Contemporary Developments in Business and Management - Assignment Example

1. INTRODUCTION An organisation’s effectiveness is influenced by its external and internal environment. The external environment is the environment outside the organisation. The internal environment comprises such factors as worker interactions, organisation culture, etc. There are 2 types of external environment, namely the general (mega) and the task environment. The general (mega) environment is the broad conditions and trends in the societies in which the organisation operations and is not within the organisation’s control. The elements of the general environment are the political systems, economic systems of societies, socio-cultural elements, technological systems of societies, ecological systems, and legal systems. The task environment is the segment of the external environment with which an organisation interfaces on a regular basis and is of immediate interest to the organisation. It is within the organisation’s control. The elements of the task environment are the customers and clients, competitors, suppliers, labor supply, government agencies, etc (Bartol and Martin Chapter 3). PESTEL analysis and Michael Porter’s (137-45) five forces analysis will be used to outline the external influences to which the beer industry and Guinness International (Guinness) are subjected. SWOT analysis will be used to outline the external and internal influences to which the beer industry and Guinness are subjected. Guinness is in the beer brewing industry founded in 1759, with breweries (by way of license arrangements) in almost 50 countries and exports to around 150 countries (Diageo, 4; Guinness & Co.). Next, the beer industry’s policies and decisions are analysed with regards to political influences. This is followed by using Robert Miles’s (77) dimensions of corporate social responsiveness to determine the effectiveness of the industry’s response. Lastly, recommendations for improvement in the response of the industry are made. 2. PESTEL ANALYSIS This section analyses the influences of the political, economical, social, technological, ecological, and legal environments in which the beer industry operates. In this report, political, legal, and social issues are analysed as one issue because social issues often lead to legislation, and legislation may be seen as political acts. Alcohol is a dependence-producing drug that causes detrimental societal and physical effects. According to the World Health Organisation (WHO), it leads to diseases, early mortality, accidents, and violent crimes (Camerra-Rowe, 11-12, 17). Due to these social influences, the beer industry operates within a tight legal environment. Legislation exists in various nations to curb the advertising and excessive consumption of alcohol (Camerra-Rowe, 5, 14-15). Examples include control on drunk driving, operation hours of pubs, advertising, distribution, and even import controls, such as in Sweden (Camerra-Rowe, 13-15; Diageo, 9). Another external influence to which the beer industry is subjected is the economy. Beer, being a luxury product, depends on the economy to stimulate demand. With the economic development of the developing nations, the demand for higher quality beverages, and hence beer is set to grow (Asia Pacific Breweries, 1; Diageo, 13; Krones AG). Ecologically, beer brewing contributes to global warming by emitting carbon dioxide. The use and disposal of bottles and packaging also contribute to environmental pollution (Brewers Association of Japan). Hence, beer brewing is a cause of concern for many environmentalists (Camerra-Rowe, 8, 24). Technological influence is not as great as political influence in the beer industry. No doubt, the proper application of technologies such as the brewing facilities and the bottling and packaging technology could help to cut costs and increase efficiencies. However, technologies may be imitated by competitors and any competitive advantages will soon disappear. In the beer industry, technology is not the critical success factor for brewing fine beer, more important are the brewer’s marketing image and the recipe (Alan Moen). 