Company Strategy - Essay Example

COMPANY BACKGROUND This paper performs the SWOT analysis and Michael Porter's (1997, p. 137-145) five forces analysis of Guinness International (Guinness). Before performing these analyses, it is important to first identify and define the industry in which it is operating. 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, n.d., p. 4; Guinness & Co., 2005, online). SWOT analysis is especially important to Guinness because it is a large, complex, and multinational industry. SWOT analysis facilitates the analysis of its strengths, weaknesses, opportunities, and threats. Michael Porter's five forces analysis - an industry analysis is especially important because Guinness is in an industry comprising a few large brewers worldwide (Wikipedia, 2006, online). SWOT ANALYSIS Guinness 's strengths lie in its sales, marketing, human resources, the African market, and its ties with its parent company. Guinness's sales volume increases in Asia in recent years (Asia Pacific Breweries Limited, n.d., p. 2). Also, it is strong in marketing and advertising (Asia Pacific Breweries Limited, n.d., p. 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, n.d., p. 8). Human resources is also one of its strengths. Guinness International Learning Centre was set up for the purpose of training and development (Diageo, n.d., p. 8; Smagalski, 2006, online). Besides, the building of a pool of talented human resources is its core strategic imperative (Diageo, n.d., p. 8). Hence, it provides a competitive compensation package (Diageo, n.d., p. 8). Guinness is also established and strong in the Africa market (Diageo, n.d., p. 7). Guinness's parent company, Diageo is "the world's leading premium drinks business with a collection of international brand" (Diageo, n.d., p. 1). Guinness's weaknesses are that it is not the leader in market share in Asia (Asia Pacific Breweries Limited, n.d., p. 15). Moreover, there is no emphasis on research and development (Diageo, n.d., p. 9) There are several opportunities. 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, n.d., p. 1; Diageo, n.d., p. 13; Krones AG, n.d., online). Alcohol consumption in Eastern Europe, Asia, Indochina (Vietnam and Cambodia), and America is rising (Asia Pacific Breweries Limited, n.d., p. 1; Camerra-Rowe, 2005, p. 8). Even in mature market such as Europe, opportunities exist as they have the highest per capita alcohol consumption in the world (Camerra-Rowe, 2005, p. 12). Opportunities exist for localised products as 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, 2005, p. 5). For example, the Chinese prefers lighter tasting beer (Asia Pacific Breweries Limited, n.d., p. 4). Moreover, 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, 2005, p. 15). In the beer industry, the critical success factors for brewing fine beer are the brewer's marketing image and the recipe (Moen, 1997, online). Lastly, moderate amount of drinking is beneficial for health (Camerra-Rowe, 2005, p. 22). It is even considered as food in most of Europe (Camerra-Rowe, 2005, p. 25). The threats facing Guinness are strict legislation and decreasing demand. 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, 2005, p. 5, 13, 19; Diageo, n.d., p. 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, 2005, p. 13). Also, 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, 2005, p. 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, 2005, p. 8). MANAGERIAL IMPLICATIONS The critical success factor of marketing image implies that a differentiation strategy is appropriate. In spite of the growing markets in other regions such as Asia, Eastern Europe, and Indochina, as well as the mature Europe market, Guinness has a low market share in the former. Moreover, these growing markets typically have less stringent legislation in contrast to the increasingly stricter legislation in Europe. A managerial implication is that Guinness should consider expanding its market beyond Europe. Lastly, the managerial implication of fragmented markets is the adoption of localisation strategy. LINK OF MANAGERIAL IMPLICATIONS TO PORTER'S FIVE FORCES ANALYSIS Barriers to entry in the global market are low. Through the licensing arrangements typically used in the food and beverage industry, the capital required to gain access to the foreign market is low. The beer industry sees a consolidation in recent years (Camerra-Rowe, 2005, p. 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 (Diageo, n.d., p. 8). In the beer industry, the customers are retail shops and wholesalers. Hence, the bargaining power of buyers is low, because they are fragmented, compared to a few large beer breweries (Diageo, n.d., p. 6). 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, n.d., p. 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, n.d., p. 12). The threat of substitutes is high. Substitutes include other types of alcoholic drinks, especially spirit (Camerra-Rowe, 2005, p. 10), and other types of drinks, such as bottled drinks and milk. Michael Porter's five forces analysis indicates that the foreign market is an attractive industry to be in, reinforcing the managerial implication in the above section. MANAGERIAL AGENDA As the success of a beer business is more than just production (Moen, 1997, online), the current differentiation strategy that Guinness is adopting should remain. Guinness's strength lies in the human resource function. This is in line with the strategy of adopting a differentiation strategy. Currently, Guinness's target markets are Europe and the USA (Diageo, n.d., p. 5). As Europe is already a mature market, Guinness should pay more attention to the Asian market where demand is set to grow and legislation is less stringent. In doing so, it should pay attention to customisation and local legislation. Diageo, Guinness's parent company currently markets the brand consistently across the world to achieve scale benefits (Diageo, n.d., p. 3). It should change its marketing strategy to customisation of advertisement for each local market. Furthermore, research and development is an important function for differentiators. Hence, Guinness should pay more attention to this function to adapt its products to suit local taste, innovate products that can cater to the health conscious market, and develop more environmental friendly ways to produce beer. REFERENCE Asia Pacific Breweries Limited n.d., Asia Pacific Breweries Limited Annual Report. Retrieved September 24, 2006, from http://72.14.203.104/searchq=cache:TUvP6LmkFO4J:www.apb.com.sg/ir-AnnualReport/AR2004/CEO_Message.pdf+guinness+beer+annual+report&hl=zh-TW&ct=clnk&cd=1 Camerra-Rowe, P 2005, Trouble brewing EU and member state public health policy and the European beer industry. Retrieved September 24, 2006, from http://aei.pitt.edu/5715/01/2005-Camerra-Rowe.pdf Diageo n.d., Business description. Retrieved September 24, 2006, from http://72.14.203.104/searchq=cache:mp4liLIeBvMJ:www.diageo.com/NR/rdonlyres/13055943-527B-49CA-9D49-498EB1802053/0/ARbusinessdescription.pdf+guinness+beer+annual+report&hl=zh-TW&ct=clnk&cd=6 Guinness & Co. 2005, The story: the world. Retrieved September 24, 2006, from http://www.guinness.com/global/story/world/default.aspx Krones AG n.d., Annual report 2004 - status report company situation and business development. Retrieved September 24, 2006, from http://72.14.203.104/searchq=cache:jKWQQjr__28J:www.krones.de/investment/gb_2004/en/24_182_ENG_HTML.htm+beer+%22economic+environment%22&hl=zh-TW&ct=clnk&cd=3 Moen, A 1997, Art and technology in brewing beer. Retrieved September 24, 2006, from http://www.realbeer.com/library/authors/moen-a/art-tech.php Porter, M 1997, 'How competitive forces shape strategy', Harvard Business Review, vol. 57, no. 2, pp. 137-145. Smagalski, C 2006, Beer and brewing site. Retrieved September 24, 2006, from http://www.bellaonline.com/articles/art38823.asp Wikipedia 2006, Brewing industry. Retrieved September 24, 2006, from http://en.wikipedia.org/wiki/Brewing_industry Read More