Vertical Integration in Starbucks Essay Example

Vertical Integration in Starbucks Essay Example Vertical Integration in Starbucks Paper Vertical Integration in Starbucks Paper Starbucks Vertical Integration Ques 1. Starbuck’s value chain is farmers, roasting, distribution, and retail. 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 their buyer. Both of these allow both parties to contract without high transaction/bargaining cost. Furthermore, Starbucks is able to outsource farming because the company is able to reduce the moral hazard problem. Since Starbucks is able to contract with the farmers and is willing to pay more for premium beans , the company can create high powered incentives within the contract to ensure that it will receive high quality beans from the farmers. Roasting: Roasting is vertically integrated into Starbucks, such that the company roasts the beans itself . Due to a potential hold-up and moral hazard problem that leads to high transaction cost, it is inefficient for Starbucks to outsource bean roasting. Since Starbucks values the quality of their product at the highest priority and â€Å"considers the roasting of its coffee beans to be an art form† , they have strict and high standards for their quality checks. More specifically, they use a blood-cell analyzer to test color of the beans. This requires a high degree of asset specificity such that other companies do not require this equipment to check the quality of their roasted beans and leads to a potential hold-up problem. Moreover, as evidenced by the fact that the Senior Vice President, on a daily basis, checks the quality of coffee samples, Starbucks prefers tight control over quality inspection. Since company’s quality standard is so controlled and strict, it would be very costly to negotiate a contract that would be enough to provide type of maintenance Starbucks requires and prevent a moral hazard problem. Distribution Warehouses: Starbucks is not vertically integrated in distribution and warehouses. It outsources to distribution and warehouses specialists , because there is low risk of a hold problem and low transaction cost for contracting. Market price for distribution and warehousing is established because there are many distributers and many buyers who need their service. Additionally, warehouses and transportation used for distribution (i. e. trucks) are not specifically tied to coffee beans and have really low degree of asset specificity. Retail: Retail is vertically integrated into Starbucks. Instead of franchising, it has company-owned stores. Starbuck choose to vertically integrate due to its main strategy of selling a unique â€Å"Starbucks experience. † More specifically, Starbucks stores aim to create a â€Å"consistent, inviting, stimulating environment that evoked the romance of coffee, that signaled the company’s passion for coffee, and that rewarded customers with ceremony, stories, and surprise. For this strategy to be successful, the company needs to â€Å"replicate precisely† this experience in all of its stores. But the amount of control required to maintain this much consistency is too costly to negotiate in order to create a contract, and therefore inefficient to outsource. Ques 2. Roasting: The integration of roasting is a source of competitive advantage because this capability is both valuable and rare. Starbucks’ full control of the roasting process allows the company to ensure that the beans are roasted at a high quality. Consequently, Starbucks is able to offer a product that satisfies the demand for premium coffee. Moreover, the resulting difference in quality between Starbucks’ coffee and their competitors’ allows Starbucks to differentiate itself and gain market share. Retail: The integration of retail is also a source of competitive advantage because this capability is also valuable and rare. Through Starbucks full control and consistent management of the distinctive Starbucks experience, the company is able to create a strong brand equity. Establishing a strong brand equity allows the company maintain market presence. Additionally, considering that there are many coffee producers competing against Starbucks, having a strong brand equity allows the company to differentiate themselves. Ques. 3 Roasting: The integration of roasting is only a temporary competitive advantage for the Starbucks because this capability is imitable. Although Starbucks has its own method of roasting and a high quality inspection process, there is no evidence that the process is a protected secret. Hence, competitors are able to copy the process as long as they have the financial resource, equipment, trained employees. However, if the roasting and inspection process is indeed a protected secret, then integration of roasting is a sustainable competitive advantage. As a protected secret, competitors will not be able to imitate it. Furthermore, this capability is firm specific to Starbucks considering that the company has been roasting their own coffee beans since the beginning. Retail: The integration of roasting is a sustained competitive advantage for the Starbucks. Through full control of retail and consistent management of the distinct â€Å"Starbucks experience† over time, Starbucks has created a strong brand equity that can be sustained. The Starbucks brand is now synonymous with premium coffee. However, if Starbucks fails to maintain consistency in the management of its retail and â€Å"Starbucks experience,† opportunities will become available for competitors to produce similar retail experiences to Starbucks and steal market share. Bibliography 1. ) Starbucks Coffee Company, Tuck School of Business at Dartmouth, p. -9, http://mba. tuck. dartmouth. edu/pdf/2002-1-0023. pdf 2. ) Starbucks Corporation, the McGraw-Hill Companies, mhhe. com/business/management/thompson/11e/case/starbucks-2. html 3. ) Starbucks Corporation: Competing in a Global Market, UW Business School, p. 3, http://bschool. washington. edu/gbc/documents/starbucks_final. pdf 4. )Starbucks Coffee Company, p. 15. 5. )Starbucks Corporation, mhhe. com/business/ma nagement/thompson/11e/case/starbucks-2. html 6. ) Ibid.

