1.6.

3 STARBUCKS CONFIRMS
RAPID-GROWTH STRATEGY
 Define the term ‘internal growth’. 2
Internal growth refers to advancements or improvements of a business due
to changes in the internal system or operation of the business. Examples
of internal growth include increasing production rate, increased quality of
products and developing to different markets.

 Outline two reasons why Starbucks has adopted a rapid expansion

strategy. 4

 Firstly, Starbucks has adopted a rapid expansion strategy because it

may lead to large profit gain. Mr. Schultz states that "No market
potentially has the opportunities for us as China hopefully will", this is
because of China's fast growing economy, lack of strong competitors
and large population size. Consequently, expanding rapidly into the
China market will attract lots of customers, therefore increase
profitability dramatically.

 Secondly, Starbucks decided on expanding rapidly as their primary

strategy because they see expanding their product lines as a profitable
internal growth strategy. By rapidly expanding, Starbucks is able to

 Analyse the possible advantages of Starbucks focusing growth in China.

4

 A possible advantage of Starbucks focusing growth in China is that

they will benefit from economies of scale. This is because as they
expand in China, they will require more materials and input to product
their products. As a result, the cost per unit of the input will decrease.
This is advantageous because Starbucks can use more money to invest
in other things such as advertisement.

 Evaluate the potential economies of scale that Starbucks might experience

from further expansion. 10

From further expansion, Starbucks will certainly experience economies of

scale, decreasing their cost per unit of products as their output grows.
However, expanding also creates other problems that will cause decrease

1.6.3 STARBUCKS CONFIRMS RAPIDGROWTH STRATEGY 1

 customer stastification, and potentially diseconomies of scale, which
ultimately decreases Starbuck's profitability.

Economies of scale is when a business saves the cost per unit of products
as their total output increases. This can be a result of internal factors such
as bulk buying, improvement in production process and

1.6.3 STARBUCKS CONFIRMS RAPIDGROWTH STRATEGY 2