Foreign Market Entry and Diversification - Assignment Example

Foreign Market Entry and Diversification Table of Contents Identification and discussion of the trendsin the global beer markets 3 International expansion trends and Modelo’s internal expansion 5 The next foreign market Modelo should enter 6 Challenges from InBev 7 Modelo should diversify 8 References 10 Identification and discussion of the trends in the global beer markets Beer industry is one of the largest industries in the world. Over the last few years the entire alcohol industry enjoyed a satisfactory performance. In 14th century modern beer industry started in Europe. Since the tastes of consumers vary from region to region, the industry was clustered in nature and it was dominated by several local breweries. Earlier transportation was a major problem for exportation. However in 19th century situation started to change as national market began to get consolidated. Local companies were becoming stronger than they were ever before. In 1990 a completely new trend was found as the domestic companies began to expand their business in foreign market. Belgian company would be a great example as the company acquired breweries in 20 different countries. In 2004 two of the biggest breweries in the world, Interbrew and AmBev decided merge with each other and the largest brewery in the world was created. This merger and acquisition strategy became popular trend and it is reflected from the list of the top breweries which include SABMiller, Anheuser-Bush and InBev. However some of the recent trends have prompted the prediction that consumption of beer will go down in some of European countries like France, Spain and Germany. The threat of such a consequence has forced many companies to focus on the emerging markets like those of Asian countries where people are likely to spend a large sum of money on the consumption of beer and other alcohol. People in Sweden and UK are found to shift their inclination from to wine. Russia might emerge as the biggest market of beer since consumers there are found to accept beer more readily than vodka. It is quite evident from the graph given below that China is likely to see a sharp rise in beer consumption by the end of 2012. Poland, Romania and Ukraine are also expected to experience a significant increase in the beer sales. It was observed that in 2008 there was a 10% growth in the beer market of Romania (Ulstein, April 2009). [Source: Euro Care] The most recent trend in beer industry is to market it as a drink that has some functional benefits. In 2008 several variety of beer were launched in Germany with a health theme. A perfect example would be Veltins V+ which was sold under the theme of Apple juice. As far as beer consumption trend is concerned, ‘consuming beer while cooking’ is a growing trend among the consumers. People enjoy combinations like pizza with beer or beer with beef dishes. Consumption of Light beer is another popular trend that is dominating the industry. Consumers are also found to be more attracted towards the imported beer as compared to those produced by the domestic companies. International expansion trends and Modelo’s internal expansion Many beer companies that were previously focusing only on the domestic market are now found to have shifted their attention to the international market. This is mainly because of the changing pattern of beer consumption. In many countries it has been found that people are gradually developing an inclination for beer over vodka or wine. Such shift is instigating the companies to focus on these countries. Furthermore in the countries where people used to drink beer exclusively are found to be shifting to wine, this has forced the companies to either look for other countries or come up with some wine products. Companies are now giving special attention to the developing markets like China and India where purchasing power of the people are increasing sharply. In these countries people are likely to increase their expenditures on beer or any other alcohol. It has been found that in India alone there are 300 million young people who are potential beer consumers. It is predicted that the alcohol market will witness an extensive growth till 2012 and almost 31% of this growth is likely to take place in emerging countries like India. This would propel the producers to target these markets in the next few years. Modelo expanded its business in America through strategic alliances with the distributors who were experienced in that market. This strategy made Corona, one of the most popular brands of Modelo group, number one beer brand among all the imported beer brands in America. Modelo group, with its Corona brand made its entry in America through the partnership with Barton Beer Ltd. which was one of the most experienced distributors in the country. Barton Beer Ltd.then was a Chicago based distributor and was renowned for importing beer in the 25 western states. It was a highly experienced distributor in sales and marketing of premium imported beer. Apart from Barton beer there was another distributor namely Gambrinus Inc. through which Modelo decided to capture the target market. Gambrinus was also an experienced distributor which was operating in other 25 states in the country. There was huge competition between these two distributors although they were not catering to the same geographical market. According to Modelo’s strategy, distributors were responsible for all activities regarding the transport, custom clearance, insurance, pricing strategy, advertising campaigns and sale of the beer. However Modelo reserved the right of final decision regarding the brand image. Furthermore a subsidiary named Procermex Inc. was set up by Modelo with the purpose of coordinating, supporting and supervising the