The Role Of International Business Practice - Essay Example

The Role Of International Business Practice Introduction Anheuser-Busch International started as a small brewery in 1860 in St Loius by Eberhard Anheuser. The company was a pioneer in introducing pasteurization to keep the beer fresh and also was the first to use refrigerated cars for transport of beer. The company's early innovations also included a network of railside ice houses to preserve the beer. It was in 1981, that this small firm became Anheuser-Busch International and currently owns 12 breweries in the US and 20 breweries outside the US. The flagship brand of the company is Budweiser which is brewed in 10 countries and has a global market. Other brands include Bud Light, Michelob Honey Lager, Michelob, Busch, Busch Ice and Bare Knuckle Stout. The presence and the strength of the company as continued to grow and it was the largest brewer in the United States in the year 2007. The company's goals are to extend its position as the leading brewer internationally. This it perceived would be achieved by increasing its share in the domestic beer market and also extend its presence internationally. It is tapping thirsty markets internationally by using two pronged strategies for growth. These two pronged strategies include expanding the Budweiser brand globally and simultaneously strengthening equity partnerships with other large brewers around the globe. Since the company produced two thirds of all beer in the US, it could easily be assumed that the local market was saturated with Anheuser-Busch products. It was evident that the linear growth model that the company has been following for the last so many years will have to be stretched beyond the boundaries of the United States if the company has to make its presence felt. Currently Anheuser-Busch is focused on its international beer sales to ensure a global footprint. It is for this reason that the company has entered markets in China, Brazil and Mexico. This global expansion started in the year 2004 from when the company has started entering markets with growth opportunities and profits. At that time China had the largest population in the world of around 1.3 billion but the annual beer consumption was only 18.5 litres per person. (Mackey, 2004) There was huge void in that market to be filled. The market could be integrated by using one main supplier and there was a huge potential in increasing the per capita consumption which was 20% of that of developing countries and 50% of that of Japan and Korea. It could be achieved through proper advertising and promotion. Like all foreign brewers entering Chinese markets, Anheuser-Busch also used multi pronged strategies. Consolidations, developments, mergers and acquisitions were all parts of strategies involved in growth in the Chinese market. The company made use of the fact that the Chinese beer industry was extremely fragmented. There were 500 to 1000 breweries with Tsingtao and Guangdong Kingway being the largest but there was none which could be called the National brewery of China. There was an absence of a supply network and distribution channels and an absence of a strong hold meant that advertising and promotions were also not very strongly developed. Thus the Chinese market could very well make use of an international brand with quality products and with Anheuser-Busch marketing and promotional strategies, the company could be a huge success. Anheuser-Busch International uses its own breweries to produce beer but it goes beyond that in making investments and equity ventures to expand its products and sales. In words of Stephen J Burrow, the president and Chief Executive of Anheuser-Busch International, the company uses "a two-pronged strategy for our international business that includes promoting Budweiser as the leading premium beer around the world and investing in leading local brewers in markets with a good volume and profit growth potential" (Mackey, 2004). This is because Budweiser as a global brand is already established and doesn’t need any reinforcement and because of its lightness and fresh taste is already a favorite around the globe. Alongside local preferences will also be kept in sight and adequate use of local resources and research on their taste will ensure that the Anheuser-Busch brand stays a favorite there too. These strategies resulted in unprecedented growth with the sale of the brand outside the US amounted to 47 million barrels in the year 2005. These were not a product of Anheuser-Busch breweries only but also resulted from its equity investments. Sales in China account for the 2 million barrels from the main stream plant and a 9.9% investment in China's leading brewery, Tsingtao Brewery Co Ltd. It also acquired a 100% ownership of the Harbin brewery which was the fifth largest brewery in China. For its sales in China, Anheuser-Busch has created a network of 240 independent wholesalers out of which 55% exclusively deal in the brands products alone. (anheuser-busch). When buying brands in China, Anheuser-Busch was careful only to select those brands which were already recognized and accepted. These manufacturers were also known to have a capacity to fulfill requirements and needs of the company. Thus it is no surprise that the company acquired by Anheuser-Busch was the 5th largest brewer in China and Tsingtao where the company invested was the largest brewer. This allowed for easy growth of the brand as the company did not have to rebuild a brand but just to expand it. It also allowed the company to focus on promotion and distribution rather than brewing from the scratch. The net income increased by $400 million and sales grew by 43%. These were not only a result of direct growth but also acquisitions foreg one of the Harbin plant. It also functions from the Wuhan plant in China which till now was its principle supplier. The creation of the new Budweiser Wuhan International Brewing Company is the main supplier of Budweiser and supplies to HongKong and Japan besides the Chinese home market. New partnerships ensure that the company identifies, executes and manages acquisition and ventures increasing its sales and decreasing the risk of entering a new market single handedly. Its strategies also include also made use of its core competencies like managing numerous brands at the same time and developing a different alcohol rate lager. The ability of Anheuser-Busch to cooperate with the local companies is also unquestionable as it built suitable alliances. It also has the Research and Development know how as the company possesses substantial capital and it is managed internationally. The company is also not new to low cost packaging and production for new markets. It has a cost strategy for the economic segment and is an expert at using the value chain to assess the supply side of its production. Thus its two pronged or rather multiple pronged strategies were based on its core competencies. The company's strategies also revolved around its key strengths and opportunities. In using the strengths and the opportunities the company developed 2 products using its cost effectiveness strength, it also used its substantial capital for equity investments and acquisitions. The tax laws and regulations caused it to change its prices to adjust for tax changes. As for competition, Anheuser-Busch kept its share of the market by extensive advertising and promotion and it off setted threats and weaknesses by investing in its core beer business. Anheuser-Busch has also