The Demise of Foreign Competitors in the Chinese Beer Industry - Case Study Example

The Demise of Foreign Competitors in the Chinese Beer Industry Table of Contents Table of Contents 1 Introduction of Chinese Beer Industry 2 Characteristics of Chinese Beer Industry 3 Reasons for Loss of Foreign Investors in Chinese Beer Industry 4 Conclusion 5 Works Cited 7 Bibliography 7 Introduction of Chinese Beer Industry In the alcohol industry, beer has the strongest growth rate internationally. China is considered as one of the biggest beer producing and consuming nations. In the year 1949, the beer production of China absorbed almost 4.5% of total alcohol production. The growth became 28.5% in the year 1983, 62.2% in 1993 and by 2003 the growth had reached to 84.6%. Despite the excellent growth, the profitability of Chinese beer industry was below 3% i.e. lowest in comparison of other alcoholic sectors such as Chinese liquor and grape Wine among others (Guo, Y., “Global Big Business and the Chinese Brewing Industry”). In the year 2008, the economic recession and high cost of raw materials had affected the beer industry in China. On that year, the growth rate was only 5.46% in China, which was the lowest estimated figure in recent years, whereas, China is one nation where the beer industry had experienced superior growth rate. The Chinese beer industry is in the center of assimilation phase. The competition in Chinese beer market is aggressive as there are several international companies and channels. Presently, the Chinese beer market is distributed provincially. For example, The Yanjing Beer absorbs the northern region of China, Chongqing beer dwells in the western region of China, Kingstar beer inhabits the central China and Tsingtao beer absorbs the southern region. The production capability of beer is 40% more than normal consumption, which causes excess supply and thus results in imbalanced price competition (Research and Markets, “Research Report on Chinese Beer Industry in 2009”). Characteristics of Chinese Beer Industry In the period of 1990s, several foreign competitors had entered in the Chinese beer industry. They were attracted by 1.25 billion beverage consumers with increasing prosperity in a fast increasing beer industry with comparatively small consumption rate. Foreign companies invested huge money in high-tech production facilities (Heracleous, “When Local Beat Global: The Chinese Beer Industry”). China had begun the export of beer products in 1979. In 1980, the quantity of exported beer was only 24.5 million liters which amounted to 8.2 million USD. Gradually, the exports increased to 62.5 million liters in the year 1990 and by 2003, the quantity of beer exports was 151.8 million liters with a value of 76.2 million USD (Guo, Y., “Global Big Business and the Chinese Brewing Industry”). In the year 2003, Tsingtao Brewery had captured almost 51.3% of all beer exports and was only flag bearer of Chinese beer in the international market. As a consequence of industrial association, the number of consumers has increased dramatically. Usually the foreign companies are fortified with improvised facilities and innovative machineries. In the year 2003, the foreign companies accounted for almost 38% of beer production in China. These companies followed the quality branding strategy. Almost 80–90% of premium quality beer was controlled by foreign companies. ‘Anheuser – Busch’s Budweiser’ was one of the top premium beer companies at that time which held 50% share of premium quality beer market (Guo, Y., “Global Big Business and the Chinese Brewing Industry”). With respect to the other beer industries, the characteristics of Chinese beer industry were different. In the period of 1990s, almost 800 beer producers were competing for capturing market share. Competition was huge and thus several foreign companies had found it difficult to survive in the market (Heracleous, “When Local Beat Global: The Chinese Beer Industry”). Reasons for Loss of Foreign Investors in Chinese Beer Industry With the help of ‘open door policy’ several foreign investors have invested in the Chinese beer market but they have failed to make their position as local beer companies have succeeded in the market. Though foreign investors have had quality products, advanced equipments, they still have lost the market while competing with the local companies. The reasons for the losses are as follows: Price Sensitivity: Chinese beer market is highly fragmented. Wherein, foreign investors have quality products and good organizational set-up, the local companies have comparatively weak structure. The customers of China are very sensitive towards the price and the foreign companies are focused on premium product, cost of which is at times higher than the local companies’ products. Thus, price has helped local competitors to increase their sale of beer (Heracleous, “When Local Beat Global: The Chinese Beer Industry”). Brand Loyalty: There has been a nationalistic sensation among the consumers of China which makes them loyal towards local beer brands. The loyalty towards the local brands has meant that foreign beer companies have not been able to gain the popularity among the people of China. This has been another reason for losses of foreign companies (Heracleous, “When Local Beat Global: The Chinese Beer Industry”). Brand Awareness: The foreign companies have been unable to create brand awareness in Chinese markets. The foreign brands are characterized by luxurious advertising campaigns focused on the differentiation of the beer products with expressive connotation which has been inappropriate in Chinese market. They have created brand awareness but not generated the urge for purchasing their brands by paying high price (Heracleous, “When Local Beat Global: The Chinese Beer Industry”). Distribution: In a big country such as China, foreign investors find it difficult to arrange a dependable distributor for them which have been another difficulty faced by the foreign beer companies (Heracleous, “When Local Beat Global: The Chinese Beer Industry”). Conclusion In Chinese market, there is need to accomplish brand awareness for success. The differentiation strategy that had been applied by majority of foreign beer companies work only in highly developed market. In order to have desired success in the Chinese market, it is instrumental for the foreign companies to adjust their business strategies according to their local business environment. More effort should be placed on enhancing the desire of purchasing beer products among the people of China. The foreign companies should also focus on cost leadership as people are very much cost sensitive. Developing reliability can help foreign companies to establish a balanced pricing for the beer products in Chinese market. Works Cited Guo, Yuantao. Global Big Business and the Chinese Brewing Industry. Taylor & Francis, 2006. Heracleous, Loizos. “When Local Beat Global: The Chinese Beer Industry”. Business Strategy Review 12 (2001): 37 – 45. Research and Markets. “Research Report on Chinese Beer Industry in 2009”. September 07, 2011. Brochure, 2009. Bibliography The Economist. Beer in Asia: Billions of Throats Node, 2010. Read More