3. PORTER’S FIVE FORCES ANALYSIS Porter’s five forces analysis is also a framework for determining external influences. The five elements in this framework are barriers to entry, intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes. Barriers to entry in the global market are medium. Through the licensing arrangements typically used in the food and beverage industry, the capital required to gain access to the foreign market is low. However, the import controls of many countries on beer represent high barriers to entry. The beer industry sees a consolidation in recent years (Camerra-Rowe, 8) that mitigates competition. The intensity of competition is low, with only a few key competitors in each market. This includes Heineken in Ireland, both Heineken and SABMiller in Africa, Coors Brewing (Carling) in the United Kingdom, and Carlsberg in Malaysia. Guinness beer is sold to retail shops and wholesalers. Hence, the bargaining power of buyers is low, because they are fragmented, compared to a few large beer breweries (Diageo, 6). Similar for the licensees in other countries. Suppliers of ingredients of beer such as tequila, neutral spirits, molasses, rum, cereals, sugar, and a number of flavours are located around the globe. So too are the suppliers of glass. Compared to the beer industry, they are more fragmented. Hence, the bargaining power of suppliers is low (Diageo, 5). Moreover, sourcing for suppliers globally reduces their bargaining power. This is because the raw materials of beer are mostly agricultural products which price depends on the weather conditions and governmental control. Hence, buying from the global market diversifies risk (Diageo, 12). The threat of substitutes is high. Substitutes of beer includes other types of alcoholic drinks, especially spirit (Camerra-Rowe, 10), as well as other types of drinks, such as bottled drinks and milk. 4. SWOT ANALYSIS Having analysed the external environment, let us perform an internal analysis of the strengths, weaknesses, opportunities, and threats specific to Guinness. 4.1 Strengths Guinness is strong in opening markets, marketing and advertising, and human resources. First, Guinness has enjoyed sales volume increases in Asia in recent years (Asia Pacific Breweries Limited, 2). It is also established and strong in the Africa market (Diageo, 7). Second, it is strong in marketing and advertising (Asia Pacific Breweries Limited, 2). Its main forms of advertising are magazine, newspaper, point of sale, poster and billboard advertising, and radio, cinema, and television advertising where appropriate. It also uses consumer promotional programmes in the on trade, such as bars and restaurants (Diageo, 8). Third, it is strong in human resources. Guinness International Learning Centre was set up for the purpose of training and development (Diageo, 8; Guinness Storehouse). Besides, the building of a pool of talented human resources is its core strategic imperative (Diageo, 8). Hence, it provides a competitive compensation package (Diageo, 8). Moreover, its parent company, Diageo is “the world’s leading premium drinks business with a collection of international brand” (Diageo, 1). 4.2 Weaknesses The weaknesses of Guinness are that it is not the leader in market share in Asia (Asia Pacific Breweries Limited, 15). Moreover, there is no emphasis on research and development (Diageo, 9). 4.3 Opportunities Opportunities exist in foreign markets. Europe, with the highest per capita alcohol consumption in the world (Camerra-Rowe, 12), is a mature market. Alcohol consumption in eastern Europe, Asia, Indochina (Vietnam and Cambodia), and America is rising (Asia Pacific Breweries Limited, 1; Camerra-Rowe, 8). The market is fragmented due to differences in taste around the world, as well as national barriers to trade that stipulate the allowable ingredients, alcoholic content level, and size of containers of beer (Camerra-Rowe, 5). For example, the Chinese prefers lighter tasting beer (Asia Pacific Breweries Limited, 4). In certain countries, such as Germany and the Netherlands, legislation is not so strict. Marketing and advertising are still self-regulated by the industry (Camerra-Rowe, 15). Proactive steps, such as education on responsible drinking and research, have been adopted by the industry in the spirit of self-regulation (Camerra-Rowe, 21). This is an opportunity because self-regulation preempts legislation that might place more restrictions. Also, the beer industry could be seen in a positive light. Moderate amount of drinking is beneficial for health (Camerra-Rowe, 22). It is even considered as food in most of Europe (Camerra-Rowe, 25). This is an opportunity to increase sales by advertising more of the beneficial effects of beer. 4.4 Threats Legislation poses the highest threat to Guinness. Increased focus on public health by the World Health Organisation (WHO) and some national governments lead them to urge for stricter environmental and advertising legislation (Camerra-Rowe, 5, 13, 19; Diageo, 9). WHO’s Europe regional office drew up a European Alcohol Action Plan, which was approved by member states, to reduce per capita alcohol consumption (Camerra-Rowe, 13). Another legislation that concerns the protection of small breweries is also a threat to a market leader such as Diageo who has well over 30% of the market share (Corporate Watch UK). Under the current European law, large breweries with more than 30% of the domestic market share are not able to participate in the property loan scheme, whereby the brewery provides loans to pubs and restaurants in return that they exclusively sell the brewery’s beer (Camerra-Rowe, 10). Lastly, health concerns of consumers has decreased the consumption of beer and increased the consumption of other beverages, such as bottled drinks and lemonade (Camerra-Rowe, 8). 