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GLOBAL MARKETING

STARBUCKS

SUBMITTED TO: BY: Mr. Shiv Kumar Belli

SUBMITTED

Anant Gyan Singh


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NATIONAL INSTITUTE OF FASHION TECHNOLOGY, HYDERABAD

Asst. Prof. Wadhwa FMS Dept. Asauliya Date: 19/11/2012 Semester

Harleen

Vishal

MFM- 3rd

Contents

Topic 1. Introduction 2. Global Presence 3. Indian Coffee Market 4. Why India? 5. Analysis of International Business Situation 6. Competition 7. Planned Operation of the proposed business

Page Number
3 6 7 9 11 15 16

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8. Planned Financing 9. Bibliography

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STARBUCKS

INTRODUCTION:

Starbucks Corporation is the global coffee company and Italian-style coffeehouse chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 20,366 stores in 61 countries, including 13,123 in the United States, 1,299 in Canada, 977 in Japan, 793 in the United Kingdom, 732 in China, 473 in South Korea, 363 in Mexico, 282 in Taiwan, 204 in the Philippines, and 164 in Thailand. Starbucks sells hot and cold drinks, coffee beans, salads, hot and cold sandwiches, sweet pastries, snacks, and items such as mugs and tumblers. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores. From Starbucks' founding in 1971 in Seattle as a local coffee bean roaster and retailer, the company has expanded rapidly. In the 1990s, Starbucks was opening a new store every workday, a pace that continued into the 2000s. The first store outside the United States or Canada opened in the mid-1990s, and overseas stores now constitute almost one third of Starbucks' stores. The company planned to open a net of 900 new stores outside of the United States in 2009, but has announced 300 store closures in the United States since 2008.
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The first Starbucks opened in Seattle, Washington, on March 30, 1971 by three partners: English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker. The three were inspired by coffee roasting entrepreneur Alfred Peet, whom they knew personally, to sell high-quality coffee beans and equipment. Originally the company was to be called Pequod after a whaling boat from Moby-Dick but this name was rejected by some of the co-founders. The company was instead named after the chief mate on the Pequod, Starbuck. From 19711976, the first Starbucks was at 2000 Western Avenue; it then was relocated to 1912 Pike Place. During their first year of operation, they purchased green coffee beans from Peet's, then began buying directly from growers. 1000s of outlets have been opened by Starbucks so far. The graph on the next page shows the growth in the number of Starbuck stores between 1971, i.e its inception and 2011.

Statistics:
Products
Whole bean coffee, Boxed tea, Baked goods Made-to-order beverages, Bottled beverages, Frappuccino beverages, Smoothies, Merchandise, Coffee

Services

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Revenue Operating income Net income Total assets Total equity Employees Subsidiaries

US$ 13.29 billion (2012) US$ 1.99 billion (2012) US$ 1.38 billion (2012) US$ 8.21 billion (2012) US$ 5.10 billion (2012) 149,000 (2011) Starbucks Coffee Company, Tazo Tea Company, Seattle's Best Coffee, Torrefazione Italia, Hear Music, Ethos Water, Evolution Fresh, Teavana. www.starbucks.com

Website

GLOBAL PRESENCE:

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INDIAN COFFEE MARKET

Tea drinking culture


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India is dominated by a tea drinking culture, coffee shop chains are helping to create a taste for coffee in the Indian market. This shows-up as an opportunity for coffee chains as well as retail sales. Specialist coffee shop chains outlets are growing at an increasing rate. In 2009 the number of outlets increase by 12% over 2008 and the growth rate accelerated to 21% in 2010. Coffee shops are becoming a popular outlet for increasingly affluent young adults to socialize. The on-trade channel has helped popularize coffee among the rapidly growing and increasingly prosperous young adult population of India. As a result of these factors, food service volume of fresh coffee has grown by over 40% since 2005. To 2015, food service fresh coffee is expected to maintain this rapid volume growth. India's coffee consumption pattern gives a clue to the potential that the market holds. The nation's per capita consumption of coffee is just 85 grams, compared to, 3.4 kilograms in Japan, 4.1 kilograms in the U.S and more than 5 in most European companies.