two distributors of the company. The company maintained a healthy relationship with both the distributors. The next foreign market Modelo should enter In order to sustain and gain competitive advantage in the long run, Modelo should enter the foreign markets of any continent other America. Modelo should target the developing markets of Asia where countries like China and India are growing at a fast pace. China has already beaten US in terms of volume of sales of beer. Modelo thus can capitalize on such upcoming opportunity. It has been found that Chinese beer market alone greater than the summation of all the local liquor markets in that country. These local markets are dominated by regional breweries that are small in size. If the whole nation is taken into consideration, these local producers have only 2% market share. Another important fact is that the four major breweries in the countries control only 45% of the country’s total beer market. Modelo thus has a huge opportunity to capture the Chinese market which has not been capitalized properly by its top beer producers. However per capita beer consumption in the country is still lower as compared to other European countries and US. As a result the market is under-penetrated by the companies. The major competitor of Modelo, InBev owns only 7% of Chinese market share. So, Modelo, in order to gain long term competitive advantage in the international market, should try to enter the Chinese market. As far as strategies are concerned, joint venture would be the most effective one. Modelo can form some strategic alliances with the domestic breweries in China or it can simply outsource the distribution functions to the domestic producers who are experienced in the local market. The strategy would be quite similar to the one had been implemented in US. Local breweries would be responsible for the activities regarding promotion, pricing and sale. However Modelo should reserve the right of decision-making in all the aspects of the business, starting from pricing to branding. It should keep the maximum share of the partnership with itself so that when the need arises it can take major decisions which might even include withdrawal of the business from the country. Challenges from InBev Modelo is likely to face a tough challenge from its competitor, InBev which is one of the largest beer companies in the world. Currently the company is known by Anheuser-Busch InBev. In 2008 total revenue of the company was almost USD 39 billion. It is the fifth largest consumer products companies in the world. The company has a strong presence in 25 countries in the world. There are almost 120,000 people working in the company (Anheuser-Busch InBev, n.d.). It has strong distribution network throughout the world. It is quite clear that the company is much bigger than Modelo in terms of size and market coverage. Furthermore the company has 50% equity in Grupo Modelo’s operating subsidiary. The biggest challenge from InBev is that its brands and brand image are more established than Modelo. Modelo can gain competitive advantage over its competitor by increasing its reach in the global market and strengthening its distribution network. Furthermore Modelo should think of launching some new brands considering the different tastes of consumers in the different parts of the world. Modelo should enter the developing markets with its entire product portfolio through joint ventures or strategic alliances with the domestic players. This will enable the company to understand the taste of the local consumers in a more effective way. It should first enter those markets where InBev does not have a strong presence. For example in Asian countries like China and India where the company has recently entered it owns very little market share. In China, 7% of the total market is captured by InBev (Researchandmarkets, n.d.). Modelo should target these markets in order to gain a long term competitive advantages over InDev. Modelo should diversify Modelo is one of most renowned beer brand not only in the market of Mexico but also in entire America. In Mexico it is the market leader. The company has been in the beer industry for a long time as a result of which it has gained a huge experience in this industry. Hence the current aim of the company should be to diversify its present business to achieve more growth. It should focus on the foreign markets of Europe and Asia in order to increase the market share and achieve more growth. In its attempt to diversify if the company thinks of entering the health drink or juice market, it should take heed not to leave the drink industry from where it was born. People all over the world are getting more and more health conscious therefore health drink or juice industry is likely to enjoy at a faster growth rate as compared to any other industries. The company should first target its domestic market where it has already established its brand before venturing into foreign markets. However before talking any decision regarding diversification, the company should conduct a proper market research in order to have a clear understanding of the targeted industry. References Anheuser-Busch InBev, No Date, Anheuser-Busch InBev Company Profile, About Anheuser-Busch InBev, Retrieved February 18, 2010 from http://www.ab-inbev.com/go/about_abinbev/our_company/ab_inbev_company_profile.cfm Researchandmarkets, No Date, Chinese Beer Industry: Capitalizing the Regional Markets, Retrieved February 18, 2010 from http://www.researchandmarkets.com/reports/1057515/research_report_on_chinese_beer_industry_in.pdf Ulstein, A. April 2009, Alcohol trends – markets and innovations, Euro Care, Retrieved February 18, 2010 from http://www.eurocare.org/content/download/5179/27809/file/Alcohol%20market%20trends_AU_April%202009.pdf Read More