The quantity of rivals in the mentioned
market will determine the competition intensity. As referenced to the Porter’s
five forces applied in the Icelandic market, the competition intensity is
moderate to high. Local coffee stores have had a chance to blossom due to the
lack of big commercial chains like McDonald’s, though with the approaching
appearance of Starbucks, their position in the market will not be as secure as
As per the theory published by
Brassington and Pettitt (2000), the period of time a firm wishes to spend with
the intention to expand to a brand new market is the pace component in the
internationalization procedure. In Starbucks’ case, the corporation’s size as
well as the pace of international development are continuously increasing.
Resource commitment and corporation’s
size are two factors that are linked to each other. Despite of that, the
features of Iceland’s business conditions was uncommon from what the company
was familiar with, and Starbucks was lacking information of this brand new
market. Starbucks has capital and management, but lacked the huge amount of
resources to invest in Iceland’s internationalization. Thus, establishing the
licensing arrangement with a qualified firm is a rational method to obtain
information from its local collaborator. One more point worthed mentioning is
that Starbucks could in some ways balance out the restriction of its capital
for international development with the royalty fee earning through the
Porter’s Five Forces
First described by Michael Porter in
his classic 1979 Harvard Business Review article
(Porter, 1979) on how competitive forces shape strategy within an industry.
Porter’s theory will be illustrated in this segment, with emphasis on the
elements that are related for this Starbucks in Iceland’s case, which intends
to provide a strategic framework to assess industry attractiveness and how
trends will affect industry competition. The five forces listed including
rivalry intensity, supplier power, buyer power, threat of entry and threat of
substitutes are merged as demonstrated in the figure below.
· Rivalry among existing competitors: Moderate.
The fixed expenses related to Starbucks are high, as well as the retreat
barriers because of the expenses of assets and resources they have obtained.
The switching costs to buyers are low since there are many other coffee
options, and the prices of Starbucks are the highest. The increase of
competition in Iceland from direct competitors is rising from Dunkin Donuts
with promotions on social media and opening 16 stores all throughout the
country. With Iceland’s lack of big commercial chains like Starbucks and
McDonald’s, smaller businesses have had a chance to blossom (Te & Kaffi,
Mokka, Stofan Cafe).
power of suppliers: Low. Starbucks is able to
benefit from its size and advantage from economies of scale. Though it is able
to buy its input goods from any supplier, the company spent 26% more than the
market price for all of its coffee in fiscal year 2014 report. Starbucks’
suppliers are comparatively limited, despite of the power