Retail opportunity instant coffee In addition to the food service channel, Starbucks may be able to take advantage of a retail opportunity. Starbucks Via Ready Brew provides an entry in the rapidly growing instant coffee category that other multi-national cafes cannot match. Instant coffee is well on its way moving from a niche product in India to more mainstream.
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Emphasizing the desire for convenience in retail products, fresh coffee retail volume has only grown by 19% from 2005-2010 (as opposed to the 42% gain in foodservice) while instant coffee has grown an impressive 66%. These same patterns are projected for the future with instant coffee volume growth rate accelerating to 87% from 2010 to 2015. Increasing incomes are not only providing opportunity for a developing caf culture in India, but are also helping to drive growth of nascent retail volume. Many purchasing decisions, especially in urban locations, are based on convenience. As such, instant coffee is finding a following among urban working consumers. While fresh coffee is a format which is becoming popular in South India, instant coffee is likely to continue to increase its appeal in North, West and East India. Final Note India is likely a key battleground in the near future for international on-trade coffee manufacturers. Starbucks move to enter the Indian market appears to be well-timed and bodes well for coffee consumption in a tea dominated market. While Starbucks cafes face much competition, a sufficiently large portion of the population appears to be adopting a caf culture to support the new players. The alliance with Tata will fuel the expansion. According to John Culver, president of Starbucks China and Asia Pacific, Starbucks stores will be cobranded "Starbucks Coffee: A Tata Alliance".

WHY INDIA? In 1991, the Indian economy experienced a rebirth after the liberalization policies of the new prime minister. Thirteen years later, India has become one of the most exciting economies in the world with a huge increase in foreign investment and consumers who are willing to spend, spend, spend! Due to massive outsourcing on the part of foreign companies especially from the United States, educated
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Indians are now presented with exciting career opportunities, excellent pay, and the confidence to spend more money. Time magazine reports that these new consumers command $10.5 billion in cash to burn. There couldnt be a more opportune time for the Starbucks Coffee Company to open its shops in the exotic land of India. The following is a proposal to open two new locations of Starbucks in India: one in Mumbai, a highly populated cosmopolitan business city, and the other in the nations capital, New Delhi. These locations were strategically picked to ensure success of the business venture and will serve as test locations. If the new stores are highly profitable, Starbucks can expand to more than 200 locations in India. Starbucks India locations will customize their menu to meet the tastes of their new target market. This includes the addition of more tea items taking in accordance that Indians are known to be more a tea-drinking population, as well as adding some new flavors in their coffee selection. The major competition for Starbucks at the moment is the Barista Coffee Co. which is an existing coffee shop branch in India, but Starbucks is expected to gain its market share for several reasons. The international popularity of the Starbucks brand will help the company step into the country. With superb marketing and reasonable prices neither of which the Barrista Coffee Company is able to provide, Starbucks will take over the market, and with its assurance of quality and commitment to giving back to the community, the company will earn brand loyalty. In 1971, the Starbuckscoffee company opened its first location in Seattle's Pike Place Market. Inspired by the espresso bars in Milan, Italy, Howard Schultz wanted to introduce the coffee bar culture to America. Now Starbucks has over 7, 500 locations in over 30 different countries. Whats the next step? Starbucks India! The probability of Starbucks successfully introducing its coffee bar culture in India is relatively high for many reasons. There is a new consumer culture emerging in India. Indias young are becoming world-class consumers, and multinationals are taking note. This change can be attributed to many factors. For one, the Indian economy went through a massive liberalization under the new minority government of P.V. Narasimha Rao in 1991. This revolution opened the economy to foreign investment and trade: it dismantled important controls, lowered customs duties, and devalued the currency: it virtually abolished licensing controls on private investment, dropped tax rates, and broke public sector monopolies. This was good news for both foreign and local entrepreneurs . Multinational companies such as Citibank, McDonalds and Motorola have been taking advantage of these new policies and finding a new home in India. As job opportunities increase in India, money stays in the palms of the Indian consumers enabling them to reinvest in the Indian economy. With the changing Indian economy, Attitudes towards money are also changing. The mantra for the average Indian family, as in most of Asia, has always been save, save, save, but young Indians today, inspired by job opportunities, have switched to spend,

