements. Business environment influences the competition of business; an excellent example is when a business faces recession; and then a business may be forced to cut down on production. Also, when there is more competition, a business may decide to go for aggressive advertisement.
Economic factors can be seen to affect how business operates or sometimes lead to the closure of a business. If the government decides to ban coffee consumption, it will lead to closure of coffee shops, Starbucks being one of them. Also, a business may be encouraged to produce more when the government gives subsidies or reduces taxes. However, tax increment may give hindrance to the growth of the business. The economic factors can also act as how attractive certain business ventures can be; if coffee selling industry is attractive it will increase competition. Additional, the economic environment can influence coffee consumption depending on the demand for beverage products and acceptance of the Starbucks brand by consumers.
Similarly, political factors affect the competition of business because they act as regulators of business. Therefore, the government political and legal aspects of a business are very crucial; this is because the government is a major employer, provides subsidies and regulates different policies where these businesses operate. The relationship between the U.S and coffee producing industries is also important as well as political of U.S stability play a major role in the success of Starbucks Company.
Additionally, social factors influence the competitiveness of business, because social component profiles, relates to strategic analysis of addressable markets. In the United States, for instance how people live, work, consume and produce is shaped by different trends. This can affect competitiveness influences production because coffee consumption is still focused on the morning breakfast. Therefore, the effects that can be encountered in the social environment pertaining to the use of coffee as a beverage.
Similarly, technology can influence the competitiveness ofbusiness because it acts as a business enabler with the revolutionary impact of a business. Technology is crucial in achieving efficiency and business productivity. The internet can be seen as an instant communication tool used globally, and has become a necessary tool for different businesses to ensure success. Technology continues to change the opportunities and threats in the business environment; it alters the production cycle, changes economies of scale, creates new services and products, redefines relationships of business and changes distribution speed. Technology can lead to innovations and reduction in costs, Starbucks can take advantage of the new technologies in production, supply chains and communication. In the same note, the legal environment plays a vital role in affecting the behavior of a company. Minimum wages requirements and age discrimination requirements of firms are some examples that may influence company’s actions.
Starbucks was the most major name in coffee promotion throughout the world (Canzer, 2006). It is an international leader in bringing coffee and coffeehouse experience. They have gained popularity due to their continuous expansion. Starbucks specializes in coffee retailing and produces a variety of coffee and other beverages, cold or hot. The company has coffee shops in over 37 countries with over 10, 000 coffee shops which give the company a strong brand, which is well known, hence differentiating it from other coffee producers. Consequently, a strong brand image gives it a high bargaining power of its suppliers, hence differentiating its offers. Starbucks majorly depends on the U.S market for the majority of its profits and revenue.
Specialty in coffee production has continued to grow in the United States and also abroad. Consumption specialty has continued to grow by 41% from 2001-2006. This can be attributed to coffee houses becoming third place in beverage consumption.
Starbucks core- competencies include the brand and the coffee quality which sells at premium prices (Canzer, 2006). It has core competencies in the skills which bring competitive advantage in the market, such as innovation and consumer relationships and employees which help in developing the brand to being a leader. Accordingly, Starbucks has specific knowledge, differentiate and have bard awareness in the production processes.
However, there is a high competition in the retail segment of coffee supply hence posing major competition to Starbucks. There is immediate competition from fast-food restaurants such as Nestle, Mc Donalds, Tim Hortons, Caribou Coffee and Hunkin Donuts; which have a specialty in coffee production and retail. Also, some countries oppose the coffee as it has low nutrition which may lead to obesity due to high calories. Similarly, low income consumers opt for low-priced similar products and find substitute products (Lussier, 2008, pg. 127). Therefore, Starbucks can be seen as an oligopoly, because there are a few major competitors in the market.
Canzer, B. (2006). E-business: Strategic thinking and practice. Boston: Houghton Mifflin.
Lussier, R. N. (2008). Management fundamentals: Concepts, applications, skill development.
Mason, OH: South-Western/Cengage Learning.