5. EXTERNAL POLITICAL INFLUENCES ON POLICIES AND DECISION-MAKING To manage the political environment, two techniques are used that influence policies and decision-making. They are favorability influence and domain shifts (Bartol and Martin Chapter 3). 5.1 Favorability Influence Favorability influence is the active manipulation of the environment to the organisation’s advantage (Bartol and Martin Chapter 3). Examples of favorability influence include advertising and public relations, boundary spanning, and joint ventures. An example of advertising and public relations to actively manipulate the environment to the industry’s advantage in the beer industry is the establishment of The Amsterdam Group in response to the rising concern in the 1990s about the rising environmental and advertising legislation. Its objective was to promote responsible drinking in Europe, self-regulation in the industry, and to participate in European level discussions on policies concerning alcohol (Camerra-Rowe, 5). Another example is the heavy use of advertising by breweries to build brand loyalty, stimulate market demand, and secure their status as the market leaders after the introduction of regulations by both the EU and the United Kingdom government to exempt breweries from property and loan ties. Such property and loan ties allow beer breweries to enjoy exclusive distribution rights with the retailers with whom the agreements are made in return for the beer breweries extending property loan to the retailers (Camerra-Rowe, 8). Boundary spanners are those who interface with the environment. They either bring in information from outside into the organisation or relay information to the outside world (Bartol and Martin Chapter 3). For example, in 1983, when the European Union adopted a regulation to remove the practice of property and loan ties in an attempt to deregulate the market, beer brewers lobbied nationally against this regulation (Camerra-Rowe, 4). This strategy is partially successful as beer breweries can still arrange for exclusive ties with retailers, but only for a maximum period of ten years (Camerra-Rowe, 4). Another example is the setting up of a European trade association – the Confederation des Brasseurs du Marche Commun (CBMC) in Brussels in 1958 (now called the Brewers of Europe or BoE) to obtain information about proposed EU policies (Camerra-Rowe, 4). The BoE has not been very active and efficient until the mid 1990s when increasing concerns about consumer health led to government recommendations such as the restriction of sales and advertising of alcoholic beverages to children and adolescents, the setting of a maximum level of permitted levels of alcohol in the blood of motor vehicle drivers, and the restriction on health claims on alcohol (Camerra-Rowe, 16). These recommendations, together with the goals of the General Directorate for Health and Consumer Protection (DG SANCO) to decrease the number of alcohol related road accidents, postpone the age at which children and adolescents may start to drink alcohol, improve the enforcement of existing regulations on advertising, improve product information and the labeling of packaging, and combat harmful drinking patterns such as binge drinking, impelled the beer industry to strengthen the BoE (Camerra-Rowe, 17). A General Secretary was chosen from outside the beer industry, the financial resources of the organisation was increased, and bought a new building for its new headquarters two blocks away from the European Parliament. In order to respond more quickly to new government policies, the BoE has changed its decision-making procedures. A presidential advisory committee to enable the BoE to take positions on issues more quickly. It has also set up a European Parliament Bier Club to increase its presence. A communications department was set up in order to promote a better image in the press (Camerra-Rowe, 18). The strategies of the BoE have also changed. It has become more aggressive in shaping public debates about beer consumption and its role as a responsible corporate citizen. First, it has endeavored to educate the public about responsible alcohol consumption. It has published a brochure describing the campaigns carried out by the industry to discourage beer consumption by children and adolescents and to help parents educate their children about the consequences of drinking (Camerra-Rowe, 19). Secondly, a few of the largest breweries contributed the funds to set up an independent council – the European Research Advisory Board. The results of the research will be published regardless of whether they are favorable to the industry or not. The