Using the Spanish Preposition Por

Using the Spanish Preposition Por Por is one of the most useful and common prepositions in Spanish, but it can also be one of the most confusing to English speakers. That is because it is sometimes translated as for, as is the preposition para, and they are very seldom interchangeable. As a beginner, it is probably best to learn the two prepositions separately and to think of por as a preposition that usually indicates cause or motive, rather than simply as a translation for for. (It also often means by, but it isnt the only Spanish preposition translated that way.) So in the examples of por usage that are given below, a translation (sometimes awkward) using a word or phrase other than for is given, in addition to a translation using for (where appropriate). By learning how por is used rather than how it is usually translated, you will find it easier to learn in the long run. Por To Indicate Cause or Reason In these usages, por can often be translated as because of.  ¿Por quà ©? (Why? Because of what? For what?)Trabajo aquà ­ por el dinero. (I work here because of the money. I work here for the money.)No podemos salir por la lluvia. (We cannot leave because of the rain. We cannot leave due to the rain.)Conseguà ­ el empleo por mi padre. (I got the job because of my father. I got the job through my father.)La asistencia en desempleo por causa de desastre es un programa financiado por el gobierno federal. (Disaster unemployment insurance is a program financed by the federal government. Unemployment insurance for disasters is a program financed by the federal government.) Por as an Indication of Support Por is often used this in discussion of political races and issues. Voto por Julia Gonzles. (I am voting for Julia Gonzales. I am voting in support of Julia Gonzales.)Es socio de Mà ©dicos Por Justicia. (He is a member of Doctors for Justice. He is a member of Doctors Supporting Justice.)Mi padre est por no violencia. (My father is for nonviolence. My father is a supporter of nonviolence.)Es el representante por el estado de Nueva York. (Hes the representative for the state of New York. Hes the representative on behalf of the state of New York.) Por To Indicate an Exchange One common use of this type is telling how much something cost. Comprà © el coche por $10.000 dà ³lares.(I bought the car for $10,000. I bought the car in exchange for $10,000.)Gracias por la comida. (Thanks for the meal.)Quisiera cambiar la camisa por una nueva. (Id like to exchange the shirt for a new one.)Hago cualquiera cosa por una sonrisa. (I do anything for a smile.) Por To Indicate Placement In such uses, por doesnt indicate a destination, but rather proximity or location. It is often translated as by or through. Pasaremos por San Francisco. (We will pass through San Francisco.)La escuela no est por aquà ­. (The school isnt near here.)Caminar por la montaà ±a es una actividad de alto desgaste. Hiking through the mountains is a high-fatigue activity.) Por Meaning Per Por is a cognate of the English per In informal contexts, a English translation of for is common. El tres por ciento tiene dos coches. (Three percent have two cars.)Comprà © dos regalos por persona. (I bought two gifts per person. I bought two gifts for each person.)Trabajo 40 horas por semana. (I work 40 hours per week. I work 40 hours a week.) Por Meaning By Por is usually translated as by when it points to someone performing an action. Common uses are indicating the author of a book or other work, or indicating the performer of a passive verb. Fue escrito por William Shakespeare. (It was written by William Shakespeare.)Los tacos fueron comidos por los estudiantes. (The tacos were eaten by the students.)Prefiero el libro por Isaac Asimov. (I prefer the book by Isaac Asimov.)Puedo leer por mà ­ mismo. (I can read all by myself.) Por in Set Phrases Many fixed phrases using por are commonly used as adverbs. The meaning of such phrases isnt always obvious by translating the words individually. por causa de (because of)por cierto (by the way)por el contrario (on the contrary)por lo general (generally)por supuesto (of course)por otra parte (on the other hand)por fin (finally)por lo menos (at least)