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spend, spend. Pramod Saxena, president for Motorola in India, says , The attitude of the young generation is to enjoy life and spend money. Were looking at India as a major growth market. In addition, Indias pop culture shows a heavy desire to follow western trend. As put simply by Indian entrepreneur Ravi Deol, Indian consumers want to do what the rest of the world is doing. The young Indians buyers want everything from McDonalds, to Levis Jeans, and Brittney Spears CDs, but whats more is that they are willing to pay for it. Indian consumers will definitely welcome the internationally popular Starbucks Coffee Company to its country, as thirty-nine other countries have. The two new proposed locations for Starbucks Coffee shops are strategically picked to ensure their success. Both Mumbai and New Dehli are home to many call centers where these younger spenders work, and many colleges and Universities are also located here. This will allow Starbucks to target the younger consumer generation with the advertisement campaign. These two cities are also major hot spots for tourists, who recognize a multinational brand such as Starbucks. The new Starbucks menu must cater to the India taste, mixing traditional menu items with those that a customized for the Indian tastes.

1.

Analysis of International Business Situation

A. Economic, political and legal analysis of the trading country


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1. Economics: India's economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services. India has recently emerged as a vibrant free-market economy, rejecting its previous socialist path along with the old inefficient centralized bureaucratic state. In 1991, when the Congress party gained power under the leadership of P.V. Narashima Rao, the government liberalized the number of industries open to foreign investment, loosened approval requirements and allowed majority foreign equity ownership. The economy has posted an excellent average growth rate of 5-7% since then, reducing poverty by about 10 percentage points. Management guru, Peter Drucker sees India as an economic powerhouse, and the risen GDP of 8.4% in the last quarter of 2003 supports his argument. India has large numbers of well-educated people skilled in the English language. The country has recently become a major exporter of software services and software workers, and the information technology sector leads the strong growth pattern. With a world changing from an industrial to an informational economy, India is bound to play a monumental role in the future of the global industry.

2. Government: Indias government was formed in 1947 after the country gained its independence from the Imperial Britain. The Indian constitution adopted in 1950 was modeled after the United States constitution. Under this constitution, India is a federal republic, meaning its a representative democracy with power divided between the state and federal government. There also three branches including a bicameral legislature, executive branch, and judicial branch. Unlike America, the head of State and the head of government in India are different. The head of state is the President who serves more as a symbolic ceremonial figure, and has little power except for in emergency situations. The current Indian president is Dr. A.P.J. Abdul Kalam. The head of government is the prime minister and is responsible to the Indian parliament. The current prime minister of India is the Honored Atal Bihari Vajpayee. The current government of India is in favor of longterm foreign investment. In 1999, The Prime Minister called for a second Generation of reforms to include improving the investment climate, cutting red tape, a comprehensive WTO strategy, reform in agriculture and small scale industry, and better corporate governance. India's time tested institutions offer foreign investors a transparent environment that guarantees the security of their long-term investments. These include a free and vibrant press, a judiciary that can and does overrule the government, a sophisticated legal and accounting system and a user-friendly intellectual infrastructure.

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3. Laws: Though liberalized, economic policies for International business still have many restrictions. The most common business organization used by foreign investors in India is the locally incorporated company because other forms such as sole proprietorships and partnerships are essentially impossible under the Indian law. Companies may be public or private but the common public is not allowed to buy shares of the company and there can only be up to fifty shareholders. Import duties are applied to almost all goods entering India. The tariff system is based on the Harmonized System (HS) and tariffs are in the 40 to 60 percent range for basic raw materials, 60 to 100 percent for semi-processed goods, and 100 percent and above on finished and consumer goods. Shipments to India require a commercial invoice, a packing list and bill of lading. A certific ate of origin is not required on imports originating in the United States. The following are the foreign investment policies of India: All foreign investment projects, not considered a priority industry eligible for automatic clearance by the Reserve Bank of India, require approval by the Foreign Investment Promotion Board or a newly created committee for review of smaller investment projects. The government permits foreign firms to hold up to 51 percent equity in Indian venture on a case-by-case basis. Automatic approval is granted to foreign investments of up to 51 percent equity in 34 highpriority industrial sectors. Foreign companies are permitted to acquire land and own buildings as long as permission is obtained from the Reserve Bank of India. No specific tax incentives exist to attract foreign investment.