reason for this strategy is to render the beer industry credible (Camerra-Rowe, 20). Thirdly, the BoE has also emphasised the positive effects of moderate beer consumption such as reduction of risks of coronary heart diseases (Camerra-Rowe, 20). Lastly, the BoE has strove for promote self-regulation. It issues guidelines concerning advertising and product information and packaging. Specifically, these guidelines stipulate that advertising should be targeted at people who are above the legal drinking age and should not encourage excessive or irresponsible drinking. Individual brewers have also formulated codes of conduct (Camerra-Rowe, 20). Joint venture is a technique used when the firm has only part of the expertise needed for a product or project. Mutual benefit exists for both the partners (Bartol and Martin Chapter 3). For example, due to national barriers to trade that stipulate the allowable ingredients, alcoholic content level, and size of containers of beer (Camerra-Rowe, 5), it would be quite difficult for a single brewery to customise its products to all the markets. Recent years see the flourishing of consolidation and mergers and acquisitions activities in the beer industry (Camerra-Rowe, 6). An example is SABMiller with its headquarters in London that is a merger of Miller in the United States, Peroni in Italy, Brouwar Dojidlyn in Poland, and d’ Aurora in Romania (Camerra-Rowe, 7). 5.2 Domain Shifts Domain shifts occur when the situation is so bad with the current products that the organisation packs up and leaves or changes the mix of products and services offered by the firm (Bartol and Martin Chapter 3). For example, many beer breweries now manufacture alcoholic soft drinks. 6. EFFECTIVENESS OF THE INDUSTRY’S RESPONSE To measure the effectiveness of the industry’s response, the dimensions used in Miles (1987)’s study of the corporate social responsiveness of a large sample of insurance companies will be applied to the beer industry. They are reliability of executives, attentiveness of executives, preparedness of executives, credibility of companies’ statements, accessibility of executives, perceived legitimacy of outsiders, communication with publics, clarity of interests, and overall corporate responsiveness. The reliability of executives is the extent to which they stand by their commitments. In this regard, the beer industry can be considered reliable. For example, the Belgium Arnoldus Group, which is the social aspects of the Belgium Brewers, instituted a campaign in 1995 to heighten people’s awareness of the dangers of drinking and driving. This campaign has been so successful that the European Commission agreed in 2001 to fund similar campaigns in other EU countries (Camerra-Rowe, 19). The attentiveness of executives is the extent to which they listen and are receptive to information flowing from outside the company. The beer industry strives to be attentive by setting up the presidential advisory committee to enable the BoE to react to issues more quickly. The preparedness of executives is the extent to which they are aware of (have identified and analysed for impact) potential public policy issues. The beer industry had recognised the impact of more regulatory threats in the early 1990s when health and public concerns began to emerge, hence the reorganisation of the CBMC. The credibility of statements is the extent to which the information communicated by the industry could be believed. In this regards, the beer industry has research council – the European Research Advisory Board. And the results will be published regardless of whether they are favorable to the industry or not. The accessibility of executives refers to the extent to which they are available for responses and discussions. The beer industry is highly accessible as it has set up a European Parliament Bier Club to increase its presence. Moreover, its new headquarters, located two blocks away from the European Parliament, has conference rooms where brewers can hold meetings with EU officials. The perceived legitimacy of outsiders is the extent to which company executives respect the purposes of outside critics. The beer industry has been effective in this regard. The BoE has participated in DG-SANCO’s draft of alcohol control policy and has submitted their comments on the draft. The reason that the EU officials have been willing to include industry representatives is that the industry admits that alcohol abuse is a problem and has taken initiatives to self-regulate (Camerra-Rowe, 23). Communication with the public is the extent to which the company communicates its programs and interest to the public. The BoE has been communicating its campaigns to the public by publishing educational brochures about responsible drinking. Clarity of interests is the extent to which the company clearly defines its own interests in responding