entered other new markets besides China. They include Mexico and Brazil. Tremendous potential was observed in the Mexican beer market by the company and developments started as early as 1989. The first agreement with Grupo Modelo started the import and distribution of the company's brands Bud light and Budweisser in the country but it was soon followed by an equity investment. This equity investment costed $980 million and was worth 27% of direct and indirect equity. Representatives of both company's are present on each others boards. This partnership with the makers of Corona allowed it to be a part of the largest beer supplier in Mexico. Mexico resulted in being the largest export market for Anheuser-Busch. Again like in China, there was an exchange of best practices and help from the company in running administration and finances in Mexico. While Modelo remains the key distributor of BUD in Mexico, Anheuser-Busch brews for Modelo in its breweries in the United States. Besides distribution of imported beer Anheuser-Busch, ensures that it produces its own beer in Mexico. thus again it expands its production with the alliance of Cervezas Internacionales, which is a subsidiary of Modelo. Here again like in China, the company uses a two pronged strategy of growth through exporting wine to Mexico and penetrating the industry by manufacturing and providing support to the local company. Partnerships with leading brands such as Corona in Mexico through Modelo and Antartica in Brazil. It also allows for an interchange ideas and Anheuser-Busch sharing its best practices with its partners thereby increasing their profits. The same strategies can be observed in Brazil where the company has formed coalition with Antartica. Antartica is one of the largest breweries in the Latin American market of Brazil which holds a 35% share of the beer market. The two pronged strategy employed in Brazil again works by gaining market access trough equity investments and production. Equity investments include a $105 million investment to own 10% of Antartica and to control 70% of Antartica's operations. It again involves the exchange of representatives on both the company's boards. This deal helps Anheuser-Busch garner a share from the huge Brazilian beer market which is growing at a rate of 15% annually. Besides the coalition and partnership, another move by Anheuser-Busch includes a licensing agreement for a new company. This will be a joint venture where Antartica will brew Budweiser in Brazil. This joint venture is an example of production in the host country and will be 51% owned by Anheuser-Busch and 49% by Antartica. This local production will maintain Budweiser quality standards and allow for more competitive pricing as importing costs and taxes will be eliminated. Here again, like in all global markets Anheuser-Busch capitalizes on its beer making excellence and combines it with the expertise and the reach of market leaders in the host countries. Normally a coalition results in the increased sales of products of both companies and a more competitive beer market which results in benefits for both suppliers and consumers. Sales of products are also improved as Anheuser-Busch can concentrate on making its promotional efforts better as it does not have to develop beer making plants rather just modify them. In regard with its promotional efforts the company was the official beer sponsor for the Chinese Olympics team in the 2008 Olympics allowing Chinese adults to connect with Budweiser. It had also signed a 2 year agreement with ESPN Latin America. It is also the official sponsor of the FIFA world cup since the year 1986 and continues to do so thus reaching out to audiences. In Mexico, its presence has been further strengthened by its sports marketing properties such as the NBA. It has also allowed the company to focus on its core competencies such as quality of the beer, its image and distribution networks. Quality of the beer will be enhanced by introducing the technology and the practices that it employs in the US. An attractive image will be maintained by using advertisements to attract adult customers and promotional activities for which it is already known in the US. A supreme and efficient distribution network could be developed and used for its products which will allow for its products to be known throughout the country. A national supply and availability will lead to the path of the Budweiser being known and used nationally. Capturing the market in this way will automatically put the company's brands in premium and super premium segments of the beer industry. The company is using both the competence based strategy and partnership based strategies to endure that is enters new markets with the greatest potential and least risk. It follows strategies which lead it to market dominance as its strategies follow the linear growth model but not just by expansion in one sector. It expands in multiple directions and in multiple ways. It expands its production by expanding the capacity of its units. It simultaneously adds more feathers to its caps by acquisitions and a resulting increase in productions. Last but not the least it invests in large producers of beer and equity investments also result in greater production and sale of its products. The company uses all aspects to ensure prosperity. It adapts to the market needs by being sensitive to the business environment. It adjusts to the needs of the market by allowing both tolerance and decentralization. Effective decentralization and profitable partnerships bring the company to where it is today. Global production is not just limited to global production but it is also ensured that the supply chain and storage which are both profit factors are also emphasized. From the generic strategies, market focus strategies were used with a global perspective. Best practices were benchmarked and shared with its partners and new technology was used alongside 150 years of experience in the brewing industry. Conclusion Thus Anheuser-Busch is not just a brewer par excellence but an excellent strategist. Every move in new markets globally has been carefully selected to ensure growth and profit. This has obviously and inevitably resulted in increased sales and soaring profits giving it a 20% international market share (pre merger data). In all global expansions like the ones in China, Mexico and Brazil; the basic strategy of Anheuser-Busch has been the same. It combines its expertise and local company's market knowledge and supply sources. In all countries the company produces its own beer and holds equity investments in the leading companies. It also uses other company's expertise and combines it with its own best practices knowledge. It develops promotions, advertisements and provides administrative support to those coalitions and acquisitions. In countries where the market demand is very huge, it acquires companies and takes the risk of setting up its own system entirely. Otherwise it relies on a system already developed by its predecessors in the industry and modifies and enhances it. References anheuser-busch. (n.d.). http://www.anheuser-busch.com/mediakits/07_China_Fact_Sheet.pdf. Retrieved November 30, 2010, from anheuser-busch: http://www.anheuser-busch.com/mediakits/07_China_Fact_Sheet.pdf Mackey, M. (2004, March 3). Asia times online: news from the greater China, taiwan and hongkong. Retrieved December 30, 2010, from Asiatimes: http://www.atimes.com/atimes/China/FC03Ad06.html Anheuser-Busch strives to elevate its Read More