Starbucks Goes for Vertical Integration to Fuel Growth in China

2 Reduced waste: With improved systems there would be reduction in waste and fewer defects in the products. This will help in adding to the profits. Logistical improvements will help in better organisation of physical space required and viable transportation and reduction in the waiting times for the materials required, thus giving lesser room for wasting time.

The reduction of human error on the production line cuts down on internal failure costs because less defective products have to be thrown out, less waste occurs and less downtime is experienced. Because these issues are usually caused by quality problems, process innovations that improve quality help eliminate internal failure costs.

a. Better performance in management, quality and delivery. When PCB is in-souring facility, the management team of Stryker Corporation can directly control the production process, which is more efficient and could obtain better quality in products. Secondly, when the production of PCB is in-sourcing, it will be much easier for Stryker Corporation to make a delivery plan of PCB. This will considerably reduce the logistic losses.

Starbuck 's has become a staple of American culture and for the most part, if you are in your 20 's, you have grown up with it and this has become what you expect coffee to be. Who can blame you, it is everywhere, so "wake up and smell the coffee"! I plan to tell you about the strategies that this giant uses, that have taken it from humble beginnings to a worldwide phenomenon. I also intend to explain how Starbucks is taking China by storm, mainly because marketer / entrepreneur Howard Schultz 's vision and mission statement is shared by everyone in the company!An excerpt from the London Financial Times published in February 2006 states the following in regards to Starbucks entering the Chinese market; "Mr Schultz said the company was

The three most critical challenges Starbucks faced in China were political restrictions, socio- cultural, economic and financial challenges. China is highly bureaucratic country with difficult processes of getting permissions and sanctions to start and run business. The biggest challenges for Starbucks were the old tradition of tea drinking in China. At the beginning Starbucks managers didn’t how to accustom Chinese to drinking coffee; to acquaint employees and Chinese executives with coffee drinking experience Starbucks provided different training programs for them in which they learned more about coffee and Starbucks’ culture.

Many businesses in United States manufacture their product overseas. This involves manufacturing products outside United States where the labor cost is cheaper. Because of cheap labor, it is often more economical for a U.S. company to manufacture overseas and pay the shipping costs than to manufacture in the United States. For a company, the savings may be substantial. However, there are negative impacts on U.S. employment, as many jobs in the United States are being outsourced and replaced by overseas positions. The manufacturers outsource production projects to save time, money or resources. The manufacturing is outsourced so as to remain competitive and maintain a steady work flow. Without outsourcing, manufacturing costs could escalate to the point at which no product would sell and all employees would have no work. Outsourcing comes

Along with providing customers an affordable price, the company tries to appeal to the customer 's emotions. They search for sofas and accessories that are structurally sound and visually appealing. BDF purchases their inventory from 15 domestic and 60 international factories. However, anything that can go wrong will go wrong. That is why BDF provides its suppliers with “a whole book to make sure that the suppliers fit quality standards”. The number one issue is how manufacturers, so they are putting more attention on the products before they leave the line and the manufacturer at the plant are making products. Their inventory passes multiple checkpoints before it is put on the floor to be sold to the customer. Before the goods can even enter the country they must pass the California fire codes. Occasionally, the inventory may even be sawed in half to look at the strength of the glue or screws used in holding the joints of the furniture together. In addition, the fabric must pass an abrasion test. Then, the inventory is subject to random inspections before it goes to the cross docking station. Inspectors check for broken or shattered glass. Then the

Strengths: Minimal delay in production. Avoid lead-level requirements. Safter products for customers, thereby increasing customer satisfaction. Avoid legal issues from foreign and domestic governments. Contract abrogation with supplier if process failure due to supplier. Socially responsible

The amount of work in progress is minimized. Fewer tools are needed. The parts do not have to travel between the work stations. The control systems becomes redundant, everything takes place in the garage.

The final project is going to be about the market entry of Starbucks into China. This project will focus on gauging the success of the company's market entry strategy thus far. Starbucks has announced in a press release that it believes China will be its #2 market by 2014, and the company has been one of the most successful American companies in that market (Starbucks, 2012). The company entered the Chinese market in 1999 with a store in Beijing. This followed the acquisition of greater knowledge about Chinese business culture through outlets in Taiwan. The company initially used a licensing agreement to enter the Chinese market (Starbucks, 2010).

Offshoring attracts much more criticism when it comes to outsourcing. When a business considers leveraging offshore outsourcing in order to gain a competitive advantage there are a few definitive reasons. Many of those reasons revolve around an inability to hire domestic labor for the required job as mentioned above. The U.S. has high living standards along with strict health regulations that don’t exist abroad. China’s lack of environmental standards is another differentiating factor that gives their workforce a competitive advantage. As a result, China is able to keep their wages so low that it’s ultimately incomprehensible for business owners to justify not hiring there.

Labor is one of the largest and in certain sectors the most expensive component in the production of goods. Outsourcing acknowledges the labor cost to produce a particular product is cheaper if the manufacturer were to produce the same product in-house where the cost per unit is significantly higher. Stable labor costs are important for long-term revenue projections to be relied upon by managers because they are a precursor of where a company is trending financially. It is this efficiency-in-scale that confirms the benefit of the division of labor memorialized by Adam Smith. As a result of the wage disparity between the costs of American workers versus Chinese workers, hundreds of U.S. based firms relocated all or part of their operations to China, taking advantage of the inexpensive labor market and the many cost-saving incentives offered by the Chinese government.

The manufacturing cost can be lower as the rearrangement of the production line to meet urgent order can be minimize or even eliminated.

Even so, just two weeks earlier Howard Schultz announced that the company will be expanding internationally. The plan is to open more than 1500 stores in Germany, France, and Britain over a 3-year span (Forbes, 2008). It is estimated that this expansion will boost revenue by more than 20 percent (MSN Money, 2008). In spite of Starbucks’ struggle among its love-hate relationship between customers and protesters, one thing that Starbucks

Raw Materials (Coffee Beans): Coffee bean farming is not vertically integrated into Starbucks; the company purchases coffee beans from farmers. Starbucks choose to outsource farming due to the low potential hold-up problem. For its coffee, Starbucks uses only high-quality Arabica beans, instead of regular commodity and lower quality robusta beans. Since there are a lot of market participants trading Arabica beans (i.e. farmers & Arabica beans buyers), there is an established market price. Moreover, farm land has a low degree of asset specificity, and therefore farmers’ investments do not depend only on Starbucks as