to public issues. The beer industry has been quite effective in this area. It held its third Beer and Health Symposium in the fall of 2003 to disseminate the findings of research that moderate consumption of beer reduces the risk of coronary heart diseases. However, advocacy groups such as Eurocare and public health experts view the motives of the industry with suspicion. Several health experts expressed their concern over the relationship between the European Commission and the BoE and called for greater transparency on the meetings between the beer industry and European Commission officials (Camerra-Rowe, 23). Overall corporate responsiveness refers to the extent to which the company has an effective overall process for learning about and adapting to changing societal norms, pressures, and public issues. Overall, the industry’s current response to political influences has been partially effective. It has taken actions that will ensure its long-term viability by preempting further government regulations. Most national governments have not targeted overall consumption of alcohol but have concentrated their attention on problem groups such as minors, binge drinkers, and drunk drivers (Camerra-Rowe, 23). Most of Europe still regard beer as food (Camerra-Rowe, 23). The DG-SANCO has allowed it to participate in policy making. This is a change from its reactive response before the 1990s. However, the European Commission prefers a mixed approach to alcohol related harms that includes both education measures and control policies (Camerra-Rowe, 23). Also, while the European Commission is willing to see whether self-regulation works, it does not exclude further regulation if the results are not forthcoming (Camerra-Rowe, 23). 7. RECOMMENDATIONS Although the industry has formulated self-regulation guidelines limiting advertising and packaging, they still cannot overcome the temptation to cheat due to the competitiveness of the industry (Camerra-Rowe, 25). Norms and culture needs to be established in the industry so that firms do not have to push or even exceed the boundaries. Breweries that flout the self-regulation guidelines could be publicly sanctioned and those that exemplify an ethical firm should be commended, perhaps through trade association publications, seminars, awards, etc. Also, the industry has to be more explicit in its interests. It should publish the agenda and outcomes of its meetings with the European Commission so as to make such meetings more transparent. Next, most of its favorability influence tactic has been used on the European Commission and the European Parliament. It should expand the use of this tactic on other stakeholders such as the European Court of Justice (Camerra-Rowe, 23). It should also address the concerns of other groups of stakeholders such as the Eurocare, the WHO, and other health, consumer, environmental groups, and television companies. Also, given that self-regulation has not been able to reduce the costs of binge drinking and minor drinking to the government, alcohol control policies are likely. The industry should begin to response to this. As favorability influence has been used and has only been partially successful, the industry should now switch to adaptation, the passive adaptation to the environment. Individual firms could forecast the impact on demand, sales, and profitability of governmental control. If the industry is not a viable one to remain in, it should then begin to adopt domain shifts. The tobacco industry went into beer and food business due to strict government controls. The breweries might enter the soft drink industry or begin to produce other beverages. Alternatively, it could explore foreign markets where legislation is not so strict and where income is rising. REFERENCE Asia Pacific Breweries Limited. Asia Pacific Breweries Limited Annual Report. 28 June 2006. Bartol KM and Martic DC 1994. “Management”. Mc-Graw Hill. New York. Brewers Association of Japan. Keidanren Voluntary Action Plan on the Environment. 28 June 2006 Corporate Watch UK. Diageo PLC. 28 June 2006 Diageo. Business Description. 28 June 2006 Guinness Storehouse. Guinness Storehouse – New Home to the Guinness International Learning Centre. 28 June 2006 Miles RH 1987. “Managing the Corporate Social Environment: A Grounded Theory”. Prentice Hall, New Jersey. Moen, Alan. Art and Technology in Brewing Beer. 28 June 2006 Camerra-Rowe, Pamela. “Trouble Brewing? EU and Member State Public Health Policy and the European Beer Industry.” European Policy Paper #10 28 June 2006. 17 November 2005 Guinness & Co. The Story: The World. 28 June 2006 Krones AG. Annual Report 2004 – Status Report Company Situation and Business Development. 28 June 2006 Porter, Michael. “How Competitive Forces Shape Strategy.” Harvard Business Review 57.2 (1997): 137-145. Roll back the Beer Tax. Home Page. 28 June 2006 Read More