B. Trade Area and Cultural Analysis

1. Geographics and Demographics


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With a population of about 1.03 billion people, India is the second most populated country in the world. That makes up over 15% of the worlds population even though the country only occupies 2.4% of the worlds land. The male to female ratio is 1.08, and the birth rate is 1.9%. This large population provides a huge consumer market for businesses. On average 50% of Indians are literate. The breakdown of religions are as follows: Hindu 80%, Muslim 14%, Christian 2.4%, Sikh 2%, Buddhist 0.7%, Jains 0.5%, and other 0.4%. Many Indians are vegetarian and most do not eat beef. Some of the rituals associated with normal life are the frequent relegious fasting days of the Hindus, Muslims and Parsis.The national language is Hindi and about 83% of the population speaks it. Other than that, India has 18 official languages primarily asscociated with the different states, as well as over 700 different dialects. Though English enjoys associate status, it is the most important language for national, political, and commercial communication. India has been influenced by many cultures including the English, the Iranians, Central Asians, Arabians and Afghanistani. Therefore, India itself has a very diverse culture and history. The caste system though no longer sanctioned by the government still exists to a certain extent, yet it is slowly fading away. Geographically speaking, India is located in South Asia in the Eastern Hemisphere. There are 25 states and seven union territories and New Delhi is the capital. Though most of India is rural land, there are also large Urban areas. Indias land features are as diverse as its people, ranging from the tall Himayan mountains to tropical rainforests of Jamunake. Heavy rainy season and stretches of extremely hot summers are common.

2. Target Market a. Primary Target Market: The Primary target market for Starbucks Coffee Co. in India is the young both male and female from the ages of 16-38. This market is well educated and comes from middle class to upper middle class population. Since our locations are close the newly opened call centers where well educated and highly paid consumers work, special marketing strategies will be used to gain their brand loyalty to Starbucks. The geographics of the target market are mainly consumers who live or work in the vicinity of the two proposed locations for the Starbucks Coffee shops. b. The Secondary Target Market: The secondary target markets are the tourists in the areas. Tourists will recognize Starbucks, as it is a multinational company, as most tourists in India come from the countries of U.S., England, Germany, and Japan. This market will also fall in the middle to upper middle class population and will find the Starbucks India prices relatively cheap.

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3. Analysis of the potential location:

Both proposed coffee shops are in highly urban locations, and home to many call center locations, technology companies, major tourist hot spots, colleges and universities, and shopping centers. Mumbai: The Starbucks in Mumbai is located at Nariman Point near Churchgate and Gateway to India, which is a major tourist spot. In close proximity to Nariman Point are many technology companies and call centers. Nariman Point and the nearby area of Colaba are home to the higher-class affluent society. The Architecture around the area is very modern and developed. The roads are in good condition to maintain easy access to our location. New Delhi: The Starbucks in New Delhi will be located in Connaught Place, a large commercial shopping area in New Dehli. Most of the call centers and big companies are also in the Connaught Circle. New Dehli is the nearest big city to the world famous Taj Mahal, therefore also being the popular place for tourists from all over the world. The Starbucks Zone Office will be located in this Starbucks store.

