Move Over McDonald’s, Starbucks is Here

Pumpkin Spice Latte | Source: Starbucks Corporation

At this point, you can pretty much buy your grande skim mocha with whipped cream anywhere in the world. Or your pumpkin spice latte for that matter (‘tis the season after all). And now, with Starbucks penetrating the coffee markets in India, ‘anywhere’ just got a little bigger.

Starbucks first entered into talks with the Tata Group to negotiate the sale of coffee beans in January 2011. This was just the beginning for the two coffee giants, who have agreed to launch a joint venture in India. Tata Coffee, a leading coffee producer in India, will sell and distribute Starbucks coffee and products within its retail stores and hotels, according to an article in the Wall Street Journal

This venture is a preliminary step in establishing Starbucks’ dominance in emerging markets (also on the agenda: China, Brazil, and Russia). With India’s coffee consumption on the rise, the coffee market remains unsaturated, leaving room for other coffee producers to expand their businesses. However, the legal framework around foreign investment in India prevents Starbucks from owning more than 51% in the chain.

Since the deal was announced early last week, Starbucks and Tata have both seen their stocks increase in value. Despite strong performance thus far, however, the joint venture will face competition from other large coffee companies.

So, what does this mean for India? On a basic level, the increase in coffee consumption indicates their rising middle class, and changing tastes (i.e. from the Eastern tradition of tea to the more Western tradition of coffee). In addition, India’s economy should benefit from the job creation and foreign investment that Starbucks/Tata will bring. The only foreseeable downside at this point is the very fact that India’s tastes are changing to reflect the widespread association between the West and globalization. Furthermore, this brings into question the role of culture in the development process, and how culture is transposed through new businesses, new tastes, new marketing/advertising techniques, and new media outlets.

Starbucks logo | Source: Starbucks Corporation
Tata Group logo | Source: Tata Group

The joint venture between Starbucks and Tata is one of many ventures that seek to combine global brands with locally founded businesses. This hybrid model allows the host country to benefit from foreign investment and job creation, while providing the foreign company with an unsaturated and profitable market. The local company, through the partnership, benefits from the global/brand recognition of the foreign group.

Earlier in the 20th century, dating back as far as the 17th century, immigration was identified as a means by which a country could spur the development process. In the Americas, Europeans were viewed as ideal candidates to bring efficiency, language, and sophisticated culture to the indigenous people. Instead of eschewing this notion in its entirety, it has been adapted to serve as a business model, (rather ironically per say) for the East to benefit from the efficiency and industry of the West.

Chicken Maharaja Mac | Source: McDonald's India

McDonald’s’ expansion is a prime example of this phenomenon, demonstrating its ability to change consumer culture and taste through its connection to local groups, companies, and people. As outlined by several authors in Golden Arches East: McDonald’s in East Asia, McDonald’s was viewed as an icon of Western culture and one that could bring modernization and new business practices to the East, as well as standardization and efficiency to the labor process.

This is, at least, one way of viewing the “McDonaldization” effect on developing countries. McDonald’s’ success was partly as a result of its ability to blend local food preferences with its menu staples—ie. not offering beef hamburgers in India. While the Starbucks/Tata partnership is probably less motivated by development purposes than by potential profit, the hybrid nature of the joint venture should allow for a mutual exchange of techniques, products, and ideas. Along with business strategies, Starbucks and Tata Coffee both highlight their community involvement, which might suggest that joint philanthropic ventures could be in their future as well.

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