1. Competition

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Undeterred by the entry of iconic US-based coffee chain Starbucks at competitive prices, entrenched players such as Caf Coffee Day, Barista and Costa Coffee are unlikely to go in for price war, and plan to continue with differentiated pricing strategy. Starbucks, which debuted here over the weekend, said it will follow low pricing strategy across all its forthcoming outlets, including the next one at the premium Taj Hotel. Starbucks, with Tatas as partner, has opted for competitive pricing that is nearly half the coffee chains charges elsewhere in the world with a cup of coffee costing about Rs 80 for a small offering and Rs 165 for a large one. The pricing will be the same across all outlets despite Starbucks having the reputation of being a highend premium brand. They try to have value proposition of all kinds equal to society, especially, when they open in mid-market. Cafe Coffee Day (CCD), which runs 1,350 stores, will continue to follow a different pricing strategy which includes the rental, as it is different for different outlets. Their pricing depends on consumer potential and what are the input costs that go into running that store, including rentals. Thy would have different pricing across different retail points. Their pricing is not determined by competition but by customers. CCD has no intention of changing that on the basis of somebody elses pricing. A hot coffee at Starbucks will range from Rs 80 to Rs 165, while a cold coffee will cost anywhere between Rs 120 and Rs 200. The CCD sells hot coffee at about Rs 80 and cold coffee at about Rs 150. Barista believes that their pricing varies across formats and does not depend on rentals. They dont open outlets in five-star hotels. Barista is the No 2 player with over 300 outlets. Costa Coffee said it welcomes Starbucks to the country, but believes the England-based company has an edge as it entered the market earlier. While we welcome the entry of Starbucks here, I believe we have a good understanding of the cafe consumer here which has been detailed into our business strategy including pricing. So, we will continue with what we are doing. Yes, our prices vary with rentals and demographics, Costa Coffee India chief executive Santosh Unni said.

2. Planned Operation of the Proposed Business:

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A. Proposed Organization
Starbucks India will be a privately incorporated business with horizontal organization. Each of the two stores will have a manager and five employees that will rotate shifts depending on the rush during the day. Starbucks believes in an open and friendly work environment and all employees of Starbucks refer to each other as partners. In addition to that a Zone Office and a small scale Roasting Plant will be set up at the New Delhi Location of Starbucks. The Zone Offices will oversee the regional operations of Starbucks stores and the positions include human resource generalists, facilities manager, account manager, finance representatives, sales specialist, a regional marketing specialist who will handle all marketing for Starbucks India and a legal specialist who will deal with the laws and customs of the new country. The roasting plant will have production and distribution responsibilities. The production team will produce the coffee; the distribution team will mange the inventory and distribution of products and equipment to the retail locations. Further accounting, finance, information technology, sales and supply chain management will be handled at the Starbucks Support Center (SSC) in Seattle, USA. (Starbucks) STARBUCKS India Starbucks store opened in India on 19th of October, 2012, in Mumbai. All legal paper work, licensing, and government approval were completed in December of the previous year. Human resource specialists from the US was sent out in January to interview and hire prospective employees to run the new locations.

The stores spaces were bought in January as well and one month was allocated for remodeling the space to fit Starbucks needs.

B. Proposed Product/service

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1. The Product: Starbucks Coffee shops sells a variety of coffee and tea beverages along with different types of pastries, confections, and baked goods, coffee-related accessories and equipment. The coffee shops provide customers with a pleasant place to come and relax, study, work, or have business meetings. Both locations will provided wireless Internet access in the stores so that customers can bring their laptop and continue their work if they wish. The Starbucks Coffee Company has customized their menu to fit the tastes of the Indians. A new menu was formulated after several months of research and development. There are some common tastes preferences of the Indians known already. For example, Indians tend to take more cream in their coffee. Also, the skim milk option will not be offered in India because dieting is not a commonly accepted practice in the country. Indians will feel that they are being cheated out of their money if skim milk is put in their beverages. Indians also like spices in their tea and coffee, especially ginger and black clove. One of Indias favorite fruit flavors in mango, and in fact the mango is Indias national fruit. The coffee beans and tea are bought from local Indian farmers in order to support the local agricultural economy, save money in transportation and tariffs, and gain tax benefits. Through inspections of the crops, Starbucks ensure the high quality and stands behind its brand name. These goods are then transported to the Starbucks roasting plant located near the New Dehli location and then transported to Mumbai making use of Indias vast and efficient railway system. Equipment and other necessary supplies are shipped from the United States keeping in mind there is a tariff on all these items. The inventory policy is to keep the stores stocked but not overstocked to ensure freshness of products. Better gauges of the numerical figures in the inventory policies can be made after observing consumer trends. To begin with policies were formulated assuming an average of five hundred consumers per day.

2. Transportation of goods: The raw goods (coffee beans and tea) are then transported to the Starbucks roasting plant located near the New Dehli location and then transported to Mumbai making use of Indias vast and efficient railway system, and supply trucks. Equipment and other necessary supplies are shipped from the United States keeping in mind there is a tariff on all these items.

C. Proposed Strategies
1. Pricing:
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Competitive pricing is necessary for the success of the venture, but it needed starbucks to take costs into consideration. Because of the costs involved in startup, transportation and imported goods, the price is set at about USD 1 per drink using the concept of zone pricing to make the coffee affordable to the target audience. Exchanges are done in rupees so that would be about 55 rupees. The prices for all good are relative to the others. With the use of this pricing policy, Starbucks prices are 20% lower than those of the Barista Company. This use of penetration pricing eases the companys slide into the market place. Though it is possible to get a cup of coffee for merely 5 rupees in small stalls on the street, the success of the Barista Coffee Company show that the customers are willing to pay for better quality, service, and environment.

2. Promotion: Types of available media for marketing purposes are in India are very similar to those of the United States, which include everything from newspaper advertising to television ads. Since this was a test venture and there are only two locations of Starbucks being opened, the promotion for the store was very focused on their target markets. Billboard advertising on the roads leading to the store locations is a good way to increase awareness of the locations. Direct mail advertising with promotional coupons will be used to reach the homes of the target market. Sales brochures offering delivery services are sent to the local call centers and big companies. Costs: Billboards: 1500 rupees (USD 27.27) per 10ft by 15 ft billboard ad. Direct Mail: 3000 rupees (USD 55.55) per 2500 prints plus stamps costs to mail directly to the homes. Sales Brochures: 3500 rupees (USD 63.63) per 2500 prints. Starbucks, in partnership with Jump Start Co., is committed to giving back to the communities of its locations. Starbucks India will sponsor scholarship contests for the local students and make an annual large donation of 275, 000 (USD 5000) to the local public school systems. This environmental campaigning will give Starbucks positive publicity.

4. Planned Financing

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REVENUE: The predicted amount of customers per day for the Starbucks Coffee Co is 3,000. If USD $1.20 is amount of money on average spent by each customer then the projected revenue per day is $3,600. If Starbucks closes for only 3 days in the year for Diwali (Indian holiday) and Christmas, then the per annum revenue would be USD $1, 306, 800. PROFIT: Subtracting the predicted costs from the predicted revenue, we get a per annum untaxed profit of USD $433, 545. Taxes are 33% for foreign businesses in India. This would give us the new dollar amount of profit to be USD $289, 027.17 Keeping in mind that the costs for the following years will reduce and revenues will increase, giving higher amounts of profit. After the end of the first fiscal year, the company will determine whether or not it should expand in the country of India. If the first year proves to be a success, Starbucks Coffee can open over 200 location in the subcontinent of India, taking advantage of their international partnerships with Sheraton (Starwood) Inn, and Hyatt Inn. Starbucks will also try to win accounts with local airlines companies, so that they may serve Starbucks drink on flight. In three years profits are expected to exceed one million dollars per annum.

Bibliography
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1. Free Online World Encyclopedia. : Demographics of India. http://en.wikipedia.org/wiki/Demographics_of_India 2. Indian Television Marketing to the Demographics: http://www.indiantelevision.com/marketdatabase/demographics/ageprofile.htm#urban 3. US Census Bureau Summary information on India: http://www.census.gov/cgi-bin/ipc/idbsum?cty=IN 4. The Population of India http://www.eia.doe.gov/emeu/cabs/india/indiach1.htm 5. Discover India- Economics: http://www.meadev.nic.in/economy/menu.htm 6. http://seekingalpha.com/article/341811-starbucks-india-focus-leaves-room-for-fantasy
7. http://www.internationalreporter.com/News-19341/can-starbucks-to-make-phenomenal-changesin-indian-market.html 8. http://www.business-standard.com/india/news/tata-coffee-brings-starbucks-to-india/421757/

9. http://www.thehindubusinessline.com/industry-and-economy/marketing/caf-coffee-day-barista-tocontinue-differentiated-pricing-strategy/article4019214.ece

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